A U.S. Court Just Unfroze $12.5M in Crypto — Here Is What Actually Happened

 



A U.S. federal court reversed a temporary restraining order that had frozen $12.5 million in USDC inside a privacy protocol called Zama. The freeze lasted only days, but the story behind it cuts to the heart of how centralized stablecoins and decentralized finance actually coexist.

Here is the short version. On May 11, 2026, a wallet connected to a separate DeFi project called Overnight Finance deposited roughly 12.4 million USDC into Zama's confidential USDC contract, called cUSDC. That single deposit represented over 99% of the entire contract's value because cUSDC was newly launched with minimal prior deposits.

It later turned out that wallet was the subject of a civil lawsuit in California. Plaintiffs in that case, which involves allegations of misappropriated funds from Overnight Finance's treasury, went to court and got a temporary restraining order. The court directed Circle, the company behind USDC, to freeze the contract. Circle did so on May 30, 2026, with no warning to Zama at all.

The problem is how cUSDC works. It is a pooled wrapper contract. Freezing it locked every user's funds inside, not just the disputed deposit. Anyone holding cUSDC lost access, regardless of whether they had anything to do with Overnight Finance.

The same court reversed that order on June 1, finding the freeze was unwarranted. Zama co-founder Rand Hindi confirmed on X that all systems are now back to normal.

What happens next matters for all of DeFi. Zama announced it will automatically mirror any freeze Circle applies to a USDC address, so that the corresponding cUSDC balance freezes too. The protocol is also building a compliance council and working with KYT providers to monitor transactions in a privacy-preserving way.

This was not just a Zama problem. Any protocol holding pooled freezable stablecoin collateral, AMMs, bridges, lending protocols, faces the same legal exposure if one depositor's address ends up in a lawsuit.

For a full breakdown of the compliance changes, the legal timeline, and what the FHE-based privacy model means for DeFi going forward, read the full report at CryptoNewsLive.org.

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