| Joseph A. Hall +1 212 450 4565 joseph.hall@davispolk.com | Davis Polk & WardwellLLP 450 Lexington Avenue New York, NY 10017 davispolk.com |
August 16, 2022
| Re: | Grayscale Horizen Trust (ZEN) |
Amendment No. 1 to Registration Statement on Form 10 |
Filed June 29, 2022 |
File No. 000-56435 |
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Finance
100 F Street, N.E. Washington, D.C. 20549
Att’n: Ben Phippen
Amit Pande
Sonia Bednarowski
Sandra Hunter Berkheimer
Ladies and Gentlemen:
On behalf of our client, Grayscale Investments, LLC, the sponsor (the “Sponsor”) of Grayscale Horizen Trust (ZEN) (the “Trust”), this letter sets forth the Sponsor’s responses to the comments provided by the Staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the “Commission”) in your letter dated August 2, 2022 on Amendment No. 1 to the registration statement on Form 10-12G (the “Registration Statement”) relating to the registration of the Trust’s shares (the “Shares”) pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The Sponsor has revised the Registration Statement in response to the Staff’s comments and is submitting concurrently with this letter Amendment No. 2 to the Registration Statement, including Exhibit 99.1 (the “Information Statement”), which reflects these revisions and updates certain other information. For the Staff’s convenience, each comment is restated in italics prior to the response to such comment. All references to page numbers and captions correspond to pages and captions in the Information Statement.
Exhibit 99.1
General
| 1. | Your disclosure on page 20 that the Zcash Network was cloned to launch Zclassic appears to be inconsistent with your disclosure on page 4 that “Horizen . . . was created in 2017 by a group that forked Zclassic, which is a fork of Zcash” and with your with the statement on page 5 of the “An Introduction to Horizen” document on your website, which states that the Zclassic Network is the result of a fork of the Zcash Network. Please revise for clarity and consistency. |
The Sponsor has revised the disclosure on page 4 of the Information Statement in response to the Staff’s comment. The Zclassic Network was erroneously indicated to be a fork of the Zcash Network in the “An Introduction to Horizen” document on the Trust’s website and the Sponsor has corrected the error.
 | U.S. Securities and Exchange Commission |
| 2. | Refer to your response to comment 13 in which you state that due to the fact-based nature of the analysis regarding whether ZEN is a security, the Sponsor acknowledges that ZEN, in its current form and/or if the characteristics of ZEN change over time, may in the future be found by the SEC or a federal court to be a security. Please revise your disclosure to clarify that ZEN, based on the relevant facts as they exist today, may be a security under the federal securities laws. |
The Sponsor has revised the disclosure on pages 38-39 of the Information Statement in response to the Staff’s comment.
| 3. | We note from your disclosure that you will transact in ZEN, for example receiving ZEN from the Authorized Participant and selling ZEN to raise the funds needed for the payment of any Additional Trust Expenses. Please describe the AML, KYC and any other procedures conducted by the Trust, Sponsor and Authorized Participant to determine, among other things, whether the counter-party in such transactions is not a sanctioned entity. To the extent the Trust, Sponsor or Authorized Participant may not know the counter-party when transacting in ZEN, please add risk factor disclosure regarding the potential risk of transacting in ZEN with a sanctioned entity and the impact if such a transaction occurs. |
The Sponsor has revised the disclosure on pages 22 and 23 of the Information Statement in response to the Staff’s comment.
Overview
The Trust and the Shares, page 4
| 4. | Please disclose here that “[t]he Sponsor does not intend to permit the Trust to continue holding ZEN (and therefore would dissolve the trust) if the Sponsor determines it is a security under the federal securities laws, whether that determination is initially made by the Sponsor itself, or because the SEC or a federal court subsequently makes that determination.” |
The Sponsor has revised the disclosure on page 6 of the Information Statement in response to the Staff’s comment.
| 5. | We note your revisions in response to comment 3 in which you have summarized the selective privacy-preserving features that Horizen offers. Please revise to disclose the percentage of shielded versus unshielded transactions. |
The Sponsor has revised the disclosure on page 4 of the Information Statement in response to the Staff’s comment.
A determination that ZEN or any other digital asset is a “security” may adversely affect the value of ZEN..., page 37
| 6. | Please remove your statement that “the SEC staff has not provided any guidance as to the security status of ZEN” as it is inconsistent with your disclosure elsewhere in this risk factor. We note, for example, your disclosure that the Sponsor, in conducting its analysis, takes into account a number of factors, including “reports, orders, press releases, public statements and speeches by the SEC and its staff providing guidance on when a digital asset may be a security for purposes of the federal securities laws.” |
The Sponsor has revised the disclosure on page 38 of the Information Statement in response to the Staff’s comment.
| 7. | We note your statement that the Sponsor discusses the security status of ZEN with its external securities lawyers. Please revise to clarify, if true, that external securities counsel has provided the Sponsor with a memorandum regarding the status of ZEN under the federal securities laws. |
The Sponsor has revised the disclosure on page 38 of the Information Statement in response to the Staff’s comment.
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| U.S. Securities and Exchange Commission |
Principal Shareholders, page 91
| 8. | Please disclose here that on March 2, 2022, the Sponsor authorized the purchase of up to 10 million Shares of the Trust by Digital Currency Group, Inc. (DCG), and disclose the number of Shares that DCG has purchased pursuant to the authorization. Also, please expand the last bullet point on page 45 to include a discussion of the Sponsor’s authorization of DCG’s purchase of up to 10 million Shares of the Trust and the potential impact to the Trust should DCG choose to purchase some or all of these Shares. |
The Sponsor has revised the disclosure on pages 46 and 92 of the Information Statement in response to the Staff’s comment.
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Please do not hesitate to contact the undersigned if you have any questions regarding the foregoing or if we may provide any additional information.
Very truly yours,
/s/ Joseph A. Hall
Joseph A. Hall
| cc: | Michael Sonnenshein |
Chief Executive Officer |
Grayscale Investments, LLC |
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