As filed with the Securities and Exchange Commission on July 8, 2025.

Registration Statement No. 333-       ​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

TRUTH SOCIAL CRYPTO BLUE CHIP ETF, B.T.

SPONSORED BY YORKVILLE AMERICA DIGITAL, LLC

(Exact Name of Registrant as Specified in Its Charter)

c/o Yorkville America Digital, LLC
1012 Springfield Avenue, Mountainside, NJ 07092
(201) 985-8300

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Yorkville America Digital, LLC
1012 Springfield Avenue, Mountainside, NJ 07092
(201) 985-8300

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

Joseph A. Hall
Daniel P. Gibbons
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JULY 8, 2025

PRELIMINARY PROSPECTUS

Truth Social Crypto Blue Chip ETF, B.T.

Truth Social Crypto Blue Chip ETF, B.T. (the “Trust”) is a Nevada business trust that issues beneficial interests (“Shares”) in its net assets. The assets of the Trust consist primarily of bitcoin, ether, Solana (“SOL”), Ripple (“XRP”) and Cronos (“CRO”) (each, a “Portfolio Asset,” and, together, the “Portfolio Assets”) held by a custodian on behalf of the Trust. The Trust is a passive investment vehicle that seeks to reflect generally the performance of the respective prices of the Portfolio Assets proportionate to their respective allocation in the Trust’s total assets. As provided for in the Trust Agreement (as defined below), the Trust’s allocation of its assets to the Portfolio Assets (the “allocation ratio”) is initially expected to approximate percentages by value of 70% bitcoin, 15% ether, 8% SOL, 5% CRO and 2% XRP. Any change to the allocation ratio is subject to applicable law and regulatory approval, if any, and will require an amendment to the Trust Agreement. Additionally, upon any amendment of the Trust Agreement to change the allocation ratio, the Trust will notify Shareholders in a prospectus supplement, in its periodic reports filed pursuant to the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and/or on the Trust’s website. The Trust seeks to reflect generally the performance of the prices of the Portfolio Assets before payment of the Trust’s expenses and liabilities. Yorkville America Digital, LLC (the “Sponsor”) is the sponsor of the Trust;          (the “Trustee”) is the trustee of the Trust; Foris DAX Trust Company, LLC (the “Digital Asset Custodian”) is the custodian for the Trust’s Portfolio Asset holdings;           is the custodian for the Trust’s cash holdings (the “Cash Custodian” and, together with the Digital Asset Custodian, the “Custodians”); and          is the administrator of the Trust (the “Trust Administrator”). The Trust is not an investment company registered under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), and the Sponsor is not registered with the Securities and Exchange Commission (the “SEC”) as an investment adviser and is not subject to regulation by the SEC as such in connection with its activities with respect to the Trust. The Trust is not a commodity pool for purposes of the U.S. Commodity Exchange Act of 1936, as amended (the “Commodity Exchange Act” or the “CEA”), and the Sponsor is not subject to regulation by the U.S. Commodity Futures Trading Commission (the “CFTC”) as a commodity pool operator or a commodity trading advisor with respect to the Trust.

The Trust intends to issue Shares on a continuous basis and is registering an indeterminate number of Shares with the SEC in accordance with Rules 456(d) and 457(u). The Trust issues and redeems Shares only in blocks of 10,000 (each, a “Basket”) or integral multiples thereof, based on the quantity of the Portfolio Assets attributable to each Share (net of any accrued but unpaid remuneration due to the Sponsor (the “Sponsor’s Fee”) and any accrued but unpaid expenses or liabilities). Only registered broker-dealers that become authorized participants by entering into a contract with the Sponsor (“Authorized Participants”) may purchase or redeem Baskets. Shares will be offered to the public from time to time at varying prices that will reflect the price of the Portfolio Assets and the trading price of the Shares on New York Stock Exchange Arca, Inc. (“NYSE Arca”) at the time of the offer.

The Authorized Participants will deliver only cash to create Shares and will receive only cash when redeeming Shares. In connection with such cash orders, the Trust will create Shares by receiving Portfolio Assets from Foris DAX, Inc. (in such capacity, the “Liquidity Provider”), an affiliate of the Digital Asset Custodian, and will redeem Shares by delivering Portfolio Assets to the Liquidity Provider. Authorized Participants will not directly or indirectly purchase, hold, deliver or receive Portfolio Assets as part of the creation or redemption process or otherwise direct the Trust or the Liquidity Provider with respect to purchasing, holding, delivering or receiving Portfolio Assets as part of the creation or redemption process. Subject to NYSE Arca receiving the necessary regulatory approval to permit the Trust to create and redeem Baskets in-kind for Portfolio Assets (the “In-Kind Regulatory Approval”), transactions with Authorized Participants may also take place in exchange for Portfolio Assets. The timing of the In-Kind Regulatory Approval is unknown, and there is no guarantee that NYSE Arca will receive the In-Kind Regulatory Approval at any point in the future. If NYSE Arca receives the In-Kind Regulatory Approval and if the Sponsor chooses to allow in-kind creations and redemptions, the Trust will notify the owners of the beneficial interests referred to herein as Shares (the “Shareholders”) in a prospectus supplement, in its periodic Exchange Act reports and on the Trust’s website. Baskets will be offered continuously at the net asset value per Share (“NAV per Share”) for 10,000 Shares.

Prior to this offering, there has been no public market for the Shares. The Shares will be listed and traded on NYSE Arca under the ticker symbol “       .” Market prices for the Shares may be different from the NAV per Share.

The Trust Administrator will rely on CF Benchmarks Ltd. (the “Index Administrator”) to calculate and publish the U.S. dollar price for bitcoin, ether, SOL, CRO and XRP (each, a “Reference Price” and, collectively, the “Reference Prices”).

CME CF Bitcoin Reference Rate — New York Variant for the Bitcoin-U.S. dollar trading pair (the “Bitcoin Reference Price”) on            , 2025 was $      . CME CF Ether Reference Rate — New York Variant for the Ether-U.S. dollar trading pair (the “Ether Reference Price”) on            , 2025 was $      . CME CF Solana Reference Rate — New York Variant for the SOL-U.S. dollar trading pair (the “SOL Reference Price”) on            , 2025 was $      . CF CRO Reference Rate — New York Variant for the CRO-U.S. dollar trading pair (the “CRO Reference Price”) on         , 2025 was $      . CME CF XRP Reference Rate — New York Variant for the XRP-U.S. dollar trading pair (the “XRP Reference Price”) on            , 2025 was $      .

Except when aggregated in Baskets, Shares are not redeemable securities. Baskets are only redeemable by Authorized Participants.

The Trust is an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act (the “JOBS Act”), subject to reduced public company reporting requirements under U.S. federal securities laws.

Investing in the Shares involves significant risks. See “Risk Factors” starting on page 20.

Neither the SEC nor any state securities commission has approved or disapproved of the securities offered in this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The Shares are not interests in nor obligations of any of the Sponsor, the             Trustee,         (the “Seed Capital Investor”), the Trust Administrator, the Cash Custodian, the Digital Asset Custodian, the Liquidity Provider, the Licensor or their respective affiliates. The Shares are not insured or guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”) or any other governmental agency.

The Seed Capital Investor agreed to purchase $       in Shares on       , 2025, and on            , 2025 took delivery of Shares at a price per Share of $ (the “Seed Shares”). On            , 2025, the Seed Shares were redeemed for cash and the Seed Capital Investor purchased         Shares at a price per Share of $      (the “Seed Creation Baskets”). Total proceeds to the Trust from the sale of the Seed Creation Baskets were $      . On            , 2025, the Trust purchased        bitcoin,        ether,        SOL,        CRO and        XRP with the proceeds of the Seed Creation Baskets using Foris DAX, Inc. (as its agent to execute the transactions on the Trust’s behalf in such capacity, the “Prime Execution Agent”), an affiliate of the Digital Asset Custodian. As of the date of this prospectus, these Shares represent all of the outstanding Shares. The Seed Capital Investor will act as a statutory underwriter in connection with this purchase. See “Seed Capital Investor” and “Plan of Distribution” for additional information.

The prices of the Seed Shares and the Seed Creation Baskets were determined as described above, and such Shares could be sold at different prices if sold by the Seed Capital Investor at different times.

The date of this prospectus is            , 2025.

 

TABLE OF CONTENTS

This prospectus contains information you should consider when making an investment decision about the Shares. You may rely on the information contained in this prospectus. Neither the Trust nor the Sponsor has authorized any person to provide you with different information, and if anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. This prospectus is not an offer to sell the Shares in any jurisdiction where the offer or sale of the Shares is not permitted.

Until         , 2025 (25 days after the date of this prospectus), all dealers effecting transactions in the Shares, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver a prospectus when acting as

 

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underwriters and with respect to unsold allotments or subscriptions. The Sponsor first intends to use this prospectus on          , 2025.

