Arthur Hayes, co-founder of BitMEX, a prominent investor and commentator in the cryptocurrency market, suddenly announced on X on June 5, 2026, that he had sold and liquidated all of his ZEC holdings. The trigger was the revelation of a zero-knowledge proof circuit vulnerability in the Zcash main shielded pool, Orchard Pool—this “hub,” which should carry the majority of the network’s privacy transactions, was pointed out in public materials as theoretically allowing for the illegal conversion of states within the pool, even posing a risk of additional minting. Hayes did not exaggerate in his statement; he acknowledged that the actual possibility of additional minting occurring was "very low," and there was no evidence indicating that the mainnet had been exploited. However, in his view, the truly fatal issue was that no one could absolutely prove, in a cryptographic sense, that illegal state conversions or additional minting had never occurred in the Orchard pool. Consequently, he used this as the key reason to press the liquidation button while setting a more rigorous standard—the narrative of privacy assets must be based on "perfect security" rather than resting on an engineering compromise of "extremely low probability of issues," which also threw a dilemma back to the entire privacy track: in the pragmatic design of protocols in the real world, do privacy assets need, and can they possibly achieve, such an almost flawless security requirement?

Orchard Vulnerability Shakes ZEC Privacy

The Orchard Pool is fundamentally the main shielded pool of Zcash, where almost all truly "invisible" balances and states circulate within this privacy pipeline. Public materials indicate that the focused vulnerability points to the zero-knowledge proof circuit related to Orchard—which is used to prove that a transaction is "legitimate but invisible." Theoretically, if there are flaws in the circuit constraints, it may relax the boundary of state checks in form, allowing certain state transitions that are not originally permitted to pass verification; in extreme cases, it could even leave a mathematical gap for counterfeit minting. Even if there is currently no public evidence showing that this vulnerability has been successfully exploited on the mainnet, it still falls at the heart of the privacy hub: users can no longer exclude the possibility of illegal state conversions or additional minting occurring in the Orchard pool using "formal proof," which precisely hits the red line that Hayes insists on.

In the face of this risk, the Zcash ecosystem chose to stop the bleed with an emergency network upgrade, including a soft fork and subsequent protocol upgrades to patch the Orchard-related circuits and rules, attempting to seal potential risks at the "theoretical level." However, within the community, there are clear differences in the characterization of this incident: some views describe it as "nuclear-level FUD," positing that any gap touching the credibility of the total supply is enough to destroy the narrative of privacy, while others emphasize that the vulnerability was detected and repaired in time, and the actual risk has been controlled. Such statements remain difficult to completely verify. For a project where the value proposition heavily relies on cryptographic security and state immutability, this tearing of interpretations surrounding the severity of the Orchard vulnerability inherently undermines external intuition and trust regarding ZEC's privacy and overall supply credibility.

Hayes Liquidates ZEC, Redefines Risk Boundaries

Before the Orchard vulnerability, Hayes was viewed as a supporter of the ZEC privacy narrative; he was often cited by the media for his public statements, placing ZEC among the assets he favored, despite the specific details of his holdings not being fully transparent. The turning point came after the Orchard main shielded pool was revealed to present potential additional minting risks due to the flaws in the zero-knowledge proof circuit. On June 5, 2026, he directly provided a clear action answer on the X platform: he sold and emptied all ZEC holdings, tying this decision explicitly to the total supply and state credibility questions raised by the Orchard vulnerability.

It is noteworthy that Hayes did not believe that Zcash had already been "blown up" by minting to choose to exit. On the contrary, he repeatedly emphasized in his posts that, from an engineering judgment standpoint, the probability of additional minting actually occurring was "very low," and there was currently no public evidence to indicate that the vulnerability had been successfully exploited on the mainnet. However, in his view, the issue lies not in the probability but in formal proof: as long as the Orchard pool cannot rigorously prove cryptographically that "no illegal state transitions or additional minting have ever occurred," then the foundational trust of privacy assets has an unacceptable crack. Therefore, even though the Zcash ecosystem has attempted to fix the circuits through emergency upgrades, he chose to proactively adjust the risk boundary, making the liquidation of ZEC a decision to redefine the security baseline of privacy assets to a position that is "formally verifiable."

