Hayes Ditches Zcash After Vulnerability Disclosures
Arthur Hayes has announced that his fund, Maelstrom, has liquidated its entire Zcash (ZEC) holdings. The decision follows new disclosures regarding a vulnerability in the Zcash Orchard Pool, which Hayes believes has significantly heightened the perceived risk to ZEC’s monetary integrity. This move effectively marks the end of his recent “Holy Trinity” trade, which encompassed ZEC, NEAR, and HYPE. Worldcoin (WLD) remains the sole AI-linked asset in the fund’s portfolio, according to Hayes.
“The Holy Trinity is dead,” Hayes declared on the social media platform X. “Sadly, due to the Orchard Pool exploit, I had to dump our entire ZEC bag.”
The Orchard Pool Vulnerability and Market Reaction
Hayes’ announcement came shortly after a detailed statement from Zooko Wilcox, Jason McGee, and Taylor Hornby, who characterized the issue as “The Orchard Counterfeiting Vulnerability.” According to their summary, Hornby discovered a critical flaw in Zcash’s Orchard pool on May 29. This vulnerability was disclosed to the Zcash Open Development Lab (ZODL), which then orchestrated an emergency response that concluded on June 2. The core of the problem, as stated, was that the vulnerability “could have been exploited to undetectably create an unlimited amount of counterfeit ZEC within Orchard.”
This disclosure fundamentally altered the market’s perception. Earlier communications from the Zcash ecosystem had emphasized that the vulnerability had been fixed, with no evidence of exploitation and user funds remaining secure. However, Wilcox, McGee, and Hornby introduced a crucial caveat: due to the privacy features of Orchard, it is impossible to cryptographically prove whether the vulnerability was exploited during its existence.
This distinction proved pivotal for Hayes’ decision to exit his Zcash position. “While I think it’s extremely unlikely of any minting, it cannot be formally cryptographically proved impossible,” Hayes explained. “The privacy from AI, govt, big tech narrative demands perfection not improbability. I read about the exploit yesterday, and didn’t appreciate how it violated my narrative mental map.”
ZODL’s Explanation and the Impact of Uncertainty
Josh Swihart, founder and CEO of ZODL, offered his perspective in a post titled “Never Again.” He described the Orchard bug as a failure in one of the system’s rules, noting that the rule was written with enough leniency to accept false information and still pass. Swihart clarified that the issue was not a privacy leak but a soundness failure within the proof system, a type of problem that can erode confidence in the possibility of invalid value creation within a shielded pool.
The emergency fix necessitated a coordinated network-wide action, rather than a simple software update for wallets or applications. ZODL and the broader Zcash community temporarily disabled Orchard operations before restoring them with a corrected circuit. While the remediation addressed the vulnerability, the residual uncertainty surrounding the event cast a shadow over the privacy-focused asset. The absence of evidence of counterfeiting is not equivalent to a cryptographic guarantee that counterfeiting never occurred.
Reassessment and Future Outlook
Hayes indicated that the approximately 30% sell-off in ZEC prompted a reassessment of his position. “The 30% dump made me rethink, and I had to take profit on the entire position,” he stated. His rationale was not based on confirmed exploitation, but on the principle that the privacy thesis he associated with ZEC demanded a higher standard than probabilistic assurances.
This sale marks a swift reversal from Hayes’ May 22 “Holy Trinity” call, where he had identified HYPE, ZEC, and NEAR as a promising trio. At the time, he had described HYPE as representing the on-chain derivatives and protocol revenue trade, NEAR as the AI and chain-abstraction play, and ZEC as the privacy component.
Just a day prior to divesting his Zcash holdings, Hayes had already announced the sale of his HYPE and NEAR positions, citing rising energy prices, anticipated major AI initial public offerings, and political risks surrounding artificial intelligence as reasons for taking profits.
Despite his exit from Zcash, Hayes has not entirely closed the door on the asset. “We will consistently re-evaluate our thinking and if my assumptions are proven incorrect, will rebuy, hopefully at lower prices,” he wrote. “Privacy is priceless and I have no issue eating humble pie and rebuying much higher.”
For the time being, Worldcoin remains the sole public manifestation of his AI-linked investment strategy. “We still hold WLD and are excited for Lord Elon to pump our bags,” Hayes added, referencing recent speculation around AI assets and an OpenAI IPO that has fueled renewed interest in Worldcoin.
At the time of reporting, ZEC had experienced a decline of over 45% in the preceding 24 hours.
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