Circle has secured a court-backed arbitration win after records made public in a Boston federal court detailed why the stablecoin issuer suspended Heka Funds’ USDC minting and redemption services over suspected market manipulation involving Tether.

Court filings submitted by Circle on Tuesday as part of its petition to confirm a February arbitration award said the company concluded the Malta-based arbitrage fund had failed to disclose Tether’s role as its principal investor and reasonably suspected trading activity that could have manipulated the USDC market.

Retired judge Robert L. Dondero, who served as arbitrator, ruled in Circle’s favor on the remaining contract claims, finding the company acted within the rights granted under its agreements with Heka.

Hidden Tether ties became central to the dispute

At the center of the case was Heka Funds, managed by London-based Abraxas Capital Management, which opened a Circle account in January 2022 for its Elysium Global Arbitrage Fund.

According to the arbitration record, Heka disclosed only investor Simon Grima during onboarding, while Tether had become the fund’s dominant capital provider. Testimony from Heka founder Fabio Frontini showed Tether’s investment reached about $800 million by the time of arbitration, accounting for roughly 75% of Elysium’s assets.

Dondero concluded the omission was intentional and wrote that the missing disclosure appeared designed to avoid revealing Tether’s involvement in the fund. Circle Chief Business Officer Kash Razzaghi testified that the company would not have approved the account had it known of Tether’s role when the relationship began.

The trading dispute emerged after Silicon Valley Bank’s collapse in March 2023 temporarily pushed USDC below its dollar peg. According to the filings, Heka bought discounted USDC in secondary markets and redeemed the tokens with Circle at face value after many other arbitrage firms had stopped once the spread narrowed.

Internal Circle communications presented during arbitration showed executives disagreed over whether the trades represented legitimate arbitrage. Razzaghi described the activity as “a manufactured arb not a market-driven one,” attributing it to Tether waiving its normal fees, while Circle employee David Norton initially argued the trades appeared commercially rational.

Circle allowed Heka to redeem more than $587 million in USDC over a two-week period while testing whether the trading opportunity depended on Heka’s activity. Court records said Norton later changed his position after asking Heka to pause its trades and observing that the market spread tightened instead of widening. Coinbase also informed Circle it was uncomfortable working with Heka because of the fund’s Tether relationship and fee structure, leading the exchange to place restrictions on the account, according to the filings.

Arbitrator upholds Circle’s contractual rights

Court documents showed Circle reduced Heka’s minting and redemption limits to zero in November 2023 before suspending the account on Dec. 1 under Section 9(c) of the parties’ master services agreement after Frontini threatened legal and regulatory action.

Heka’s request to redeem $100 million in February 2024 was rejected, and the master services agreement expired the following month. Testimony presented during arbitration said Tether invested another $500 million in Elysium during the same month before Heka filed its arbitration claim.

Another issue raised during the proceedings involved Frontini’s application for an account with Circle France shortly before the hearing. According to the arbitration award, he did not disclose the ongoing dispute and submitted a board resolution stating Heka maintained an active Circle relationship, later testifying he expected his U.S. application to fail.

Applying Delaware law, Dondero found Circle did not breach either agreement because the user terms allowed the company to adjust transaction limits and suspend services at its discretion. The arbitrator also ruled Circle was not required to prove market manipulation had occurred, only that it had reached a reasonable conclusion that such activity might be taking place.

Although Circle requested about $5.15 million in legal fees and costs, Dondero awarded only $166,643.25 related to expert work after finding Heka continued pursuing a $49 million lost-profits claim that had already been excluded from the case.

A Heka spokesperson told the Financial Times the fund had never engaged in market manipulation and had never been the subject of a regulatory investigation involving such conduct. The spokesperson also said Circle sought to make the arbitration record public to divert attention from its refusal to process USDC redemptions.

The disclosure comes as Circle continues expanding its institutional business globally. The company recently received final approval from the U.S. Office of the Comptroller of the Currency to establish Circle National Trust and is preparing to host its invitation-only Current Seoul event on July 23, where executives from banks, crypto exchanges, and payments companies are expected to discuss future partnerships as Circle pursues wider USDC adoption in South Korea.

Japan has approved revisions to its cryptocurrency law, reshaping how digital assets are treated under the Financial Instruments and Exchange Act (FIEA). According to a report by Nikkei, the changes passed in parliament on Wednesday mark a major regulatory shift away from the country’s earlier approach under the Payment Services Act.

