Grayscale Zcash Trust (ZEC) Annual Report Summary – Fiscal Year Ended December 31, 2025

Unlock the world of Zcash without direct ownership. This summary distills the Grayscale Zcash Trust's (ZEC) annual Form 10-K filing for the fiscal year ended December 31, 2025. It highlights the Trust's core mission, financial health, operational framework, strategic direction, and critical risks for investors.

I. Business Overview

The Grayscale Zcash Trust, established in October 2017, offers investors a streamlined way to gain exposure to Zcash (ZEC), a digital currency renowned for its privacy features. The Trust primarily holds ZEC, aiming for its shares to reflect the value of these holdings, net of operating expenses. It does not engage in active trading or leverage.

• Zcash Holdings: By December 31, 2025, the Trust held approximately 1.5 million ZEC, representing about 2.4% of the total Zcash supply. The Trust's holdings do not grant it or its managers influence over the Zcash network's development or governance.
• Assets Under Management (AUM): The Trust managed approximately $45 million in assets as of December 31, 2025.
• Net Asset Value (NAV) per Share: At year-end 2025, the NAV per share stood at $20.00.
• Market Price per Share: The Trust's shares (trading on OTCQX under "ZCSH") closed at $22.50 on December 31, 2025, reflecting a 12.5% premium to its NAV.
• Historical Premium/Discount: Throughout 2025, the Trust's shares experienced significant price divergence from its NAV, trading anywhere from a 50% premium to a 30% discount. This volatility directly results from its current structure.
• Expense Ratio: The Trust charges an annual Sponsor's fee of 2.50% of its AUM, which it deducts daily from the Zcash held.
• Sponsor: Grayscale Investments Sponsors, LLC (GSIS) has served as the Trust's sole Sponsor since May 3, 2025. This followed a brief period at the start of 2025 when GSIS and Grayscale Securities, LLC (GSO) co-sponsored the Trust, with GSO subsequently stepping down. The Sponsor manages and administers the Trust.
• Custodian: Coinbase Custody Trust Company, LLC, a qualified custodian, securely holds the Trust's Zcash, ensuring the physical security of these digital assets.

Current Share Structure and Trading Limitations: The Trust's current structure presents specific challenges for investors:

• Limited Access: The Trust issues shares only through private placements in large blocks (known as "Baskets" of 100 shares) to "accredited investors"—typically large institutional or high-net-worth individuals.
• No Redemption Program: A critical limitation is the absence of an ongoing redemption program. Investors cannot directly redeem their shares for Zcash from the Trust.
• Secondary Market Trading: Investors can only sell existing shares on the open market, specifically the OTCQX Best Market.
• Price Discrepancy: Because no redemption mechanism exists and Zcash is inherently volatile, the Trust's market price can trade significantly above (premium) or below (discount) its underlying Net Asset Value (NAV). This creates a substantial risk for investors, as the share price may not accurately reflect the value of the Zcash held.

II. Financial Performance

The Trust's financial performance directly correlates with Zcash's market price movements and the impact of its operating expenses. As a passive investment vehicle, the Trust does not generate revenue from active trading or business operations. Its primary performance metric is the change in its Net Asset Value (NAV) per share, which reflects the value of its underlying Zcash holdings minus accumulated expenses.

• Impact of Zcash Price: The value of the Trust's AUM and NAV per share are highly sensitive to fluctuations in Zcash's spot price. A significant increase in ZEC's market price generally boosts the Trust's AUM and NAV, while a decrease has the opposite effect.
• Impact of Sponsor's Fee: The annual 2.50% Sponsor's fee is deducted daily from the Zcash held by the Trust. This continuous deduction means the amount of Zcash per share held by the Trust steadily decreases over time, impacting long-term performance compared to holding Zcash directly.

III. Management's Discussion and Analysis (MD&A) Highlights

Management's discussion focuses on factors impacting the Trust's financial condition and operational results, alongside significant trends and uncertainties.

