10-K: Grayscale Horizen Trust: ZEN Migrates to Base, Net Assets Up

Grayscale Horizen Trust's 2025 annual report details ZEN's migration to the Base Network, a 57% increase in net assets, and ongoing challenges with share price premiums/discounts.

Summary

• Grayscale Horizen Trust (ZEN) filed its annual 10-K report for the fiscal year ended September 30, 2025.
• The Trust's investment objective is for the Shares' value to reflect the value of ZEN held by the Trust, less expenses and liabilities.
• Horizen (ZEN) completed a full migration from its legacy standalone blockchain to the Base Network, an Ethereum Layer-2 network, in July 2025.
• In September 2023, the Horizen Network updated its protocol to deprecate privacy shields, intending to no longer be considered a privacy coin.
• As of September 30, 2025, the Trust held approximately 5.5% of the total ZEN in circulation.
• Net assets increased by 57% to $7,481 thousand as of September 30, 2025, from $4,767 thousand in 2024.
• The increase in net assets was primarily due to the contribution of approximately 390,780 ZEN, with a value of $6,599 thousand, in connection with Share creations during the year.
• Net decrease in net assets resulting from operations was ($3,885) thousand for the year ended September 30, 2025, compared to an increase of $96 thousand in 2024.
• The ZEN price depreciated from $8.13 per ZEN as of September 30, 2024, to $7.83 per ZEN as of September 30, 2025.
• The Trust's Shares (HZEN) are quoted on OTCQX and traded at a 21% premium to the Trust's NAV per Share as of September 30, 2025.
• The Sponsor's Fee for the year ended September 30, 2025, was $246 thousand, paid in ZEN.
• The Trust does not currently operate a redemption program for Shares, which contributes to the Shares trading at substantial premiums or discounts to NAV.
• Digital Currency Group, Inc. (DCG), the indirect parent company of the Sponsor, holds 18.80% of the outstanding Shares as of November 20, 2025.

Sentiment

Score: 4

Explanation: While net assets increased due to new creations, operational results were negative, driven by ZEN price depreciation and investment losses. The persistent premium/discount issue and lack of redemption program remain significant drawbacks for investors. Regulatory clarity is emerging but still uncertain, and the underlying asset's volatility and competitive landscape pose ongoing challenges.

Positives

• Net assets increased by 57% to $7,481 thousand as of September 30, 2025, driven by significant ZEN contributions from Share creations.
• The Horizen protocol successfully migrated to the Base Network (Ethereum Layer-2) in July 2025, enhancing its infrastructure for privacy-enhanced decentralized applications.
• The Horizen Network's deprecation of privacy shields in September 2023 aims to address regulatory concerns and potentially broaden adoption.
• The Trust's security procedures, including cold storage and multi-signature private keys, are designed to safeguard ZEN assets.
• The SEC dismissed charges against Binance, Coinbase, and Kraken between February and May 2025, and terminated investigations into many other digital asset market participants, indicating a potentially more favorable regulatory environment.
• The GENIUS Act was signed into law in July 2025, providing specific federal regulation for stablecoins, which could bring more clarity to the broader digital asset market.
• The SEC launched a Crypto Task Force in January 2025 and Chairman Atkins announced Project Crypto in July 2025, signaling efforts to develop a clearer regulatory framework for digital assets in the U.S.

Negatives

• Net decrease in net assets resulting from operations was ($3,885) thousand for the year ended September 30, 2025, a significant decline from the $96 thousand increase in 2024.
• The Trust experienced a net realized and unrealized loss on investment of ($3,639) thousand in 2025, primarily due to ZEN price depreciation.
• ZEN price depreciated from $8.13 per ZEN on September 30, 2024, to $7.83 per ZEN on September 30, 2025.
• The Trust has not met its investment objective, with Shares historically trading at substantial premiums (max 766%, average 207%) or discounts (max 54%, average 20%) to NAV per Share, and were at a 21% premium as of September 30, 2025.
• The lack of an ongoing redemption program means there is no arbitrage mechanism to keep the value of Shares closely linked to the Reference Rate Price, contributing to price deviations.
• DCG, the indirect parent of the Sponsor, authorized up to $10 million in Share purchases but only bought $0.01 million from March to June 2022, and none since, indicating limited buy-in despite authorization.
• The Horizen protocol's reliance on the Base Network (Ethereum Layer-2) and the Ethereum Network itself introduces new vulnerabilities, including potential sequencer compromises, rollup infrastructure flaws, or Ethereum network attacks.
• The Optimism Stack, optimistic rollups, sequencers, and the Superchain are new blockchain technologies that are not widely used and may not function as intended, posing risks to ZEN's underlying infrastructure.
• The Custodian's maximum liability for a cold storage address is limited to $100 million if the value exceeds this threshold for five consecutive business days, potentially exposing the Trust to losses beyond this limit.
• The Trust's reliance on a single Authorized Participant (Grayscale Securities, an affiliate) means basket creations do not occur on an arms-length basis, creating potential conflicts of interest.

