Zama Freeze Locks $12.6M After Hack-Linked Deposit

• Circle’s compliance system froze Zama’s smart contract after funds from the Overnight Finance hack entered the protocol
• ZAMA’s token dropped 18% amid inaccessible user funds and ongoing legal negotiations

On May 31, 2026, Blockworks reported that Zama’s confidential USDC (cUSDC) smart contract was frozen after a wallet tied to the Overnight Finance exploit deposited over $12.5 million in USDC—nearly all the protocol’s liquidity—into Zama’s platform. Circle’s automated compliance system flagged and blacklisted the entire cUSDC contract address on Ethereum, resulting in roughly $12.6 million in user funds becoming locked. The freeze affected not only the hack-related funds but also assets belonging to legitimate users.

Circle’s system halted the entire Zama smart contract as a precaution, instead of isolating just the funds linked to the Overnight Finance hack. Rand Hindi, Zama’s co-founder, clarified on X (formerly Twitter) that the freeze was unrelated to privacy features of the protocol. According to Hindi, cUSDC does not hide wallet addresses or transaction flows; it only shields on-chain balance amounts, making the contract’s transaction history transparent and traceable.

ZAMA’s token price fell by 18%, dropping from $0.039 to $0.032 in about five and a half hours, while trading volume rose 61% to $73.9 million—nearly matching the $77.5 million market cap. The token later stabilized at $0.035 but remained below pre-incident levels. Zama paused additional smart contracts, including cUSDT and cWETH, and announced plans for a post-mortem and a new freeze-response framework.

The incident rattled user confidence in Zama and the broader Ethereum stablecoin ecosystem, highlighting risks from third-party compliance blacklists that can freeze funds of uninvolved users. Fund recovery hinges on negotiations among Zama, Circle, and the court overseeing the restraining order. If Zama’s team cannot persuade stakeholders to restrict the blacklist to the hack-linked addresses, all cUSDC user funds may remain locked.

As of May 31, 2026, 14:08 UTC, USD Coin (USDC) trades at $1.00, with a -0.003% change in 24-hour trading volume, according to market data.