Experts divided over Binance hack asset freezes, warn recovery is another matter

The swift response drew praise but raised questions about whether smaller hack victims receive equal treatment and whether issuers apply consistent legal standards when freezing assets. Freezing tokens does not automatically return them to their rightful owners, and bitcoin, unlike issuer-controlled stablecoins, cannot be frozen at the network level.

When alleged North Korean hackers stole $6.3 billion from Binance, some of crypto's biggest companies acted within hours to stop nearly half the money from vanishing forever. Tether froze more than $1.56 billion in USDT, Circle blocked about $823 million in USDC, while Ripple and World Liberty Financial also froze assets.

Binance said Friday that it had frozen roughly $3 billion and set aside more than $6.34 billion of its own reserves to cover customer losses.

Double Standard Concerns

For Anton Golub, head of exchange go-to-market at Forte and a former crypto exchange executive, the industry's response was justified. His concern is whether smaller victims can expect the same help.

Golub pointed to April's roughly $290 million Drift hack, when Circle faced criticism for failing to freeze stolen USDC. He questioned why the issuer acted so quickly in Binance's case.

In April, Circle CEO Jeremy Allaire said his firm only freezes USDC when directed by law enforcement or a court. Tether took a similar position in 2022, saying it would not freeze Tornado Cash addresses without instructions from law enforcement.

Freezing vs Recovering

Irina Heaver, founder of Dubai-based NEOSLegal, said the legal work begins once the stolen tokens have been blocked.

Heaver said stablecoin issuers can invalidate frozen tokens and issue replacements to their rightful owners. Depending on the circumstances, the process may not require a court judgment, but it does require establishing ownership and the legal basis for returning the funds.

Golub said law enforcement has obtained court permission to seize frozen assets in previous cases. Tether can destroy frozen USDT and issue replacement tokens, while Circle can arrange for the equivalent value of USDC to be returned through an authorized process.

Who Decides Intervention?

Alexander Shirtcliff, head of commercial disputes at Edwin Coe, said recovering stolen cryptocurrency could require a court order in multiple jurisdictions, particularly if the assets have reached other exchanges or custodians.

The ability to freeze stolen funds also depends on the cryptocurrency involved. Tether and Circle can block transfers of their stablecoins because the tokens include issuer-controlled functions. Bitcoin has no comparable central issuer.

As CoinDesk traced on Friday, the attacker divided approximately $1.4 billion in stolen bitcoin among 19 wallets. Those coins cannot be frozen at the network level, although exchanges and other service providers can block them if they reach their platforms.

Stefan Muehlbauer, head of U.S. government affairs at blockchain security firm CertiK, said clearer legal standards and protections for companies that freeze assets in good faith could help smaller victims receive the same treatment.