Risks

• Extreme volatility of trading prices for digital assets, including ZEN, could cause the Shares to lose all or substantially all of their value.
• The medium-to-long term value of Shares is uncertain due to factors related to blockchain technology development and digital asset investment characteristics.
• The value of Shares depends on the acceptance of digital assets, such as ZEN, which is a new and rapidly evolving industry.
• Digital assets may have concentrated ownership, and large sales or distributions by holders could adversely affect ZEN's market price.
• A temporary or permanent fork or clone of the Horizen Network could adversely affect the value of the Shares.
• Recent extreme volatility and disruption in digital asset markets, loss of confidence in participants, significant negative publicity, and market-wide declines in liquidity could continue.
• The value of Shares directly relates to the value of ZEN held by the Trust, the value of which may be highly volatile and subject to fluctuations.
• Due to the Rule 144 holding period, lack of an ongoing redemption program, and ability to halt creations, there is no arbitrage mechanism to keep Shares closely linked to the Reference Rate Price, leading to historical premiums/discounts.
• Shares may trade at a price above or below NAV per Share due to non-current trading hours between OTCQX and the 24-hour Digital Asset Trading Platform Market.
• The largely unregulated nature and lack of transparency of Digital Asset Trading Platforms may adversely affect ZEN's value.
• The Reference Rate has a limited history, and its failure could adversely affect Share value.
• Competition from other digital assets (e.g., zkSync Era, Scroll, Polygon zkEVM) or alternative investment methods could negatively impact ZEN's price.
• Reliance on third-party service providers (Custodian, Authorized Participants) means their replacement could pose challenges to safekeeping ZEN and Trust operations.
• Shareholders may suffer losses if Shares trade above or below NAV per Share.
• A determination that ZEN is a security could adversely affect its value, potentially leading to extraordinary expenses or Trust termination.
• Regulatory changes or actions by U.S. Congress or federal/state agencies may affect Share value or restrict ZEN's use/operation.
• Changes in SEC policy could adversely impact Share value.
• Regulatory changes or events in foreign jurisdictions may affect Share value or restrict digital asset use/operation.
• The Authorized Participant, Trust, or Sponsor could be subject to regulation as a money service business or money transmitter, leading to extraordinary expenses and decreased liquidity.
• Statutory or regulatory changes could obligate the Trust or Sponsor to register and comply with new regulations, resulting in extraordinary, nonrecurring expenses.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust.
• Discontinuance of the Sponsor's services could be detrimental to the Trust.
• If the Custodian resigns or is removed without replacement, it could trigger early termination of the Trust.
• The Trust is an emerging growth company, and reduced disclosure requirements may make Shares less attractive to investors.
• Security threats to the Digital Asset Account could result in halting Trust operations, loss of assets, or damage to reputation.
• ZEN transactions are irrevocable; stolen or incorrectly transferred ZEN may be irretrievable.
• Lack of full insurance and limited legal recourse against service providers expose the Trust to loss of ZEN.
• The Trust may be required to terminate and liquidate at a disadvantageous time for shareholders.
• Trust Agreement provisions limit shareholder voting rights and restrict derivative actions.
• The Sponsor is solely responsible for determining the value of the NAV and NAV per Share and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares.
• Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares.
• The Trust's delivery or sale of ZEN to pay expenses or other operations of the Trust 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.
• The treatment of the Trust for U.S. federal income tax purposes is uncertain.
• The treatment of ZEN and transactions involving ZEN for state and local tax purposes is not settled.
• Non-U.S. Holders may be subject to U.S. federal withholding tax on income derived from forks, airdrops and similar occurrences.

