Circle has reportedly frozen about $12.6 million worth of USDC tied to Zama’s confidential contract, a move observed by on-chain researcher ZachXBT. The USDC in question is associated with Zama’s privacy-focused protocol, and the contract is publicly labeled on block explorers as well as in the protocol’s technical documentation. The exact rationale behind the freeze remains unclear, even as researchers note a notable around-the-calance transaction from Overnight Finance into the Zama ecosystem earlier this month.

According to ZachXBT, the Zama contract’s status is well-known in on-chain tooling, and the freeze appears to have occurred despite the lack of an explicit explanation from Circle. ZachXBT pointed to a May 11, 2026 deposit of approximately $12.4 million into the Zama protocol from Overnight Finance, a governance-friendly DeFi platform whose treasury movements have drawn scrutiny in related discussions. The broader point, as ZachXBT framed it, is that unilateral freezes where funds are commingled with a separate protocol’s users set a controversial precedent for custodians acting over interconnected contracts.

“Overnight Finance held a governance vote recently to distribute treasury funds after holders alleged the team was rug-pulling. Regardless, it’s precedent-setting to unilaterally freeze the contracts or addresses of a protocol where funds have been commingled with Zama users.”

Circle confirmed to Cointelegraph that it is reviewing the matter, but the company had not provided a response by the time of publishing. The situation adds to a long-running critique of Circle’s approach to freezing funds, as opposed to simply freezing wallets tied to hacks or to projects the firm deems at fault—an issue that has repeatedly resurfaced in recent coverage.

Circle’s broader track record on asset freezes has become a flashpoint for critics who say the company has, at times, moved too quickly to lock funds linked to legitimate projects while appearing slow to act in other high‑profile security incidents. In March, ZachXBT alleged that Circle wrongfully froze 16 stablecoin wallets tied to online casinos and other legitimate crypto ventures. Those wallets were linked to civil cases in the United States, yet the broader connection appeared tenuous to some observers, according to the researcher.

Beyond those episodes, ZachXBT has compiled a wider list of incidents since 2022 in which Circle’s failure to freeze funds was alleged to have occurred, including situations involving stolen funds or suspicious activity tied to hacks. One notable item cited in the discourse was the Drift Protocol breach in April 2026, where approximately $232 million in user funds were reportedly not frozen in a timely manner, despite Circle’s tools and access to the Cross-Chain Transfer Protocol (CCTP). The matter helped spur a class-action filing against Circle over the handling of the Drift incident and the movement of funds across bridges it operates.

As the Drift case illustrates, the tension between rapid containment of illicit flows and due process protections for legitimate users remains a central theme in Circle’s public-facing strategy. The Drift situation also spotlighted Circle’s CCTP as a bridge facilitating asset transfers across networks, a mechanism that, in hindsight, highlighted how a single platform’s decisions can ripple through multiple ecosystems. Circle’s decision-making around these tools—coupled with governance debates within the broader crypto community—continues to attract regulatory and investor attention.

Key takeaways

• Circle reportedly froze about $12.6 million in USDC connected to Zama’s confidential contract, putting a spotlight on how privacy-focused DeFi constructs intersect with centralized risk controls.
• The precise reason for the freeze remains unclear, underscoring uncertainty around when and why custodians intervene in mixed funds within cross-contract ecosystems.
• The Zama contract is publicly labeled on block explorers and described in the privacy protocol’s documentation, a detail highlighted by on-chain researcher ZachXBT.
• Circle has faced ongoing criticism for its handling of freezes—allegations include failing to freeze funds in high-profile hacks and freezing wallets tied to legitimate projects without clear notice, a pattern that has fed broader debates about governance and user protection.

Context: privacy, custody, and the evolving DeFi landscape

The case against Circle sits at an intersection of two rapidly evolving strands in crypto: privacy-preserving protocols and the responsible management of funds across interconnected on-chain ecosystems. Zama’s model—relying on a confidential USDC contract within a privacy-focused framework—illustrates how modern DeFi assets can travel through multiple layers of abstraction and custody. When a centralized issuer exercises a freeze, it raises questions about how privacy-enabling designs should be reconciled with risk controls and regulatory expectations.

From a policy and investor viewpoint, the episode matters because it signals how custodial actions can affect user trust in stablecoins and cross-chain services alike. If large holders, protocols, or wallets perceive that funds can be immobilized without a clear, auditable process, it could influence how developers design privacy features, governance mechanisms, and treasury management practices. The balance between preventing illicit activity and preserving legitimate user funds remains delicate, and the evolving regulatory environment will likely amplify scrutiny of such moves.

