Circle Freezes $12.6 Million in USDC in Zama Privacy Contract Under Court Order

Zama’s cUSDC uses fully homomorphic encryption to conceal balances and transaction amounts, but the underlying asset remains USDC issued by Circle and can be frozen under a court order. The dispute stems from a lawsuit in which Newton AC/DC Fund LP accused Overnight Finance founder Maxim Ermilov of misappropriating more than $15 million. The episode shows that privacy-focused DeFi remains subject to the control of centralized issuers.

On May 11, 2026, wallets linked to Overnight Finance deposited about $12.4 million into Zama. A U.S. court issued a temporary restraining order on May 29, after which Circle froze about $12.6 million held in the cUSDC contract. On June 2, Zama said the court had found a blanket freeze improper and lifted it, allowing the contract to resume operations. Zama also said it would accelerate the development of automated compliance and monitoring mechanisms.