• Results of Operations: The Trust's operational results primarily depend on the Zcash market's performance and the ongoing deduction of the Sponsor's fee. Significant Zcash price volatility throughout 2025 directly influenced the Trust's AUM and NAV. The 2.50% annual fee consistently reduced Zcash holdings, thereby impacting the NAV per share.
• Liquidity and Capital Resources: The Trust's capital resources consist solely of its Zcash holdings. It does not maintain significant cash balances, as it pays the Sponsor's fee and other operational expenses by selling Zcash from its holdings. The Trust does not incur debt or engage in leverage.
• Premium/Discount Dynamics: A key area of management discussion addresses the persistent and often significant premium or discount at which the Trust's shares trade relative to its NAV. This phenomenon, observed throughout 2025, stems from the Trust's current structure, particularly the absence of a redemption mechanism for shares. Management acknowledges this as a significant factor affecting shareholder returns and a primary driver for the proposed strategic shift.
• Strategic Initiatives: The filing of a Form S-3 registration statement with the SEC in November 2025, aiming for an NYSE Arca listing and potential conversion to an ETF, represents a critical strategic initiative. Management believes this conversion, if approved, would introduce a mechanism (a creation and redemption program) that would significantly reduce premium/discount volatility, aligning the market price more closely with the underlying NAV. Management views this as a crucial step to enhance shareholder value and market efficiency.
• Regulatory Environment: Management continuously monitors the evolving regulatory landscape for digital assets, especially concerning privacy-focused cryptocurrencies like Zcash. Regulatory uncertainty and potential changes in classification or restrictions pose ongoing challenges and remain a significant focus for risk management.

IV. Financial Health and Liquidity

The Trust's financial health is defined by its simple structure as a passive holding vehicle for Zcash.

• Assets: The Trust's sole significant asset is its Zcash holdings. As of December 31, 2025, these holdings constituted approximately $45 million in Assets Under Management.
• Debt and Leverage: The Trust carries no debt and does not engage in any form of leverage. Its operations are funded entirely by its Zcash holdings through the deduction of the Sponsor's fee.
• Cash Position: The Trust typically holds minimal cash, as it satisfies its operational expenses, primarily the Sponsor's fee, by periodically selling Zcash from its holdings. This means the Trust's liquidity directly ties to the Zcash market's liquidity and its ability to sell ZEC to cover expenses.
• Liquidity Management: The Trust's liquidity management primarily involves ensuring it can sell sufficient Zcash to cover the daily Sponsor's fee and any other administrative expenses. Given the generally liquid nature of the Zcash market, this has not posed a significant challenge to date. However, extreme market conditions could impact its ability to execute such sales efficiently.
• Capital Resources: The Trust's capital resources are its Zcash holdings. It does not raise capital through traditional equity or debt offerings beyond the initial private placement of shares.

V. Future Outlook and Strategic Developments

The Trust's future outlook largely hinges on its strategic initiative to convert into an Exchange Traded Fund (ETF).

• NYSE Arca Listing Application: In November 2025, the Trust filed a Form S-3 registration statement with the SEC, outlining its plan to list its shares on the NYSE Arca stock exchange under the existing ticker symbol "ZCSH." This application marks a critical step toward broadening investor access and improving market efficiency.
• Renaming to ETF: If the SEC and NYSE Arca approve, the Trust intends to rename itself the "Grayscale Zcash Trust ETF." This rebranding would signify its transition to a regulated exchange-traded product.
• Introduction of Redemption Program: A key benefit of ETF conversion would be establishing an ongoing redemption program. This mechanism would allow large institutional investors, known as "Authorized Participants," to create new shares or redeem existing shares directly with the Trust in exchange for Zcash.
• NAV Alignment: This creation and redemption process is crucial because it helps to reduce significant premiums and discounts, thereby ensuring the ETF's market price trades much closer to its underlying Net Asset Value (NAV). This is expected to provide shareholders with a more efficient and transparent investment vehicle.
• Uncertainty: Investors must understand that this is a proposed plan. There is no guarantee that the SEC will approve the registration statement or that NYSE Arca will list the shares. The timeline for such approval also remains uncertain and subject to extensive regulatory review and potential delays. The Trust continues to engage with regulators to advocate for this conversion.

VI. Key Risk Factors

Investors should carefully consider the following significant risks, which could materially affect the Trust's financial condition and the value of its shares:

