Circle suspended a Tether-linked fund over manipulation fears

Circle suspended Heka Funds, an arbitrage vehicle it worked with, after discovering that Tether had poured $800 million into the fund and raising concerns the position could be used to manipulate markets. The suspension surfaced through arbitration filings tied to a dispute between Circle and Heka, not through any public disclosure from either stablecoin issuer.

What the filings show

The $800 million figure comes from arbitration documents reviewed by The Block, which describe Circle pulling back from Heka once it learned the scale of Tether's stake. Arbitration is private by default, so the fact that details reached the public record at all signals a dispute serious enough that one side wants findings preserved or enforced outside a sealed process. Neither Circle nor Tether has issued a public statement confirming the numbers, and Heka's own capital base and trading strategy remain undisclosed. What is clear is the size: $800 million is a position large enough to move short-term pricing in less liquid corners of crypto markets, and large enough that a counterparty like Circle would want to know who ultimately controls it before continuing to route flow through the fund.

Why Circle pulled the plug

The read here is straightforward: Circle is drawing a line between running a payments and reserves business and being a channel for a rival stablecoin issuer's proprietary trading. Tether and Circle compete directly for share of the dollar-stablecoin market, and Tether's balance sheet, built on reserve income from USDT issuance, gives it far more raw capital than most trading counterparties. If that capital shows up inside an arbitrage fund with access to Circle's infrastructure, Circle has two problems, not one. First, it risks facilitating trades that could affect USDC-adjacent markets it has an interest in keeping orderly. Second, it risks legitimizing a channel by which Tether's balance sheet size becomes a tool for outsized influence over smaller venues and pairs, the kind of concentration regulators have already flagged in stablecoin reserve reporting. Suspending Heka rather than negotiating new terms suggests Circle judged the risk not worth managing, and worth litigating over instead.

The dispute also says something about how opaque the plumbing under stablecoin markets still is. An $800 million allocation sat inside a fund relationship for long enough to become a live concern, and the public only learned about it because of a legal fight, not because either issuer disclosed it as part of routine reserve or counterparty reporting. That's the actual gap: stablecoin issuers publish attestations on reserves but not on where large allocations of that reserve capital end up once it's deployed into funds, market makers, or trading partners downstream.

What would confirm the concern

Watch whether the arbitration produces a public ruling or settlement that details what Heka actually did with Tether's money and whether trades tied to it show up in on-chain or exchange data around the suspension date. If regulators or exchanges start asking Tether directly about its fund allocations as a result, this stops being a two-company dispute and becomes a disclosure question for the whole stablecoin sector. If the case quietly settles under seal, the $800 million figure will remain the only concrete data point anyone outside the two companies ever gets.