Authorized Participants may be required to deliver a prospectus when making transactions in the Shares. See “Plan of Distribution.”

 

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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes statements which relate to future events or future performance. In some cases, you can identify such forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “target,” “continue,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. All statements (other than statements of historical fact) included in this prospectus that address activities, events or developments that may occur in the future, including such matters as changes in commodity prices and market conditions (for the Portfolio Assets and the Shares), the Trust’s operations, the Sponsor’s plans and references to the Trust’s future success and other similar matters are forward-looking statements. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed in this prospectus, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies and other world economic and political developments. See “Risk Factors.” Consequently, all the forward-looking statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that the actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, will result in the expected consequences to, or have the expected effects on, the Trust’s operations or the value of the Shares. Except as required by applicable laws, none of the Trust, the Sponsor or the Trustee or their respective affiliates is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor’s expectations or predictions.

Trademarks, Tradenames and Service Marks

This prospectus includes trademarks, tradenames and service marks, certain of which belong to the Trust, the Sponsor, the Licensor, the Custodians and their respective affiliates and others that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this prospectus appear without the ®, TM and SM symbols, but the absence of those symbols is not intended to indicate, in any way, that the applicable owner will not assert its rights to these trademarks, tradenames and service marks to the fullest extent under applicable law. Except as otherwise stated in this prospectus, the use or display of other parties’ trademarks, tradenames or service marks should not be construed to imply a relationship with, or endorsement or sponsorship of the Trust by, these other parties.

 

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RISK FACTORS

The Shares are speculative and involve a high degree of risk. Before making an investment decision, you should consider carefully the risks described below, as well as the other information included in this prospectus. These risk factors may be amended, supplemented or superseded from time to time by risk factors contained in any periodic report, prospectus supplement, post-effective amendment or in other reports filed with the SEC in the future.

Risks Related to Digital Assets

The value of the Shares is subject to a number of factors relating to the fundamental investment characteristics of the Portfolio Assets as digital assets, including the fact that digital assets may be characterized as bearer instruments, and loss, theft, destruction or compromise of the associated private keys could result in permanent loss of the assets, and the capabilities and development of blockchain technologies such as the Portfolio Asset Blockchains.

Digital assets such as the Portfolio Assets were only introduced in the past 16 years, and the value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies, such as the recency of their development, their dependence on the internet and other technologies, their dependence on the role played by users, developers, miners and validators and the potential for malicious activity. For example, the realization of one or more of the following risks could adversely affect the value of the Shares:

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Digital asset networks, including the bitcoin peer-to-peer network and associated blockchain ledger (the “Bitcoin Blockchain” and collectively, the “Bitcoin Network”), the ether peer-to-peer network and associated blockchain ledger (the “Ethereum Blockchain,” and collectively, the “Ethereum Network”), the SOL peer-to-peer network and associated blockchain ledger (the “Solana Blockchain,” and collectively, the “Solana Network”), the CRO peer-to-peer network and associated blockchain ledger (the “Cronos Blockchain,” and collectively, the “Cronos Network”) and the XRP peer-to-peer network and associated blockchain ledger (the “XRP Blockchain,” and collectively, the “XRP Network”) (each Portfolio Asset blockchain ledger, a “Portfolio Asset Blockchain,” and each Portfolio Asset peer-to-peer network and associated blockchain ledger together, a “Portfolio Asset Network”), and their respective related protocols are still in the early stages of development. As a result, digital assets and the underlying digital asset networks and related protocols may not function as intended, and parties may be unwilling to use digital assets, which would dampen the growth, if any, of digital asset networks and related protocols.

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Digital assets, including the Portfolio Assets, are controllable only by the possessor of both the unique public key and private key or keys relating to the applicable Portfolio Asset Blockchain address, or “wallet,” at which the digital asset is held. Private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital asset held in such wallet. The loss, theft, compromise or destruction of a private key required to access a digital asset may be irreversible. If a private key is lost, stolen, destroyed or otherwise compromised and no backup of the private key is accessible, the owner would be unable to access the digital asset corresponding to that private key and the private key will not be capable of being restored by the digital asset network, resulting in the total loss of the value of the digital asset linked to the private key.

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Digital asset networks and related protocols are dependent upon the internet. A disruption of the internet or a digital asset network or a related protocol, such as a Portfolio Asset Network, would affect the ability to transfer digital assets, including the Portfolio Assets, and, consequently, their value.

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The acceptance of software patches or upgrades to a digital asset network by a significant, but not overwhelming, percentage of the users and miners (if applicable) in a digital asset network, including any Portfolio Asset Network, could lead to a “fork” in such network’s blockchain, resulting in the operation of multiple separate and competing blockchain networks.

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Many of the Portfolio Asset Networks are still in the process of developing and making significant decisions that will affect policies that govern the supply and issuance of such Portfolio Asset as well as other protocols. For example, the Ethereum Network has on three occasions reduced the quantity of ether rewarded per block and may make additional changes in the future. Any such further changes may adversely affect the applicable Portfolio Asset and therefore, the value of the Shares.

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Governance of the Portfolio Asset Networks is by voluntary consensus and open competition. As a result, there may be a lack of consensus or clarity on the governance of a Portfolio Asset Network, which may stymie such Portfolio Asset Network’s utility and ability to grow and face challenges. In particular, it may be difficult to find solutions or marshal sufficient effort to overcome any future problems on a Portfolio Asset Network, especially long-term problems.

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Over the past decade, mining and validating of digital assets, including the Portfolio Assets, as applicable, operations have evolved from individual users mining and validating with computer processors, graphics processing units and first-generation application-specific integrated circuit machines to “professionalized” mining and validating operations using proprietary hardware or sophisticated machines. If the profit margins of such mining and validating, as applicable, operations are not sufficiently high, including due to an increase in electricity costs or a decline in the market price of the applicable Portfolio Asset, or if such mining and validating, as applicable, operations are unable to arrange alternative sources of financing (e.g., if lenders refuse to make loans to such miners or validators), such miners or validators, as applicable, are more likely to immediately sell some or all of their respective Portfolio Assets, than they otherwise would, resulting in an increase in liquid supply of such Portfolio Assets, which would generally reduce their market price.

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To the extent that any miners or validators cease to record transactions that do not include the payment of a transaction fee in solved blocks or do not record a transaction because the transaction fee is too low, such transactions will not be recorded on the applicable Portfolio Asset Blockchain until a block is mined by a miner or validated by a validator who does not require the payment of transaction fees or is willing to accept a lower fee. Any widespread delays in the recording of transactions could result in a loss of confidence in a digital asset network.

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Digital asset mining and validating operations can consume significant amounts of electricity, which may have a negative environmental impact and give rise to public opinion against allowing, or government regulations restricting, the use of electricity for mining or validating operations. Additionally, miners and validators may be forced to cease operations during an electricity shortage or power outage, or if electricity prices increase where the mining or validating activities are performed.

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Many digital asset networks, including the Portfolio Asset Networks, face significant scaling challenges and may periodically be upgraded with various features designed to increase the speed and throughput of digital asset transactions. These attempts to increase the volume of transactions may not be effective, and such upgrades may fail, resulting in potentially irreparable damage to some or all of the Portfolio Asset Networks and to the value of the applicable Portfolio Assets.

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The open-source structure of many digital asset network protocols, such as the protocols for the Portfolio Asset Networks, means that developers and other contributors are generally not directly compensated for their contributions in maintaining and developing such protocols. As a result, the developers and other contributors of a particular digital asset may lack a financial incentive to maintain or develop the network or may lack the resources to adequately address emerging issues. Alternatively, some developers may be funded by companies whose interests are at odds with other participants in a particular digital asset network. A failure to properly monitor and upgrade the protocol of a Portfolio Asset Network could damage that network and have an adverse effect on the value of the shares.

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Moreover, in the past, flaws in the source code for digital asset networks, including some of the Portfolio Asset Networks, and related protocols have been exposed and exploited, including flaws

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that disabled some functionality for users, exposed users’ personal information and/or resulted in the theft of users’ digital assets. The cryptography underlying the Portfolio Assets could prove to be flawed or ineffective, or developments in mathematics and/or technology, including advances in digital computing, algebraic geometry and quantum computing, could result in such cryptography becoming ineffective. In any of these circumstances, a malicious actor may be able to compromise the security of a Portfolio Asset Network or take the Trust’s Portfolio Assets, which would adversely affect the value of the Shares. Moreover, functionality of the Portfolio Asset Networks may be negatively affected by such an exploit such that it is no longer attractive to users, thereby lessening demand for the Portfolio Assets. Even if another digital asset other than any of the Portfolio Assets were affected by similar circumstances, any reduction in confidence in the source code or cryptography underlying asset networks and related protocols generally could negatively affect the demand for digital assets and therefore adversely affect the value of the Shares.

