Circle freezes $12.6M in Zama’s confidential USDC

On May 30, Circle blacklisted Zama’s confidential USDC (cUSDC) contract on the Ethereum network, freezing roughly $12.6 million and preventing holders from redeeming cUSDC for standard USDC. The action stopped on-chain conversions and locked funds held by the cUSDC proxy contract.

Circle maintains a blacklist within the USDC smart contract that allows authorized company accounts to add addresses and contracts. Blacklisted addresses cannot send or receive USDC. The address blocked on May 30 is an ERC-1967 proxy that holds on-chain USDC reserves backing Zama’s cUSDC token.

Zama uses fully homomorphic encryption to hide balances and transfer amounts on public blockchains, but the proxy contract keeps the underlying USDC on-chain and therefore can be blocked by Circle.

On-chain investigator ZachXBT traced the frozen funds to a wallet that deposited about $12.4 million into Zama on May 11. That wallet appears linked to Overnight Finance, which recently held a Snapshot governance vote to distribute treasury funds after members alleged the team prepared a potential rug pull. Circle has not provided a public explanation for the blacklist.

Because the proxy commingles reserves for multiple cUSDC holders, the blacklist affects all users of the contract, not just any single targeted wallet. Affected holders cannot redeem their cUSDC while the blacklist remains in place.

Circle froze USDC tied to a sanctioned mixer in 2022 after U.S. Treasury action; past freezes have followed sanctions, court orders or suspected illicit activity. The company has not said whether those criteria apply in this case.

Zama CEO Rand Hindi wrote on social media, “We are investigating the cUSDC contract freeze. I will update here as the situation progresses.”

Holders currently have no clear path to recover the frozen funds unless Circle reverses the blacklist or provides a remediation process.