A federal judge in the Northern District of California reversed the temporary restraining order that had pushed Circle to blacklist the privacy protocol’s wrapper, restoring funds to depositors caught in a civil dispute they were not party to.
A U.S. federal court reversed the freeze on Zama’s confidential USDC contract on Monday, restoring access to roughly $12.5 million in USDC that Circle had blacklisted on May 30 under a temporary restraining order tied to an Overnight Finance treasury suit.
Zama co-founder and CEO Rand Hindi confirmed the reversal on X Monday, writing that the court “determined the freeze was unwarranted” and that the cUSDC contract “along with all the USDC held in it, is now fully operational.”
The hearing was Judge P. Casey Pitts’s scheduled June 1 review of the ex parte TRO he issued three days earlier in Newton AC/DC Fund L.P. et al. v. Maxim Ermilov et al. The order had directed Circle to blacklist a wallet that had deposited the bulk of the cUSDC pool, a step that, because the contract co-mingles all depositors, locked every user inside.
The reversal is the first time a court-ordered Circle contract-level blacklist in a private civil dispute has been unwound through litigation. It answers a question Defiant’s original coverage of the freeze left open: when innocent depositors get swept into a stablecoin issuer’s compliance actions, can they get out without a lengthy legal process? In Zama’s case the answer was yes, in about 72 hours.
How the Reversal Was Argued
Zama said its legal team worked through the weekend with U.S. counsel Mike Frisch of Croke Fairchild Duarte & Beres and Swiss counsel Romedi Ganzoni of MME to engage the court and the plaintiffs before the Monday hearing. The original TRO was granted ex parte, meaning Ermilov and any third party affected — including Zama, which was never named in the suit — had no chance to be heard before Circle executed the blacklist. The June 1 hearing was the first time both sides appeared.
The underlying case is unaffected. The plaintiffs, three funds holding Overnight Finance’s OVN token led by Newton AC/DC Fund and including Delaware-based Patagon Management, are still pursuing more than $15 million in alleged misappropriation claims against Ermilov. What the court lifted was the blanket freeze on the Zama wrapper, not the suit itself.
What Zama Is Changing
Hindi laid out four post-incident commitments in the same Monday post. The most material is what Zama calls transitive compliance: confidential-token balances will mirror compliance actions taken on the underlying asset, so a Circle freeze on a specific USDC address will automatically propagate to the corresponding cUSDC balance for that address — without freezing the rest of the contract. Zama said the model will apply to every confidential token on the protocol whose underlying implements a freeze function.
The protocol also plans a dedicated compliance council to handle legal requests, integrations with Know-Your-Transaction vendors, and membership in onchain-safety industry groups. Hindi said Zama still views USDC as a core asset and will shield $5 million of its own treasury into cUSDC at the previously planned product launch later this month.
Precedent for Pooled-Contract Freezes
Circle’s contract-level blacklist function has been used at scale before — notably the August 2022 freeze of more than 75,000 USDC across Tornado Cash addresses after the U.S. Treasury sanctioned the mixer.
The Zama freeze ran the same mechanism at a far larger dollar figure, on a non-sanctioned protocol, on the authority of a private civil TRO. Its reversal does not change the mechanic as Circle can still blacklist a pooled smart contract on a court order, but it establishes that the contract owner and third-party depositors have standing to be heard, and that the bar for keeping the freeze in place is higher than the bar for imposing it.
