Zama Users Lose Access to $12.6M USDC After Circle Executes Court-Ordered Blacklist

Circle’s Zama Blacklist Freezes $12.6M, Raising Questions About USDC Use successful DeFi Contracts

The frozen address, 0xe978F22157048E5DB8E5d07971376e86671672B2, is labeled “Zama: cUSDC Token” connected Etherscan and successful Zama’s ain documentation. It functions arsenic a pooled confidential USDC wrapper utilizing afloat homomorphic encryption to obscure token balances. Circle executed the blacklist astir 1:08 UTC, halting redemptions for each users holding cUSDC successful the contract.

The frost reportedly stems from a class-action suit filed May 28, 2026, successful the U.S. District Court for the Northern District of California. The case, Newton AC/DC Fund LP et al. v. Maxim Ermilov et al., alleges Ermilov misappropriated much than $15 cardinal from Overnight Finance’s treasury. Judge P. Casey Pitts issued a impermanent restraining bid connected May 29, directing Circle to blacklist assets linked to the alleged transfer. A afloat proceeding is scheduled for June 1, 2026.

Rand Hindi, Zama’s co-founder and CEO. Image source: X

Onchain researcher ZachXBT reported connected the frost via his Telegram transmission and traced the halfway deposit. He recovered that wallet 0xf7Fcc767dE537953b3519D4b3097A24A6dFE1c84, tied to Overnight Finance treasury operations, deposited astir 12.4 cardinal USDC into Zama’s cUSDC declaration connected May 11, 2026. That azygous inflow represents much than 99% of the frozen balance.

“Looks similar Circle blacklisted the Zama (privacy protocol) Confidential USDC (cUSDC) declaration connected Ethereum 7 hours ago, which has frozen 12.6M USDC of idiosyncratic funds,” ZachXBT wrote. He called the enactment precedent-setting, adding: “Overall, I consciousness atrocious for Zama users who person present been indirectly impacted with this messiness of a U.S. civilian case.”

Overnight Finance is simply a DeFi output level that issued the USD+ stablecoin and OVN governance token, raising astir $850,000 successful effect backing successful 2022. After OVN holders voted via Snapshot to liquidate and administer the treasury pursuing rug-pull allegations, astir $15.77 million, including the $12.5 cardinal successful USDC, was moved from treasury-linked wallets earlier the ballot finalized.

Ermilov, a Russian national based successful the Middle East, disputes those characterizations and says the wallets held idiosyncratic and squad funds, the OVN token carries nary information status, and the determination to Zama was for privateness and idiosyncratic information reasons.

Among the plaintiffs is Patagon Management, a Delaware entity associated with Diogenes Casares and a signifier of hostile DAO takeovers involving protocols including Fei, Rome, Temple, and Spartacus. ZachXBT flagged Patagon’s engagement and noted the group’s past of plus freezes and DAO unwindings.

Zama says it received nary beforehand announcement from Circle oregon the tribunal earlier the blacklist was executed. The declaration had been publically deployed for astir 154 days, and the depositing code showed nary sanctions flags oregon KYT alerts astatine the clip of deposit. Rand Hindi, Zama’s co-founder and CEO, stated plainly: “This has thing to bash with Zama, oregon privacy.”

Hindi thanked ZachXBT for helping place the basal origin and confirmed that each deposit enactment was disposable connected nationalist artifact explorers. Zama has since paused its cUSDC, cUSDT, and cWETH wrappers portion its ineligible squad engages U.S. counsel. The squad says it volition isolate the flagged deposit to reconstruct entree for users not connected to the Overnight dispute.

The concern revives ongoing disapproval of Circle’s blacklisting practices. ZachXBT antecedently reported, the period prior, that Circle froze much than 16 blistery wallets belonging to businesses and protocols without explanation. Critics person besides noted inconsistencies successful effect times, pointing to slower enactment during speech hacks compared to faster execution connected civilian tribunal orders.

Zama describes its protocol arsenic infrastructure. The strategy obscures token balances utilizing FHE but does not fell sender oregon recipient addresses, and the institution has been explicit that it does not relation arsenic a mixer oregon tumbler. The court-ordered frost deed a pooled declaration alternatively than the circumstantial depositor’s address, meaning unrelated users mislaid entree to their funds.

The June 1 proceeding whitethorn nutrient an isolation bid oregon partial release. Until then, astir $12.6 cardinal successful USDC remains locked, and the lawsuit raises nonstop questions astir the scope of centralized stablecoin blacklisting successful public, commingled DeFi contracts.