Stablecoin issuer Circle froze $12.6 million in USDC dollar-pegged tokens linked to privacy protocol Zama’s confidential USDC smart contract on Saturday, according to onchain sleuth ZachXBT.
The smart contract is “publicly labeled” on block explorers and the privacy protocol’s technical documentation, ZachXBT said.
The exact reason for the freeze is “unclear,” he said, adding 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:
“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.”
Source: ZachXBT
“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.
The company has come under fire for failing to freeze funds following major hacks of crypto platforms, and freezing wallets of legitimate crypto projects and protocols without giving those projects prior notice.
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Circle comes under fire for freezing legitimate user funds, but not stolen crypto
In March, ZachXBT accused Circle of “wrongfully” freezing 16 stablecoin wallets 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 said.
He later added that Circle failed to freeze about $420 million in 15 separate cases involving fraudulent transactions or funds stolen through crypto hacks since 2022.
A list of 15 incidents since 2022, in which Circle failed to freeze funds, according to ZachXBT. Source: ZachXBT
These incidents included the failure to freeze $232 million 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 filed a class action lawsuit 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.
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