The updated framework aims to place crypto closer to traditional finance, adding market-integrity measures and strengthening oversight for businesses operating in Japan. It also introduces insider trading restrictions and tighter controls around registration and compliance.

Key takeaways

• Japan’s parliament passed revisions that treat crypto assets as financial assets under the FIEA, moving the sector away from Payment Services Act rules.
• The overhaul introduces insider trading restrictions for issuers, exchanges, and other market participants who have undisclosed material information.
• Penalties are expected to increase substantially for companies that operate without proper registration.
• Registered crypto firms may be reclassified under the law, reflecting a broader effort to align terminology and oversight with traditional financial regulation.

From payment-focused rules to a financial-assets framework

Under Japan’s previous regulatory approach, crypto assets were largely treated through the lens of the Payment Services Act (PSA), which framed digital assets primarily as payment-related instruments. The revisions now classify crypto assets as financial assets under the Financial Instruments and Exchange Act (FIEA), according to Nikkei.

That distinction matters for compliance design. When regulators bring crypto into the FIEA perimeter, firms typically need to follow expectations associated with market conduct, disclosure, and supervision—areas that are more familiar to traditional brokerage and trading environments than to payment processors.

Insider trading limits and stronger market-integrity expectations

The revised rules tighten conduct requirements across the ecosystem. As described in the Nikkei report, issuers, exchanges, and other market participants are prohibited from trading while aware of undisclosed material information.

The legal structure is intended to mirror insider trading restrictions used in traditional finance (TradFi). For exchanges and other intermediaries, this can change day-to-day controls—such as how material information is documented, who can access it, and how trading is managed around significant corporate events.

While the details of enforcement mechanisms are not laid out in the excerpt provided, the existence of an insider trading rule signals regulators’ intent to treat crypto markets as subject to the same fairness and integrity standards expected in regulated securities and derivatives markets.

Heavier penalties for operating without registration

Japan’s revisions also reportedly increase the consequences for firms that conduct business without the required registration. Nikkei reports that the maximum prison term could rise from three years to 10 years, and fines could increase from roughly 3 million yen (about $19,000) to around 10 million yen.

The report further notes that insider trading violations could lead to penalties of up to five years in prison, fines of up to 5 million yen, or both. In practical terms, these changes elevate legal risk for firms that fail to meet compliance obligations—or for employees who trade or influence trades without controls that align with the new rules.

For traders and investors, stronger penalties can also shift how firms approach internal governance, potentially affecting market behavior and the reliability of corporate and exchange disclosures over time.

Reclassification of crypto businesses and the “TradFi alignment” trend

Alongside the substantive changes, the revised framework reportedly adjusts the wording used for registered entities. The terminology may move from “cryptocurrency exchange” to “cryptocurrency trading company,” reflecting the broader role regulators now associate with the sector.

Japan’s approach fits a wider global pattern: rather than crafting entirely separate legal regimes for crypto, many jurisdictions are mapping digital asset activity onto existing financial regulation categories. That trend is visible in other policy work described in related coverage from Cointelegraph, including a report noting South Africa’s tax authority draft guidance on how existing tax rules apply to crypto assets.

In the United States, regulators have similarly continued clarifying how existing securities and commodities frameworks can apply to different kinds of digital asset activity, underscoring that the “crypto-as-finance” direction is not unique to Japan.

What Japan’s shift means for market participants

For crypto exchanges and other intermediaries, the immediate challenge is operational: aligning compliance systems with a legal regime that more closely resembles traditional market regulation. That likely includes stronger oversight processes, clearer documentation around material information, and more robust controls over who may trade and when.

For investors, the change is primarily about predictability. When conduct rules and penalties look closer to those used in established financial markets, participants may have more confidence that trading behavior is subject to comparable integrity standards. The longer-term question is how strictly and consistently the new rules will be applied as the market adapts.

Readers should watch for subsequent guidance on implementation—particularly around registration requirements, compliance expectations for exchanges and issuers, and how authorities will interpret “material information” in practice. Those details will determine how quickly Japan’s crypto market can transition into the new framework and what compliance gaps, if any, remain to be addressed.