Moreover, because digital assets, including the Portfolio Assets, have been in existence for a short period of time and are continuing to develop, there may be additional risks in the future that are impossible to predict as of the date of this prospectus.

The value of the Shares relates directly to the value of the Portfolio Assets, which may be highly volatile and subject to fluctuations due to a number of factors.

The value of the Shares relates directly to the value of the Portfolio Assets held by the Trust. As such, any fluctuations in the prices of the Portfolio Assets, in particular bitcoin and, to a smaller extent, ether, could adversely affect the value of the Shares. The market price of bitcoin, ether and the other Portfolio Assets may be highly volatile and subject to a number of factors, including:

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an increase in the global supply or a decrease in global demand for the Portfolio Assets;

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market conditions of, and overall sentiment towards, the digital assets and blockchain technology industry;

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trading activity on digital asset platforms, which, in many cases, are largely unregulated or may be subject to manipulation;

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the adoption of the Portfolio Assets as a medium of exchange, store of value or other consumptive asset and the maintenance and development of the open-source software protocol of the Portfolio Asset Networks, and its ability to meet user demands;

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forks in the Portfolio Asset Networks;

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investors’ expectations with respect to interest rates, the rates of inflation of fiat currencies or the Portfolio Assets and other digital asset exchange rates;

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consumer preferences and perceptions of the Portfolio Assets specifically and other digital assets generally;

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negative events, publicity and social media coverage relating to the digital assets and blockchain technology industry;

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fiat currency withdrawal and deposit policies on digital asset platforms;

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the liquidity of digital asset markets and any increase or decrease in trading volume or market making on digital asset markets;

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business failures, bankruptcies, hacking, fraud, crime, government investigations or other negative developments affecting digital asset businesses, including digital asset platforms, or banks or other financial institutions and service providers which provide services to the digital assets industry;

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the use of leverage in digital asset markets, including the unwinding of positions, “margin calls,” collateral liquidations and similar events;

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investment and trading activities of large or active consumer and institutional users, speculators, miners, validators and investors in the Portfolio Assets;

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an active derivatives market for the Portfolio Assets or for digital assets generally;

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monetary policies of governments, legislation or regulation, trade restrictions, currency devaluations and revaluations and regulatory measures or enforcement actions, if any, that restrict the use of some or all of the Portfolio Assets as a form of payment or the purchase of some or all of the Portfolio Assets on the digital asset markets;

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global or regional political, economic or financial conditions, events and situations;

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fees associated with processing transactions in the Portfolio Assets and the speed at which such transactions are settled;

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the maintenance, troubleshooting and development of the Portfolio Asset Networks, including by miners, validators and developers worldwide;

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the ability for the Portfolio Asset Networks to attract and retain miners and validators, as applicable, to secure and confirm transactions accurately and efficiently;

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ongoing technological viability and security of the Portfolio Asset Networks and related transactions, including vulnerabilities against hacks and scalability;

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financial strength of various market participants;

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the availability and cost of funding and capital;

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the liquidity and credit risk of digital asset platforms;

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interruptions in service from or closures or failures of major digital asset platforms or their banking partners, or outages or system failures affecting the Portfolio Asset Networks;

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decreased confidence in digital assets and digital assets platforms due to the largely unregulated nature and lack of transparency surrounding their operations;

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poor risk management or fraud by entities in the digital assets ecosystem;

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increased competition from other forms of digital assets or payment services; and

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the Trust’s own acquisitions or dispositions of the Portfolio Assets.

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Although returns from investing in the Portfolio Assets have at times diverged from those associated with other asset classes to a greater or lesser extent, there can be no assurance that there will be any such divergence in the future, either generally or with respect to any particular asset class, or that price movements will not be correlated. In addition, there is no assurance that any of the Portfolio Assets will maintain its value in the long, intermediate, short or any other term. In the event that the price of any of the Portfolio Assets declines, the Sponsor expects the value of the Shares to decline proportionately to its share of the Trust’s assets.

The value of a Portfolio Asset as represented by the applicable Reference Price or other pricing source used by the Trust may also be subject to momentum pricing due to speculation regarding future appreciation in value, leading to greater volatility that could adversely affect the value of the Shares. Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for future appreciation in value, if any. The Sponsor believes that momentum pricing of certain of the Portfolio Assets has resulted, and may continue to result, in speculation regarding future appreciation in the value of such Portfolio Asset, inflating and making the applicable Reference Prices more volatile. As a result, such Portfolio Asset may be more likely to fluctuate in value due to changing investor confidence, which could impact future appreciation or depreciation in the applicable Reference Price or other pricing source used by the Trust and could adversely affect the value of the Shares.

The Trust’s assets will largely consist of bitcoin and ether, which may limit the diversification benefits of the Trust’s portfolio.

The Trust’s assets will consist of five Portfolio Assets. However, it is expected that at least 85% of such assets by value will be allocated to bitcoin and ether. As a result of this concentration, investors in

 

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the Shares may experience limited diversification benefits compared to investment vehicles with broader or more balanced exposure across a wider range of digital assets. In addition, the Trust’s performance will be materially influenced by the price movements of bitcoin and, to a smaller degree, ether, thereby increasing the Trust’s exposure to risks that are specific to these two Portfolio Assets, including heightened price volatility, evolving regulatory treatment, protocol changes and network-specific vulnerabilities.

The potential diversification benefits of holding multiple digital assets in the form of the Shares may be further limited by the historically high correlation among digital asset prices, particularly during periods of heightened market volatility, systemic stress or broad shifts in investor sentiment. In such circumstances, price movements across multiple digital assets may become more synchronized, limiting the ability of diversification to reduce overall portfolio risk. Accordingly, there can be no assurance that the Trust’s allocation strategy will result in effective diversification or protect against losses during adverse market conditions or periods of elevated correlation among Portfolio Assets.

Digital assets represent a new and rapidly evolving industry, and the value of the Shares depends on the acceptance of bitcoin, ether and the other Portfolio Assets.

The first digital asset, bitcoin, was launched in 2009. It was the first cryptographic digital asset created to gain global adoption and critical mass. The other Portfolio Asset Networks launched between 2012 and 2021. Although the Bitcoin Network is the most established digital asset network, digital asset networks, including the Portfolio Asset Networks and other related protocols governing the issuance of digital assets, represent a new and rapidly evolving industry that is subject to a variety of factors that are difficult to evaluate. For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares:

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Bitcoin, ether and certain of the other Portfolio Assets have only recently become selectively accepted as a means of payment by retail and commercial outlets, and the use of bitcoin, ether and other Portfolio Assets by consumers to pay such retail and commercial outlets remains limited. Banks and other established financial institutions, whether voluntarily or in response to regulatory feedback, may refuse to process funds for Portfolio Asset transactions, process wire transfers to or from digital asset platforms, Portfolio Asset-related companies or service providers or maintain accounts for persons or entities transacting in bitcoin, ether or other Portfolio Assets. As a result, the prices of the Portfolio Assets may be influenced to a significant extent by speculators, miners and validators, thus contributing to price volatility that makes retailers less likely to accept them as forms of payment in the future.

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Banks may not provide banking services, or may cut off banking services, to businesses that provide digital asset-related services or that accept digital assets, including the Portfolio Assets, as payment, which could adversely affect liquidity in the market and damage the public perception of digital assets generally or any one digital asset in particular, including any of the Portfolio Assets, and their or its utility as a payment system, which could decrease the price of digital assets generally or individually. Further, the lack of availability of banking services could prevent the Trust from being able to complete creations and redemptions of Baskets, the timely liquidation of some or all of the Portfolio Assets and the withdrawal of assets from the Digital Asset Custodian even if the Sponsor determined that such liquidation was appropriate or suitable, or otherwise disrupt the Trust’s operations.

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Certain privacy-preserving features have been or are expected to be introduced to digital asset networks, including the Portfolio Asset Networks, and platforms or businesses that facilitate transactions in a Portfolio Asset may be at an increased risk of criminal or civil lawsuits, or of having banking services cut off if there is a concern that these features interfere with the performance of anti-money laundering duties and economic sanctions checks or facilitate illicit financing or crime.

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Users, developers and miners may switch to or adopt certain digital asset networks or protocols at the expense of their engagement with other digital asset networks and protocols, which may negatively impact those networks and protocols, including the Portfolio Asset Networks.

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The Trust is not actively managed and will not have any formal strategy relating to the development of the Portfolio Asset Networks.

Changes in the governance of a digital asset network or protocol may not receive sufficient support from users and miners, which may negatively affect that digital asset network’s or protocol’s ability to grow and respond to challenges.

