Zcash Foundation: The SEC has concluded its investigation into privacy coins and will not take enforcement action

Zcash Foundation announced on Wednesday that the SEC has completed its investigation into the privacy coin Zcash and will not pursue enforcement action. This review, which began in August 2023, concluded without charges, becoming the latest case of the SEC dropping investigations after Trump took office. On Thursday, the Senate will review the CLARITY Act, which redefines the regulatory authority between the SEC and CFTC.

From Subpoena to Dismissal: A Two-Year Regulatory Marathon

(Source: Zcash Foundation)

On Wednesday, the Zcash Foundation announced that the SEC has “completed its review of certain digital asset issuance matters” and will not recommend any enforcement action or changes. The foundation stated that the regulatory investigation began in August 2023, when they received a subpoena from the SEC. The subpoena requested detailed information about the issuance, distribution mechanisms, use of funds, and governance structure of ZEC tokens.

Two years is a long ordeal for a cryptocurrency project. During the investigation, the Zcash Foundation had to cooperate with the SEC by providing extensive documentation, including internal communications, financial reports, and technical documents. This regulatory uncertainty severely impacted the project’s fundraising ability and partnerships, with many institutional investors and exchanges remaining cautious until the investigation concluded.

“This outcome reflects our commitment to transparency and compliance with applicable regulatory requirements,” the foundation said. “The Zcash Foundation will continue to work towards building privacy-preserving financial infrastructure for the public good.” This statement not only responds to the regulatory outcome but also sends a positive signal to the entire privacy coin industry—that even the most scrutinized privacy technologies can gain official recognition within a compliant framework.

The Trump Era’s SEC Regulatory Retreat

The conclusion of the Zcash investigation is not an isolated event but part of the broader shift in SEC regulation under the Trump administration. Over the past year, under President Trump’s leadership, the SEC has withdrawn multiple investigations and lawsuits against several well-known crypto companies, indicating a loosening of regulatory enforcement under this administration.

Major Cases Dropped by the SEC After Trump Took Office

Coinbase: Settled with the SEC, dropping most charges against the largest compliant exchange in the US

Ripple Labs: Reached a settlement in the long-standing lawsuit over XRP’s security status, setting an important precedent for the industry

Consensys: Terminated investigation into the Ethereum infrastructure company, confirming ETH is not considered a security

Zcash: Privacy coin investigation concluded with zero charges, paving the way for privacy tech acceptance

This regulatory shift began on the day of Trump’s inauguration. Former SEC Chairman Jay Clayton resigned that day, and Trump appointed crypto-friendly Paul Atkins as his successor. Upon taking office, Atkins immediately launched a comprehensive review of pending cases from his predecessor and explicitly stated that SEC’s focus would shift from “enforcement-led” to “rulemaking-led.” This change in direction injected significant confidence into the crypto industry, and the conclusion of the Zcash investigation is a direct reflection of this new regulatory philosophy.

Privacy Coins and the Challenges of Compliance

Privacy coins have historically been among the most sensitive areas for regulators. Zcash uses zero-knowledge proof technology, allowing users to selectively hide transaction details. This privacy feature makes it a key focus for AML (Anti-Money Laundering) and CFT (Countering Financing of Terrorism) regulations. Many regulatory agencies worldwide worry that privacy coins could be exploited for illegal activities, including money laundering, tax evasion, and dark web transactions.

The SEC’s investigation into Zcash centered on whether ZEC tokens qualify as securities. If deemed securities, the Zcash Foundation would need to register as a securities issuer and comply with strict disclosure requirements. This requirement fundamentally conflicts with the core philosophy of privacy coins—how to protect user privacy while satisfying regulators’ transparency demands? This is the ultimate challenge facing the entire privacy coin industry.

The compliance posture demonstrated by the Zcash Foundation during the two-year investigation may be the key to eventual recognition. The foundation actively cooperated with SEC data requests and emphasized that Zcash’s optional privacy features (users can choose transparent or private transactions) distinguish it from fully anonymous privacy coins. This “selective privacy” model leaves room for regulation, allowing law enforcement to trace suspicious transactions when necessary.

The CLARITY Act and Its Impact on Regulation

On Thursday, the U.S. Senate Banking Committee will review the Digital Asset Market Transparency Act (CLARITY). This legislation aims to clarify how the SEC and the Commodity Futures Trading Commission (CFTC) will regulate digital assets and is expected to be one of the most comprehensive laws affecting the crypto industry. The Senate Agriculture Committee also plans to review its version of the bill on January 27.

The impact of the CLARITY Act on privacy coins is crucial. The current draft does not explicitly ban privacy-preserving technologies but requires any project offering privacy features to implement “optional transparency” mechanisms, allowing regulators to trace transactions under judicial authorization. This requirement effectively establishes Zcash’s current model as an industry standard.

The zero-charge conclusion of the Zcash investigation provides an important precedent for the CLARITY Act’s review. It demonstrates that privacy protection and regulatory compliance are not mutually exclusive; the key lies in designing appropriate technical architectures and transparency mechanisms. This precedent may encourage more privacy coin projects to adopt “optional privacy” models, balancing user rights with regulatory needs. For the entire privacy coin industry, Zcash’s victory marks a significant turning point from regulatory ambiguity toward compliant operation.