Circle froze $12.6M in Zama's cUSDC contract due to a court order in an Overnight Finance lawsuit, trapping user funds from a commingled deposit without notifying Zama.
Regulation & Gov ·
Circle froze approximately $12.6 million in user funds held within Zama's confidential USDC (cUSDC) contract following a court order tied to a separate civil lawsuit against Overnight Finance. The freeze stemmed from a Temporary Restraining Order obtained by plaintiffs including Patagon Management, after a wallet linked to Overnight Finance had deposited roughly $12.4 million USDC into Zama's contract in May. The two projects' funds became commingled within the same smart contract address.
Zama's team was not notified by Circle or the plaintiffs before the freeze took effect. According to available information, the plaintiffs may have mischaracterized the frozen address to the court, portraying it in a way that overstated its direct connection to Zama's protocol operations and justified the asset seizure. Patagon Management, one of the plaintiffs, is noted for pursuing aggressive actions against crypto protocols.
The incident raises questions about the precedent it sets: a legal dispute involving one project can now lock up uninvolved users' funds deposited in a separate protocol without advance warning. The scope of potential liability for commingled deposits and Circle's role in assessing the legitimacy of freeze requests remain unclear, as does whether Zama intends to pursue recovery or legal recourse.