Grayscale’s proposed exchange-traded fund for Zcash would feature a 2.5% yearly management fee, and a dated ownership calculation suggests an affiliate of Digital Currency Group (DCG) could secure an estimated 34% stake in the fund.

An August 21 amendment filed with the SEC outlines the plan to rename the current trust to “The Zcash ETF” and list it on the NYSE Arca with the ticker symbol ZCSH, should it become effective. The registration is still preliminary, meaning the securities are not yet available for sale. Furthermore, the SEC has neither given its approval nor disapproval of the proposed securities.

Addressing a Persistent Price-Tracking Issue

The primary motivation for adopting an ETF structure is to correct the trust's long-standing difficulty in tracking the price of its underlying asset. To achieve this, the fund will rely on large market intermediaries known as authorized participants. These participants will be empowered to create or redeem baskets of 10,000 shares whenever the market price of ZCSH deviates from the net asset value (NAV) of the Zcash (ZEC) tokens held by the fund. Grayscale anticipates that this arbitrage mechanism will help align the two prices more closely.

Historically, the price discrepancies have been significant. Between October 18, 2021, and June 30, 2026, ZCSH experienced a maximum premium to its NAV of 240% and a maximum discount of 55%. The average premium during this period was 53%, while the average discount was 19%. On 700 different days, the shares closed at a value below the trust's NAV. The filing noted that on August 20, prior to the proposed ETF structure being operational, the discount stood at 1%.

Investor Economics and Ownership Structure

The fifth amendment to the filing introduces details about the investor economics, adding to the previously discussed market-structure changes and the question of regulated privacy. The 2.5% sponsor fee, which already applies to the trust, accrues on a daily basis and is payable in ZEC. This method of payment gradually diminishes the quantity of ZEC that each share represents.

For a period of up to 12 months after the ETF becomes effective, Grayscale plans to allocate all fees it collects toward marketing the trust and supporting initiatives for Zcash's development, marketing, and educational outreach. This plan is noted as being voluntary and revocable, and it does not alter the 2.5% fee itself.

DCG's Potential Influence

The filing includes a warning that Digital Currency Group, through its subsidiary DCG International Investments Ltd. and other affiliates, could come to own a majority of the fund. Such a significant ownership position could enable the group to control the trust's limited shareholder votes, potentially creating conflicts of interest with other investors. This warning is conditional, as Grayscale's discussions with DCG International are nonbinding, and the affiliate's final acquisition could involve more, fewer, or no shares at all.

To illustrate the potential stake, the filing provides a static calculation based on a June 30 snapshot. At that time, the trust possessed 4,829,300 outstanding shares, with each share corresponding to approximately 0.0805 ZEC. Based on this ratio, a nonbinding contribution of 200,000 ZEC would generate around 2.485 million new shares. This would grant DCG International about 34% of the expanded fund, assuming no other share creations, redemptions, or changes to the ratio.

The quarterly report also categorized 757,202 shares as holdings by related parties. When these existing holdings are combined with the potential new shares from the contribution, the total stake comes to approximately 44.3%, which is under the 50% threshold for a majority. It is important to note this figure treats the shares as a single block without specifying a single DCG owner and represents only a momentary snapshot. The final result could vary based on a different contribution amount, changes in affiliate holdings, or a different total share base.

Remaining Uncertainties and Risks

While the basket creation and redemption process is designed to keep ZCSH’s price closer to its NAV, perfect tracking is not guaranteed. Several factors could disrupt the arbitrage process, including:

• Constraints related to cash orders
• The unavailability of liquidity providers
• Suspensions of the creation or redemption processes
• Limited liquidity within the broader ZEC market

Concentrated ownership could also hinder active trading of the ETF shares. The filing cautions that large-scale sales, or even the market perception that such sales could occur, might trigger volatility, price drops, and the re-emergence of discounts to the fund's NAV.