Zama Users Lose Access to $12.6M USDC After Circle Executes Court-Ordered Blacklist

Circle’s Zama Blacklist Freezes $12.6M, Elevating Questions About USDC Use in DeFi Contracts

The frozen deal with, 0xe978F22157048E5DB8E5d07971376e86671672B2, is labeled “Zama: cUSDC Token” on Etherscan and in Zama’s personal documentation. It capabilities as a pooled confidential USDC wrapper utilizing totally homomorphic encryption to obscure token balances. Circle executed the blacklist round 1:08 UTC, halting redemptions for all customers holding cUSDC within the contract.

The freeze reportedly stems from a class-action lawsuit filed Could 28, 2026, within the U.S. District Courtroom for the Northern District of California. The case, Newton AC/DC Fund LP et al. v. Maxim Ermilov et al., alleges Ermilov misappropriated greater than $15 million from In a single day Finance’s treasury. Choose P. Casey Pitts issued a short lived restraining order on Could 29, directing Circle to blacklist property linked to the alleged switch. A full listening to is scheduled for June 1, 2026.

Onchain investigator ZachXBT reported on the freeze by way of his Telegram channel and traced the core deposit. He discovered that pockets 0xf7Fcc767dE537953b3519D4b3097A24A6dFE1c84, tied to In a single day Finance treasury operations, deposited roughly 12.4 million USDC into Zama’s cUSDC contract on Could 11, 2026. That single influx represents greater than 99% of the frozen steadiness.

“Seems like Circle blacklisted the Zama (privateness protocol) Confidential USDC (cUSDC) contract on Ethereum 7 hours in the past, which has frozen 12.6M USDC of person funds,” ZachXBT wrote. He known as the motion precedent-setting, including: “General, I really feel unhealthy for Zama customers who’ve now been not directly impacted with this mess of a U.S. civil case.”

In a single day Finance is a DeFi yield platform that issued the USD+ stablecoin and OVN governance token, elevating roughly $850,000 in seed funding in 2022. After OVN holders voted by way of Snapshot to liquidate and distribute the treasury following rug-pull allegations, roughly $15.77 million, together with the $12.5 million in USDC, was moved from treasury-linked wallets earlier than the vote finalized.

Ermilov, a Russian citizen based mostly within the Center East, disputes these characterizations and says the wallets held private and workforce funds, the OVN token carries no safety standing, and the transfer to Zama was for privateness and private safety causes.

Among the many plaintiffs is Patagon Administration, a Delaware entity related to Diogenes Casares and a sample of hostile DAO takeovers involving protocols together with Fei, Rome, Temple, and Spartacus. ZachXBT flagged Patagon’s involvement and famous the group’s historical past of asset freezes and DAO unwindings.

Zama says it obtained no advance discover from Circle or the courtroom earlier than the blacklist was executed. The contract had been publicly deployed for roughly 154 days, and the depositing deal with confirmed no sanctions flags or KYT alerts on the time of deposit. Rand Hindi, Zama’s co-founder and CEO, said plainly: “This has nothing to do with Zama, or privateness.”

Hindi thanked ZachXBT for serving to establish the basis trigger and confirmed that each one deposit exercise was seen on public block explorers. Zama has since paused its cUSDC, cUSDT, and cWETH wrappers whereas its authorized workforce engages U.S. counsel. The workforce says it’ll isolate the flagged deposit to revive entry for customers not linked to the In a single day dispute.

The scenario revives ongoing criticism of Circle’s blacklisting practices. ZachXBT beforehand reported, the month prior, that Circle froze greater than 16 scorching wallets belonging to companies and protocols with out clarification. Critics have additionally famous inconsistencies in response occasions, pointing to slower motion throughout change hacks in comparison with quicker execution on civil courtroom orders.

Zama describes its protocol as infrastructure. The system obscures token balances utilizing FHE however doesn’t cover sender or recipient addresses, and the corporate has been specific that it doesn’t perform as a mixer or tumbler. The court-ordered freeze hit a pooled contract moderately than the precise depositor’s deal with, which means unrelated customers misplaced entry to their funds.

The June 1 listening to might produce an isolation order or partial launch. Till then, roughly $12.6 million in USDC stays locked, and the case raises direct questions in regards to the scope of centralized stablecoin blacklisting in public, commingled DeFi contracts.