The governance of many digital asset networks and protocols, such as the Portfolio Asset Networks, is by voluntary consensus and open competition. For such networks and protocols, there may be a lack of consensus or clarity on that network’s or protocol’s governance, which may stymie such network’s or protocol’s utility, adaptability and ability to grow and face challenges. The foregoing notwithstanding, the underlying software for some digital asset networks and protocols, such as the Portfolio Asset Networks, is informally or formally managed or developed by a group of core developers that propose amendments to each network’s source code. Core developers’ roles may evolve over time, generally based on self-determined participation. If a significant majority of users and miners adopt amendments to a decentralized network based on the proposals of such core developers, such network will be subject to new source code that may adversely affect the value of the relevant digital asset. As a result of the foregoing, it may be difficult to find solutions or marshal sufficient effort to overcome any future problems, especially long-term problems, on digital asset networks, including the Portfolio Asset Networks.

If rewards or transaction fees on a Portfolio Asset Network are insufficient to incentivize miners or validators, or if regulatory restrictions persist, mining or validating activity may decline or become more costly, potentially reducing the value of the affected Portfolio Asset and the Shares.

If the digital asset awards for mining or validating blocks or the transaction fees for recording transactions on the Portfolio Asset Networks are not sufficiently high to incentivize miners and validators, or if certain jurisdictions continue to limit or otherwise regulate mining and validating activities, miners and validators may cease expending power to mine or validate blocks and confirmations of transactions on the Portfolio Asset Blockchains could be slowed. For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares:

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A reduction in the processing power expended by miners or validators could increase the likelihood of a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtaining control.

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Miners and validators have historically accepted relatively low transaction confirmation fees on most digital asset networks. If miners and validators demand higher transaction fees for recording transactions in the Portfolio Asset Blockchains or a software upgrade automatically charges fees for all transactions on the Portfolio Asset Networks, the cost of using affected Portfolio Assets may increase and the marketplace may be reluctant to accept such Portfolio Assets as a means of payment. Alternatively, miners and validators could collude in an anti-competitive manner to reject low transaction fees on the Portfolio Asset Network and force users to pay higher fees, thus reducing the attractiveness of such Portfolio Asset Networks. Higher transaction confirmation fees resulting through collusion or otherwise may adversely affect the attractiveness of the Portfolio Asset Networks, the value of such assets and the value of the Shares.

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If miner or validator participation, as applicable, drops significantly, the affected Portfolio Asset Network may experience reduced throughput, slower transaction finality or increased risk of disruption. A decline in miner or validator engagement or an imbalance between protocol costs and economic incentives may impair the performance of the Portfolio Asset Network and adversely affect the utility and market value of the related Portfolio Asset.

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To the extent that any miners or validators, as applicable, cease to record transactions that do not include the payment of a transaction fee in blocks or do not record a transaction because the transaction fee is too low, such transactions will not be recorded on the applicable Portfolio Asset Blockchain until a block is mined or validated by another party who does not require the payment of transaction fees or is willing to accept a lower fee. Any widespread delays or disruptions in the recording of transactions could result in a loss of confidence in the affected Portfolio

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Asset Network and could prevent the Sponsor from completing transactions associated with the day-to-day management of the Trust, including creations and redemptions of the Shares in exchange for the Portfolio Assets with Authorized Participants.

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During the course of the block validation processes, validators exercise the discretion to select which transactions to include within a block and in what order to include these transactions. Beyond the standard block reward and transaction fees, validators have the ability to extract what is known as Maximal Extractable Value (“MEV”) by strategically choosing, reordering or excluding certain transactions during block production in return for increased transaction fees or other forms of profit for such validators. In blockchain networks that facilitate decentralized finance (“DeFi”) protocols in particular, such as the Ethereum Network and the Solana Network, users may attempt to gain an advantage over other users by offering additional fees to validators for effecting the order or inclusions of transactions within a block. Certain software solutions, such as MEV Boost by Flashbots, have been developed which facilitate validators and other parties in the ecosystem in capturing MEV. The presence of MEV may incentivize associated practices such as sandwich attacks or front-running that can have negative repercussions on DeFi users. A “sandwich attack” is executed by placing two transactions around a large, detected transaction to capitalize on the expected price impact. For instance, a market participant might identify a sizable transaction within the publicly visible so-called memory pool (“mempool”) of pending but unexecuted transactions awaiting validation that will significantly alter an asset’s price on a decentralized exchange. The participant could then, for example, orchestrate a transaction bundle: one transaction to acquire the asset prior to the detected transaction, followed by the large transaction itself, and a final transaction to sell the asset after the market price has increased due to the large transaction’s execution. Such transaction bundles can be submitted to validators through mechanisms like MEV-Boost, with validators receiving a share of the profits as an incentive to include the specific transaction bundle in the block. In the context of MEV, “front-running” is said to occur when a user spots a transaction in the mempool, and then pays a high transaction fee to a validator to have their transaction executed on a priority basis in a manner designed to profit from the pending but unexecuted transaction that is still in the mempool. MEV may also compromise the predictability of transaction execution, which may deter usage of the network as a whole. Although based on widely available information given that transactions in the mempool are publicly visible, any potential perception of MEV as unfair manipulation may also discourage users and other stakeholders from engaging with DeFi protocols or the affected Portfolio Asset Network in general. In addition, it is possible regulators or legislators could enact rules which restrict practices associated with MEV, which could diminish the popularity of the affected Portfolio Asset Network among users and validators. Any of these or other outcomes related to MEV may adversely affect the value of ether and the value of the Shares.

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Any name change or any associated rebranding initiative by the core developers, users, miners or validators of any Portfolio Asset or its related network may not be favorably received by the digital asset community, which could negatively impact the value of the affected Portfolio Asset and the value of the Shares.

From time to time, digital assets, including the Portfolio Assets, may undergo name changes and associated rebranding initiatives. For example, Bitcoin Cash may sometimes be referred to as Bitcoin ABC in an effort to differentiate itself from other Bitcoin Cash hard forks, such as Bitcoin Satoshi’s Vision, and in the third quarter of 2018, the team behind Zen rebranded and changed the name of ZenCash to “Horizen.” The impact of any name change and any associated rebranding initiative on any Portfolio Asset is uncertain. After a name change and an associated rebranding initiative, a digital asset may not be able to achieve or maintain brand name recognition or status that is comparable to the recognition and status previously enjoyed by such digital asset. The failure of any name change and any associated rebranding initiative by any of the Portfolio Assets may result in such Portfolio Asset not realizing some or all of the anticipated benefits contemplated by the name change and associated rebranding initiative and, as a result, could negatively impact the value of such Portfolio Asset and, as a result, the value of the Shares.

 

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A failure to properly monitor and upgrade a Portfolio Asset Network protocol could adversely affect the affected Portfolio Asset Network and the value of the Shares.

Each Portfolio Asset Network operates based on an open-source protocol maintained by the core developers and other contributors, often on the GitHub resource section dedicated to the particular Portfolio Asset. Portfolio Assets are rewarded solely for mining or validating activity, as applicable, and are not sold to raise capital for the applicable Portfolio Asset Network. Protocols governing the Portfolio Asset Networks are made available for free rather than sold or made available subject to licensing or subscription fees, their use does not generate revenues for the applicable development team and the core developers are generally not compensated for maintaining and updating the source code for the Portfolio Asset Network protocol. Consequently, there is a lack of financial incentive for developers to maintain or develop any of the Portfolio Asset Networks, and the core developers may lack the resources to adequately address emerging issues with the applicable Portfolio Asset Network protocol. Although each of the Portfolio Asset Networks is currently supported by its core developers, there can be no guarantee that such support will continue or be sufficient in the future. For example, there have been recent reports that the number of core developers who have the authority to make amendments to at least certain Portfolio Asset Networks’ source code in the GitHub repository is relatively small, although there are believed to be a larger number of developers who contribute to the overall development of the source code of such networks. The perception that high-profile contributors may no longer contribute to the network may have an adverse effect on the market price of any related digital assets. For example, in June 2017, an unfounded rumor circulated that Ethereum Network developer Vitalik Buterin had died. Following the rumor, the price of ether decreased approximately 20% before recovering after Buterin himself dispelled the rumor. Some have speculated that the rumor led to the decrease in the price of ether. Alternatively, some developers may be funded by entities whose interests are at odds with those of other participants in the applicable Portfolio Asset Network. In addition, a bad actor could also attempt to interfere with the operation of the Portfolio Asset Network by attempting to exercise a malign influence over a core developer. To the extent that material issues arise with any of the Portfolio Asset Network protocols and the core developers and open-source contributors are unable to address the issues adequately or in a timely manner, such Portfolio Asset Network and an investment in the Trust may be adversely affected.

Digital assets may have concentrated ownership, and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital assets.

