Circle has blacklisted a $12.6 million USDC contract address belonging to Zama, an Ethereum-based privacy protocol, according to blockchain investigator ZachXBT. The freeze appears linked to Zama's participation in governance voting at Overnight Finance regarding treasury distribution, though the Zama team reportedly received no advance notice before the action was taken.
The blacklisting has reignited scrutiny of Overnight Finance, a project that previously faced accusations of a rug pull from some users. ZachXBT identified Patagon Management, a firm known for hostile DAO takeover attempts, as one of the plaintiffs in a civil lawsuit against Overnight Finance. The investigator suggested that Patagon may have misrepresented the connection between the frozen Zama address and the Overnight Finance contract to the court.
The incident highlights the risks posed by centralized stablecoin issuers holding freeze authority over smart contracts. While Circle has not publicly commented on its reasoning, the timing—coinciding with Zama's governance participation—suggests potential regulatory or legal pressure rather than standard compliance procedures. The frozen funds represent a significant portion of Zama's accessible liquidity.