Grayscale has launched the first exchange-traded fund offering direct exposure to Zcash, bringing the privacy-focused cryptocurrency to NYSE Arca under the ticker ZCSH.
Summary
- Grayscale has launched the first ETF offering direct exposure to Zcash under the ZCSH ticker.
- The fund is a conversion of Grayscale’s Zcash Trust and carries a 2.5% annual sponsor fee.
- ZEC has rallied about 45% over the past several days ahead of the ETF launch.
- Grayscale said revenue from the fund’s fee will be directed back into the Zcash ecosystem.
Grayscale said Tuesday that the Zcash ETF began trading as a conversion of its existing Grayscale Zcash Trust, giving investors access to ZEC through an exchange-traded product without requiring them to directly hold the cryptocurrency.
The fund carries a 2.5% annual sponsor fee. A Grayscale spokesperson said revenue collected from the fee will be directed back into the Zcash ecosystem to support network development, marketing and other initiatives tied to the cryptocurrency.
Zcash, launched in 2016, allows users to make shielded transactions that can conceal transaction information through zero-knowledge proofs. The ETF itself holds ZEC while its shares trade through the traditional securities market.
Zcash ETF has converted Grayscale’s existing trust
Grayscale’s launch follows a regulatory process that began with plans to convert its long-running Zcash Trust into an exchange-traded product.
As crypto.news previously reported, Grayscale filed a Form S-3 registration statement with the U.S. Securities and Exchange Commission in May seeking to list the converted trust on NYSE Arca. The filing proposed retaining the ZCSH ticker as part of the conversion.
Grayscale later submitted several amendments as it moved the registration process forward. Its fifth amended filing, submitted before the weekend ahead of Tuesday’s launch, set the annual sponsor fee at 2.5% and finalized additional terms for the fund.
The ETF structure also changes how investors can enter and exit the product. Grayscale’s SEC filings said authorized participants can create and redeem shares, providing an arbitrage mechanism designed to keep the trading price of ZCSH close to the net asset value of the ZEC held by the fund.
Before the conversion, shares of the Zcash Trust traded on the OTCQX market. The trust had more than $313.5 million in assets under management as of Monday, according to Grayscale figures cited by The Block.
An earlier registration amendment also disclosed discussions involving DCG International Investments Ltd., an indirect subsidiary of Grayscale parent Digital Currency Group. According to the filing, the subsidiary was considering acquiring about 200,000 ZEC through the trust.
Grayscale cautioned in the filing that the discussions were nonbinding, meaning the potential investor could eventually purchase more ZEC, fewer tokens or none at all.
Grayscale ties privacy demand to AI adoption
Grayscale Head of Index Steve Vanourny said the company expects demand for financial privacy to increase as artificial intelligence makes financial activity easier to analyze and monitor.
“As AI reshapes how financial activity can be monitored, we believe demand for genuine financial privacy will only grow,” Vanourny said.
He added that ZCSH gives investors exposure to what Grayscale considers one of the crypto market’s leading privacy-focused assets through an investment structure already familiar to traditional market participants.
“We believe Zcash has a compelling long-term role to play and are proud to make its token accessible through the exchange-traded product structure investors already know,” Vanourny said.
The comments come after Zcash cleared a separate regulatory issue earlier this year. The SEC closed its Zcash investigation in January without recommending enforcement action against the Zcash Foundation.
The investigation began after the foundation received an SEC subpoena in August 2023 relating to inquiries involving crypto asset offerings. The foundation said in January that the regulator had concluded the review and did not intend to pursue an enforcement action.
ZEC rallied ahead of the ETF launch
Zcash has gained about 45% over the past several days, according to The Block’s price data, with buying accelerating as Grayscale moved through the final stages of the ETF registration process.
The advance followed a volatile period for ZEC this year. The cryptocurrency climbed above $600 in May before suffering a sharp decline in June after developers disclosed a critical vulnerability involving Zcash’s Orchard shielded pool.
The vulnerability could theoretically have allowed an attacker to create counterfeit ZEC without detection. Developers said they had found no evidence that the bug was exploited, but Zcash’s privacy design meant the absence of counterfeit supply could not immediately be independently proven.
During the June episode, ZEC fell from around $644 on June 4 to near $309 by June 5. As reported after the disclosure, developers deployed emergency changes that disabled the affected component and patched the underlying circuit through the NU6.2 hard fork.
No funds were reported stolen during the incident.
Developers subsequently prepared another network update designed to deal with the remaining supply-verification issue. The Ironwood upgrade, also known as NU6.3, was activated on July 28 and replaced Orchard with a new shielded pool.
Following the upgrade, Ironwood introduced safeguards intended to prevent undetectable counterfeiting under the new design. The old Orchard pool was left open for withdrawals while new shielded activity moved to the replacement pool.
The system also introduced an accounting mechanism limiting how much ZEC can leave Orchard based on the amount that had legitimately entered the pool, helping prevent any hypothetical excess supply from moving into circulation.
Grayscale has expanded its crypto ETF lineup
The Zcash conversion extends a strategy Grayscale has used with several of its earlier cryptocurrency trusts.
Its Grayscale Bitcoin Trust was converted into a spot Bitcoin ETF in January 2024 after the asset manager won a federal appeals court case challenging the SEC’s rejection of its previous conversion proposal. Grayscale later converted its Ethereum Trust after U.S. regulators cleared spot Ether exchange-traded products.
Since then, the asset manager has expanded its listed crypto products to assets including XRP, Solana and Litecoin.
The Zcash fund follows the same trust-conversion model, with Coinbase Custody Trust Company serving as custodian for the underlying ZEC and The Bank of New York Mellon handling administrative functions associated with the product.
Grayscale’s SEC registration also states that the fund’s investment objective is for the value of its shares, based on the amount of ZEC represented by each share, to track the value of the cryptocurrency held by the trust after expenses and other liabilities are deducted.
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