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Circle blacklisted Zama's cUSDC contract, freezing approximately $12.6 million in funds.
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ZachXBT linked freeze to wallet associated with Overnight Finance allegations recently.
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Users question freezing entire contract instead of suspected wallet address only.
More than $12.6 million worth of USDC has been frozen after Circle blacklisted the smart contract behind Zama’s confidential USDC (cUSDC) on Ethereum. The move came after a wallet linked to Overnight Finance reportedly deposited millions into the protocol.
Community members are questioning why Circle froze the entire cUSDC contract rather than targeting only the wallet allegedly connected to the ongoing dispute.
Why Did Circle Freeze Zama’s cUSDC Contract?
The issue first came to light after blockchain investigator ZachXBT flagged the blacklist action on Saturday.
According to his findings, Circle froze Zama’s cUSDC contract, effectively locking approximately $12.6 million in USDC. The freeze may be connected to a wallet that deposited around $12.4 million USDC into the protocol on May 11.
The wallet is reportedly linked to Overnight Finance, a project that has recently faced accusations from some holders who claim they were affected by a rug pull. However, no official confirmation has been provided linking the frozen funds directly to any wrongdoing.
Further blockchain analysis showed the address had participated in an Overnight Finance governance vote before the freeze occurred.
Zama Received No Notice Before The Freeze
Zama co-founder Rand Hindi said the team believes its protocol may have been caught in the middle of a separate legal dispute.
As of now, the frozen contract still holds roughly $12.6 million in USDC, with no funds leaving the address since the blacklist was applied.
Perhaps more concerning for users is that Zama reportedly received no advance notice before the freeze was executed.
Why Is This Important for Crypto Users?
The incident shows a growing concern surrounding centralized stablecoins. While USDC operates on public blockchains, Circle retains the ability to freeze assets and blacklist addresses when required by legal, regulatory, or compliance actions.
Critics argue that the latest case indicates how those powers can sometimes affect users who are not directly involved in a dispute.
Defi researcher Zun questioned why Circle froze the entire cUSDC contract instead of targeting only the wallet allegedly linked to Overnight Finance.
The controversy also revives concerns raised earlier this year when Circle froze 16 wallet addresses and later reversed the action following community backlash.
What Happens Next?
At the moment, holders of cUSDC have no clear timeline for when the frozen funds could be released.
The outcome will likely depend on the ongoing investigation and whether the blacklist was applied because of legal action tied to Overnight Finance or another unrelated dispute.
Meanwhile, Zama co-founder Rand said that they will update with more info asap.
