Image credit: Unsplash
Circle has blacklisted the Ethereum contract behind Zama’s confidential USDC wrapper, freezing about $12.6 million in pooled funds.
The action halted redemptions for users whose USDC was inside the cUSDC contract. Reports on the freeze say it was tied to a U.S. federal court order, not an allegation that Zama violated sanctions or operated an illicit service.
Court Case Centers on Alleged $15M Transfer
The freeze appears to stem from Newton AC/DC Fund L.P. v. Ermilov, a civil case in the Northern District of California tied to Overnight Finance founder Maxim Ermilov.
Court records show temporary restraining order proceedings and a hearing set for June 1, 2026. Reports on the case say plaintiffs accused Ermilov of moving more than $15 million from Overnight Finance treasury funds before Circle was directed to block assets linked to the dispute.
One $12.4M Deposit Froze the Full cUSDC Pool
The immediate issue for Zama is that Circle’s blacklist hit the full cUSDC contract, not only one wallet. Onchain reporting cited by several outlets says a wallet linked to Overnight Finance deposited about $12.4 million into Zama’s cUSDC contract on May 11.
That deposit accounted for nearly all of the wrapper’s balance. Because the contract pooled funds, Circle’s action froze access for all users holding cUSDC there. That meant users not tied to the disputed depositor also lost access to redemptions.
Zama Works to Separate Disputed Funds and Restore Access
Zama said the incident was not caused by a flaw in its privacy protocol. The team described the contract as having been caught in the crossfire after an external wallet was flagged. Reports on Zama’s response say the team is working with counsel to isolate the disputed deposit and restore access for eligible users.
Zama has also suspended related wrapped-asset contracts while the review continues. The next issue is whether Zama can separate the disputed funds from other user balances. Until then, the freeze remains tied to about $12.6 million in USDC held inside the cUSDC contract.
