A US court lifted a temporary freeze on approximately $12.5 million in USDC held in privacy protocol Zama’s cUSDC smart contract, clearing the way for the protocol to launch its confidential stablecoin product and implement accelerated compliance measures.
The freeze, obtained through a temporary restraining order connected to a dispute involving Overnight Finance stakeholders, had frozen the entire smart contract pool after Circle received the court order. Zama was not a party to the underlying case, but the deposit address became the subject of litigation. Plaintiffs sought a blanket freeze because the deposit represented more than 99% of the contract’s total value shielded.
Rand Hindi, Zama’s co-founder, announced the court’s decision on X. “The same court has now lifted the freeze, determining that it was unwarranted,” Hindi said. The court concluded that freezing an entire smart contract pool imposed disproportionate harm on uninvolved users.
Zama plans to launch its cUSDC product later this month, beginning with $5 million in USDC from the protocol’s own treasury shielded on the network. The protocol preserves visible sender and recipient addresses while encrypting balances and amounts, allowing users to transact privately while maintaining regulatory visibility into transaction participants.
Compliance Framework Acceleration
The protocol announced it will accelerate compliance measures including automatic enforcement of Circle’s freeze orders on corresponding confidential USDC, establishment of a compliance council, and integration of additional compliance and transaction-monitoring tools. Jeremy Bradley, Zama’s chief operating officer, stated the measures accelerate an existing roadmap rather than represent a change in strategy.
“We always designed the protocol with programmable compliance in mind,” Bradley said.
The incident highlighted a structural vulnerability across decentralized finance. Bradley noted that “automated market makers, lending protocols, bridges, and anyone holding USDC in a pooled contract is effectively one court order away from this exact situation.”
Hindi characterized the freeze as a systemic risk affecting the broader ecosystem. “This could have happened to any protocol holding freezable assets,” he said.
Circle was acting pursuant to the court order when it froze the funds. The court’s decision to lift the freeze without requiring Zama’s participation in the underlying litigation established that blanket freezes on shared contract pools create collateral damage to unrelated parties and their users.
Zama’s compliance framework represents one privacy protocol’s approach to operating within the existing regulatory and technical constraints of stablecoin infrastructure. The accelerated timeline reflects both the court’s ruling and the protocol’s commitment to launching its confidential USDC wrapper with enhanced safeguards in place.
