Zcash Crash Wipes Out Massive Whale Fortune

A major $ZEC whale is down roughly $70 million in under 24 hours after Zcash extended its crash following the disclosure of a critical vulnerability in its Orchard privacy pool. The tracked wallet previously held a Zcash stack worth about $174 million, according to onchain data shared by Arkham. The wallet has not sold ZEC for six months, making the drawdown an unrealized loss rather than a confirmed exit.

A Bug That Shook the Foundation

The vulnerability had been present since Orchard's activation in May 2022 and was discovered on May 29 by security engineer Taylor Hornby. Hornby was engaged by Shielded Labs specifically to identify protocol vulnerabilities, and worked with Anthropic's Opus 4.8 AI model to conduct a targeted review of the Orchard circuit. Shielded Labs said Hornby wrote a complete exploit which, when tested in a local environment, generated unlimited, undetectable counterfeit ZEC. Developers launched an emergency soft fork on June 2 to disable Orchard and prevent potential double spending, followed the next day by the NU6.2 hard fork, which re-enabled Orchard with a patched circuit. Shielded Labs stated there is no cryptographic way to know whether the flaw was exploited before the fix, and is proposing a network upgrade with new accounting measures to restore confidence in ZEC's supply integrity.

The disclosure triggered a sharp market reaction. ZEC fell roughly 45% over 24 hours, according to Crypto(.)news data, with CoinGlass showing total ZEC liquidations reaching $81.91 million during the same period. Long traders absorbed most of the damage, accounting for approximately $70.55 million of those liquidations compared with $11.36 million on the short side.

Hayes Exits, Community Divided

Arthur Hayes, the BitMEX co-founder, confirmed he liquidated his entire Zcash position after the protocol bug in the Orchard pool was publicly disclosed. Hayes wrote that while exploitation was "extremely unlikely," it "cannot be formally cryptographically proved impossible," adding that privacy-focused assets require "perfection not improbability." Hayes had publicly framed Zcash as a high-conviction holding, part of a self-described "Holy Trinity" alongside HYPE and NEAR. He added that he could buy again if his assumptions prove wrong.

Reactions across the crypto community were mixed. Investor Udi Wertheimer argued that privacy coins face a different category of risk than transparent blockchains because counterfeit issuance may remain hidden for extended periods, pointing to a previous Zcash inflation bug that was disclosed years after it existed. Shielded Labs, for its part, said it was not "overly concerned" that counterfeiting had actually occurred, reasoning that the bug had survived years of review by some of the world's most capable cryptographers without being found or exploited.

Shielded Labs is now exploring a network upgrade that would let anyone verify the Zcash supply, using a new shielded pool and turnstile accounting for coins leaving Orchard, with the goal of proving no counterfeit ZEC remains inside the affected pool. The plan still needs broader community support.

Sources:
Crypto(.)news: Zcash bug raises supply doubts as Hayes exits full ZEC bag
CryptoPotato: Arthur Hayes dumps entire Zcash position after major flaw emerges
CoinDesk: Zcash plummets 30% as developer reveals a major bug that went undetected for four years