What comes next for Circle and the Zama episode

Readers should watch for Circle’s official statement clarifying the rationale behind the freeze. The timing and specifics of any formal disclosure could influence how market participants assess the risk framework around stablecoins and privacy-enabled DeFi contracts. Regulators may also weigh in on the implications for financial censorship, fund recovery mechanics, and the interaction between custodial actions and user rights in decentralized networks.

For builders and users, this episode underscores the importance of transparent governance and clear risk disclosures when funds flow through multi-layer architectures. As DeFi continues to blur lines between on-chain privacy and centralized oversight, observers will be looking for concrete standards that reconcile privacy with safety, accountability, and predictable responses to security incidents.

Meanwhile, the broader crypto community will be monitoring whether Circle adjusts its policy on freezing funds, especially when tied to legitimate projects, and how the company communicates such actions in the future. The Drift aftermath, ongoing legal considerations, and the interplay with cross-chain tooling like CCTP will all shape future occurrences and investor sentiment in this evolving space.

What remains uncertain is how common such unilateral interventions will become as protocols grow more interconnected and as governance processes mature. Readers should stay tuned for updates on Circle’s position, any formal governance decisions from involved projects, and potential regulatory responses that could redefine expectations around asset freezes and cross-chain custody.

Stablecoin issuer Circle froze $12.6 million in USDC dollar-pegged tokens linked to privacy protocol Zama’s confidential USDC smart contract on Saturday, according to onchain sleuth ZachXBT.

The smart contract is “publicly labeled” on block explorers and the privacy protocol’s technical documentation, ZachXBT said. 

The exact reason for the freeze is “unclear,” he said, adding that wallets linked to the Overnight Finance decentralized finance (DeFi) protocol deposited $12.4 million into the Zama protocol on May 11, 2026. He said:

“Overnight Finance held a governance vote recently to distribute treasury funds after holders alleged the team was rug-pulling. Regardless, it’s precedent-setting to unilaterally freeze the contracts or addresses of a protocol where funds have been commingled with Zama users.”

Source: ZachXBT

“From my understanding, the Zama team does not appear to have been notified of the Circle freeze prior,” he said. Cointelegraph reached out to Circle but did not receive a response by the time of publication. 

The company has come under fire for failing to freeze funds following major hacks of crypto platforms, and freezing wallets of legitimate crypto projects and protocols without giving those projects prior notice. 

Related: Tether freezes over $500M of USDT in 30 days, BlockSec data shows

Circle comes under fire for freezing legitimate user funds, but not stolen crypto

In March, ZachXBT accused Circle of “wrongfully” freezing 16 stablecoin wallets linked to online casinos and legitimate crypto exchanges.

The wallets were frozen in connection with ongoing civil court cases in the United States; however, the businesses and wallets “do not appear related at all,” he said.

He later added that Circle failed to freeze about $420 million in 15 separate cases involving fraudulent transactions or funds stolen through crypto hacks since 2022.

A list of 15 incidents since 2022, in which Circle failed to freeze funds, according to ZachXBT. Source: ZachXBT

These incidents included the failure to freeze $232 million in stolen user funds from the April 2026 Drift Protocol hack, despite having a six-hour window to act, he said.

Following the incident, users filed a class action lawsuit against Circle for failing to freeze the funds, which flowed through Circle’s Cross-Chain Transfer Protocol (CCTP), a bridge that allows assets to move between different blockchain networks.

Magazine: Are DeFi devs liable for the illegal activity of others on their platforms?

Senator Cynthia Lummis said Congress may not get another real chance to pass digital asset legislation until 2030 if the CLARITY Act fails.

Lummis, in a post on X, said Congress faces a narrow window to move the Digital Asset Market Clarity Act before election politics and legislative delays push crypto policy further down the agenda. The Wyoming Republican argued that the bill would give crypto developers legal protection while helping law enforcement pursue illicit activity in digital asset markets.

Senate pressure builds over CLARITY Act

Her warning places new pressure on the Senate, where the bill remains short of final passage despite support from both parties. Lummis said developers need clear rules instead of legal uncertainty, while enforcement agencies need a defined framework for digital asset crime.

The CLARITY Act would create a federal structure for crypto oversight in the United States. The bill sets out how digital assets are classified, which regulators supervise them, and what obligations apply to exchanges, developers, and other market participants.

