10-KT: Grayscale Horizen Trust Shifts Fiscal Year, Reports Q4 Gains

Grayscale Horizen Trust (ZEN) announces a change in its fiscal year-end to December 31, effective January 1, 2025, and reports a net increase in net assets from operations of $1,192 thousand for the three months ended December 31, 2025.

Summary

• The Trust's fiscal year-end has been changed from September 30 to December 31, effective beginning with the fiscal year commencing January 1, 2025, and ending December 31, 2025. This report covers the three-month transition period from October 1, 2025, to December 31, 2025.
• Net assets increased by 16% to $8,673 thousand at December 31, 2025, from $7,481 thousand at September 30, 2025.
• Net increase in net assets resulting from operations was $1,192 thousand for the three months ended December 31, 2025.
• The price of ZEN appreciated from $7.83 per ZEN as of September 30, 2025, to $9.14 per ZEN as of December 31, 2025.
• The Horizen Network completed a full migration of ZEN and its protocol from its legacy standalone blockchain to the Base Network, an Ethereum Layer-2 network, in July 2025.
• ZEN is now an ERC-20 compliant token on the Base Network, utilized in privacy-focused projects and governance within the Horizen DAO.
• The Trust holds approximately 5.4% of the ZEN in circulation as of December 31, 2025.
• Shares outstanding as of March 6, 2026, totaled 11,425,100.
• The Trust's investment objective is for the value of its Shares to reflect the value of ZEN held, less expenses and liabilities, but it has historically traded at substantial premiums and discounts to its Net Asset Value (NAV) per Share.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a neutral to slightly positive report. While the financial performance for the quarter shows growth in net assets and ZEN price appreciation, the underlying structural issues of the Trust (lack of redemption program, trading at premiums/discounts) and the inherent volatility and regulatory risks of digital assets, particularly for a smaller cap asset like ZEN, temper enthusiasm. The fiscal year change is administrative, and the Horizen network migration is a strategic development with both opportunities and new risks.

Positives

• Net assets increased by 16% to $8,673 thousand for the three months ended December 31, 2025, from $7,481 thousand at September 30, 2025.
• The price of ZEN appreciated from $7.83 per ZEN as of September 30, 2025, to $9.14 per ZEN as of December 31, 2025.
• Net increase in net assets resulting from operations was $1,192 thousand for the three months ended December 31, 2025.
• The Horizen Network successfully migrated to the Base Network (Ethereum Layer-2) in July 2025, enhancing its infrastructure for privacy-enhanced decentralized applications.
• The Trust's security procedures, including cold storage and multi-signature requirements, are designed to safeguard the Trust's ZEN.
• The Custodian, Coinbase Custody Trust Company, LLC, is a fiduciary under New York Banking Law and a qualified custodian.
• The SEC entered into court-approved joint stipulations to dismiss the Binance, Coinbase, and Kraken complaints between February and May 2025, and terminated investigations into many other digital asset market participants, potentially reducing broader regulatory uncertainty.

Negatives

• The Trust has not met its investment objective, and Shares have historically traded at substantial premiums (maximum 766%, average 191%) and discounts (maximum 54%, average 20%) to NAV per Share.
• The Trust does not currently operate an ongoing redemption program, which limits arbitrage opportunities and may cause Shares to trade at a discount indefinitely.
• The value of ZEN is highly volatile and subject to fluctuations due to various factors, including manipulative trading, regulatory changes, and competition.
• Digital Asset Trading Platforms are largely unregulated and may experience fraud, market manipulation, business failures, or security failures.
• The Horizen protocol's privacy-preserving features, even after deprecation in September 2023, could still raise regulatory scrutiny or lead to service providers cutting off services.
• The Base Network, on which ZEN now operates, relies on a centralized sequencer operated by Coinbase, which represents a single point of failure and could be manipulated or fail.
• The Custodian's maximum liability for cold storage addresses is limited to $100 million if the value exceeds this threshold for five consecutive business days.
• The Sponsor and the Trust's sole Authorized Participant (Grayscale Securities, LLC) are affiliated, creating potential conflicts of interest.
• Shareholders have limited voting rights and restricted ability to bring derivative actions, requiring at least 10.0% of outstanding Shares from non-affiliated shareholders.
• The Trust is an emerging growth company, and its reduced disclosure requirements may make the Shares less attractive to some investors.
• The Trust's payment of expenses (Sponsor's Fee, Additional Trust Expenses) by delivering or selling ZEN is a taxable event for shareholders, potentially incurring tax liability without an associated distribution from the Trust.

