Circle Freezes About $12.6M in USDC Tied to Zama's Privacy Contract

Circle has reportedly frozen roughly $12.6 million in USDC linked to a confidential contract associated with Zama's privacy-focused protocol, according to onchain researcher ZachXBT. The contract is publicly identified on block explorers and referenced in Zama's technical documentation. Even so, the reason for the freeze has not been clearly disclosed. Researchers also flagged a notable transaction into the Zama ecosystem earlier this month. ZachXBT pointed to a May 11, 2026 deposit of about $12.4 million from Overnight Finance into the Zama protocol. Overnight Finance is a DeFi platform described as governance-friendly, and its treasury activity has drawn attention in related discussions. ZachXBT said the Zama contract's status is widely recognized across onchain tooling, and the freeze appears to have occurred without an explicit explanation from Circle. The researcher argued the move sets a contentious precedent when custodians freeze contracts or addresses tied to a protocol where funds are commingled with other users. "Overnight Finance held a governance vote recently to distribute treasury funds after holders alleged the team was rugpulling. Regardless, it's precedent-setting to unilaterally freeze the contracts or addresses of a protocol where funds have been commingled with Zama users," ZachXBT said. Circle told Cointelegraph it is reviewing the matter, but had not provided a detailed response as of publication. The episode adds to ongoing criticism of Circle's asset-freeze practices. Critics argue the company has sometimes frozen funds tied to legitimate projects without clear notice, while appearing slow to act in other high-profile security incidents. In March, ZachXBT alleged Circle wrongfully froze 16 stablecoin wallets linked to online casinos and other legitimate crypto ventures. While those wallets were tied to civil cases in the United States, the broader connection appeared tenuous to some observers, according to the researcher. ZachXBT has also compiled a broader set of incidents dating back to 2022 in which Circle allegedly failed to freeze funds tied to hacks or suspicious activity. One frequently cited example is the Drift Protocol breach in April 2026, where about $232 million in user funds reportedly were not frozen in a timely manner despite Circle's tooling and access to the Cross-Chain Transfer Protocol (CCTP). The Drift episode helped prompt a class-action filing against Circle focused on its handling of the incident and the movement of funds across bridges it operates. Taken together, these cases highlight a persistent tension in stablecoin oversight: rapid containment of illicit flows versus due-process protections for legitimate users. They also underscore how decisions by a centralized issuer can propagate across interconnected DeFi and crosschain ecosystems, particularly where tools like CCTP facilitate asset movement. Key points: - Circle reportedly froze about $12.6 million in USDC connected to Zama's confidential contract. - The rationale for the freeze has not been made clear. - The contract is publicly labeled on block explorers and described in Zama's documentation, according to ZachXBT. - Circle continues to face criticism over its approach to freezes, including claims of inconsistent action across hacks and legitimate projects. What to watch next: market participants will be looking for an official explanation from Circle, as the timing and detail of any disclosure could shape perceptions of stablecoin risk controls and the viability of privacy-enabled DeFi designs. Regulators may also weigh implications for financial censorship, recovery mechanisms, and user rights. More broadly, the case reinforces the importance of transparent governance and clear risk disclosures as funds move through multi-layer, cross-contract architectures. This article was originally published as "Circle blocks $12.6M USDC tied to Zama privacy protocol" on Crypto Breaking News.