Some entities hold large amounts of the Portfolio Assets relative to other market participants. For example, despite escrow mechanisms that gradually release XRP into the market, Ripple Labs still retains control over a significant portion of XRP, which can impact market dynamics if large amounts are sold. To the extent such entities engage in large-scale hedging, sales or distributions of any of the Portfolio Assets on non-market terms, or sales in the ordinary course, it could result in a reduction in the price of such Portfolio Asset and adversely affect the value of the Shares. Additionally, political or economic crises may motivate large-scale acquisitions or sales of digital assets, including the Portfolio Assets, either globally or locally. Such large-scale sales or distributions could result in selling pressure that may reduce the price of the affected Portfolio Asset and adversely affect an investment in the Shares.

A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares.

Each of the Portfolio Asset Networks operates using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and miners of the Portfolio Assets adopt the modification. When a modification is introduced and a substantial majority of users and miners or validators, as applicable, consent to the modification, the change is implemented and the Portfolio Asset Networks remain uninterrupted. However, if less than a substantial majority of users and miners or validators, as applicable, consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “hard fork” of the affected Portfolio Asset Network, with one group running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the applicable digital asset running in parallel on separate networks using separate blockchain

 

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ledgers, yet lacking interchangeability. For example, in August 2017, bitcoin “forked” into bitcoin and a new digital asset, Bitcoin Cash, as a result of a several-year dispute over how to increase the rate of transactions that the Bitcoin Network can process.

Forks may also occur as a digital asset network community’s response to a significant security breach. For example, in July 2016, Ethereum “forked” into Ethereum and a new digital asset, Ethereum Classic, as a result of the Ethereum Network community’s response to a significant security breach in which an anonymous hacker exploited a smart contract running on the Ethereum Network to syphon approximately $60 million of ether held by The DAO, a distributed autonomous organization, into a segregated account. In response to the hack exploit, most participants in the Ethereum community elected to adopt a “fork” that effectively reversed the hack exploit. However, a minority of users continued to develop the original blockchain, now referred to as Ethereum Classic (“Ethereum Classic”), with the digital asset on that blockchain now referred to as Ethereum Classic (“ETC”). ETC now trades on several digital asset platforms. A fork may also occur as a result of an unintentional or unanticipated software flaw in the various versions of otherwise compatible software that users run. Such a fork could lead to users, miners and validators abandoning the digital asset with the flawed software. It is possible, however, that a substantial number of users and miners could adopt an incompatible version of the digital asset while resisting community-led efforts to merge the two chains. This could result in a permanent fork, as in the case of Ethereum and Ethereum Classic.

In addition, many developers have previously initiated hard forks in the blockchain to launch new digital assets, such as Bitcoin Gold and Bitcoin Diamond. To the extent such digital assets compete with any of the Portfolio Assets, such competition could impact demand for such Portfolio Asset and could adversely impact the value of the Shares.

Furthermore, a hard fork can lead to new security concerns. For example, when the Ethereum and Ethereum Classic networks, two other digital asset networks, split in July 2016, replay attacks, in which transactions from one network were rebroadcast to nefarious effect on the other network, plagued Ethereum platforms through at least October 2016. An Ethereum platform announced in July 2016 that it had lost 40,000 ETC, worth about $100,000 at that time, as a result of replay attacks. Similar replay attack concerns occurred in connection with the Bitcoin Cash and Bitcoin SV networks split in November 2018. Another possible result of a hard fork is an inherent decrease in the level of security due to significant amounts of mining or validating power remaining on one network or migrating instead to the new forked network. After a hard fork, it may become easier for an individual miner, validator or pool’s hashing power to exceed 50% of the processing power of a digital asset network that retained or attracted less mining or validating power, thereby making digital assets that rely on proof-of-work more susceptible to attack.

Digital asset networks and related protocols may also be cloned. Unlike a fork of a digital asset network, which modifies an existing blockchain and results in two competing digital asset networks, each with the same genesis block, a “clone” is a copy of a protocol’s codebase, but results in an entirely new blockchain and new genesis block. Tokens are created solely from the new “clone” network and, in contrast to forks, holders of tokens of the existing network that was cloned do not receive any tokens of the new network. A “clone” results in a competing network that has characteristics substantially similar to the network it was based on, subject to any changes as determined by the developer(s) that initiated the clone.

A hard fork may adversely affect the price of the affected Portfolio Asset at the time of announcement or adoption. For example, the announcement of a hard fork could lead to increased demand for the pre-fork Portfolio Asset, in anticipation that ownership of the pre-fork Portfolio Asset would entitle holders to a new digital asset following the fork. The increased demand for the pre-fork asset may cause the price of such asset to rise. After the hard fork, it is possible the aggregate price of the two versions of the digital asset running in parallel would be less than the price of the digital asset immediately prior to the fork. Furthermore, while the Sponsor will, as permitted by the terms of the Trust Agreement, determine which network is generally accepted as the applicable Portfolio Asset Network and should therefore be considered the appropriate network for the Trust’s purposes, there is no guarantee that the Sponsor will choose the network and the associated digital asset that is ultimately the most valuable fork. Either of these events could therefore adversely impact the value of the Shares.

 

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As another example of the effects of hard forks on digital assets, on September 15, 2022, the Ethereum Network completed its Merge, moving from a proof-of-work model to a proof-of-stake model. Ethereum proof-of-work miners who disagreed with the new consensus mechanism forked the network, which resulted in the Ethereum proof-of-work network. The Ethereum proof-of-work network was driven by a small but vocal group of miners who wished to hold onto revenue as Ethereum switched to proof-of-stake. The vast majority of token holder votes preferred the new proof-of-stake consensus method. There was no material impact on the Ethereum Network as a result of the fork. All ether holders were airdropped Ethereum proof-of-work network tokens as a result of the hard fork. However, not all liquidity providers were able to trade the new token and the Ethereum proof-of-work network token almost immediately lost most of its value.

In summary, any future fork in a Portfolio Asset Network could adversely affect the value of the Shares or the ability of the Trust to operate.

Shareholders may not receive the benefits of any forks or “airdrops.”

In addition to forks, a digital asset may become subject to a similar occurrence known as an “airdrop.” In an airdrop, the promotors of a new digital asset announce to holders of another digital asset that such holders will be entitled to claim a certain amount of the new digital asset for free, based on the fact that they hold such other digital asset. Such airdrops are common on the Ethereum Network but have also occurred (and may continue to occur) on the Bitcoin Network and on other Portfolio Asset Networks. For example, in March 2017, the promoters of Stellar Lumens announced that anyone that owned bitcoin as of June 26, 2017 could claim, until August 27, 2017, a certain amount of Stellar Lumens. Airdrops could create operational security, legal or regulatory or other risks for the Trust, the Sponsor, the Digital Asset Custodian, Authorized Participants or other entities.

We refer to the right to receive any such benefit as an “Incidental Right” and any such virtual currency (other than the Portfolio Assets) acquired through an Incidental Right as “IR Digital Assets.” With respect to a fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Digital Assets associated with such event. As such, Shareholders will not receive the benefits of any Incidental Rights and any IR Digital Assets.

In the event the Trust seeks to change the Trust’s policy with respect to Incidental Rights or IR Digital Assets, an application would need to be filed with the SEC by NYSE Arca seeking approval to amend its listing rules to permit the Trust to sell Incidental Rights or IR Digital Assets and distribute the cash proceeds (net of expenses and applicable withholding taxes) to DTC or distribute the Incidental Rights or IR Digital Assets in-kind to DTC. However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NYSE Arca will seek or obtain this approval, if at all.

Even if such regulatory approval is sought and obtained, Shareholders may not receive the benefits of a fork, the Trust may not choose, or be able, to participate in an airdrop, and the timing of receiving any benefits from a fork, airdrop or similar event is uncertain. Any inability to recognize the economic benefit of a hard fork or airdrop could adversely affect the value of the Shares. Investors who prefer to have a greater degree of control over events such as forks, airdrops and similar events, and any assets made available in connection with each, may consider investing in the Portfolio Assets directly rather than purchasing Shares.

In the event of a hard fork of a Portfolio Asset Network, the Sponsor will, if permitted by the terms of the Trust Agreement, use its discretion to determine which network should be considered the appropriate network for the Trust’s purposes and in doing so may adversely affect the value of the Shares.

In the event of a hard fork of a Portfolio Asset Network, the Sponsor will, as permitted by the terms of the Trust Agreement, use its sole discretion to determine, in good faith, which digital asset network is generally accepted as the relevant Portfolio Asset Network and should therefore be considered the appropriate digital asset network for the Trust’s purposes. The Sponsor will base its determination on whatever factors it deems relevant, including, but not limited to, the Sponsor’s beliefs regarding expectations of the core developers of the relevant Portfolio Asset users, services, businesses,

 

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miners, validators and other constituencies, as well as the actual continued acceptance of, mining or validating power on and community engagement with, the relevant Portfolio Asset Network, or whatever other factors it deems relevant. There is no guarantee that the Sponsor will choose the digital asset network or digital asset that is ultimately the most valuable fork, and the Sponsor’s decision may adversely affect the value of the Shares as a result. The Sponsor may also disagree with Shareholders, the Digital Asset Custodian, other service providers, the Index Administrator, cryptocurrency platforms or other market participants on what is generally accepted as the Portfolio Asset should therefore be considered such Portfolio Asset for the Trust’s purposes, which may also adversely affect the value of the Shares as a result.