Risks

• Extreme volatility of trading prices for digital assets, including ZEN, could lead to a material adverse effect on the value of the Shares, potentially losing all or substantially all of their value.
• The medium-to-long term value of the Shares is subject to factors relating to the capabilities and development of blockchain technologies and the fundamental investment characteristics of digital assets, which are in early stages of development.
• Loss of access to a private key required to access a digital asset may be irreversible, leading to permanent loss of the digital asset.
• Lack of consensus, participation, or clarity on the Horizen Network's governance (Horizen DAO) may stymie its utility, adaptability, and ability to grow and face challenges.
• Digital asset networks face significant scaling challenges, and efforts to increase transaction volume and speed may not be effective, potentially increasing transaction fees and settlement times.
• Smart contracts are a new technology; vulnerabilities in their programming, such as coding errors, oracle manipulation, or denial-of-service attacks, could have damaging effects on ZEN's value.
• The Horizen protocol and its underlying technologies (Optimism Stack, optimistic rollups, sequencers, Superchain) are new and may not function as intended, with centralized sequencers posing a single point of failure risk.
• The perception that certain high-profile contributors may no longer contribute to the Horizen Network could negatively affect the price of ZEN.
• Concentrated ownership of ZEN could enable large sales or distributions by holders, or disproportionate influence over governance decisions, adversely affecting the market price.
• A malicious actor or botnet obtaining control over the Base Network's centralized sequencer, rollup infrastructure, smart contracts, or the Ethereum Network itself could manipulate the Horizen Network.
• A temporary or permanent fork or a clone of the Horizen Network could adversely affect the value of the Shares, and the Sponsor's determination of the 'appropriate' network may not be the most valuable fork.
• Any name change and associated rebranding initiative by the core developers of ZEN may not be favorably received by the digital asset community, negatively impacting ZEN's value.
• The cryptography used to enhance the privacy of transactions utilizing the Horizen protocol is new and could ultimately fail, or be used to facilitate illicit activities, increasing regulatory scrutiny and risk of service cut-offs.
• Recent extreme volatility and disruption in digital asset markets (e.g., FTX, Celsius, Voyager, Three Arrows Capital failures) could continue, leading to a loss of confidence and market-wide declines in liquidity.
• The largely unregulated nature and lack of transparency surrounding Digital Asset Trading Platforms expose them to fraud, market manipulation (e.g., front-running, wash-trading), business failures, security failures, or operational problems.
• The Reference Rate (now Secondary Reference Rate) has a limited history, and a failure or volatility in its price determination could adversely affect the value of the Shares.
• Competition from the emergence or growth of other digital assets (e.g., Railgun, Manta) or alternative methods of investing in ZEN could have a negative impact on its price and demand for Shares.
• Congestion or delay on the Horizen Network (Base Network) may delay purchases or sales of ZEN by the Trust, affecting liquidity and confidence.
• Competition from central bank digital currencies (CBDCs) and emerging payments initiatives involving financial institutions could adversely affect the price of ZEN.
• Prices of ZEN may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers, and their regulatory treatment, potentially leading to market volatility.
• The Trust relies on third-party service providers (Custodian, Authorized Participants); any disruptions to their business operations could adversely impact the Trust's ability to access critical services.
• The legal rights of customers with respect to digital assets held by a third-party custodian in insolvency proceedings are uncertain; the Trust could be treated as a general unsecured creditor.
• The Trust is an emerging growth company, and the reduced disclosure requirements applicable to it may make the Shares less attractive to investors.
• Due to the Rule 144 holding period, the lack of an ongoing redemption program, and the Trust's ability to halt creations, there is no arbitrage mechanism to keep the value of the Shares closely linked to the Reference Rate Price, leading to historical premiums and discounts.
• Non-concurrent trading hours between OTCQX and the Digital Asset Trading Platform Market can cause the Shares to trade at a price that is at, above, or below the Trust's NAV per Share.
• Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust's NAV per Share, even if the NAV per Share increases.
