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The move, which reportedly occurred around seven hours before the disclosure, affected Zama’s Confidential USDC (cUSDC) contract and has left users seeking answers about why the action was taken and whether the protocol had prior notice.
According to the report, the frozen contract address — 0xe978F22157048E5DB8E5d07971376e86671672B2 — is publicly documented within Zama’s protocol materials and can be identified through blockchain explorers.
While Circle has not publicly explained the freeze, the incident has intensified discussions surrounding the USDC Ban List, centralized control mechanisms, and their impact on decentralized finance users.
The controversy began when ZachXBT disclosed that Circle had allegedly blacklisted Zama’s Confidential USDC contract, preventing access to approximately $12.6 million worth of USDC.
“Looks like Circle blacklisted the Zama (privacy protocol) Confidential USDC (cUSDC) contract on Ethereum 7 hours ago which has frozen 12.6M USDC of user funds.” — ZachXBT
The investigator noted that the contract had not been hidden or obscured from public view. Instead, it was openly identified within protocol documentation and blockchain records.
“The cUSDC contract is publicly labeled in the protocol docs and on block explorers.” — ZachXBT
The development immediately placed the USDC Ban List under the spotlight because the freeze did not target a single wallet but rather a protocol contract that reportedly contained funds belonging to multiple users. Critics argue that such actions can create unintended consequences for participants who may have no direct connection to the underlying dispute that triggered enforcement measures.
Further analysis conducted after the initial report suggested that a large portion of the frozen assets may have originated from another source.
According to ZachXBT, wallet address 0xf7Fcc767dE537953b3519D4b3097A24A6dFE1c84 deposited approximately 12.4 million USDC into Zama on May 11, 2026.
The address was reportedly linked to Overnight Finance, a decentralized finance project that recently faced controversy following allegations from some token holders that the team was involved in misconduct.
The protocol had reportedly conducted a governance vote concerning treasury fund distribution amid those allegations.
While the exact relationship between the deposited funds and Circle’s decision remains unclear, the timing has drawn attention from observers attempting to understand the rationale behind the freeze.
The situation has fueled debate over how the USDC Ban List is applied and whether protocol-level actions should be taken when funds from multiple users are commingled within a single smart contract.
One of the most significant concerns raised by the incident involves transparency. ZachXBT pointed to previous cases involving Circle and suggested that the company has frozen multiple addresses in the past without publicly explaining the reasons.
“It still remains unclear why Circle froze the USDC however in March 2026 I reported how Circle froze 16+ hot wallets for businesses, protocols, services without providing any transparency.” — ZachXBT
The lack of a public explanation has become a focal point in discussions surrounding the USDC Ban List. Market participants argue that stablecoin issuers have legal and regulatory obligations, but many believe affected users deserve greater clarity when large sums are frozen.
The concerns deepened after a second update indicated that the Zama team may not have been informed before the enforcement action occurred.
“Update 2: It gets much worse from my understanding the Zama team does NOT appear to have been notified of the Circle freeze prior.” — ZachXBT
If accurate, the claim could raise broader questions about communication procedures and the operational risks protocols face when integrating centralized stablecoins.
The incident has evolved into a larger conversation about the balance between compliance and decentralization. ZachXBT noted that one of the plaintiffs involved in the civil case against Overnight Finance is Patagon Management, an entity he described as being known for aggressive DAO-related strategies.
While no direct connection between the litigation and Circle’s decision has been publicly established, the overlap has added another layer of complexity to the story.
For many observers, the case represents a significant precedent. The USDC Ban List has traditionally been associated with freezing individual wallets linked to sanctions, hacks, or legal disputes.
Freezing a protocol contract that reportedly contains assets from numerous users introduces a different set of challenges, particularly for privacy-focused and decentralized applications.
The broader concern is that users who were not involved in any dispute may now find themselves indirectly affected by actions taken against a protocol-level address.
As a result, the USDC Ban List is once again at the center of a debate over transparency, due process, and the degree of control centralized issuers can exercise over assets circulating within decentralized ecosystems.
Until Circle provides a formal explanation, questions surrounding the freeze, the affected users, and the future application of the USDC Ban List are likely to remain unresolved.
Primary Source: ZachXBT Telegram channel, Investigations by ZachXBT.
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