Grayscale Submits Fourth Zcash ETF Amendment as DCG Explores 200,000 ZEC Purchase

Grayscale has made yet another step in turning its Zcash investment product into an exchange-traded fund. The asset manager filed a fourth amendment with the U.S. SEC on August 18 in light of a possible $113 million investment from a sister company.

Zcash ETF already has investment piling up

According to the new filing, Grayscale Investments Sponsors is in talks with DCG International Investments, a subsidiary of Grayscale's parent company, Digital Currency Group, on staking 200,000 ZEC to the trust in exchange for shares. This investment is worth around $113.6 million based on the current Zcash price of $568.

Grayscale, however, noted that the deal has not been finalized. The discussions are nonbinding, meaning the DCG affiliate could put in more, less, or nothing at all. 

Shares issued through the deal would carry the same terms as shares already held by other investors. The transaction, if it happens, would only take place once the registration is effective.

The amendment builds on a conversion process Grayscale began in May. The firm first proposed then to change its Zcash product from an over-the-counter structure to a listing on NYSE Arca under the ticker ZCSH. 

The fund would keep holding ZEC, with its publicly traded shares giving investors exposure to the value of those holdings without needing to hold the crypto themselves.

As of March 31, the trust held over 391,000 ZEC, worth $99.4 million at the time. Coinbase Custody currently serves as the custodian, and Bank of New York Mellon as administrator. 

The new figures on the filing show that the trust's net asset value had grown to $155.25 million by June 30, working out to about $32.15 per share.

Authorized participants would be able to create and redeem shares in blocks of 10,000 once the SEC approves the registration. The structure would allow cash-based transactions and in-kind contributions of ZEC, though in-kind redemptions are not currently part of the plan. 

Regulators have not yet approved the filing, and the shares cannot be sold until the registration statement is effective.

Filing also included ZEC’s security scare

The updated filing also pinpointed the security issue that affected the Zcash network earlier this year. The Orchard flaw, which was highlighted by experts, suggested that someone could have created counterfeit coins without leaving a trace in the public blockchain.

Developers pushed out changes to the network in June after the vulnerability was found. The team said it saw no evidence the flaw had been used to create fake coins, but the privacy features that make Orchard unique also made it impossible to rule out that possibility.

To address the issue more permanently, developers rolled out an upgrade known as Ironwood, which was activated on July 28. It introduced a new tracked shielded pool along with added controls on funds moving out of the Orchard pool. As of press time, 3,103,182 ZEC have been migrated into the new pool, according to the Ironwood migration tracker.