Zero-Tolerance Test for Privacy Asset Narratives

In the narrative of privacy assets, "security" is elevated to a higher level than ordinary public chains, not because they are more prone to issues, but because users cannot audit post-facto as they would on a transparent ledger. Once transactions are untraceable and balances are shielded, the only support for the system is the robustness of cryptographic mechanisms such as zero-knowledge proofs. Orchard, as Zcash’s main shielded pool, carries the bulk of the network's privacy transactions; once its related circuits are pointed out as theoretically allowing illegal state conversions or counterfeit minting, even if there is currently no public evidence that it was successfully exploited on the mainnet, this kind of risk, "potentially affecting total supply and state integrity," still directly undermines users' trust in the constraints of total supply and privacy commitments.

For ZEC, this impact first falls on substitutability and “privacy premium”: when the market cannot formally prove that there has never been any additional minting or secret state manipulation in the Orchard pool, the question of whether each ZEC remains "equivalent" is thrown into discussion, and the privacy premium originally established on mathematical guarantees is discounted accordingly. After Zcash’s ecosystem patched circuits and completed the soft fork and subsequent upgrades through emergency updates, the debate did not dissipate immediately, and the community’s focus gradually shifted to a more fundamental question—can the repaired ZEC still be re-evaluated as a "high-standard privacy asset," or will it only be seen as a narrative damage that requires a longer time and stronger formal verification to regain market trust.

Risk Tolerance Under Different Narratives

In the Orchard vulnerability incident, the standards set by Hayes are almost harsh. He repeatedly emphasizes on X that "it is impossible to absolutely prove that no additional minting has occurred in a cryptographic form," even though he himself admits that the probability of such a situation actually happening is very low. For him, this residual uncertainty that cannot be excluded by formal proof is enough to overturn the foundation of the value of privacy assets, leading him to choose to liquidate all ZEC holdings directly on June 5, 2026, rather than merely discounting or reducing his position according to the logic of a normal safety incident.

In comparison, multiple Chinese crypto media and information platforms reported that at the same time he liquidated ZEC, Hayes still held WLD positions. In his lengthy discussion on Orchard, almost all the text was dedicated to privacy and security, with no mention of adjusting the positions of other narrative assets like WLD based on similar "impossible formal proof" reasons. This gap has been interpreted by some market participants as: in the privacy track, he demands “zero-defect” perfect security, while in AI narratives, infrastructure, and other directions, he tolerates some degree of low-probability risks that are difficult to avoid in engineering. This also reflects the market's asymmetry in security expectations for different narrative assets—privacy assets are assumed to be flawless, while other themes are allowed to continue telling their stories under the premise of "explainable risks."

ZEC and the Privacy Track After the Vulnerability

Although the Orchard-related issues have been patched at the protocol level through network upgrades, and the main shielded pool has technically returned to a "usable" status, the story of Zcash has been inscribed with a new footnote: there have been vulnerabilities in the core zero-knowledge circuits that could affect total supply and state credibility. Hayes magnified this footnote into a market event by liquidating ZEC; on one hand, he acknowledged that the probability of actual additional minting is extremely low, but on the other hand, he insisted that "the inability to prove formally that it has not occurred" equates to not meeting the perfect security that privacy assets should have. This stance of "voting with his feet" sets a higher safety baseline for ZEC and the entire privacy track. Moving forward, rebuilding trust will no longer simply be a matter of "fixing the code," but whether privacy projects can provide enough transparent, verifiable processes for institutions and demanding users in the disclosure of vulnerabilities, repair processes, and formal verification. From whether Zcash further emphasizes formal proof and auditing in its roadmap to whether other privacy asset projects initiate a new round of security audits, self-checks, and protocol upgrades after the Orchard incident, these subsequent actions will determine whether ZEC and the broader privacy track can re-establish an accepted security narrative after this crisis.

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