Blockchain technologies are based on theoretical conjectures as to the impossibility of solving certain cryptographical puzzles quickly. These premises may be incorrect or may become incorrect due to technological advances.

Blockchain technologies are premised on theoretical conjectures as to the impossibility, in practice, of solving certain mathematical problems quickly. Those conjectures remain unproven, however, and mathematical or technological advances could conceivably prove them to be incorrect. Blockchain technology companies may also be negatively affected by cryptography or other technological or mathematical advances, such as the development of quantum computers with significantly more power than computers presently available, that undermine or vitiate the cryptographic consensus mechanism underpinning the applicable blockchain and other distributed ledger protocols. If either of these events were to happen, markets that rely on blockchain technologies, such as any of the Portfolio Asset Networks, could quickly collapse, and an investment in the Trust may be adversely affected.

Risks Related to Digital Asset Markets

The digital asset economy has experienced in the past, and may experience in the future, adverse regulatory developments, extreme volatility, loss of confidence, negative publicity and significant declines in market liquidity, any of which could affect the value of the Shares.

In the past, digital asset prices have experienced significant fluctuations, leading to substantial financial difficulties for several key players in the industry, including digital asset trading platforms, hedge funds and lending platforms. For instance, during the first half of 2022, prominent digital asset lenders, such as Celsius Network LLC and Voyager Digital Ltd., as well as the digital asset hedge fund Three Arrows Capital, entered insolvency proceedings, eroding market confidence. These events contributed to a widespread decline in liquidity, a decrease in digital asset prices, and negative publicity for the industry as a whole. In November 2022, FTX Trading Ltd. (“FTX”), one of the largest digital asset trading platforms by volume at the time, suspended customer withdrawals following rumors of liquidity issues and potential insolvency. Shortly thereafter, FTX’s CEO resigned, and the company, along with several affiliates, filed for bankruptcy. The United States Department of Justice (the “Department of Justice”) subsequently filed criminal charges against FTX’s former CEO and others, including fraud, violations of federal securities laws, money laundering and campaign finance violations. In November 2023, FTX’s former CEO was convicted of fraud and money laundering. At the same time, similar charges were brought against Binance and its former CEO in relation to anti-money laundering law violations. In November 2023, Binance pleaded guilty to the Justice Department’s investigations into violations relating to the U.S. Bank Secrecy Act, as amended (the “BSA”), failure to register as a money transmitting business and the International Emergency Economic Powers Act, and the founder of Binance pleaded guilty to failing to maintain an effective AML program in violation of the BSA. As part of the settlement, Binance separately reached resolutions with the CFTC, FinCEN and the Office of Foreign Assets Control (“OFAC”).

These high-profile incidents have contributed to extreme price volatility in the digital asset markets. Both bitcoin and ether, while often considered foundational to the digital asset ecosystem, have nevertheless exhibited significant price volatility in response to these events. Both assets reached all-time highs in late 2021, followed by pronounced selloffs in 2022. Bitcoin, for example, declined from nearly $69,000 in November 2021 to below $16,000 by the end of 2022. Similarly, ether’s price fell from over $4,800 to under $1,000 in the same time. While both assets have regained value, they remain

 

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susceptible to ongoing fluctuations driven by macroeconomic factors, market sentiment, institutional adoption trends, and evolving regulatory frameworks. These patterns underscore that even the most established digital assets are vulnerable to abrupt and material shifts in price, which can adversely impact the value of the Shares. The remaining Portfolio Assets have similarly experienced pronounced volatility. For instance, SOL’s price declined approximately 94% in 2022, including more than 50% in the two months following the FTX bankruptcy. XRP has seen repeated price surges and drawdowns throughout its history, including during the 2021 rally and subsequent downturn in 2022 and 2023. Finally, since its inception, CRO has also experienced substantial price volatility, reaching an all-time high of $0.97 in November 2021 before declining to under $0.10 by mid-2025. These price movements are frequently exacerbated by market events, changes in investor sentiment and platform-specific developments. Such extreme price volatility had the effect of further exacerbating liquidity issues. Following the FTX bankruptcy, additional entities in the digital asset industry, including lenders and platforms, filed for bankruptcy. The SEC has also brought charges against other entities for alleged unregistered offers and sales of securities, particularly targeting retail investors. These events have significantly increased regulatory scrutiny on the digital asset industry, particularly with respect to digital asset trading platforms. For example, in June 2023, the SEC filed charges against Binance and Coinbase, two of the largest digital asset trading platforms, accusing them of soliciting U.S. investors to trade “crypto asset securities” on unregistered platforms and operating unregistered securities exchanges, brokerages and clearing agencies. Binance responded by suspending USD deposits and withdrawals on Binance.US and planning to delist USD trading pairs. Similarly, in November 2023, the SEC brought charges against Kraken, alleging similar violations. Between February 2025 and May 2025, the SEC entered into a court-approved joint stipulation to dismiss with prejudice each of the lawsuits against Coinbase, Kraken and Binance. Several other digital assets market participants have also announced that the SEC informed them that the SEC was terminating its investigation or enforcement action into their firm. The final outcome of these lawsuits (to the extent not yet dismissed), their effect on the broader digital asset ecosystem and the reputation impact on industry participants remain uncertain.

The failure of entities perceived as integral to the digital asset ecosystem, such as Silicon Valley Bank, Signature Bank and Silvergate Bank, during 2023 also led to volatility in digital asset prices as well as negative industry publicity. These banks were seen as key service providers for digital asset market participants in the United States, and their closures negatively impacted the ability of digital asset market participants to access essential banking services, harming liquidity and potentially decreasing the value of digital assets, including the Portfolio Assets. Additionally, any future closure of a bank with which the Trust or the Sponsor has a financial relationship could subject the Trust or the Sponsor to similar adverse conditions, potentially disrupting operations and posing challenges in securing alternative banking arrangements.

In response to the increasing regulatory uncertainty and following the November 2024 election of President Trump, the SEC launched a crypto task force in January 2025 to establish a clearer regulatory framework for digital assets. Additionally, President Trump signed an executive order in March 2025 establishing a Strategic Bitcoin Reserve and a U.S. Digital Asset Stockpile. Both chambers of Congress have also formed a bipartisan working group to draft comprehensive legislation to regulate digital assets, and multiple hearings on fair access to financial services for digital asset companies have been held. These developments suggest that regulatory clarity is still evolving, and their impact on the digital asset market is yet to be fully realized and could be adverse. Given these rapid and ongoing changes within the digital asset ecosystem, it is not possible to fully predict their potential impacts on the Sponsor, the Trust, TMTG, Crypto.com, their affiliates or third-party service providers, nor the broader digital asset market. As such, future disruptions in the digital asset markets, including declines in liquidity or digital asset prices, could adversely affect the value of the Shares. See “Risk Factors — Risks Related to the Regulation of the Trust and the Shares — Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of the Portfolio Assets or the Shares.”

 

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Due to the largely unregulated nature and lack of transparency surrounding the operations of digital asset platforms, which may experience fraud, manipulation, security failures or operational problems, as well as the wider digital asset markets, the value of the Portfolio Assets and, consequently, the value of the Shares may be adversely affected.

Digital asset platforms are relatively new and, in some cases, are not subject to, or may not comply with, regulation in relevant jurisdictions in a manner similar to other regulated trading platforms, such as national securities exchanges or designated contract markets, in particular any digital asset platforms operating outside the United States. Furthermore, while many prominent digital asset platforms provide the public with significant information regarding their ownership structure, management teams, corporate and cybersecurity practices and regulatory compliance, many other platforms do not provide this information. As a result, the marketplace may lose confidence in digital asset platforms, including prominent platforms that handle a significant trading volume of the Portfolio Assets.

Many digital asset platforms, both in the United States and abroad, are unlicensed and not subject to, or not in compliance with, regulation in relevant jurisdictions, or operate without extensive supervision by governmental authorities. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions and may take the position that they are not subject to laws and regulations that would apply to a national securities exchange or designated contract market in the United States, or may, as a practical matter, be beyond the ambit of U.S. regulators. As a result, trading activity on or reported by these digital asset platforms is generally significantly less regulated than trading in regulated U.S. securities and commodities markets and may reflect behavior that would be prohibited in regulated U.S. trading venues. For example, in 2022, one report claimed that trading volumes on digital asset trading platforms were inflated by over 70% due to false or noneconomic trades, with specific focus on unregulated platforms located outside of the United States. Such reports alleged that certain overseas platforms have displayed suspicious trading activity suggestive of a variety of manipulative or fraudulent practices, such as fake or artificial trading volume or trading volume based on noneconomic “wash trading” ​(where offsetting trades are entered into for other than bona fide reasons, such as the desire to inflate reported trading volumes), and attributed such manipulative or fraudulent behavior to motives like the incentive to attract listing fees from token issuers who seek the most liquid and high-volume platforms on which to list their coins.