EU crypto compliance is entering a potentially turbulent phase after the Markets in Crypto-Assets Regulation (MiCA) transitional period ended on July 1, pushing more businesses—and more customers—into the post-transition licensing environment. Bruna Szego, chair of the EU’s anti–money laundering authority AMLA, warned that a wave of user migration could create operational and compliance strain for virtual asset service providers (VASPs) across the bloc.

Speaking during a briefing with the European Parliament’s Committee on Economic and Monetary Affairs on Wednesday, Szego said providers should expect pressure as customers “rush to withdraw” and as licensed firms take on new users. Her comments underline a key risk for the next stage of EU crypto supervision: whether firms can keep anti–money laundering controls effective while business models and customer flows shift quickly.

Key takeaways

• AMLA chair Bruna Szego warned that end-of-transition customer movement could intensify operational and compliance pressure on EU crypto VASPs.
• As MiCA’s transitional period ended on July 1, firms that are not properly authorized were expected to wind down EU activities “immediately,” per ESMA guidance.
• AMLA has advised both licensed providers onboarding new customers and firms winding down to keep anti–money laundering controls functional through the transition period.
• AMLA says it will publish a report before year-end assessing money laundering risks and supervisory practices, including differences between EU member states.
• The authority is also expanding its blockchain analytics capabilities to strengthen oversight of crypto-asset service providers.

Why MiCA’s transition ending raises compliance stress

MiCA’s transitional period was designed to give the market time to adapt to a new regulatory framework. But with the clock now fully expired, Szego suggested the change could trigger behavior that compliance departments may not be able to absorb smoothly at scale.

In her remarks, she focused on two pressure points. First, entities winding down their EU operations may face customer withdrawal surges, which can strain internal processes and monitoring systems. Second, licensed crypto firms that remain active under MiCA may see onboarding volumes increase as they absorb users migrating away from less-compliant platforms.

The practical implication is straightforward: even if firms are formally compliant, rapid customer migration can still challenge the day-to-day execution of know-your-customer and transaction monitoring controls—especially if migration happens faster than expected.

AMLA’s advisory note and the compliance balancing act

Ahead of the July 1 deadline, AMLA published an advisory note highlighting money laundering risks linked to the end of the transitional period. According to the advisory guidance, firms should take targeted steps depending on where they sit in the transition—either scaling down EU activities or onboarding customers within the licensed perimeter.

Szego emphasized that AMLA expects providers to maintain efficient compliance procedures during the transition rather than treating the changeover as a mere administrative milestone. For winding-down firms, the focus is on ensuring controls do not degrade during periods of change. For licensed providers, the concern is that adding customers rapidly should not dilute anti-money laundering safeguards.

AMLA’s positioning also suggests a supervisory priority: AMLA is effectively drawing attention to “transition risk”—the idea that business continuity and compliance discipline can be hardest during periods of structural adjustment.

ESMA’s wind-down expectation after the deadline

MiCA’s end-state requirement is that crypto asset service providers must be licensed to keep serving EU customers after the transitional period. The deadline was paired with expectations for what unauthorized providers must do next.

Cointelegraph previously reported on the July 1 transition ending, citing ESMA’s view that service providers still not authorized by then must take “immediate” steps to wind down their EU activities. That regulatory posture matters for Szego’s concern because wind-down periods can produce concentrated customer actions—such as withdrawals—that may test operational readiness.

In other words, even if the licensing rule is clear on paper, the market’s adjustment phase can create real-world friction points that AMLA intends to monitor closely.

What AMLA plans to publish—and what to watch next

AMLA chair Bruna Szego said the authority will publish a report before the end of the year covering money laundering risks in the crypto sector and describing supervisory practices across the EU. She added that AMLA is expanding blockchain analytics capabilities to improve its ability to oversee crypto-asset service providers.

The report is also expected to assess how national authorities supervise crypto-asset service providers and highlight differences in supervisory approaches across member states. For market participants, this matters because uneven enforcement can translate into uneven compliance expectations and timelines—particularly during periods of rapid migration and customer churn.

Szego indicated AMLA intends to use the findings to coordinate follow-up work with national regulators where needed, aiming for more consistent anti-money laundering oversight throughout the bloc.

For investors, traders, and users, the main question for the coming months is whether licensed platforms can maintain strong onboarding and monitoring standards as they absorb new customers—and whether winding-down firms can handle withdrawal waves without compliance controls becoming secondary. AMLA’s year-end assessment and its growing analytics focus will likely determine how regulators refine expectations for the post-transition phase.

