Circle Just Froze $12.6M Inside a DeFi Privacy Protocol and Nobody Was Warned

 



Circle, the issuer of USDC, blacklisted a live Ethereum smart contract on May 30, 2026, freezing approximately $12.6 million in user funds held inside Zama's confidential USDC wrapper. The action, executed at 01:08 UTC, came without any advance notice to Zama's team.

The freeze traces back to a U.S. federal court temporary restraining order connected to a civil lawsuit filed against Overnight Finance founder Maxim Ermilov. The suit, Newton AC/DC Fund LP v. Maxim Ermilov et al., alleged Ermilov misappropriated over $15 million from Overnight Finance's treasury. Judge P. Casey Pitts directed Circle to blacklist wallets tied to the alleged theft.

The problem is that the Overnight Finance-linked wallet had deposited $12.4 million USDC into Zama's cUSDC contract on May 11, well before any sanctions flags existed on the address. Since that single deposit made up more than 99% of all funds in the contract at the time, the court order targeted Zama's entire wrapper rather than isolating the flagged wallet.

Rand Hindi, co-founder and CEO of Zama, confirmed the team received zero warning before the freeze went live. Blockchain investigator ZachXBT identified the root cause through on-chain analysis and traced the deposit to the Overnight Finance-linked wallet.

This is not a Zama-specific problem. It is a DeFi infrastructure problem. Any protocol that pools user funds into a shared smart contract and relies on USDC faces the same exposure. One court order targeting one depositor can lock every other user's funds without warning and without recourse until courts intervene.

Zama has paused its cUSDC, cUSDT, and cWETH contracts while it works through the situation. A court hearing is scheduled for June 1, 2026.

The ZAMA token fell 18% in the 24 hours following the news. Trading volume surged over 61% as holders scrambled to exit positions.

For a full breakdown of the incident, the legal background, and what it means for DeFi composability going forward, read the complete coverage at CryptoNewsLive.org. The piece includes all source links, on-chain references, and direct statements from Zama's CEO as the situation developed in real time.

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