Stablecoin

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Zama

ZachXBT

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Stablecoin issuer Circle on Saturday froze $12.6 million in USDC dollar-pegged tokens linked to privacy protocol Zama’s confidential USDC smart contract, according to onchain sleuth ZachXBT.
The smart contract is “publicly labeled” on block explorers and the privacy protocol’s technical documentation, ZachXBT <a href="https://t.me/investigations/332" rel="noopener noreferrer nofollow">said</a>.&nbsp;
The exact reason for the freeze is “unclear,” he said, <a href="https://t.me/investigations/333" rel="noopener noreferrer nofollow">adding</a> that wallets linked to the Overnight Finance decentralized finance (DeFi) protocol deposited $12.4 million into the Zama protocol on May 11, 2026. He said:
<blockquote>
 “Overnight Finance held a governance vote recently to distribute treasury funds after holders alleged the team was rug-pulling. Regardless, it's precedent-setting to unilaterally freeze the contracts or addresses of a protocol where funds have been commingled with Zama users.”
</blockquote><img alt="Circle freezes $12.6M of USDC linked to privacy protocol Zama" height="1112" src="https://s3-images.ctmedia.io/media/content/screenshot-2026-05-30-at-20502-pm.png" width="1868">
Source: <a href="https://t.me/investigations/332" rel="noopener noreferrer nofollow">ZachXBT</a>
“From my understanding, the Zama team does not appear to have been notified of the Circle freeze prior,” he said. Cointelegraph reached out to Circle but did not receive a response by the time of publication.&nbsp;
The company has come under fire for <a href="https://cointelegraph.com/news/drift-280-million-hack-questions-circle-response" rel="noopener noreferrer nofollow">failing to freeze funds</a> following major hacks of crypto platforms, and freezing wallets of legitimate crypto projects and protocols without giving those projects prior notice.&nbsp;
Related: <a href="https://cointelegraph.com/news/tether-freezes-over-500m-usdt-30-days-blocksec-data-show" rel="noopener noreferrer nofollow">Tether freezes over $500M of USDT in 30 days, BlockSec data shows</a>
<h2 id="circle-comes-under-fire-for-freezing-legitimate-user-funds-but-not-stolen-crypto">Circle comes under fire for freezing legitimate user funds, but not stolen crypto</h2>
In March, ZachXBT accused Circle of “wrongfully” <a href="https://cointelegraph.com/news/zachxbt-claims-circle-wrongfully-freezing-exchange-wallets" rel="noopener noreferrer nofollow">freezing 16 stablecoin wallets</a> linked to online casinos and legitimate crypto exchanges.
The wallets were frozen in connection with ongoing civil court cases in the United States; however, the businesses and wallets “do not appear related at all,” he <a href="https://t.me/investigations/304" rel="noopener noreferrer nofollow">said</a>.
He later added that Circle failed to <a href="https://cointelegraph.com/news/zachxbt-accuses-circle-420m-compliance-failures-since-2022" rel="noopener noreferrer nofollow">freeze about $420 million </a>in 15 separate cases involving fraudulent transactions or funds stolen through crypto hacks since 2022.<img alt="Circle freezes $12.6M of USDC linked to privacy protocol Zama" height="983" src="https://s3-images.ctmedia.io/media/content/he-75emaeaentkz.jpeg" width="1200">
A list of 15 incidents since 2022, in which Circle failed to freeze funds, according to ZachXBT. Source: <a href="https://x.com/zachxbt/status/2040055757211885953" rel="noopener noreferrer nofollow">ZachXBT</a>
These incidents included the <a href="https://cointelegraph.com/news/drift-280-million-hack-questions-circle-response" rel="noopener noreferrer nofollow">failure to freeze $232 million</a> in stolen user funds from the April 2026 Drift Protocol hack, despite having a six-hour window to act, he said.
Following the incident, users <a href="https://cointelegraph.com/news/circle-faces-class-action-lawsuit-after-drift-protocol-hack" rel="noopener noreferrer nofollow">filed a class action lawsuit</a> against Circle for failing to freeze the funds, which flowed through Circle’s Cross-Chain Transfer Protocol (CCTP), a bridge that allows assets to move between different blockchain networks.
Magazine: <a href="https://cointelegraph-magazine.com/are-defi-devs-liable-illegal-activities-platforms/" rel="noopener noreferrer nofollow">Are DeFi devs liable for the illegal activity of others on their platforms?</a>

Circle freezes $12.6M of USDC linked to privacy protocol Zama

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