Circle Blacklists Zama’s Confidential USDC Contract, Freezing $12.6M After Court Order

Circle blacklisted a publicly labeled Ethereum smart contract tied to Zama’s privacy protocol on Saturday, freezing approximately $12.6 million in USDC in a pooled confidential USDC wrapper.

“Circle blacklisted a publicly labeled Ethereum smart contract tied to Zama’s privacy protocol on Saturday, freezing approximately $12”

Bitcoin News

The freeze followed a U.S. federal court order connected to a civil lawsuit against Overnight Finance founder Maxim Ermilov, with Judge P. Casey Pitts issuing a temporary restraining order on May 29 directing Circle to blacklist assets linked to the alleged transfer.

Bitcoin News

Onchain investigator ZachXBT said the action was precedent-setting, writing, "Looks like Circle blacklisted the Zama (privacy protocol) Confidential USDC (cUSDC) contract on Ethereum 7 hours ago, which has frozen 12.6M USDC of user funds,".

Zama’s co-founder and CEO Rand Hindi said, "This has nothing to do with Zama, or privacy," as the team paused its cUSDC, cUSDT, and cWETH wrappers while its legal team engages U.S. counsel.

A full hearing is scheduled for June 1, 2026, as Zama said it plans to isolate the flagged deposit before that hearing to restore access for unaffected users.

ZachXBT told Cointelegraph that the exact reason for the freeze was "unclear," and said, "From my understanding, the Zama team does not appear to have been notified of the Circle freeze prior,".

Cointelegraph also reported that Circle did not respond by the time of publication after the outlet reached out to the company.

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In a separate March account, ZachXBT accused Circle of "wrongfully" freezing 16 stablecoin wallets linked to online casinos and legitimate crypto exchanges, and said those businesses and wallets "do not appear related at all" to the civil court cases.

Cointelegraph further cited ZachXBT’s claim that Circle failed to freeze about $420 million in 15 separate cases involving fraudulent transactions or funds stolen through crypto hacks since 2022.

The dispute over notice and scope of blacklisting has become central to how users interpret the Zama freeze, because the action halted redemptions for all users holding cUSDC in the contract rather than only a single address.

The freeze triggered a sharp market reaction for Zama’s token, with The Crypto Times saying ZAMA briefly plunged from near $0.039 to $0.0318 and marked an 18.28% fall over 22 candles.

The Crypto Times also reported that ZAMA’s 24-hour trading volume stood at $73.88 million, up 61.08%, while CoinMarketCap data showed market cap at $77.54 million and unlocked market cap at $82.67 million.

The Block’s page was blocked by a security service, but the headline framing emphasized that the court-ordered Circle freeze trapped $12.6 million in the Zama cUSDC contract amid the Overnight Finance suit.

Zama’s cUSDC wrapper is described as an ERC-1967 proxy that pools USDC on behalf of holders using fully homomorphic encryption to mask balances on Ethereum, yet the blacklist mechanism can still block sending and receiving USDC once an address is marked.

Circle CEO Jeremy Allaire said in The Defiant that "cUSDC holders have no clear path to recovery while the freeze stands," while Zama said it would update and engage in compliance changes as its legal team works toward a June 1 outcome.