10-Q: Grayscale Horizen Trust Reports Q2 2025 Financials Amid ZEN Migration to Base Blockchain

Grayscale Horizen Trust reported a decrease in net assets from operations for the quarter ended June 30, 2025, alongside a significant migration of its underlying Horizen (ZEN) assets to the Base blockchain.

Summary

• Net assets increased to $7.096 million as of June 30, 2025, from $4.767 million on September 30, 2024, primarily due to new share creations.
• The Trust experienced a net decrease in net assets resulting from operations of $1.418 million for the three months ended June 30, 2025, and $4.270 million for the nine months ended June 30, 2025.
• This decrease was largely driven by a net change in unrealized depreciation on investment in ZEN of $1.305 million for the quarter and $3.966 million for the nine-month period.
• The fair value per ZEN decreased from $8.13 on September 30, 2024, to $7.38 on June 30, 2025, but subsequently increased to $8.54 as of July 28, 2025.
• The Trust's underlying asset, Horizen (ZEN), migrated from its main blockchain to the Base blockchain (ERC-20 ZEN Base Tokens) on July 23, 2025, following a Horizen DAO vote.
• The migration is expected to increase the circulating supply of ZEN Base Tokens from approximately 16.0 million to a projected 17.25 million.
• Shares issued increased significantly, with 4,587,100 new shares created for the nine months ended June 30, 2025, bringing total shares outstanding to 11,425,100.

Sentiment

Score: 3

Explanation: The financial results show significant unrealized depreciation and operational losses, and the NAV per share has declined. While there was an increase in total assets due to new share creations, this was offset by the depreciation of the underlying asset. The ongoing regulatory uncertainty and the Trust's inability to meet its investment objective for share price reflection contribute to a negative sentiment, despite the resolution of one legal case and the strategic migration of ZEN.

Positives

• Significant increase in total ZEN held by the Trust, from 586,285.79 ZEN on September 30, 2024, to 961,450.15 ZEN on June 30, 2025, primarily due to new share creations.
• Net assets increased by 49% for the nine-month period ended June 30, 2025, reaching $7.096 million, driven by capital share transactions.
• The fair value of ZEN per token increased to $8.54 as of July 28, 2025, from $7.38 on June 30, 2025, indicating a recent positive price trend.
• The legal proceeding initiated by Osprey Funds, LLC against the Sponsor was withdrawn on May 12, 2025.

Negatives

• Net decrease in net assets resulting from operations of $1.418 million for the three months and $4.270 million for the nine months ended June 30, 2025.
• Significant net change in unrealized depreciation on investment in ZEN, totaling $1.305 million for the quarter and $3.966 million for the nine-month period.
• ZEN price depreciation from $8.13 on September 30, 2024, to $7.38 on June 30, 2025.
• The Principal Market NAV per Share decreased from $0.70 on September 30, 2024, to $0.62 on June 30, 2025.
• The Trust's investment objective, for the Shares to reflect the value of ZEN held less expenses, has not been met, with Shares trading at both premiums and discounts to such value.
• The Trust is not currently operating a redemption program and has no intention of seeking regulatory approval for one, limiting liquidity options for shareholders.

Risks

• Market risk, liquidity risk, and other risks related to the Trust's concentration in a single asset, ZEN.
• Investing in ZEN is highly speculative and volatile, with prices influenced by global supply and demand, theft, competition, and geopolitical conditions.
• The price of ZEN has a limited history and has been subject to significant fluctuations.
• Risk of loss or theft of the Trust's commingled ZEN, with no assurance of adequate insurance coverage from the Custodian.
• Irrevocability of ZEN transactions means incorrectly executed transfers may be irretrievable.
• Uncertainty regarding whether ZEN could be determined to be a security under federal or state securities laws, which could have material adverse consequences, including making it more difficult to trade, clear, and custody ZEN, negatively affecting its liquidity and acceptance.
• If ZEN is deemed a security, the Trust could be considered an unregistered investment company under the Investment Company Act of 1940, potentially necessitating liquidation.
• Risk of loss of private keys held by the Custodian, which could render ZEN inaccessible and irretrievable.
• Operational risks associated with the ZEN peer-to-peer network and previously unknown technical vulnerabilities.
• Reliance on third-party service providers, with potential disruptions impacting the Trust's operations.
• Exposure to various litigation, regulatory investigations, and other legal proceedings, including a new lawsuit filed by Genesis Global Capital, LLC against DCG and its affiliates.
• The migration of ZEN to the Base blockchain introduces new risks related to the Layer-2 network, including its design (optimistic rollups), dispute periods, and reliance on the Ethereum Network's security.
• The increase in circulating supply of ZEN Base Tokens post-migration could impact its value.

Future Outlook

The Trust's investment objective is for the value of the Shares to reflect the value of the ZEN held, less expenses, though this objective has not yet been met. The Sponsor anticipates no cash flow from operations and a zero cash balance at the end of each reporting period, as it endeavors to sell only the exact amount of ZEN needed for expenses. The Trust currently has no intention of seeking regulatory approval to operate an ongoing redemption program for its shares.

Management Comments

• The Trust's investment objective is for the value of the Shares (based on ZEN per Share) to reflect the value of the ZEN held by the Trust, less the Trust's expenses and other liabilities.
• While an investment in the Shares is not a direct investment in ZEN, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to ZEN.
• To date, the Trust has not met its investment objective and the Shares quoted on OTCQX have not reflected the value of the ZEN held by the Trust, less the Trust's expenses and other liabilities, but instead have traded at both premiums and discounts to such value, which at times have been substantial.
• The Sponsor does not expect the foregoing proceedings to have a material adverse effect on the Trust's business, financial condition or results of operations.