Future Outlook

The Sponsor intends to evaluate each future fork or airdrop on a case-by-case basis. The Trust may in the future operate a redemption program, subject to SEC regulatory approval and Sponsor discretion, but currently has no intention of seeking such approval due to perceived SEC reluctance. The SEC has launched a Crypto Task Force and Project Crypto to develop a comprehensive and clear regulatory framework for digital assets, which could impact the Trust's operations and the value of ZEN. The Sponsor may also seek to list the Shares on NYSE Arca in the future, but is not currently seeking approval.

Management Comments

• "The Sponsor believes that investors will be able to more effectively implement strategic and tactical asset allocation strategies that use ZEN by using the Shares instead of directly purchasing and holding ZEN, and for many investors, transaction costs related to the Shares will be lower than those associated with the direct purchase, storage and safekeeping of ZEN."
• "The Sponsor does not believe that the SEC would, at this time, entertain an application for the waiver of rules needed in order to operate an ongoing redemption program, the Sponsor currently has no intention of seeking regulatory approval from the SEC for the Trust to operate an ongoing redemption program."
• "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 believes this lawsuit [Genesis Capital/Asia vs DCG/GSO] is without merit and intends to vigorously defend against it."
• "The Sponsor does not expect the Management Reorganization to have any material impact on the operations of the Trust."

Industry Context

The digital asset industry continues to experience extreme volatility and disruption, as evidenced by the failures of FTX, Silicon Valley Bank, and Signature Bank, and ongoing regulatory scrutiny. However, recent dismissals of SEC charges against major platforms like Binance, Coinbase, and Kraken, along with new legislative efforts like the GENIUS Act and SEC initiatives like the Crypto Task Force and Project Crypto, suggest a potential shift towards a more defined and potentially more favorable regulatory environment in the U.S. The migration of ZEN to an Ethereum Layer-2 network (Base) reflects a broader industry trend towards scaling solutions and interoperability within the Ethereum ecosystem, while its deprecation of privacy features aligns with increasing regulatory pressure on 'privacy coins'.

Comparison to Industry Standards

• The Trust's lack of an ongoing redemption program contrasts with typical exchange-traded products (ETPs) for traditional assets, which use arbitrage mechanisms to keep market prices closely linked to net asset value. This is a common issue for many Grayscale trusts that have not converted to ETFs.
• The historical trading of HZEN at substantial premiums (maximum 766%, average 207%) and discounts (maximum 54%, average 20%) to NAV per Share is significantly higher volatility and deviation compared to well-regulated spot Bitcoin or Ether ETFs, which typically trade very close to their NAV.
• The migration of ZEN to an Ethereum Layer-2 network (Base) is comparable to other digital assets and protocols adopting scaling solutions like zkSync Era, Scroll, and Polygon zkEVM, which are direct competitors mentioned in the filing.
• The Custodian's insurance coverage and liability limits, particularly the $100 million cold storage threshold, are specific to this type of digital asset custody and may not align with the comprehensive insurance and protections offered for traditional financial assets. Coinbase Global Inc. has stated its total crypto assets in custody are significantly greater than its insurance coverage, which is a common industry-wide concern for digital asset custodians.
• The 2.5% annual Sponsors Fee is relatively high compared to the fees charged by recently approved spot Bitcoin ETFs (e.g., BlackRock's IBIT at 0.25% or Fidelity's FBTC at 0.25%), making the Trust a less cost-effective investment vehicle for direct exposure to ZEN.

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 GSO (former Co-Sponsor), alleging preferential transfers made by Genesis Capital to GSI (predecessor to GSO) during the preference period prior to Genesis Capital's bankruptcy filing. Genesis Capital seeks to avoid these transfers and recover property. GSO believes the lawsuit is without merit and intends to vigorously defend against it.