Supporters of the bill, including several crypto firms, say federal rules would help keep digital asset activity in the United States. They argue that companies now face unclear standards and case-by-case enforcement actions.

Senate remains the main hurdle

The House of Representatives has already passed the legislation with bipartisan support. In the Senate, however, lawmakers have debated revisions, stablecoin provisions, banking concerns, and agency authority.

The Senate Banking Committee recently advanced an amended version of the bill in a 15–9 bipartisan vote. The measure still needs enough support to clear the Senate floor, where most major legislation requires 60 votes.

Any Senate changes must also be reconciled with the House version before the bill can reach the White House. Lummis said the timeline matters because the 2026 midterm elections could slow the process and reduce the chance of a final vote.

Banking industry pushes back

JPMorgan Chase CEO Jamie Dimon criticized the current bill during a Fox Business interview. Dimon said banks would oppose the legislation unless lawmakers revise key sections.

According to Dimon, the proposal could allow crypto firms to offer rewards on stablecoin holdings, similar to interest on bank deposits. He said such products should come with stronger legal protections, anti-money laundering controls, and Bank Secrecy Act requirements.

Banks have warned lawmakers that stablecoin rewards could pull deposits away from traditional lenders. Crypto firms, including Coinbase, have told lawmakers that customers should be allowed to receive benefits from regulated digital asset products.

White House support adds pressure

President Donald Trump’s administration has backed the CLARITY Act, according to prior statements from the White House. Treasury Secretary Scott Bessent has also supported digital asset legislation, while SEC Chair Paul Atkins has said Congress can still send a crypto bill to the president.

Federal agencies have continued changing crypto policy through guidance, approvals, and no-action letters. Lummis has argued that agency action alone cannot give markets lasting certainty because future administrations can change those decisions.

Her 2030 warning now frames the CLARITY Act as a test for Congress. If the bill fails, Lummis said developers, exchanges, stablecoin issuers, and enforcement agencies could remain without a durable federal rulebook for years.

The U.S. Securities and Exchange Commission has charged a Cypress, Texas, man with orchestrating a crypto-focused investment fraud that drew roughly $12.3 million from about 150 investors by falsely claiming to operate AI-powered trading bots capable of delivering guaranteed gains. The SEC’s complaint—filed in the U.S. District Court for the Southern District of Texas—names Nathan Fuller and his entities Privvy Investments, LLC, and Gateway Digital Investments, alleging a multi-year scheme that spanned at least October 2022 to mid-2024.

According to the SEC, Fuller promised investors returns of 40% to 50% within 30 to 45 days, with some pushes suggesting guarantees of profits exceeding 100% in as little as 21 days. He purportedly backed these claims by asserting that investor funds were secured by a surety bond, insured by the Federal Deposit Insurance Corporation (FDIC), and protected by a professional liability policy. The SEC contends that none of these assurances were true, and that the marketing hinged on exaggerated, misleading assurances rather than verifiable trading performance.

Key takeaways

• Approximately $12.3 million was raised from about 150 investors through Privvy Investments and Gateway Digital Investments, according to the SEC complaint.
• Fuller allegedly promised outsized short-term returns—40% to 50% in 30–45 days, with some investors told they could secure more than 100% profits in as little as 21 days—based on AI-driven trading bots that allegedly did not function as claimed.
• The marketer claimed funds were secured by a surety bond, FDIC insurance, and professional liability coverage; the SEC alleges these representations were false.
• More than half of the raised funds—at least $6.2 million—were allegedly used for Fuller’s personal expenses, with about $5.5 million diverted to make Ponzi-like payments to earlier investors.
• Investors received fake account statements and fabricated correspondence from fictitious entities to sustain the illusion of activity and profitability.

What the SEC alleges Fuller did and did not deliver

The core of the SEC’s case rests on a pattern of misrepresentation surrounding the use of artificial intelligence in trading. Fuller pitched proprietary AI-based bots that would conduct high-frequency arbitrage across crypto platforms. The complaint asserts that “Fuller’s bots did not function as represented,” undermining the central claim of guaranteed, AI-generated profits. By coupling the purported technology with promised protections like a surety bond and FDIC backing, the scheme sought to reassure risk-averse investors while masking its true operational status.

As described in the complaint, the marketing material allegedly painted an image of automated, professional-grade trading that could produce reliable returns even in volatile markets. The SEC contends that this marketing was designed to obscure the lack of any verifiable trading track record and to maintain liquidity in the scheme as new investors funded the payouts to earlier participants.