• The amount of the Trust's assets represented by each Share will decline over time as the Trust pays the Sponsor's Fee and Additional Trust Expenses.
• Unanticipated problems or issues with the mechanics of the Trust's operations, technical infrastructure, or security procedures could adversely affect the value of the Shares.
• Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act or the protections afforded by the CEA.
• The restrictions on transfer and redemption may result in losses on the value of the Shares, as Shares purchased in private placements are restricted and redemptions are not currently permitted.
• There is no guarantee that an active trading market for the Shares will continue to develop, and OTCQX can halt trading.
• The Sponsor and its management have limited history of operating investment vehicles like the Trust, and their experience may be inadequate or unsuitable.
• Security threats to the Digital Asset Account could result in the halting of Trust operations, loss of Trust assets, or damage to the Trust's reputation.
• ZEN transactions are irrevocable; stolen or incorrectly transferred ZEN may be irretrievable, adversely affecting the value of the Shares.
• The lack of full insurance and shareholders' limited rights of legal recourse against the Trust and its service providers expose the Trust and its shareholders to the risk of loss of ZEN.
• The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders.
• The Trust Agreement includes provisions that limit shareholders' voting rights and restrict their right to bring a derivative action.
• The Sponsor is solely responsible for determining the value of the NAV and NAV per Share, and any errors, discontinuance, or changes in such calculations may have an adverse effect on the Shares.
• Extraordinary expenses resulting from unanticipated events (e.g., taxes, legal fees, indemnification) may become payable by the Trust, adversely affecting the value of the Shares.
• The Trust's delivery or sale of ZEN to pay expenses could result in shareholders incurring tax liability without an associated distribution from the Trust.
• The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Transfer Agent, or the Custodian under the Trust Documents.
• Intellectual property rights claims may adversely affect the Trust and the value of the Shares.
• Pandemics, epidemics, and other natural and man-made disasters could negatively impact the value of the Trust's holdings and/or significantly disrupt its affairs.
• Shareholders may not receive the benefits of any forks or airdrops due to operational, tax, securities law, regulatory, legal, and practical issues.
• A determination that ZEN or any other digital asset is a security may adversely affect the value of ZEN and the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.
• Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of ZEN, mining activity, or the operation of the Horizen Network or the Digital Asset Markets.
• Regulatory changes or other events in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, block production activity, or the operation of their networks or the Digital Asset Trading Platform Market.
• If regulators subject an Authorized Participant, the Trust, or the Sponsor to regulation as a money service business or money transmitter, this could result in extraordinary expenses and decreased liquidity for the Shares.
• Statutory or regulatory changes or interpretations could obligate the Trust or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust.
• The treatment of the Trust for U.S. federal income tax purposes is uncertain, and a challenge to its grantor trust status could lead to entity-level taxation.
• The treatment of digital assets for U.S. federal income tax purposes is uncertain, and future guidance could have adverse tax consequences for shareholders.
• Future developments regarding the treatment of digital assets for U.S. federal income tax purposes could adversely affect the value of the Shares.
• Future developments in the treatment of digital assets for tax purposes other than U.S. federal income tax purposes (e.g., state, local, non-U.S.) could adversely affect the value of the Shares.
• The tax treatment of ZEN and transactions involving ZEN for state and local tax purposes is not settled.
• A U.S. tax-exempt shareholder may recognize unrelated business taxable income (UBTI) as a consequence of an investment in Shares due to forks, airdrops, or similar occurrences.
• Non-U.S. Holders may be subject to U.S. federal withholding tax on income derived from forks, airdrops, and similar occurrences.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust, as the Sponsor may favor its own interests to the detriment of the Trust and its shareholders.
• Shareholders cannot be assured of the Sponsor's continued services, the discontinuance of which may be detrimental to the Trust.
• Although the Custodian is a fiduciary, if it resigns or is removed without replacement, it would trigger early termination of the Trust.
• Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust.

