Circle freezes $12.6M in Zama cUSDC, sparking DeFi privacy debate

Circle froze Zama’s cUSDC contract, locking $12.6M after a deposit linked to Overnight Finance. The move highlights risks of centralized control in privacy-focused DeFi protocols.

Circle has blacklisted the Ethereum smart contract for Zama's Confidential USDC (cUSDC), freezing around $12.6 million in user funds. This action took place on May 30, 2026, shortly after a $12.4 million deposit from an address associated with Overnight Finance—a DeFi protocol currently facing allegations of treasury mismanagement and a class action lawsuit. On-chain investigator ZachXBT identified the connection, prompting Zama to clarify that the freeze was a result of external compliance measures, not a direct sanction against their protocol. The incident has ignited debate about the risks of building privacy-focused DeFi protocols on centralized stablecoins. Circle's unilateral move left users unable to access their assets, highlighting the ongoing tension between regulatory compliance and decentralization. The event has raised concerns about asset management, issuer control, and the potential for legal action as affected parties seek to recover their funds.