Circle has blacklisted Zama's cUSDC contract on Ethereum, preventing approximately $12.6 million in USDC from being withdrawn. On-chain investigator ZachXBT believes this freeze may be related to a wallet that previously deposited a large sum of funds into the protocol, reigniting market discussions about the centralized authority to freeze stablecoins.
The freeze occurs at the contract level.
According to ZachXBT's disclosure, the frozen asset is Zama's confidential USDC (cUSDC) smart contract, not a single user address. After the blacklist took effect, approximately $12.6 million in USDC within the contract became locked, and no further transfers of these funds have occurred since.
On-chain records show that a wallet deposited approximately $12.4 million in USDC into the protocol on May 11. This is widely seen as the direct context behind Circle’s decision to freeze the funds.
The involved address points to Overnight Finance.
The report states that the aforementioned address is believed to be associated with Overnight Finance. The project has recently been accused by some holders of being involved in a "rug pull" controversy. However, there is currently no publicly confirmed information establishing that the frozen funds themselves have been determined to be illegal or in violation of any regulations.
Further on-chain analysis reveals that the address participated in a governance vote for Overnight Finance prior to being frozen. This detail reinforces external assumptions about a connection between the two, but is insufficient on its own to constitute a definitive conclusion.
Zama stated that it did not receive prior notice.
Zama co-founder Rand Hindi said the team believes their protocol may be caught up in another separate dispute, noting that the cUSDC contract appears to be “caught in the middle of another case.”
He also stated that the team did not receive prior notice before the freeze is being implemented and is currently investigating the specific cause. For cUSDC holders, the biggest concern right now is when their funds will be unfrozen, as there is currently no clear timeline.
The community questions the excessive scope of the freeze.
After the incident escalated, some DeFi researchers focused on Circle’s handling of the situation. The point of contention was that if the issue involved only a single suspicious wallet, why was the entire cUSDC contract blacklisted rather than just the relevant address.
- Frozen object: Zama's cUSDC contract
- Frozen amount: approximately $12.6 million USDC
- Key address deposit: approximately $12.4 million USDC
This again highlights a key reality of centralized stablecoins: although USDC circulates on public blockchains, the issuer retains the ability to freeze assets and blacklist addresses, with such actions typically tied to legal, regulatory, or compliance requirements.
Additional information: The report also noted that earlier this year, Circle froze 16 wallet addresses, then reversed the action following community backlash. Whether a similar adjustment will occur in this case remains to be seen.