Key Takeaways
- Circle blacklisted Zama’s cUSDC Ethereum contract on May 30, 2026, freezing $12.6M in pooled USDC funds.
- A U.S. federal court TRO tied to Newton AC/DC Fund LP’s lawsuit against Maxim Ermilov triggered the freeze.
- Zama plans to isolate the flagged deposit before a June 1 hearing to restore access for unaffected users.
Circle’s Zama Blacklist Freezes $12.6M, Raising Questions About USDC Use in DeFi Contracts
The frozen address, 0xe978F22157048E5DB8E5d07971376e86671672B2, is labeled “Zama: cUSDC Token” on Etherscan and in Zama’s own documentation. It functions as a pooled confidential USDC wrapper using fully homomorphic encryption to obscure token balances. Circle executed the blacklist around 1:08 UTC, halting redemptions for all users holding cUSDC in the contract.
The freeze reportedly stems from a class-action lawsuit filed May 28, 2026, in the U.S. District Court for the Northern District of California. The case, Newton AC/DC Fund LP et al. v. Maxim Ermilov et al., alleges Ermilov misappropriated more than $15 million from Overnight Finance’s treasury. Judge P. Casey Pitts issued a temporary restraining order on May 29, directing Circle to blacklist assets linked to the alleged transfer. A full hearing is scheduled for June 1, 2026.
Onchain investigator ZachXBT reported on the freeze via his Telegram channel and traced the core deposit. He found that wallet 0xf7Fcc767dE537953b3519D4b3097A24A6dFE1c84, tied to Overnight Finance treasury operations, deposited roughly 12.4 million USDC into Zama’s cUSDC contract on May 11, 2026. That single inflow represents more than 99% of the frozen balance.
“Looks like Circle blacklisted the Zama (privacy protocol) Confidential USDC (cUSDC) contract on Ethereum 7 hours ago, which has frozen 12.6M USDC of user funds,” ZachXBT wrote. He called the action precedent-setting, adding: “Overall, I feel bad for Zama users who have now been indirectly impacted with this mess of a U.S. civil case.”
Overnight Finance is a DeFi yield platform that issued the USD+ stablecoin and OVN governance token, raising roughly $850,000 in seed funding in 2022. After OVN holders voted via Snapshot to liquidate and distribute the treasury following rug-pull allegations, approximately $15.77 million, including the $12.5 million in USDC, was moved from treasury-linked wallets before the vote finalized.
Ermilov, a Russian citizen based in the Middle East, disputes those characterizations and says the wallets held personal and team funds, the OVN token carries no security status, and the move to Zama was for privacy and personal security reasons.
Among the plaintiffs is Patagon Management, a Delaware entity associated with Diogenes Casares and a pattern of hostile DAO takeovers involving protocols including Fei, Rome, Temple, and Spartacus. ZachXBT flagged Patagon’s involvement and noted the group’s history of asset freezes and DAO unwindings.
Zama says it received no advance notice from Circle or the court before the blacklist was executed. The contract had been publicly deployed for roughly 154 days, and the depositing address showed no sanctions flags or KYT alerts at the time of deposit. Rand Hindi, Zama’s co-founder and CEO, stated plainly: “This has nothing to do with Zama, or privacy.”
Hindi thanked ZachXBT for helping identify the root cause and confirmed that all deposit activity was visible on public block explorers. Zama has since paused its cUSDC, cUSDT, and cWETH wrappers while its legal team engages U.S. counsel. The team says it will isolate the flagged deposit to restore access for users not connected to the Overnight dispute.
The situation revives ongoing criticism of Circle’s blacklisting practices. ZachXBT previously reported, the month prior, that Circle froze more than 16 hot wallets belonging to businesses and protocols without explanation. Critics have also noted inconsistencies in response times, pointing to slower action during exchange hacks compared to faster execution on civil court orders.
Zama describes its protocol as infrastructure. The system obscures token balances using FHE but does not hide sender or recipient addresses, and the company has been explicit that it does not function as a mixer or tumbler. The court-ordered freeze hit a pooled contract rather than the specific depositor’s address, meaning unrelated users lost access to their funds.
The June 1 hearing may produce an isolation order or partial release. Until then, roughly $12.6 million in USDC remains locked, and the case raises direct questions about the scope of centralized stablecoin blacklisting in public, commingled DeFi contracts.
