Circle Freezes $12.6M USDC in Zama Smart Contract Amid Overnight Finance Lawsuit

A recent judicial decision has led to a freeze of $12.6 million worth of USDC tokens stored in Zama's smart contract, affecting not only the intended parties but also innocent third-party users who had deposited funds into the contract.

According to sources, the court order was issued as part of a lawsuit against Overnight Finance, a decentralized finance yield-generating platform responsible for creating the USD+ stablecoin. The plaintiffs in the case claim that Overnight Finance's founder Maxim Ermilov allegedly misappropriated over $15 million from collective treasury wallets.

Due to the architecture of Zama's contract, which operates as a wrapper, the blacklisting action froze all pooled funds instead of isolating the single disputed deposit. This has resulted in additional users having their assets frozen, with some estimates suggesting that more than 99% of the contract's funds originated from the single disputed deposit.

The incident has sparked concerns about Circle's freezing practices and their potential impact on legitimate operations. In March, it was reported that Circle had improperly frozen 16 wallets associated with commercial operations in relation to a sealed civil matter. Furthermore, an investigation revealed that Circle failed to freeze approximately $420 million across 15 fraud and hacking incidents since 2022.

Zama's CEO Rand Hindi stated that the company received zero advance notification regarding the freeze and characterized the contract as being 'caught in a crossfire of another case.' The plaintiffs have assured the court that they are willing to provide compensation to make uninvolved parties whole. A judicial hearing addressing the emergency restraining order is set for June 1, 2026.