Future Outlook

Beginning with the fiscal year ending December 31, 2026, the Trust intends to file annual reports on Form 10-K for the twelve-month period ending December 31 of each year. The Sponsor intends to engage additional unaffiliated Authorized Participants in the future. The Trust may in the future operate a redemption program, subject to SEC regulatory approval and Sponsor approval, which could potentially reduce any premium or discount at which the Shares trade, though the Sponsor currently has no intention of seeking approval for an ongoing redemption program. The Horizen protocol is intended to provide infrastructure for privacy-enhanced decentralized applications on the Base Network, with future ZEN allocations subject to Horizen DAO governance decisions. The SEC's crypto task force and Project Crypto initiatives will continue to develop a comprehensive regulatory framework for digital assets.

Management Comments

• "The Trust is an emerging growth company, as defined in the JOBS Act, and intends to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies."
• "The Sponsor believes that the security procedures in place for the Trust, including, but not limited to, offline storage, or cold storage, multiple encrypted private key shards, usernames, passwords and 2-step verification, are reasonably designed to safeguard the Trusts ZEN."
• "The Sponsor intends to evaluate each future fork or airdrop on a case-by-case basis in consultation with the Trusts legal advisers, tax consultants, and Custodian."
• "The Sponsor believes that it is applying the proper legal standards in determining that ZEN is not a security in light of the uncertainties inherent in the Howey and Reves tests."
• "The Sponsor does not expect the foregoing proceedings [Genesis Capital lawsuit against DCG] to have a material adverse effect on the Trusts business, financial condition or results of operations."
• "The Sponsor currently has no intention of seeking regulatory approval from the SEC for the Trust to operate an ongoing redemption program."

Industry Context

StockSavvy.ai notes that the digital asset industry continues to experience extreme volatility and regulatory scrutiny, as evidenced by past failures of major players like FTX, Celsius, and Voyager, and ongoing SEC enforcement actions against major platforms (though specific complaints against Binance, Coinbase, and Kraken were dismissed between February and May 2025). The shift of Horizen (ZEN) to an Ethereum Layer-2 (Base Network) reflects a broader industry trend towards scaling solutions and leveraging established blockchain security, while also navigating evolving regulatory landscapes concerning privacy coins and security classifications. The introduction of central bank digital currencies (CBDCs) and other payment initiatives also poses competitive threats to existing digital assets.

Comparison to Industry Standards

• The Trust's investment objective to reflect the value of ZEN is standard for single-asset digital currency trusts, similar to other Grayscale products.
• The historical trading of Shares at substantial premiums (max 766%, avg 191%) and discounts (max 54%, avg 20%) to NAV is a common characteristic of closed-end digital asset trusts without redemption mechanisms, contrasting with spot Bitcoin ETFs or other ETPs that maintain tighter tracking through arbitrage.
• The use of Coinbase Custody Trust Company, LLC as a qualified custodian for cold storage aligns with industry best practices for institutional digital asset custody, comparable to other Grayscale products and institutional digital asset funds.
• ZEN's market capitalization of approximately $161.6 million as of December 31, 2025, positions it as the 165th largest digital asset by CoinMarketCap.com, indicating a lower liquidity profile and higher competitive risk compared to leading digital assets like Bitcoin and Ether.
• The Horizen Network's migration to Base Network, an Ethereum Layer-2, places it in direct competition with other zero-knowledge EVM protocols such as zkSync Era, Scroll, and Polygon zkEVM, which are also focused on scaling Ethereum.
• The 2.5% annual Sponsor's Fee is comparable to, or slightly higher than, fees charged by some other digital asset trusts, but generally higher than fees for newly launched spot Bitcoin ETFs.

Management Changes

Corporate Governance

Legal Proceedings

• On May 19, 2025, Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd. filed a complaint in the United States Bankruptcy Court for the Southern District of New York against Digital Currency Group, Inc. (DCG) and certain affiliates, including Grayscale Operating, LLC (former Co-Sponsor), alleging preferential transfers of 105 Bitcoin and 37,647.06 Ethereum Classic tokens. Grayscale Operating, LLC believes this lawsuit is without merit and intends to vigorously defend against it.
• On January 17, 2025, DCG agreed to a cease-and-desist order and paid a $38 million civil money penalty arising from SEC allegations that DCG negligently misled investors about the impact of a default on Genesis Capital's financial condition.
• Between February 2025 and May 2025, the SEC entered into court-approved joint stipulations to dismiss its complaints against Binance, Coinbase, and Kraken, and terminated investigations into many other digital asset market participants.
• In July 2023, the District Court for the Southern District of New York ruled that while XRP is not a security, certain sales of XRP to specific buyers constituted investment contracts. Appeals in this case were dismissed on August 7, 2025.