Financial flows and investor deception

From a financial perspective, the scheme’s cash movements paint a telling picture of its inner workings. Of the total $12.3 million raised, the SEC says Fuller misappropriated at least $6.2 million for personal use. An additional roughly $5.5 million reportedly went toward Ponzi-like payments to earlier investors, a classic feature used to prop up the illusion of steady returns and to prolong the lifecycle of the scheme. To maintain credibility, Fuller is alleged to have issued fake account statements and created correspondence from non-existent entities, enabling him to present a veneer of legitimacy to unsuspecting participants.

The allegations suggest a deliberate attempt to replicate the quasi-professional aura of legitimate asset management operations while exploiting the credibility of AI branding to entice retail investors. The use of fabricated documents and fictitious entities underscores a broader issue in crypto fraud: the ease with which persuasive presentation can mask actual performance that never materialized.

Regulatory context and what comes next

The Fuller case sits within a broader pattern of enforcement activity at the intersection of AI branding, crypto, and securities-like promises. Earlier this year, the SEC charged three purported crypto asset trading platforms and four investment clubs in a separate $14 million scheme that also leaned on AI branding to lure retail investors, with fraudsters using messaging apps to tout supposed AI-generated trading tips. The concurrent wave of actions illustrates the agency’s heightened focus on AI-enabled misrepresentations within crypto-adjacent investment strategies.

The SEC has signaled a more nuanced approach to crypto enforcement, acknowledging in its enforcement results that some actions over the past years did not always align cleanly with investor harm or traditional securities-law interpretations. In a 2025 update on enforcement, the agency noted that it had brought 95 actions and secured about $2.3 billion in penalties for issues like book-and-record violations that, in some cases, didn’t directly translate into demonstrable investor harm or protection. The regulator’s stance remains in flux as the crypto landscape evolves, particularly with the increasing convergence of AI and digital assets.

In Fuller’s case, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The action underscores the agency’s willingness to pursue individuals who leverage AI narratives and crypto-like instruments to extract funds from retail investors under false pretenses. The case also serves as a cautionary tale for vendors, brokers, and social platforms that amplify or amplify-signal fraudulent schemes by enabling marketing claims that may misrepresent actual capabilities or protections.

What investors should watch next

As the SEC pursues its case, readers should monitor developments around investor restitution, the timeline for potential settlements or judgments, and the status of Fuller’s operational entities. The broader takeaway for investors is the importance of scrutinizing claims around AI-driven strategies, guarantees of short-term returns, and promised insurance or backing. When a seller makes extraordinary promises tied to technology—especially in a relatively new space where verifiable performance data is scarce—investors should demand concrete, auditable performance records, independent custodians, and clear disclosures about risk and liquidity.

Looking ahead, the industry will likely see continued scrutiny of AI branding in crypto-related solicitations, with regulators seeking clearer boundaries between legitimate automated trading tools and deceptive marketing that implies guaranteed results. For traders and users navigating the space, the message remains: verify, verify again, and rely on independently verifiable performance and regulatory compliance rather than promotional narratives built on AI mystique.

Sources: U.S. Securities and Exchange Commission complaint filed in the Southern District of Texas, SEC enforcement releases, and related reporting on AI-powered crypto marketing schemes.

The U.S. Securities and Exchange Commission (SEC) has sued Texas resident Nathan Fuller, alleging he raised about $12.3 million from roughly 150 investors through a crypto investment scheme built around false claims of AI-powered trading bots, guaranteed returns and insurance protections.

According to a complaint filed in the U.S. District Court for the Southern District of Texas, Fuller operated through Privvy Investments LLC and the assumed business names Privvy Investments and Gateway Digital Investments.

The SEC says he sold passive joint-venture interests in a purported crypto arbitrage trading operation from at least October 2022 through mid-2024.

The agency claims that Fuller told investors that proprietary AI-based trading bots could scan crypto markets, execute high-frequency arbitrage trades and limit losses through stop-loss coding.

The complaint alleges investors were promised returns of 40% to 50% within 30 to 45 days and, in some cases, exceeding 100% in less than a month.

The SEC says those representations were false. According to the complaint, only about $380,000, or roughly 3% of investor funds, was used to purchase cryptocurrency without the involvement of bots. The agency says those trades were conducted without the advertised bots and generated no profits.

