When Privacy Meets Blacklist: A $12.6M Farce in the Land of DeFi

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Ah, the delightful irony of modern finance! Circle, with a flourish worthy of a Victorian melodrama, has blacklisted a smart contract tied to Zama’s privacy protocol, freezing a sum of $12.6 million in USDC. All this, my dear reader, at the behest of a U.S. federal court order, connected to a civil lawsuit against one Maxim Ermilov, the enigmatic founder of Overnight Finance. Truly, a tale as rich as it is absurd.

  • Key Takeaways:

  • Circle, with a dramatic swoop, blacklisted Zama’s cUSDC Ethereum contract on May 30, 2026, leaving $12.6M in pooled USDC funds in a state of frozen despair.
  • A U.S. federal court’s temporary restraining order, tied to Newton AC/DC Fund LP’s lawsuit against Maxim Ermilov, triggered this financial freeze.
  • Zama, ever the optimist, plans to isolate the flagged deposit before a June 1 hearing, in a valiant effort to restore access for the innocent bystanders.

Circle’s Zama Blacklist: A $12.6M Freeze That Leaves Us Pondering the Follies of DeFi Contracts

The frozen address, 0xe978F22157048E5DB8E5d07971376e86671672B2, labeled with the quaint moniker “Zama: cUSDC Token” on Etherscan and in Zama’s own documentation, serves as a pooled confidential USDC wrapper. It employs the marvel of fully homomorphic encryption to obscure token balances, a feat of modern wizardry. Circle, with a stroke of its digital pen, executed the blacklist around 1:08 UTC, halting redemptions for all users holding cUSDC in the contract. A truly Dickensian turn of events.

This freeze, we are told, stems from a class-action lawsuit filed on May 28, 2026, in the U.S. District Court for the Northern District of California. The case, Newton AC/DC Fund LP et al. v. Maxim Ermilov et al., alleges that Ermilov misappropriated more than $15 million from Overnight Finance’s treasury. Judge P. Casey Pitts, with a flourish of judicial authority, issued a temporary restraining order on May 29, directing Circle to blacklist assets linked to the alleged transfer. A full hearing is scheduled for June 1, 2026, where, no doubt, further drama will unfold.

Rand Hindi, Zama’s co-founder and CEO. Image source: X

Onchain investigator ZachXBT, ever the vigilant sleuth, reported on the freeze via his Telegram channel and traced the core deposit. He discovered that wallet 0xf7Fcc767dE537953b3519D4b3097A24A6dFE1c84, tied to Overnight Finance treasury operations, deposited roughly 12.4 million USDC into Zama’s cUSDC contract on May 11, 2026. This single inflow, my dear reader, represents more than 99% of the frozen balance. A truly staggering figure, is it not?

“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 wrote, with a tone of bemused resignation. He called the action precedent-setting, adding: “Overall, I feel a pang of sympathy for Zama users who have now been indirectly ensnared in this mess of a U.S. civil case.”

Overnight Finance, a DeFi yield platform that issued the USD+ stablecoin and OVN governance token, raised roughly $850,000 in seed funding in 2022. After OVN holders voted via Snapshot to liquidate and distribute the treasury following rug-pull allegations, approximately $15.77 million, including the $12.5 million in USDC, was moved from treasury-linked wallets before the vote finalized. A financial ballet, if ever there was one.

Ermilov, a Russian citizen based in the Middle East, disputes these characterizations with the fervor of a man wronged. He claims the wallets held personal and team funds, that the OVN token carries no security status, and that the move to Zama was for privacy and personal security reasons. A tale of intrigue, indeed.

Among the plaintiffs is Patagon Management, a Delaware entity associated with Diogenes Casares and a pattern of hostile DAO takeovers involving protocols including Fei, Rome, Temple, and Spartacus. ZachXBT flagged Patagon’s involvement and noted the group’s history of asset freezes and DAO unwindings. A cast of characters worthy of a Wildean comedy.

Zama, poor Zama, claims it received no advance notice from Circle or the court before the blacklist was executed. The contract had been publicly deployed for roughly 154 days, and the depositing address showed no sanctions flags or KYT alerts at the time of deposit. Rand Hindi, Zama’s co-founder and CEO, stated with admirable brevity: “This has nothing to do with Zama, or privacy.”

Hindi thanked ZachXBT for helping identify the root cause and confirmed that all deposit activity was visible on public block explorers. Zama has since paused its cUSDC, cUSDT, and cWETH wrappers while its legal team engages U.S. counsel. The team says it will isolate the flagged deposit to restore access for users not connected to the Overnight dispute. A noble effort, though one wonders if it will be enough.

This situation, my dear reader, revives ongoing criticism of Circle’s blacklisting practices. ZachXBT previously reported that Circle froze more than 16 hot wallets belonging to businesses and protocols without explanation. Critics have also noted inconsistencies in response times, pointing to slower action during exchange hacks compared to faster execution on civil court orders. A double standard, if ever there was one.

Zama describes its protocol as infrastructure. The system obscures token balances using FHE but does not hide sender or recipient addresses, and the company has been explicit that it does not function as a mixer or tumbler. The court-ordered freeze hit a pooled contract rather than the specific depositor’s address, meaning unrelated users lost access to their funds. A tragic comedy of errors, if ever there was one.

The June 1 hearing may produce an isolation order or partial release. Until then, roughly $12.6 million in USDC remains locked, and the case raises direct questions about the scope of centralized stablecoin blacklisting in public, commingled DeFi contracts. A conundrum, indeed, and one that leaves us all pondering the nature of privacy, finance, and the law in this brave new world.

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2026-05-30 18:28