Circle Freezes $12.6M in Zama’s Confidential USDC

On May 30, Circle blacklisted the Zama confidential USDC (cUSDC) contract on Ethereum, freezing roughly $12.6 million and preventing holders from redeeming cUSDC for standard USDC.

Circle’s USDC smart contract contains a built-in blacklist that authorized Circle accounts can use to block addresses from sending or receiving the stablecoin. The Zama cUSDC contract is an ERC-1967 proxy that holds USDC on behalf of users of Zama’s privacy layer. Zama uses fully homomorphic encryption to conceal balances and transfer amounts on public blockchains. While the proxy remains blacklisted, cUSDC cannot be converted back into liquid USDC.

On-chain investigator ZachXBT traced the frozen funds to a wallet that deposited about 12.4 million USDC into Zama on May 11. That wallet appears to be linked to Overnight Finance, which recently held a governance vote to distribute treasury funds after token holders alleged the team planned to abandon the project.

Circle has not provided a public explanation for the blacklist. In 2022 the company blacklisted USDC tied to the Tornado Cash mixer after the U.S. Treasury sanctioned that service.

The blacklist affects all cUSDC balances held within the frozen proxy contract. Users with otherwise unrelated holdings in the same contract are unable to access or redeem those tokens while the freeze remains active. On-chain records do not show a clear path for affected holders to move or recover funds while the blacklist is in place.

Zama CEO Rand Hindi wrote on X that the team is investigating the freeze and will provide updates: “We are investigating the cUSDC contract freeze. I will update here as the situation progresses.”

Earlier this year Circle discussed reversible USDC transactions that could allow rollbacks in some situations. The use of centralized, fiat-backed stablecoins in privacy-focused protocols has involved decisions about issuer controls and custodial access.