Grayscale Files Zcash ETF With 2.5% Fee; DCG Could Hold 34%

Grayscale filed an Aug. 21 amendment to convert its existing Zcash Trust into an exchange-traded fund that would charge a 2.5% annual sponsor fee and, if approved, list on NYSE Arca under the ticker ZCSH. The registration is preliminary; the securities cannot be sold under the filing and the SEC has not approved or disapproved the proposal.

The filing sets the sponsor fee at an annual rate of 2.5%, accruing daily and paid in ZEC, the Zcash token. As fees are collected, the amount of ZEC represented by each share will fall over time. For up to 12 months after the filing is effective, Grayscale intends to use all fees it receives for trust marketing and initiatives supporting Zcash development, marketing and education; that plan is voluntary and the fee remains in place.

The amendment would rename the trust The Zcash ETF and place it in a regulatory ETF structure that relies on authorized participants to create and redeem 10,000-share baskets. Grayscale says authorized participants will be able to arbitrage differences between the trust’s market price and its net asset value by creating or redeeming baskets, which it expects to help narrow persistent premiums or discounts.

The filing documents a long record of price-tracking gaps. From Oct. 18, 2021, through June 30, 2026, the trust recorded a maximum premium of 240% to net asset value and a maximum discount of 55%. Over that period the average premium was 53% and the average discount was 19%. Shares closed below NAV on 700 days. On Aug. 20, before the proposed ETF structure would be operating, the filing reported a 1% discount.

The filing includes a hypothetical ownership calculation based on a June 30 snapshot. At that date the trust had 4,829,300 shares outstanding, with each share representing about 0.0805 ZEC. A nonbinding contribution of 200,000 ZEC at that ratio would create roughly 2.485 million new shares, equal to about 34% of the enlarged share count assuming no other creations or redemptions.

The trust’s quarterly report also classified 757,202 shares as related-party holdings. Combining those shares with the hypothetical 200,000 ZEC contribution produces a collective 44.3% stake on the June 30 snapshot. Grayscale cautions the figures are conditional and nonbinding: talks with a DCG affiliate are not finalized and actual holdings could be higher, lower or nonexistent.

The filing lists limits to how well an ETF structure can ensure tight tracking. Cash-order constraints, a lack of willing liquidity providers, suspensions of creations or redemptions and limited liquidity in the ZEC market could all disrupt arbitrage. The filing also warns that concentrated ownership could reduce market depth and that large sales or expectations of sales could cause volatility, price declines or renewed discounts.

If converted, the ETF would trade a token already exchanged in spot cryptocurrency markets and would price shares against the underlying ZEC held by the trust. The filing describes the conversion as a way to give large intermediaries a mechanism to align the market price of shares with the value of the trust’s ZEC holdings, while noting structural and market risks that could interfere with that mechanism.