Stablecoin issuer Circle has reportedly blacklisted a smart contract linked to privacy protocol Zama, freezing approximately $12.6 million in user funds. The development, first flagged by on-chain investigator ZachXBT, involves the protocol’s Confidential USDC (cUSDC) contract deployed on Ethereum seven hours before ban. The affected contract address had been publicly documented in Zama’s docs and visible on blockchain explorers, making the freeze both traceable and verifiable in real time. Zama’s Frozen Funds Draw Relationship To Overnight Finance And Legal Dispute According to further findings by ZachXBT, the freeze may be indirectly tied to recent controversy and legal issues surrounding the asset-management and yield-generating protocol Overnight Finance. Data shows that wallet address 0xf7fcc deposited roughly $12.4 million in USDC into the Zama contract on May 11, 2026. This wallet appears to be associated with Overnight Finance, which has recently been embroiled in governance tensions. Notably, token holders had alleged a possible rug pull by the development team. This resulted in a governance vote on the DeFi protocol to distribute its treasury assets. ZachXBT shared additional information suggesting that Overnight Finance is also facing a civil case in court. One of the plaintiffs in the protocol case is Patagon Management, a firm known in the DeFi space for engaging in aggressive governance strategies, such as hostile DAO takeovers/RFV raiding. While no direct causal link has been confirmed between Circle actions and these events, the overlap between legal proceedings, treasury movements, and the frozen funds has raised concerns about how interconnected DeFi protocols can expose unrelated users, i.e., Zama users in this case, to external risks. Circle’s Unilateral Action Sets Unwanted Precedent Circle’s freeze has also reignited criticism of transparency practices by centralized issuers. According to ZachXBT, the Zama team appears to have received no prior notice before the cUSDC contract was blacklisted. If confirmed, this would amplify growing concerns about unilateral enforcement actions affecting decentralized applications and their users without warning. Earlier in March 2026, Circle reportedly froze over 16 hot wallets associated with various entities without publicly explaining its rationale. The latest action, however, goes a step further by targeting a protocol-level contract where user funds are pooled, rather than isolated wallets. This distinction is significant because it raises questions about custodial risk in supposedly decentralized systems. At the time of reporting, Circle has not issued an official explanation for its unilateral action in freezing Zama’s cUSDC contract. Featured image from Shutterstock, chart from Tradingview
