Privacy-focused blockchain protocol Zama says it will accelerate compliance measures and proceed with its confidential USDC launch after a US court lifted a temporary freeze on about $12.5 million in USDC held in its cUSDC smart contract.
The freeze, obtained in connection with a dispute involving an unrelated project, Overnight Finance, was lifted after the court determined it was unwarranted. Zama co-founder Rand Hindi confirmed the cUSDC contract and all underlying USDC have returned to normal operation.
“The same court has now lifted the freeze, determining that it was unwarranted,” Hindi wrote. He argued the episode “could have happened to any protocol holding freezable assets,” including decentralized exchanges, lending protocols and bridges.
The case highlights tensions between privacy-focused blockchain infrastructure and centralized stablecoins whose issuers can freeze assets under court order.
According to Hindi, approximately $12.5 million in USDC was deposited into Zama's confidential USDC wrapper on May 11. The deposit address later became subject to litigation involving Overnight Finance. Because the deposit represented more than 99% of the contract's total value shielded, plaintiffs sought a blanket freeze order through Circle.
Jeremy Bradley, Zama's chief operating officer, said the court concluded freezing an entire smart contract pool imposed disproportionate harm on uninvolved users. He noted Zama demonstrated that, because its protocol preserves visible sender and recipient addresses while encrypting balances, the disputed account could be isolated and frozen directly.
In response, Zama will accelerate compliance measures, including automatic enforcement of actions taken by underlying asset issuers. If Circle freezes a USDC address, the corresponding confidential USDC will also be frozen. The protocol also plans to establish a compliance council and integrate additional monitoring tools.
Bradley said the measures accelerate an existing roadmap, adding that the incident made deploying those tools more urgent and will help provide institutions with greater confidence.
Despite the incident, Hindi says Zama remains committed to building on USDC and plans to launch its cUSDC product later this month, including shielding $5 million of USDC from its own treasury.