Zcash plummeted after the Orchard privacy pool vulnerability was disclosed, with ZEC falling nearly 50% in 24 hours. On-chain and derivatives data suggest that this decline was driven more by spot selling than by a series of liquidations of highly leveraged positions.

The scale of forced liquidation was lower than the decline.

CoinGlass data shows that ZEC's forced liquidation during this period amounted to approximately $118 million. Compared to the near halving of its value, this figure is not high. The report points out that only about 14% of leveraged positions were liquidated, indicating that this decline was not a typical leveraged sell-off.

In contrast, during the same time window, Bitcoin futures liquidation amounted to approximately $335 million, but BTC only fell by a few percentage points; Ethereum saw a similar decline, with liquidation amounting to approximately $278 million.

Short positions continue to increase

While prices plummeted, ZEC futures open interest rose to a record high on a token basis, indicating that traders did not leave the market en masse, but instead continued to open new positions during the decline.

The long/short ratio also indicates a significantly bearish market. On the Binance platform, the long/short ratio for retail accounts is 0.77, while for large accounts it is 0.80, with large accounts holding 0.85 positions. OKX is even lower, with retail accounts at 0.67 and large accounts at 0.72. Only Bybit has a retail long/short ratio above 1, reaching 1.49.

This means that after the spot market fell first, the derivatives market saw an additional layer of bearish bets. If selling pressure eases and prices stabilize, some short sellers may cover their positions, leading to a significant rebound.

Vulnerability disclosure raises supply concerns

The immediate cause of this decline was the disclosure by Shielded Labs, the organization behind Zcash development, of a vulnerability in Orchard's privacy pool. If exploited, this vulnerability could theoretically allow attackers to forge unidentifiable ZEC tokens, raising concerns in the market about the integrity of the token supply.

The report mentions that this issue has existed since the Orchard pool went live in May 2022, but was only discovered last week by security engineer Taylor Hornby and patched on June 1st. The discovery process used Anthropic's Opus 4.8 model.

Adding to the market's pressure, Shielded Labs also stated that due to Orchard's privacy mechanisms, it's impossible to cryptographically prove whether the vulnerability had been exploited before it was patched. The firm claimed that the vulnerability was highly likely unexploited, but could not be definitively confirmed.

Additional information:Maelstrom's Chief Investment Officer, Arthur Hayes, stated that he has sold all of his Zcash holdings. Despite the recent significant decline, the report also points out that ZEC has still risen by approximately 490% over the past year.