Welcome to The Protocol, CoinDesk’s tech newsletter covering the most important stories in blockchain. I’m Margaux Nijkerk, a reporter at CoinDesk.

We’re giving you a deeper look at the biggest trends, breakthroughs and debates shaping blockchain technology each week.

This week, we’re unpacking the timeline of all the changes at the Ethereum Foundation since the year began.

USDC’s circulating supply has fallen to about $73 billion from nearly $80 billion in March, trimming its share of the roughly $312 billion stablecoin market as competition from newly regulated issuers intensifies.

Circle shares fell more than 17% on the day Open USD was announced, though CoinShares said the decline was likely amplified by technical selling linked to the Russell index reconstitution.

Still, the report argued the market may be overreacting. Open USD has yet to launch, important details remain unresolved and Circle retains a significant advantage through USDC’s deep liquidity and years of integrations across exchanges, DeFi and payments.

Open USD is unlikely to pose a major threat to Tether, whose dominance in emerging markets and offshore dollar liquidity gives USDT, the largest stablecoin by far, a different competitive moat, the report added.

For now, investors should watch whether Circle changes its distribution strategy and whether Open USD can convert its high-profile backing into adoption, CoinShares said. Until then, the project remains a credible, but unproven, challenge to USDC.

CoinShares is not alone in noting the challenge posed by Open USD. Japanese investment bank Mizuho downgraded Circle to underperform from neutral and slashed its price target to $50 from $85 in a note to clients on Tuesday, arguing that the new rival’s business model threatens the stablecoin issuer’s long-term economics.

Following Michael Saylor’s advertisements likening STRC to a high-yield bank account or money market, Strive swapped $50 million of the cash it had in March for STRC, and soon added another $500,000.

As of a new filing, the asset manager quietly disclosed that its shares were worth just $44.18 million as of July 10, a paper loss of roughly $6.3 million excluding dividends.

Although it published a glowing press release about its purchase, the admission of loss sat otherwise unannounced in an SEC filing, tucked between cash and BTC balances.

Unlike the purchase, no press campaign trumpeted the loss.

The instrument that Strive pitched as a cash-like hold has lost about 12% of its value relative to cash, and the dividends it received from holding STRC came nowhere close to closing that gap.

Strive used over a third of its cash holdings at the time for its STRC purchase.

What Strive said it was buying

CEO Matt Cole, who serves at Strive after years managing money at the California pension giant CalPERS, initially sold the trade as prudent treasury management.

Incredibly, he claimed at the time that Strive opted for STRC “instead of holding idle cash earning low yields in money market funds.”

Although STRC is nothing like a money market and has, in fact, lost 28% of its value at its June 26 low, Strive initially claimed that STRC would “provide strong yield dynamics while maintaining stable price behavior.”

Obviously, it hasn’t.

Unlike a bank account or money market, STRC fluctuates in price daily on the Nasdaq stock exchange. Strategy says it should trade close to its $100 par value due to its fine-tuning of dividend rates, a dubious mechanism Protos has documented at length.

Strive even counted its STRC shares toward its own so-called “reserve” backing dividends on its competing product, SATA, another quasi-stable, dividend-paying stock.

Unlike an insured savings product, neither STRC nor SATA offer guarantees to preserve principal, offer deposit insurance, nor provide rights to redeem at par from the company. 

Whatever a Nasdaq trader will pay is what the shares are actually worth.

A 20-year-old man who suffered significant losses after following the advice of a South Korean investment YouTuber has allegedly stabbed the man in an act of revenge. The July 13 attack coincided with a 9% crash in the South Korean stock market — its seventh-largest dip on record.

The Chosun Daily reports that police arrested the man, known only as “Mr A,” on Tuesday on suspicion of attempted murder after he travelled to Busan’s Nam District and stabbed the victim — known as “Mr B” — multiple times in the face.

Mr A reportedly subscribed to a YouTube channel run by 40-year-old Mr B, and structured his investments based on his recommendations. 

However, the investments caused Mr A to suffer significant losses.

This all took place as South Korea’s stock market, the KOSPI, was in the midst of a 9% nosedive.

Stocks representing AI giant SK Hynix and Samsung Electronics fell by 15.4% and 10.7%. Indeed, SK Hynix wiped out the gains it had made from its US debut last week.