Industry Context

The filing highlights the ongoing evolution within the digital asset space, particularly the shift towards Layer-2 scaling solutions like the Base blockchain for networks such as Horizen. This migration reflects a broader industry trend to address scalability and transaction cost limitations of foundational blockchains like Ethereum. The SEC's continued scrutiny and development of a regulatory framework for digital assets, including the formation of a crypto task force, underscores the regulatory uncertainty and the potential for reclassification of digital assets as securities, which remains a significant industry-wide concern for crypto trusts and their underlying assets.

Comparison to Industry Standards

• The Trust's structure as a passive investment vehicle holding a single digital asset (ZEN) is comparable to other Grayscale single-asset trusts (e.g., Grayscale Bitcoin Trust ETF, Grayscale Ethereum Trust ETF) and similar products in the digital asset investment space.
• The stated objective for Shares to reflect the underlying asset's value less expenses is a standard goal for such trusts, but the acknowledgment that this objective has not been met and that shares trade at premiums/discounts is a common challenge for closed-end crypto trusts, contrasting with the more efficient price discovery typically seen in spot ETFs.
• The migration of ZEN to the Base blockchain, an optimistic rollup Layer-2 solution, aligns with industry efforts to improve transaction throughput and reduce fees, similar to other Layer-2 networks like Arbitrum or Optimism that aim to scale the Ethereum ecosystem.
• The comparison of Ethereum Network's 12 transactions per second throughput to VisaNet's 65,000+ transactions per second highlights the significant scalability gap that Layer-2 solutions like Base aim to bridge within the broader digital payments and blockchain industry.

Management Changes

Corporate Governance

Legal Proceedings

• Osprey Funds, LLC vs. Sponsor: Osprey filed a suit alleging violations of the Connecticut Unfair Trade Practices Act (CUTPA) related to advertising of Grayscale Bitcoin Trust ETF. The Sponsor's motion for summary judgment was granted on February 7, 2025, and Osprey's motion for reargument was denied on March 19, 2025. Osprey withdrew the action and appeal on May 12, 2025.
• Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd. vs. Digital Currency Group, Inc. and affiliates: A complaint was filed on May 19, 2025, in U.S. Bankruptcy Court alleging preferential transfers made by Genesis Capital to GSI (predecessor to GSO) during the preference period. GSO believes the lawsuit is without merit and intends to vigorously defend against it.

Related Party Transactions

• The Trust pays a Sponsor's Fee of 2.5% of the aggregate value of its assets, payable in ZEN, to Grayscale Investments Sponsors, LLC (GSIS), an indirect wholly owned subsidiary of Digital Currency Group, Inc. (DCG).
• As of June 30, 2025, 3,135,386 Shares of the Trust were held by related parties of the Trust.
• DCG, the indirect parent company of the Sponsor, has an authorization to purchase up to $10 million worth of Shares of the Trust, though only $0.01 million has been purchased to date (prior to July 1, 2022).
• Grayscale Securities, LLC, an affiliate of the Sponsor, is the only Authorized Participant for the Trust.

Stakeholder Impact

• Shareholders: Experienced a decrease in Principal Market NAV per Share and significant unrealized depreciation. The lack of a redemption program limits liquidity options. The ZEN migration to Base blockchain could impact future value and network dynamics.
• Sponsor (Grayscale Investments Sponsors, LLC): Continues to earn a 2.5% Sponsors Fee, paid in ZEN. Assumes most ordinary course expenses, but is subject to potential extraordinary expenses and legal proceedings.
• Horizen Network/Community: The successful Horizen DAO vote and subsequent migration to the Base blockchain signifies a major strategic shift for the Horizen ecosystem, aiming for improved scalability and lower transaction costs.
• Custodians (Coinbase Custody Trust Company, LLC): Continues to safeguard the Trust's ZEN Base Tokens following the migration.

Next Steps

• The Trust will continue to hold ZEN Base Tokens as its assets following the migration on July 23, 2025.
• The Sponsor is currently evaluating the impact of ASU 2023-07 (Segment Reporting) on its financial statements and related disclosures.
• GSO intends to vigorously defend against the lawsuit filed by Genesis Global Capital, LLC.

Key Dates

Recommendation

The Trust's financial performance for the quarter and nine-month period shows significant unrealized depreciation and a decline in NAV per share, indicating a negative trend in the underlying asset's value. However, the recent migration of ZEN to the Base blockchain and the subsequent increase in ZEN's fair value as of July 28, 2025, suggest potential for future recovery or stability. The resolution of the Osprey lawsuit is a positive, but the new Genesis lawsuit introduces fresh legal uncertainty. Given the volatility inherent in digital assets, the operational losses, and the lack of a redemption program, a 'hold' recommendation is appropriate. Investors should monitor the performance of ZEN Base Tokens post-migration and the outcome of the new legal proceedings, as well as the overall regulatory environment for digital assets, before making further investment decisions.

Keywords

Horizen, ZEN, Grayscale, Digital Asset, Cryptocurrency, Trust, SEC Filing, 10-Q, Blockchain, Base Blockchain, ERC-20, Layer-2, Investment Fund, Crypto Fund, Financial Report, Quarterly Report, HZEN