Grayscale's Zcash ETF Proposal Aims to Fix Trust's Price-Tracking Woes

Grayscale's proposed Zcash ETF would carry a 2.5% annual fee if approved by the SEC, according to its recent filing. The existing trust, which is set to be renamed 'The Zcash ETF' and listed on NYSE Arca under ZCSH, has struggled with price-tracking issues in the past.

Under one ownership scenario, a DCG affiliate could receive about 34% of the fund's shares. This is due to the way the sponsor fee accrues daily at 2.5% per year and reduces the number of tokens represented by each share over time.

The proposed ETF structure aims to address these issues by allowing authorized participants to create or redeem 10,000-share baskets when ZCSH's market price deviates from the net value of the fund's Zcash holdings. This arbitrage is expected to bring the two prices closer together and eliminate the extreme price gaps seen in the past.

Historically, ZCSH has recorded maximum premiums of 240% and discounts of 55%, with an average premium of 53% and an average discount of 19%. The shares have closed below net asset value on 700 days since Oct. 18, 2021. As of August 20th, the discount was at 1%.