- Circle blacklisted Zama’s cUSDC contract, freezing about $12.6M in USDC funds on Ethereum.
- ZachXBT linked a $12.4M deposit to Overnight Finance and said users’ funds were likely commingled.
- Questions grew over legal process as critics say innocent Zama users were caught in the freeze action.
Blockchain investigator ZachXBT has revealed that stablecoin issuer Circle Internet Group blacklisted the Confidential USDC (cUSDC) contract linked to privacy protocol Zama on Ethereum. The freeze impacted around $12.6 million worth of USDC held in the contract.
According to ZachXBT, Circle blacklisted the contract address 0xe978F…72B2 about seven hours before the report. The move effectively froze funds stored inside Zama’s Confidential USDC system. He also noted that the contract was publicly listed in Zama’s documentation and could be easily traced on blockchain explorers.
At the time of writing, neither Circle nor Zama had publicly explained why the freeze happened.
ZachXBT also said this was not the first time Circle had frozen wallets without public details. He referenced a March 2026 report alleging that over 16 wallets tied to businesses and protocols were frozen without transparency.
Overnight Finance Connection Emerges
In a later update, ZachXBT said blockchain analysis pointed to another address: 0xf7Fcc…FE1c84. This wallet deposited about $12.4 million USDC into Zama on May 11, 2026.
He claimed the address may be linked to Overnight Finance. The project recently held a governance vote over treasury distribution after some token holders accused it of a rug pull.
Despite this possible link, ZachXBT warned that freezing an entire protocol contract is a major precedent. He said user funds in Zama were pooled together across multiple participants. This means users not involved in the dispute may also have lost access to their assets.
Questions Raised Over Legal Process
In another update, ZachXBT suggested the situation may be more serious than initially thought. He said the Zama team may not have received advance notice before Circle implemented the freeze.
He also alleged that parties involved in obtaining a temporary restraining order (TRO) may have misrepresented the relationship between the targeted wallet and Zama’s contract. He specifically mentioned Patagon Management, one of the plaintiffs in the civil case against Overnight Finance. He described the firm as active in DAO governance disputes and “RFV raiding” strategies.
Users Caught in the Middle
The incident has renewed debate over centralized controls in stablecoins. Blacklisting tools are often used for compliance and fund recovery. However, critics say freezing entire protocols can harm innocent users.
ZachXBT concluded that Zama users appear to be the main victims of the dispute. Many may now be unable to access their funds despite having no role in the legal conflict involving Overnight Finance.
The case highlights ongoing tension between decentralized finance systems and centralized stablecoin issuers. It also reinforces how blacklist powers remain one of the most controversial features in crypto.
Related: Tether Freezes $344M USDT Linked to Iranian Sanctions Evasion
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