Circle Freezes $12.6 Million in Confidential USDC, Exposing Surveillance Risks
Circle blacklisted Zama’s confidential USDC contract on Ethereum on May 30. The blacklist freezes roughly $12.6 million held in a cUSDC token contract.
The freeze prevents holders of confidential USDC (cUSDC) from redeeming the tokens for normal USDC. The motion raises contemporary questions on issuer management over privacy-focused Decentralized Finance (DeFi) protocols.
Circle Blacklist Halts cUSDC Redemptions
Circle, the issuer of USDC, maintains a built-in blacklist on the USDC good contract. Authorized Circle accounts add addresses, and blacklisted addresses can’t ship or obtain the stablecoin.
The frozen contract is an ERC-1967 proxy that holds USDC on behalf of cUSDC token holders. Zama’s privacy protocol makes use of totally homomorphic encryption (FHE) to hide balances and switch quantities on public chains.
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Circle has not publicly defined the choice.
Past freezes have adopted sanctions orders, court docket directives, or suspected illicit exercise. The firm blacklisted Tornado Cash-linked USDC in 2022 after the U.S. Treasury sanctioned the mixer.
ZachXBT Links Freeze to Overnight Finance
On-chain investigator ZachXBT traced the underlying funds to a pockets, which deposited 12.4 million USDC into Zama on May 11. The pockets seems to belong to Overnight Finance.
Overnight Finance just lately held a Snapshot governance vote to distribute treasury funds after holders alleged the workforce was getting ready to rug pull. The dispute might have triggered the freeze.
Regardless, it’s precedent-setting to unilaterally freeze the contracts or addresses of a protocol the place funds have been commingled with Zama customers.
The commingling means harmless cUSDC holders could also be locked out alongside any focused tackle.
Stablecoin Control Returns to Focus
The freeze exposes a recurring rigidity between privateness protocols and fiat-backed stablecoins. Circle retains unilateral energy to freeze funds regardless of its decentralized infrastructure.
Critics have lengthy warned that centralized issuers create chokepoints. The debate intensified this yr after Circle floated reversible USDC plans that may enable transaction rollbacks beneath sure situations.
Similar issues encompass Coinbase’s skill to blacklist staked Ethereum by its good contracts.
Holders of cUSDC don’t have any clear path to get better their funds whereas the freeze stays in place.
“We are investigating the cUSDC contract freeze. I’ll replace right here because the scenario progresses,” said Rand Hindi, CEO of Zama.
Circle might reverse the motion or present justification, with the choice anticipated to form how privateness initiatives consider constructing atop centrally issued stablecoins.
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