Circle has frozen Zama's cUSDC contract on Ethereum, locking approximately 12.6 million USDC - about $13 million - after on-chain investigator ZachXBT linked the address to the Overnight Finance project amid rug pull allegations.
Zama, a cryptography firm specializing in fully homomorphic encryption, acknowledged the freeze. CEO Rand Hindi said the team is investigating and will share updates as more information becomes available.
Zama's cUSDC, built on the ERC-7984 standard, was designed to enable encrypted balances and transfers on public blockchains like Ethereum, allowing users to hold and transfer stablecoins without exposing balances publicly. The freeze, however, underscores a critical reality: Circle still controls the underlying USDC and can blacklist addresses at will. Encrypted balances do not mean encrypted compliance powers.
For investors, this event highlights that privacy-wrapper protocols inherit the counterparty risk of the underlying stablecoin. A single freeze can lock millions in value without recourse through the protocol's governance. Projects building confidential applications must now choose between decentralized stablecoins without freeze capabilities or accepting that their privacy features operate within centralized issuers' compliance boundaries.