Related Party Transactions

• Grayscale Investments Sponsors, LLC (GSIS) is the sole Sponsor and a consolidated subsidiary of Digital Currency Group, Inc. (DCG).
• Grayscale Securities, LLC, the only acting Authorized Participant, distributor, and marketer for the Shares, is an affiliate of the Sponsor and a wholly owned subsidiary of DCG.
• The Trust pays the Sponsor an annual fee of 2.5% of its net assets, payable in ZEN.
• DCG, the indirect parent company of the Sponsor, holds 18.80% of the outstanding Shares as of November 20, 2025.
• DCG authorized the purchase of up to $10 million worth of Trust Shares, but only purchased $0.01 million from March to June 2022, and none since.
• The Sponsor and its affiliates (including Grayscale Securities) have potential conflicts of interest in allocating resources and making decisions that may favor their own interests over the Trust and its shareholders.
• The Reference Rate Provider (CoinDesk Indices, Inc.) was an indirect parent company of DCG until November 2023, creating a prior related-party conflict regarding ZEN valuation. The current Secondary Reference Rate Provider (Coin Metrics, Inc.) is not an affiliate.
• The Trustee is compensated by the Sponsor and indemnified by the Sponsor and DCG.

Stakeholder Impact

• Shareholders face risks from ZEN price volatility, the Trust's inability to meet its investment objective (due to premiums/discounts), lack of redemption program, potential tax liabilities from ZEN sales for expenses, and limited voting/derivative action rights. They benefit from exposure to ZEN without direct custody complexities.
• The Sponsor (Grayscale Investments Sponsors, LLC) receives a 2.5% annual fee from the Trust, covers ordinary expenses, and manages the Trust's operations. Faces potential legal proceedings (e.g., Genesis lawsuit against DCG/GSO) and regulatory scrutiny.
• Authorized Participants (Grayscale Securities, LLC) facilitate creation of Shares, but as an affiliate, creates potential conflicts of interest regarding non-arms-length transactions.
• The Custodian (Coinbase Custody Trust Company, LLC) is responsible for safeguarding ZEN, but its liability is limited, and the Trust's assets are not fully insured, exposing the Trust to potential losses.
• Horizen Network Developers/Community: The migration to Base Network and deprecation of privacy features represent significant shifts in the protocol's direction, impacting its utility and adoption by developers and users.
• Regulators (SEC, CFTC, FinCEN): Increased scrutiny and evolving regulatory frameworks (e.g., GENIUS Act, Project Crypto) directly impact the digital asset industry, including the Trust and its operations.

Next Steps

• The Sponsor intends to evaluate each future fork or airdrop on a case-by-case basis.
• The Sponsor may in the future seek regulatory approval from the SEC to operate an ongoing redemption program, though currently has no intention to do so.
• The Sponsor may seek to list the Shares on NYSE Arca in the future.
• The SEC's Crypto Task Force and Project Crypto will continue efforts to draft clear rules for crypto asset distributions, custody, and trading.
• The Horizen DAO will continue to administer on-chain governance mechanisms for proposed protocol updates.

Key Dates

Recommendation

While the Trust saw a significant increase in net assets due to new creations, its operational performance resulted in a net decrease in assets and investment losses for the fiscal year, driven by ZEN price depreciation. The persistent trading of Shares at substantial premiums or discounts to NAV, coupled with the absence of a redemption program, indicates a fundamental disconnect from its investment objective and limits arbitrage opportunities. The recent migration of ZEN to an Ethereum Layer-2 network and the deprecation of privacy features are significant technical and strategic shifts, but their long-term impact on ZEN's value and adoption remains uncertain amidst a volatile and evolving regulatory landscape. Given the current operational losses, ZEN price depreciation, and structural issues like the premium/discount, a 'hold' recommendation is appropriate. Investors should monitor ZEN's market performance, the effectiveness of its new protocol architecture, and any progress on a redemption program or regulatory clarity before considering further investment or divestment.

Keywords

Grayscale Horizen Trust, ZEN, HZEN, Horizen, Digital Asset, Cryptocurrency, Blockchain, SEC Filing, 10-K, Annual Report, Digital Currency Group, DCG, Base Network, Ethereum Layer-2, ERC-20, zk-SNARKs, Crypto Regulation, Net Assets, Investment Trust, OTC Markets, Coinbase Custody