Winklevoss Twins Enter Zcash ETF Race, With Filing Pointing To ZEC’s Orchard Flaw As Potential Risk

Winklevoss brothers’ proposed spot ZEC fund would trade on Nasdaq under the ticker “WINK”, with a 0.25% sponsor fee.

• Winklevoss Asset Services filed a preliminary S-1 with the SEC on Tuesday for a spot Zcash fund.
• The filing disclosed that a June flaw in Zcash's Orchard pool could have allowed fake ZEC to be created.
• It said there is no cryptographic way to confirm whether it was exploited before being fixed.

Zcash (ZEC) slipped on Wednesday after the Winklevoss twins entered the race to launch a spot fund for the token, with their filing detailing a flaw in its privacy system.

Winklevoss Asset Services filed a preliminary registration statement with the US Securities and Exchange Commission (SEC) on Tuesday for the Winklevoss Zcash ETF. The fund would list on Nasdaq (NDAQ) under the ticker “WINK.” The sponsor would charge 0.25% a year on the trust's holdings. 

Gemini Trust Company would act as custodian. Gemini (GEMI) was an affiliate of the sponsor, making the arrangement a related-party one. CSC Delaware Trust Company would serve as trustee. Cypherpunk Technologies (CYPH) would act as what the filing calls the trust's Zcash Ecosystem Partner, assisting with coinholder polling, protocol guidance, and advisory work. Winklevoss Capital Fund has also indicated interest in buying up to $100 million of shares through affiliates. 

GEMI stock edged down by over 1% in pre-market on Wednesday. On Stocktwits, the retail sentiment around GEMI remained in the ‘bearish’ zone, as chatter remained at ‘Extremely Low’ levels over the past day.

ZEC’s price also fell 2% over the past 24 hours amid broader market weakness. The crypto market tanked 2% over the past day, as Bitcoin’s (BTC) price dropped to the $83,800 range.  

On Stocktwits, the retail sentiment around ZEC moved to ‘extremely bearish’ from ‘bearish’ zone, while chatter level around it stayed at ‘extremely low’ levels over the past day.

Privacy Cuts Both Ways

The filing also set out the risks of holding a privacy coin. The filing pointed to a flaw found in that Orchard pool in June that could have let someone create ZEC out of nothing. 

If that happened and the fake coins were later withdrawn, the pool would come up short, and people with real coins in it might not be able to take all of them out. ZEC fell close to 40% when the flaw was disclosed. Developers fixed it in an emergency network upgrade within days and have said there is no sign anyone used it.

The catch was that nobody can prove it either way. In the filing's words, "there is no cryptographic method to determine conclusively whether the vulnerability was exploited prior to remediation." That was the trade-off at the centre of the asset. The same design that kept Zcash private made some questions about it unanswerable.

Another risk pointed out was that the cryptography behind those hidden transactions could eventually be broken by quantum computers. 

Third Bid In The Race

The Winklevoss brothers were the third sponsor to seek a spot Zcash fund, after Grayscale and Bitwise. Grayscale Zcash Trust ZEC (ZCSH) was the only one trading so far. 

Net assets have fallen to $789.34 million from $1 billion on September 24, according to SoSoValue, with about $97 million flowing out between September 28 and Monday.

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