Experts Say Circle's Reversibility Feature Will Align USDC With Traditional Finance

Some industry voices believe Circle’s plan to introduce a transaction reversibility feature could reinforce bitcoin’s appeal as a censorship-resistant asset.

Institutional Integration vs. Core Crypto Principles

Recent reports indicating that Circle, the issuer of the USDC stablecoin, is weighing whether to add a feature which will enable transaction reversal in certain circumstances has sparked controversy. Opponents assert that such a move is an attack on one of the core tenets of blockchain technology — immutability. They argue that such a feature undermines the irrevocable principle, often seen as a key advantage of crypto over the traditional financial (TradFi) system.

However, supporters of this move believe a mechanism allowing refunds in cases of fraud, hacking, or disputes would help the stablecoin industry become a part of mainstream finance. Furthermore, the introduction of a feature familiar to banks and financial institutions is seen as lowering the barrier to entry for large-scale institutional investors and financial firms.

According to Circle, this concept of “reversible transactions” will mainly be realized through its new blockchain Arc, designed for financial institutions. The stablecoin issuer has, however, clarified that this mechanism “does not directly revoke or reverse transactions on the blockchain.” Although the report has left the crypto community divided, some believe opponents are exaggerating the likely impact on the broader ecosystem should Circle proceed with the feature.

Amplifying Bitcoin’s Value Proposition

Ben Caselin, the chief marketing officer at the Africa-focused crypto exchange VALR, notes that stablecoin issuers have long had the ability to freeze and re-issue assets, pointing out that Circle and Tether have blocked or froze digital assets at the behest of law enforcement agencies. Caselin suggests that while adding this feature to a decentralized cryptocurrency like bitcoin ( BTC) may undermine it, Circle’s move could, paradoxically, amplify the top cryptocurrency’s selling point.

“Reversibility here could undermine its core principles and is unlikely to gain global acceptance. For most users, stablecoin reversibility may be practical, but it further solidifies Bitcoin’s role as a safeguard against fiscal overreach and an overly restrictive, politicized financial system,” Caselin argues.

Andrei Grachev, the managing partner at DWF Labs, told Bitcoin.com News that the reversibility will likely provide a pathway for institutional safeguards, but acknowledges that this comes at the cost of traditional blockchain finality.

“Technically, you are adding a governance layer that can intervene after settlement. That means building in roles, rules, and mechanisms for dispute resolution. It changes the trust model entirely,” the managing partner explained in written responses to questions from Bitcoin.com News.

While the concept of transaction reversibility does indeed stretch the original idea of blockchain, Grachev insists it “does not break it.” He argues that for stablecoin issuers like Circle, the intention was never about immutability but a “means to achieve credibility in open systems.”

Aligning Stablecoins with Traditional Finance

In the Financial Times report that revealed Circle’s plans, the company’s president Heath Tarbert claimed TradFi has benefits currently not present in the crypto ecosystem. Some of these benefits or advantages include regulatory frameworks, consumer protections and a level of stability that cryptocurrencies often lack. All these make the traditional financial system predictable, something that can never be said about crypto.

Grachev believes stablecoins will in the future incorporate features like recovery tools for lost access as issuers move to make their tokens align with TradFi.

“By the way, none of this is about making crypto more centralized, but about making it more usable at scale, especially by institutions that are bound by legal obligations,” Grachev argued.

Turning to claims that Circle is exploring a confidentiality layer to shield transaction amounts, Grachev highlights the importance of this feature not just as a privacy preference but as a legal requirement. He stresses that confidentiality should not equate to secrecy; rather, systems should be designed to keep transaction data hidden from the public while remaining accessible to authorized parties under specific conditions.

“The key is selective disclosure. Institutions want control over who sees what. Regulators want assurance that transparency exists when needed. With the right architecture, both can coexist,” Grachev concluded.