Other academics and market observers have put forth evidence to support claims that manipulative trading activity has occurred on certain platforms. For example, in a 2017 paper titled “Price Manipulation in the Bitcoin Ecosystem” sponsored by the Interdisciplinary Cyber Research Center at Tel Aviv University, a group of researchers used publicly available trading data, as well as leaked transaction data from a 2014 Mt. Gox security breach, to identify and analyze the impact of “suspicious trading activity” on Mt. Gox between February and November 2013, which, according to the authors, caused the price of bitcoin to increase from around $150 to more than $1,000 over a two-month period. In August 2017, it was reported that a trader or group of traders nicknamed “Spoofy” was placing large orders on Bitfinex without actually executing them, presumably in order to influence other investors into buying or selling by creating a false appearance that greater demand existed in the market. In December 2017, an anonymous blogger (publishing under the pseudonym Bitfinex’d) cited publicly available trading data to support his or her claim that a trading bot nicknamed “Picasso” was pursuing a paint-the-tape-style manipulation strategy by buying and selling bitcoin and Bitcoin Cash between affiliated accounts in order to create the appearance of substantial trading activity and thereby influence the price of such assets. Even in the United States, there have been allegations of wash trading even on regulated venues. Any actual or perceived false trading in the digital asset platform market, and any other fraudulent or manipulative acts and practices, could adversely affect the value of some or all of the Portfolio Assets and negatively affect the market perception of such Portfolio Assets.

The Portfolio Asset markets globally and in the United States are not subject to comparable regulatory guardrails as exist in regulated securities markets. Furthermore, many digital asset trading venues lack certain safeguards put in place by exchanges for more traditional assets to enhance the stability of trading on the exchanges and prevent “flash crashes,” such as limit-down circuit breakers. As a result, the prices of digital assets, including the Portfolio Assets, on digital asset trading platforms

 

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may be subject to larger and more frequent sudden declines than assets traded on more traditional exchanges. Tools to detect and deter fraudulent or manipulative trading activities such as market manipulation, front-running of trades and wash trading may not be available to or employed by digital asset platforms, or may not exist at all. The SEC has identified possible sources of fraud and manipulation in the digital asset markets generally, including, among others: (1) “wash trading”; (2) persons with a dominant position in the relevant digital asset manipulating such digital asset’s pricing; (3) hacking of the relevant digital asset’s protocol and trading platforms; (4) malicious control of the relevant digital asset’s protocol; (5) trading based on material, nonpublic information (for example, plans of market participants to significantly increase or decrease their holdings in any of the Portfolio Assets), including “front-running” based on the dissemination of false and misleading information; (6) manipulative activity involving purported “stablecoins,” including Tether; and (7) fraud and manipulation at digital asset trading platforms. The effect of potential market manipulation, front-running, wash trading and other fraudulent or manipulative trading practices may inflate the volumes actually present in crypto markets and/or cause distortions in price, which could adversely affect the value of the Shares.

In addition, over the past several years, some digital asset platforms have been closed due to fraud and manipulative activity, business failure or security breaches. In many of these instances, the customers of such digital asset platforms were not compensated or made whole for the partial or complete losses of their account balances in such digital asset platforms. In some instances, customers are made whole only in dollar terms as of the digital asset trading platform’s date of failure, rather than on a digital asset basis, meaning customers may still lose out on any price increase in digital assets. While, generally speaking, smaller digital asset platforms are less likely to have the infrastructure and capitalization that make larger digital asset platforms more stable, larger digital asset platforms are more likely to be appealing targets for hackers and malware and their shortcomings or ultimate failures are more likely to have contagion effects on the digital asset ecosystem and therefore may be more likely to be targets of regulatory enforcement action. For example, the collapse of Mt. Gox, which filed for bankruptcy protection in Japan in late February 2014, demonstrated that even the largest digital asset platforms could be subject to abrupt failure with consequences for both users of digital asset platforms and the digital asset industry as a whole. In particular, in the two weeks that followed the February 7, 2014 halt of bitcoin withdrawals from Mt. Gox, the value of one bitcoin fell on other platforms from around $795 on February 6, 2014 to $578 on February 20, 2014. Additionally, in January 2015, Bitstamp by Robinhood announced that approximately 19,000 bitcoin had been stolen from its operational or “hot” wallets. Further, in August 2016, it was reported that almost 120,000 bitcoin worth around $78 million were stolen from Bitfinex, a large digital asset platform. The value of bitcoin and other digital assets immediately decreased over 10% following reports of the theft at Bitfinex. Regulatory enforcement actions have followed, such as in July 2017, when FinCEN assessed a $110 million fine against BTC-E, a now-defunct digital asset platform, for facilitating crimes such as drug sales and ransomware attacks. In addition, in December 2017, Yapian, the operator of Seoul-based digital asset platform Youbit, suspended digital asset trading and filed for bankruptcy following a hack that resulted in a loss of 17% of Yapian’s assets. Following the hack, Youbit users were allowed to withdraw approximately 75% of the digital assets in their exchange accounts, with any potential further distributions to be made following Yapian’s pending bankruptcy proceedings. In addition, in January 2018, the Japanese digital asset platform, Coincheck, was hacked, resulting in losses of approximately $535 million, and in February 2018, the Italian digital asset platform, Bitgrail, was hacked, resulting in approximately $170 million in losses. In May 2019, one of the world’s largest digital asset platforms, Binance, was hacked, resulting in losses of approximately $40 million. In November 2022, FTX halted customer withdrawals amid rumors of the company’s liquidity issues and likely insolvency, which were subsequently corroborated by its CEO. Shortly thereafter, FTX’s CEO resigned and FTX and many of its affiliates filed for bankruptcy in the United States, while other affiliates have entered insolvency, liquidation or similar proceedings around the globe, following which the Department of Justice brought criminal fraud and other charges, and the SEC and CFTC brought civil securities and commodities fraud charges, against certain of FTX’s and its affiliates’ senior executives, including its former CEO. Around the same time, there were reports that approximately $300-600 million of digital assets were removed from FTX and the full facts remain unknown, including whether such removal was the result of a hack, theft, insider activity or other improper behavior. Moreover, digital asset trading platforms have been a subject of enhanced regulatory and enforcement scrutiny, and digital asset markets have experienced continued instability, following the failure of FTX.

 

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Negative perception, a lack of stability and standardized regulation in the digital asset markets and the closure or temporary shutdown of digital asset platforms due to fraud, business failure, security breaches or government-mandated regulation, and associated losses by customers, may reduce confidence in some or all of the Portfolio Asset Networks and result in greater volatility or decreases in the prices of the affected Portfolio Assets. Furthermore, the closure or temporary shutdown of a digital asset platform used in calculating a Reference Price may result in a loss of confidence in the Trust’s ability to determine its NAV per Share on a daily basis. The potential consequences of a digital asset platform’s failure could adversely affect the value of the Shares.

The Reference Prices could fail to track the global Portfolio Asset prices, which could adversely affect the value of the Shares.

Each of the Reference Prices was developed by the Index Administrator and has a limited performance history. For example, the Reference Prices for bitcoin and ether have only been in operation since February 2022 and the CRO Reference Price has been introduced by the Index Administrator in June 2025. Each Reference Price is calculated using trading price data from the applicable Constituent Platforms. The Index Administrator has only recently established its current lists of Constituent Platforms. A longer history of actual performance through various economic and market conditions would provide greater and more reliable information for an investor to assess the applicable Reference Prices performance. The Constituent Platforms chosen by the Index Administrator could also change over time. For example, on October 28, 2024, the Index Administrator added Bullish to the Bitcoin Constituent Platforms due to the trading platform meeting the Index Administrator’s minimum liquidity requirement, and did not remove any Bitcoin Constituent Platforms as part of its scheduled quarterly review. Similarly, the Index Administrator added Crypto.com to the Bitcoin Constituent Platforms and the Ether Constituent Platforms on March 31, 2025. The Index Administrator may remove or add Constituent Platforms with respect to any of the Reference Prices in the future at its discretion.

