Circle clashed with Tether-backed fund over market manipulation concerns, and won

The stablecoin cold war just got a lot less cold. Circle, the company behind USDC, banned a Tether-backed investment fund from its platform in late 2023 over concerns that the fund was engaging in trading activity designed to manipulate markets in favor of Circle’s biggest rival.

The fund fought back with a $49 million arbitration claim. It lost. And now the details are public, offering a rare window into just how aggressively the two dominant stablecoin issuers are competing for control of a market worth roughly $307 billion.

What happened with Heka Funds

The fund in question is Heka Funds, a Malta-based investment vehicle managed by London’s Abraxas Capital Management and backed by Tether. Circle determined that Heka’s trading patterns on its platform looked suspiciously like market manipulation, specifically the kind that would benefit Tether at Circle’s expense.

That’s exactly what Circle did. It banned Heka Funds from its platform entirely.

Heka didn’t take it quietly. The fund initiated arbitration proceedings in 2024, claiming Circle’s ban cost it $49 million in lost profits. The arbitrator disagreed. The ruling came down in Circle’s favor, validating the company’s decision to remove Heka from its ecosystem.

The stablecoin rivalry beneath the surface

To understand why this matters, you need to understand the dynamics between USDC and USDT. These two tokens together dominate the stablecoin market, which sits at approximately $307 billion in total value. Tether’s USDT is the larger of the two by a significant margin, but Circle’s USDC has carved out its own substantial position, particularly among institutional users and in regulated markets.

Tether has long operated with a degree of opacity that has drawn scrutiny from regulators and skeptics alike. Circle, by contrast, has positioned itself as the compliance-first alternative, publishing regular attestation reports and pursuing a more transparent operational model.

Whether Tether itself had any direct involvement in or knowledge of Heka’s trading strategies remains unclear from the available details. But the optics alone, a Tether-backed entity accused of manipulating markets on Circle’s platform, tell you everything about the trust deficit between these two camps.

What this tells us about stablecoin oversight

This dispute, which became public on July 14, highlights a broader shift in how stablecoin issuers police activity on their platforms.

Circle’s decision to ban Heka suggests that stablecoin issuers are now treating platform surveillance as a core business function. When your token’s credibility depends on maintaining a stable peg and market confidence, letting potentially manipulative trading slide is an existential risk.

What this means for investors

The $49 million arbitration claim from Heka puts a number on the financial stakes. That figure represents what a single fund claims it lost from being cut off from Circle’s ecosystem.

Circle’s arbitration victory gives it a concrete data point to present to institutional allocators who care about governance and risk management.

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