Judicial Ruling Compels Asset Lockdown of Nearly 13 Million Dollars in Stablecoin Tethered to Anonymity Platform
In a sudden and decisive move, Circle, the issuer of the USDC stablecoin, put a freeze on a substantial $12.6 million worth of assets on May 31 at 1:08 a.m. UTC. This drastic measure was taken in response to a federal court order, which instructed the company to blacklist a smart contract belonging to Zama, a firm specializing in blockchain privacy solutions. The contract in question held a total of 12,606,386 USDC tokens, effectively immobilizing them.
According to reports, the contract was linked to Overnight Finance, a decentralized finance protocol that has been embroiled in controversy. On May 11, a wallet associated with Overnight Finance deposited approximately $12.4 million in USDC into Zama's confidential smart contract. This transaction is now at the center of a class action lawsuit filed by three investment funds holding Overnight Finance's OVN tokens. The plaintiffs allege that Maxim Ermilov, the founder of Overnight Finance, transferred over $15.77 million from shared treasury wallets, with $12.5 million of it being in USDC, just before a governance proposal was approved.
Ermilov has denied any wrongdoing, claiming that the transferred funds were his personal assets and those of his team, rather than communal treasury resources. He also stated that the transfer to Zama's privacy system was necessary to conceal the balances from the public and minimize personal security risks, citing recent incidents of cryptocurrency holders being kidnapped.
The court order to freeze the USDC holdings was issued by U.S. District Judge P. Casey Pitts on May 29, and Circle complied with the directive. However, due to the nature of Zama's confidential USDC contract, the freeze affected not only the disputed deposit but also other users of the platform who had no connection to the lawsuit. Zama's CEO, Rand Hindi, revealed that his company received no prior notice of the freeze and that the contract was "caught in the crossfire" of another case.
The incident has led Zama to temporarily suspend its cUSDC, cUSDT, and cWETH contracts while it investigates the matter. The company has also stated that it is working to segregate the flagged wallet address and restore access to users who should not be affected. Meanwhile, the plaintiffs have offered to provide compensation to innocent parties impacted by the freeze.
This development has raised questions about Circle's approach to wallet blacklisting, with some critics arguing that the company's methods can lead to unintended consequences. Earlier this year, it was alleged that Circle had improperly frozen 16 wallets linked to legitimate businesses, and that the company had failed to freeze assets in several high-profile fraud and hacking cases, including the recent Drift Protocol security breach. A hearing on the emergency restraining order is scheduled to take place on June 1, 2026.