Grayscale Zcash ETF filing carries 2.5% fee as SEC weighs privacy

Grayscale filed Amendment No. 5 to its Form S-3 registration on Aug. 21, targeting a NYSE Arca listing for a spot Zcash ETF with a 2.5 percent annual sponsor fee and a cash-create, cash-redemption structure.

"The amendment is a clear indication of progress towards converting the trust to an ETF," James Seyffart, analyst at Bloomberg Intelligence, said.

The trust held more than $260 million in assets as of Friday, with 4,829,300 shares outstanding, each representing about 0.0805 ZEC. A Digital Currency Group subsidiary plans to contribute about 200,000 ZEC, which would give DCG International roughly 34 percent of the enlarged fund based on a June 30 snapshot, according to the filing. BNY Mellon will serve as transfer agent, with Coinbase Custody Trust Company holding the underlying ZEC.

If approved, the ETF would be the first US product offering direct ZEC exposure through a regulated wrapper, testing whether the SEC can accommodate privacy-focused assets under existing securities frameworks. The proposed listing date of Aug. 25 remains subject to regulatory clearance.

What a Zcash ETF means for privacy coins

Zcash is not just another altcoin. It is one of crypto's best-known privacy-focused networks, with optional shielded transactions that conceal sender, recipient, and amount. That design has made it a regulatory lightning rod, as US authorities have historically scrutinized privacy-enhancing technologies for potential money-laundering and sanctions-evasion risks.

The filing's 2.5 percent annual fee stands out against mainstream spot Bitcoin ETF fees, which have compressed to as low as 0.19 percent at some issuers. The higher fee may reflect the product's niche status, smaller expected asset base, and the operational complexity of custodying a privacy-focused asset.

The cash-create, cash-redemption model is also notable. Authorized participants will create or redeem 10,000-share baskets using cash rather than delivering or receiving ZEC directly. This structure may be more palatable to traditional market participants than in-kind transfers of a privacy coin.

Ownership and price-tracking risks

The filing warns that DCG International Investments Ltd. and its affiliates could hold a significant stake in the fund. Based on the June 30 snapshot, the 200,000 ZEC contribution would create about 2.485 million shares, or roughly 34 percent of the enlarged total. Combined with 757,202 shares already classified as related-party holdings, DCG-affiliated entities could control about 44.3 percent of the fund.

That concentration could give DCG control over limited shareholder votes and create conflicts with other investors. The filing notes the discussions are nonbinding, and the affiliate may acquire more, fewer, or no shares.

The trust's historical price-tracking problems are well documented. From Oct. 18, 2021, through June 30, 2026, the trust recorded a maximum 240 percent premium and a maximum 55 percent discount to net asset value. Shares closed below NAV on 700 days, with an average discount of 19 percent. The discount stood at 1 percent on Aug. 20, before the proposed ETF structure was operating.

The proposed Aug. 25 listing date is a target, not a guarantee. ETF conversion timelines can shift depending on SEC comments, exchange processes, and final approvals. The registration remains preliminary, and the SEC has neither approved nor disapproved the securities.

Beyond Zcash, the filing signals that issuers are testing how far regulated crypto access can extend. Grayscale already manages spot ETFs for Bitcoin, Ethereum, Dogecoin, and XRP. A Zcash approval could open the door for other privacy-focused assets, though the SEC's stance on shielded transactions remains an open question.

Institutional interest in Zcash has been building. Cypherpunk Technologies contributed $5 million to the Zcash Open Development Lab, and the network's recent Ironwood upgrade strengthened its shielded transaction system. ZEC traded at $847.08, up 3.9 percent in 24 hours, as of the latest data.

The broader implication is clear: crypto ETFs are no longer limited to Bitcoin and Ethereum. The Zcash filing tests whether privacy technology can coexist with regulated market infrastructure, a question that will shape the next phase of crypto ETF product development.

This article is for informational purposes only and does not constitute investment advice.