Can blockchain transactions be revoked? Circle's stablecoin "regret medicine" plan sparks a major debate in the crypto market.

The world of Crypto Assets is facing an intense debate about its fundamental principles. Circle President Heath Tarbert recently revealed that the company is researching a reversible transaction mechanism for stablecoins, a news that detonated like a bomb, sparking unprecedented controversy within the crypto community. This plan directly challenges the core feature of blockchain technology, “transaction irreversibility,” and could fundamentally change our understanding and use of Crypto Assets.

Circle's “Regret Medicine” Program: Seeking a Balance Between Immutability and User Protection

Heath Tarbert stated in an interview with the Financial Times that Circle is exploring a mechanism that can roll back transactions in the event of fraud and hacking while still maintaining the finality of settlement. This mechanism will not be implemented directly on the Arc Blockchain that Circle is developing, but rather by adding a “reverse payment” layer, similar to how credit card refunds work.

“We are considering whether it is possible to achieve transaction reversibility while maintaining settlement finality,” Tarbert explained. This means that if users encounter fraud or hacking, theoretically, funds could be recovered through some mechanism without relying on law enforcement intervention.

Circle's plan behind this has clear strategic considerations: to make USDC more like traditional financial products to attract adoption by banks and large financial institutions. Tarbert specifically mentioned that certain protective mechanisms in the traditional financial system do not exist in the current encryption world, and a “certain degree of fraud reversal function” may be necessary, especially in situations where “everyone agrees.”

Intervention Powers of Stablecoin Issuers: Current Status and Differences

In fact, the main stablecoin issuers already have a certain level of intervention ability, but the implementation methods and degrees of proactivity vary.

Tether has adopted a relatively proactive intervention model. Its USDT smart contract is built with “blacklist” and “backdoor” mechanisms, allowing the company to execute freeze operations on specific addresses. In several major security incidents, Tether took swift action:

· In 2020, when the KuCoin exchange was hacked, Tether urgently froze about 35 million USDT.

In the 2021 Poly Network cross-chain bridge hacking incident, approximately 33 million USDT were immediately frozen from the hacker's address.

As of September 2024, Tether claims to have assisted 180 institutions worldwide in freezing over 1,850 suspicious wallets, recovering approximately $1.86 billion in assets.

In contrast, Circle has taken a more cautious compliance approach. Although the USDC contract also has a blacklist feature, Circle typically only freezes addresses upon receiving valid law enforcement or court orders. Its terms of service clearly state that once a USDC on-chain transfer is completed, the transaction is irreversible, and Circle has no authority to unilaterally revoke it.

This difference is quite evident in practical applications: when users encounter fraud, Circle typically does not proactively freeze suspicious addresses unless law enforcement intervenes. However, under clear compliance requirements, Circle will also take action:

· After the United States sanctioned Tornado Cash in 2022, Circle froze approximately $75,000 USDC on the related addresses.

· In 2023, at the request of the Argentine authorities, two Solana addresses belonging to the suspected fraudulent “LIBRA” team were frozen, involving approximately 57 million USDC.

The Controversy of Ethereum's Reversibility: A History Full of Disputes

As the largest smart contract platform, Ethereum has long had discussions within its community regarding the reversibility of transactions, resulting in a series of milestone proposals and events.

The DAO incident in 2016 was the first large-scale case of a “rollback” hacker attack result in the history of Blockchain. At that time, hackers exploited a vulnerability in the DAO contract to siphon off about 3.6 million ETH. After intense debate, the community chose a hard fork solution that modified the balance state of specific accounts, transferring the stolen funds into a refund contract.

This decision directly led to the split of the Ethereum community, with members adhering to the principle of “code is law” refusing to accept this modification and continuing to use the unforked chain, resulting in today's Ethereum Classic (ETC). This event established a high level of alertness in the crypto community regarding the issue of reversibility.