Fuller, instead, allegedly misappropriated at least $6.2 million for personal expenses, including the purchase of a home, gambling, travel and vehicles, while using about $5.5 million to make “Ponzi-like payments” to investors.

As withdrawal concerns grew, the complaint says, Fuller created fabricated account statements showing gains, referenced fictitious entities, and used artificial intelligence to generate a letter from a purported auditing firm claiming investor accounts were under review and would later be liquidated into a trust.

The SEC charged Fuller with violating the registration and antifraud provisions of federal securities laws and is seeking permanent injunctions, disgorgement, civil penalties and a ban on participating in securities offerings.

The case follows a separate bankruptcy proceeding in which the Justice Department said Fuller was denied discharge of more than $12.5 million in debt after admitting he operated Privvy as a Ponzi scheme and fabricated documentation, according to court records cited by the DOJ.

Many investors still remember watching XRP explode during past bull runs and feeling they entered too late. That’s why traders are now searching for projects that still look early before the broader market fully heats up again. Some meme coins have already made their biggest move. Others are only starting to build momentum quietly in the background. And in crypto, timing often matters just as much as the project itself. Here are three cryptos traders are watching closely as they hunt for the next major breakout opportunity.

One of the hardest parts of crypto investing is realizing the biggest returns usually happen before everyone agrees a project is real. That realization is part of why Little Pepe (LILPEPE) is beginning to stand out among traders seeking earlier-stage opportunities rather than chasing established meme ecosystems. Unlike many meme projects built purely around attention, Little Pepe is developing its own Layer-2 blockchain focused on ultra-fast transactions, low fees, and infrastructure specifically designed for meme coin activity. LILPEPE is currently priced at $0.0022 in Stage 13, with more than $28 million already raised and the current stage nearing completion. For many investors, the appeal is not just the meme’s branding, but the idea of entering before broader exchange exposure begins. The project has also leaned heavily into community engagement through its ongoing $777,000 giveaway campaign and the Mega Giveaway running between Stages 12 and 17, where both large buyers and random participants remain eligible for rewards exceeding 15 ETH. For traders who missed earlier meme cycles entirely, that feeling of being too late again is exactly what makes projects like Little Pepe difficult to ignore right now.

Pudgy Penguins (PENGU): Can the Momentum Continue After the First Big Rally?

Pudgy Penguins is holding steady at about $0.0102, even after some dips last month.

Pudgy Penguins Price Analysis: TradingView

For many traders, this is where the hesitation begins. Nobody wants to buy the top after watching a token already rally nearly 100% in a short period. But PENGU’s chart is still giving traders something to watch. The recent move toward $0.0118 created a bullish pole-and-flag setup. In simple terms, the strong rally formed the pole, while the current sideways consolidation may simply be the market cooling off before another move higher. The setup only becomes convincing if PENGU cleanly reclaims $0.0104 and breaks above $0.0110 again. If that happens, traders are already watching potential upside targets near $0.0121 and $0.0129. Some projections even point toward $0.0206 if meme coin momentum accelerates again.

Bonk (BONK): Solana’s Meme Economy Is Starting to Heat Up Again

Bonk trades near $0.0000068 and is beginning to attract attention again as activity returns across Solana’s meme ecosystem.

BONK Price Analysis: TradingView

Many traders missed BONK’s first major breakout because they assumed Solana meme coins had already peaked. But recent market activity suggests capital may be slowly rotating back into that sector. The chart is also looking interesting. If BONK closes above that mark, it’s got room to run up to $0.0000093, which would mean a jump of about 33% from where it is now. That may not sound life-changing compared to LILPEPE, but as long as Solana meme activity continues improving, BONK may remain one of the first places meme capital flows back into.

Conclusion

XRP’s previous bull run reminded the market how quickly crypto wealth can be created when momentum, timing, and community align. Now traders are searching for the next wave before it fully arrives. PENGU is trying to prove its first rally still has room left. BONK is benefiting from renewed activity across Solana’s meme ecosystem. And Little Pepe (LILPEPE) is attracting the attention of investors who no longer want to wait until projects become mainstream before investing.

For more information about Little Pepe (LILPEPE) visit the links below:

Website: https://littlepepe.com

Whitepaper: https://littlepepe.com/whitepaper.pdf

Telegram: https://t.me/littlepepetoken

Twitter/X: https://x.com/littlepepetoken

$777k Giveaway: https://littlepepe.com/777k-giveaway/

Disclaimer: This is a Press Release provided by a third party who is responsible for the content. Please conduct your own research before taking any action based on the content.