• Extreme Zcash Price Volatility: Zcash, like other digital assets, experiences extreme price fluctuations. Its value can decline rapidly and significantly, potentially leading to a total loss of investment. The digital asset market is relatively new, highly speculative, and susceptible to sudden shifts in investor sentiment, technological developments, and macroeconomic factors.
• Digital Asset Market Instability: The broader digital asset market faces risks from market manipulation, cybersecurity breaches, infrastructure failures, and a lack of transparency on some trading platforms. These factors could adversely affect Zcash's value and, consequently, the Trust's shares.
• Regulatory Uncertainty and Scrutiny of Privacy Coins:
  • Classification Risk: Zcash faces an ongoing risk of classification as a "security" by regulatory bodies in the U.S. or other jurisdictions. Such a classification could impose significant compliance costs on the Trust, potentially leading to its restructuring or even termination.
  • Evolving Regulations: Governments globally are still developing regulatory frameworks for digital assets. New laws or regulations could restrict Zcash's use, mining, or trading, negatively impacting its value and, consequently, the Trust's shares.
  • Privacy Coin Specific Risks: Zcash's privacy-enhancing features may attract increased scrutiny from regulators concerned about illicit activities, money laundering, or terrorist financing. This could lead to restrictions, bans, or delisting from exchanges, severely impairing its value and the Trust's viability.
• Trust-Specific Operational Risks:
  • Persistent Premium/Discount: Until a potential ETF conversion, the Trust's shares may continue to trade at substantial premiums or discounts to its NAV. This creates a significant risk for investors that the market price will not reflect the underlying value of the Zcash held.
  • Reliance on Service Providers: The Trust relies on third-party service providers, including its Custodian (Coinbase Custody Trust Company, LLC) and other operational partners. Any failure, disruption, or security breach by these providers could adversely affect the Trust's operations and the security of its assets.
  • Fees and Expenses: The 2.50% annual Sponsor's fee, along with other operational costs, will continuously reduce the amount of Zcash held by the Trust, impacting long-term returns compared to direct Zcash ownership.
  • Tax Implications: Investors in the Trust receive a Schedule K-1 for tax purposes. The tax treatment of digital assets and the Trust's operations is complex, uncertain, and subject to change, potentially leading to adverse tax consequences.
• Conflicts of Interest: The Sponsor and its affiliates manage other digital asset products and may have other business interests that could conflict with the interests of the Trust and its shareholders. These conflicts could potentially lead to decisions not solely in the Trust's best interest.
• Dependence on Zcash Network: The Trust's value entirely depends on the Zcash network's continued operation and adoption. Any technical issues, security vulnerabilities, or lack of development within the Zcash protocol could negatively impact its value.

VII. Competitive Position

The Grayscale Zcash Trust operates within the nascent but rapidly evolving market for digital asset investment products. Several factors influence its competitive position:

• First-Mover Advantage (for ZEC-specific trust): As one of the earliest and largest institutional-grade investment vehicles focused solely on Zcash, the Trust has established a significant presence and brand recognition among investors seeking exposure to this specific privacy coin.
• Limited Direct Competition: While the broader digital asset investment landscape becomes more crowded, direct, publicly traded investment vehicles specifically for Zcash remain relatively limited. This provides the Trust with a degree of niche market dominance.
• Indirect Competition: The Trust faces indirect competition from:
  • Direct Zcash Ownership: Investors can choose to purchase and hold Zcash directly through various digital asset exchanges and wallets. This option avoids the Trust's fees and the premium/discount issue but introduces the complexities of self-custody and security.
  • Other Digital Asset Investment Products: Other Grayscale trusts (e.g., Bitcoin Trust, Ethereum Trust) and similar products from competitors offer exposure to different digital assets, potentially diverting investor capital.
  • Potential Future ETFs: The Trust's strategic move to convert to an ETF anticipates future competition. If other Zcash ETFs gain approval, they could offer similar or potentially more competitive fee structures or features.
• Differentiation through Zcash's Features: The Trust's underlying asset, Zcash, differentiates itself with strong privacy features (zk-SNARKs). This appeals to a specific segment of the digital asset market, positioning the Trust as a unique offering for investors prioritizing privacy in their digital asset exposure.
• Institutional Infrastructure: The Trust benefits from Grayscale Investments' established infrastructure and reputation, including relationships with qualified custodians like Coinbase Custody. This can significantly attract institutional investors concerned with security and compliance.
• Regulatory Status: The Trust's current OTCQX listing and its pursuit of an NYSE Arca listing provide a level of regulatory oversight and accessibility not available to direct digital asset holdings, which can be a competitive advantage for certain investor segments.

Making Your Decision

Investing in the Grayscale Zcash Trust (ZEC) offers a way to gain exposure to Zcash without direct ownership, but it comes with unique considerations. Weigh the potential benefits of its institutional structure and the future possibility of an ETF conversion against the current risks of premium/discount volatility, the ongoing management fee, and the inherent volatility and regulatory uncertainties of the Zcash market. Your decision should align with your risk tolerance and investment goals.