From EIP-156 to ERC-20 R: The Evolution of Reversible Proposals

Ethereum founder Vitalik Buterin proposed EIP-156 in 2016, which aims to provide a mechanism for recovering certain types of lost ETH. However, the proposal has remained in the discussion stage and has not been included in any Ethereum upgrades.

EIP-867, proposed in early 2018, attempted to standardize the process for Ethereum recovery proposals but sparked intense debate within the community. At the time, EIP editor Yoichi Hirai refused to merge it into a draft, citing “incompatibility with Ethereum philosophy,” and ultimately resigned from his editorial position.

In April of the same year, the Parity team submitted EIP-999 in an attempt to resolve the issue of 513,774 ETH frozen due to a wallet vulnerability in November 2017. Community voting results showed that about 55% opposed its implementation, and the proposal was ultimately not adopted.

In 2022, researchers at Stanford University proposed the ERC-20 R and ERC-721 R standards, introducing freeze and revocation mechanisms for token transfers. These standards envision setting a dispute window period after transactions, where a decentralized “judge” decides whether to execute a transaction rollback. This proposal also sparked strong reactions from the community, with supporters arguing that it could reduce losses caused by hackers, while opponents worry that human involvement could erode the censorship-resistant characteristics of the Blockchain.

The Practical Applications of “Regret Medicine”: Success and Controversy Coexist

In the history of Blockchain development, there have been several significant events related to “rollback”. These cases demonstrate the application and impact of reversible mechanisms in practice.

In situations where a chain-level rollback is not possible, the freezing mechanism of stablecoins has become an important tool for recovering funds. After the KuCoin exchange was hacked in 2020, Tether froze approximately 35 million USDT, and various project upgrade contracts froze the stolen tokens, recovering more than half of the assets.

In the 2021 Poly Network cross-chain bridge hacking incident, Tether quickly froze 33 million USDT. Although other on-chain assets could not be frozen, the hacker ultimately chose to return all the funds, partly because the freezing of the stablecoin made it difficult to liquidate.

The Discrepancies in Crypto Communities: The Tug of War Between Principles and Practicality

Circle's reversible transaction proposal has sparked intense debate within the Crypto Assets community, reflecting two vastly different value systems.

Proponents argue that a completely irreversible trading model has become a barrier to mainstream adoption against the backdrop of $7.8 billion in 2020 and $14 billion in crypto theft in 2021. The introduction of reversible mechanisms can drastically reduce the losses caused by hackers, improve the sense of security of ordinary users, and promote the widespread adoption of cryptocurrencies.

Opponents are concerned that this will undermine the core values of Blockchain. The idea that “code is law” is the fundamental characteristic that distinguishes Crypto Assets from traditional finance. Introducing human intervention mechanisms could lead to censorship and regulatory intervention, ultimately reducing Blockchain to a mere replica of traditional financial systems.

What is particularly concerning is the “decentralized judge” mechanism, which critics argue contradicts the trustless principle of DeFi. If the government can use this mechanism to revoke transactions, the censorship-resistant nature of the Blockchain will be completely undermined.

Future Outlook: The Possibility of Layered Solutions

Circle's exploration of reversible transactions reflects a fundamental contradiction: how to provide users with necessary protective mechanisms while maintaining the core value of blockchain immutability. From the perspective of technological development trends, there is indeed tension between complete irreversibility and the complex demands of the real world.

Future solutions may exhibit layered characteristics: the underlying Blockchain remains immutable, while providing various “soft reversible” options at the application layer, token layer, and governance layer. The freezing mechanism of stablecoins, delayed confirmation of multi-signature wallets, and arbitration interfaces of smart contracts all achieve a certain degree of risk control without modifying on-chain history.

If Circle's proposal is ultimately implemented, it will represent a move towards traditional financial standards in the stablecoin sector. However, its success depends not only on technical implementation but also on whether it can gain recognition from the crypto community. Historical experience shows that any proposal attempting to normalize transaction rollbacks will encounter strong resistance. Whether Circle can find a delicate balance between protecting users and maintaining decentralized trust will be an important issue worth paying attention to.