Related Party Transactions

• Grayscale Investments Sponsors, LLC (Sponsor) is a consolidated subsidiary of Digital Currency Group, Inc. (DCG).
• Grayscale Securities, LLC, the sole acting Authorized Participant, distributor, and marketer for the Shares, is an affiliate of the Sponsor and a wholly owned subsidiary of DCG.
• The Sponsor pays a monthly fee and a fee based on the NAV of the Trust to CoinDesk Indices, Inc. (Reference Rate Provider) for licensing the Reference Rate. CoinDesk Indices, Inc. was an affiliate of the Sponsor until November 20, 2023, when it was acquired by an unaffiliated third party.
• DCG, the indirect parent company of the Sponsor, holds 18.50% (2,113,604 Shares) of the Trust's outstanding Shares as of March 6, 2026.
• DCG previously purchased $0.01 million worth of Shares between March 2, 2022, and June 30, 2022, under an authorization to purchase up to $10 million. No further purchases under this authorization occurred from July 1, 2022, through March 6, 2026.
• Several employees of the Sponsor and DCG are FINRA-registered representatives who maintain their licenses through Grayscale Securities.
• The Trust indemnifies the Sponsor and its affiliates for certain liabilities or expenses incurred without gross negligence, bad faith, or willful misconduct.
• The Sponsor may appoint itself or an affiliate as an agent to act on behalf of shareholders in connection with any distribution of Incidental Rights and/or IR Virtual Currency.

Stakeholder Impact

• Shareholders: Experienced a positive increase in net assets and ZEN price during the quarter. However, they continue to face risks from the Trust's historical trading at significant premiums/discounts to NAV, the absence of a redemption program, high volatility of ZEN, and potential tax liabilities from ZEN sales for expenses without corresponding distributions. Their voting rights are limited, and derivative action rights are restricted.
• Sponsor (Grayscale Investments Sponsors, LLC): Continues to manage the Trust and receives a 2.5% annual fee. It assumes ordinary course expenses but is indemnified for extraordinary expenses. The Sponsor faces potential conflicts of interest due to its affiliations with other service providers and DCG's broader digital asset investments.
• Custodian (Coinbase Custody Trust Company, LLC): Continues to safeguard the Trust's ZEN in cold storage. Its liability is limited under certain conditions, such as the Cold Storage Threshold, which could impact the Trust's ability to recover full losses in extreme scenarios.
• Authorized Participant (Grayscale Securities, LLC): Continues to facilitate Share creations. Its affiliated status with the Sponsor creates potential conflicts of interest regarding transaction terms and pricing.
• Horizen Network Developers/Community: The migration to the Base Network and reliance on the Horizen DAO for governance shifts the operational and developmental landscape for ZEN, potentially impacting its future growth and adoption.
• Regulators (SEC, CFTC, FinCEN): Continue to scrutinize the digital asset industry, with ongoing efforts to establish clear regulatory frameworks. The Trust's operations are subject to these evolving regulations, particularly concerning the classification of ZEN as a security, which could have significant adverse impacts.

Next Steps

• Beginning with the fiscal year ending December 31, 2026, the Trust intends to file annual reports on Form 10-K for the twelve-month period ending December 31 of each year.
• The Sponsor intends to engage additional Authorized Participants that are unaffiliated with the Trust in the future.
• The Trust may in the future operate a redemption program, subject to SEC regulatory approval and Sponsor approval.
• The Sponsor intends to evaluate each future fork or airdrop on a case-by-case basis in consultation with the Trust's legal advisers, tax consultants, and Custodian.
• The SEC's crypto task force and Project Crypto initiatives will continue to develop a comprehensive regulatory framework for digital assets.

Key Dates

Recommendation

The Trust's recent financial performance shows a positive trend in net assets and ZEN price appreciation for the quarter, which is favorable. However, the fundamental structural issues, such as the persistent trading at premiums/discounts to NAV and the absence of a redemption program, continue to pose significant risks to investors seeking direct ZEN exposure. The ongoing regulatory uncertainties in the digital asset space, coupled with ZEN's relatively smaller market capitalization and the new risks associated with its migration to the Base Network, suggest a 'Hold' recommendation. Investors should monitor the resolution of regulatory clarity and the effectiveness of the new network architecture before considering further investment, while existing holders should assess their risk tolerance against the potential for continued volatility and the lack of efficient arbitrage mechanisms.

Keywords

Horizen (ZEN), Grayscale Trust, Digital Assets, Cryptocurrency, SEC Filing, 10-KT, Transition Report, Blockchain, Investment Vehicle, OTCQX, Coinbase Custody, Ethereum Layer-2, Base Network, Financial Performance, Risk Factors, Regulatory Scrutiny, Fiscal Year Change, Digital Currency Group