On-chain investigator ZachXBT has revealed that the recent freezing of funds within the Zama privacy protocol is connected to a significant transaction involving Overnight Finance. Following a detailed trace of Ethereum blockchain activity, the stablecoin issuer Circle took action to blacklist the cUSDC contract associated with Zama. This development follows a series of controversial events surrounding Overnight Finance, a project that has recently faced intense scrutiny from the decentralized finance (DeFi) community regarding its governance and management of treasury assets.
Tracing the Flow of Frozen Assets
The investigation indicates that the blacklisting occurred after a specific transfer was flagged by security analysts. On May 11, 2026, an Ethereum address linked to the Overnight Finance ecosystem deposited approximately 7.4 million USDC into the Zama cUSDC contract. Zama is known for its work in Fully Homomorphic Encryption (FHE) to provide privacy for smart contracts. The interaction between these two protocols led to the immediate intervention by Circle, the centralized entity responsible for the USDC stablecoin, effectively locking the liquidity within the contract.
The context surrounding this transfer is particularly notable due to the recent history of Overnight Finance:
- The project team was previously accused of absconding with community funds, leading to a loss of investor confidence.
- A governance vote was recently initiated on the Snapshot platform regarding the future allocation of remaining treasury assets.
- Analysts suggest the deposit into Zama may have been an attempt to obfuscate the origin of the funds.
Implications for Privacy Protocols and Governance
The freezing of the cUSDC contract highlights the ongoing tension between privacy-preserving technologies and regulatory compliance within the blockchain space. As Circle continues to enforce its blacklisting policy, protocols like Zama, which aim to provide anonymity or encryption, often become focal points for legal and security interventions. The situation is further complicated by the internal instability of Overnight Finance, where the team’s motives have been questioned by both users and independent researchers.
After tracing and analysis, the cUSDC contract of privacy protocol Zama on Ethereum was blacklisted by Circle. This appears linked to a deposit of 7.4 million USDC from an address associated with Overnight Finance.
The current status of the frozen 7.4 million dollars remains uncertain as the community awaits further clarification from the Zama team and Circle. This incident serves as a reminder of the risks associated with governance vulnerabilities and the potential for centralized issuers to intervene in decentralized protocols when suspicious activity is detected on-chain. Investors are advised to monitor official communications from the involved parties as the legal and technical investigation continues.
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