Although each of the Reference Prices is intended to accurately capture the market price of the applicable Portfolio Asset, third parties may be able to purchase and sell such Portfolio Asset on public or private markets not included among the Constituent Platforms, and such transactions may take place at prices materially higher or lower than the Reference Price prices. Moreover, there may be variances in the prices of the Portfolio Assets on the various Constituent Platforms, including as a result of differences in fee structures or administrative procedures on different Constituent Platforms. While the Reference Prices are based on the trading activity on the applicable Constituent Platforms, at any given time, the prices on each such Constituent Platform or pricing source may not be equal to the value of a Portfolio Asset as represented by the Reference Prices. It is possible that the prices of the Portfolio Assets on any of the Constituent Platforms could be materially higher or lower than the Reference Prices. To the extent the Reference Price differs materially from the actual prices available on a Constituent Platform, or the global market price of the Portfolio Assets, the price of the Shares may no longer track, whether temporarily or over time, the global market prices of the Portfolio Assets, which could adversely affect an investment in the Trust by reducing investors’ confidence in the Shares’ ability to track the market price of the Portfolio Assets.

If a Reference Price is not available, the Trust’s holdings may be fair valued on a temporary basis in accordance with the policy approved by the Sponsor. To the extent the valuation determined in accordance with the policy approved by the Sponsor differs materially from the actual market price of a Portfolio Asset, the price of the Shares may no longer track, whether temporarily or over time, the global market prices of the applicable Portfolio Asset. To the extent such prices differ materially from the market prices for the Portfolio Assets, investors may lose confidence in the Shares’ ability to track the market prices of the Portfolio Assets, which could adversely affect the value of the Shares.

The Reference Price prices used to calculate the value of the Trust’s Portfolio Assets may be volatile, adversely affecting the value of the Shares.

The prices of the Portfolio Assets on public digital asset platforms has a limited history and, during such time, have been volatile and subject to influence by many factors. While the Reference Prices are

 

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designed to limit exposure to the interruption of individual digital asset platforms, the Reference Price prices, and the prices of the Portfolio Assets generally, remain subject to volatility experienced by digital asset platforms, and such volatility could adversely affect the value of the Shares.

Furthermore, because the number of liquid and credible digital asset platforms is limited, in particular with respect to CRO, the Constituent Platforms will necessarily be composed of a limited number of digital asset platforms. If a digital asset platform were subjected to regulatory, volatility or other pricing issues, the Index Administrator would have limited ability to remove such digital asset platform from the Constituent Platforms, which could skew the prices of the Portfolio Assets as represented by the Reference Prices. Trading on a limited number of digital asset platforms may result in less favorable prices and decreased liquidity of the Portfolio Assets and, therefore, could have an adverse effect on the value of the Shares.

The Index Administrator could experience system failures or errors.

If the computers or other facilities of the Index Administrator, data providers and/or relevant Constituent Platforms malfunction for any reason, calculation and dissemination of Reference Prices may be delayed. Errors in the Reference Prices data, computations and/or construction may occur from time to time and may not be identified and/or corrected for a period of time or at all, which may have an adverse impact on the Trust and the Shareholders. Any of the foregoing may lead to errors in the Reference Prices, which may lead to a different investment outcome for the Trust and the Shareholders than would have been the case had such events not occurred.

The Reference Prices are used to determine the NAV and the NAV per Share. Consequently, losses or costs associated with the Reference Prices’ errors or other risks described above will generally be borne by the Trust and the Shareholders, and neither the Sponsor nor its affiliates or agents make any representations or warranties regarding the foregoing. If a Reference Price is not available or the Sponsor in its sole discretion determines that a Reference Price is unreliable and therefore determines not to use such Reference Price, the Trust’s holdings may be fair valued on a temporary basis in accordance with the fair value policies approved by the Sponsor. See “Activities of the Trust — Net Asset Value.” To the extent the valuation determined in accordance with the policy approved by the Sponsor differs materially from the actual market price of the Portfolio Assets, the price of the Shares may no longer track, whether temporarily or over time, the prices of the Portfolio Assets, which could adversely affect an investment in the Trust and the value of Shares.

The Reference Prices being used to determine the NAV may not be consistent with GAAP. To the extent that the Trust’s financial statements are determined using a different pricing source that is consistent with GAAP, the NAV reported in the Trust’s periodic financial statements may differ, in some cases significantly, from the NAV determined using the Reference Prices.

The Trust will determine the NAV on each Business Day based on the value of the Portfolio Assets as reflected by the Reference Prices. The methodology used to calculate the Reference Price to value the Portfolio Assets in determining the NAV may not be deemed consistent with GAAP. To the extent the methodology used to calculate the Reference Prices is deemed inconsistent with GAAP, the Trust will utilize an alternative GAAP-consistent pricing source for purposes of the Trust’s periodic financial statements. Creation and redemption of Baskets, the Sponsor’s Fee and other expenses borne by the Trust will be determined using the NAV determined daily based on the Reference Prices. Such NAV determined using the Reference Price prices may differ, in some cases significantly, from the NAV reported in the Trust’s periodic financial statements.

The SEC may approve applications to list competing digital assets as exchange-traded products, including from the Sponsor, which could reduce demand for, and the price of, some or all of the Portfolio Assets and adversely impact the value of the Shares.

As of the date of this prospectus, the SEC has only approved a limited number of applications under Rule 19b-4 of the Exchange Act to list spot digital asset exchange-traded products. However, multiple additional applications for competing digital assets have been filed and are currently pending, and there can be no guarantee the SEC will not approve any such application in the future. In particular,

 

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the Sponsor has applied or currently expects to apply in the near future to list several additional exchange-traded products. If applications to list spot digital asset exchange-traded products, other than those which hold Portfolio Assets are approved, to the extent such competing digital asset exchange-traded products come to represent a significant proportion of the demand for digital assets generally, demand for, and the price of, the Portfolio Assets could be reduced. Such reduced demand could adversely affect the performance of the Trust and the value of the Shares.

Smart contracts, including those relating to DeFi applications, are a new technology and their ongoing development and operation may result in problems, which could reduce the demand for certain of the Portfolio Assets.

Smart contracts are programs running on certain of the Portfolio Asset Networks, including the Ethereum Network, the Solana Network, the Cronos Network and the XRP Network, that execute automatically when certain conditions are met. Since smart contracts typically cannot be stopped or reversed, vulnerabilities in their programming can have damaging effects. For example, in June 2016, a vulnerability in the smart contracts underlying The DAO allowed an attack by a hacker to syphon approximately $60 million worth of ether from The DAO’s accounts into a segregated account. In the aftermath of the theft, certain core developers and contributors pursued a “hard fork” of the Ethereum Network in order to erase any record of the theft. Despite these efforts, the price of ether reportedly dropped approximately 35% in the aftermath of the attack and subsequent hard fork. In addition, in July 2017, a vulnerability in a smart contract for a multi-signature wallet software developed by Parity led to a reportedly $30 million theft of ether, and in November 2017, a new vulnerability in Parity’s wallet software reportedly led to roughly $160 million worth of ether being indefinitely frozen in an account. Furthermore, in April 2018, a batch overflow bug was found in many Ethereum-based ERC20-compatible smart contract tokens that allowed hackers to create a large number of smart contract tokens, causing multiple crypto asset platforms worldwide to shut down ERC20-compatible token trading. Similarly, in March 2020, a design flaw in the MakerDAO smart contract caused forced liquidations of crypto assets at significantly discounted prices, resulting in millions of dollars of losses to users who had deposited crypto assets into the smart contract. Other smart contracts, such as bridges between blockchain networks and DeFi protocols, have also been manipulated, exploited or used in ways that were not intended or envisioned by their creators such that attackers syphoned over $3.8 billion worth of digital assets from smart contracts in 2022. Problems with the development, deployment and operation of smart contracts may have an adverse effect on the value of ether.

In some cases, smart contracts can be controlled by one or more “admin keys” or users with special privileges, or “super users.” These super users may have the ability to unilaterally make changes to the smart contract, enable or disable features on the smart contract, change how the smart contract receives external inputs and data or transmits ether or other digital assets, and make other changes to the smart contract. Furthermore, in some cases inadequate public information may be available about certain smart contracts or applications, and information asymmetries may exist, even with respect to open-source smart contracts or applications. In addition, certain participants may have hidden informational or technological advantages, making for an uneven playing field. There may be opportunities for bad actors to perpetrate fraudulent schemes and engage in illicit activities and other misconduct, such as exit scams and rug pulls (orchestrated by developers and/or influencers who promote a smart contract or application and, ultimately, escape with the money at an agreed time), or Ponzi or similar fraud schemes.

Many DeFi applications are currently deployed on the Ethereum Network, the Solana Network, the Cronos Network and the XRP Network and smart contracts relating to DeFi applications currently represent a significant source of demand for ether, SOL, CRO and XRP. DeFi applications may achieve their investment purposes through self-executing smart contracts that may allow users, for example, to invest digital assets in a pool from which other users can borrow without requiring an intermediate party to facilitate these transactions. These investments may earn interest for the investor based on the rates at which borrowers repay the loan and can generally be withdrawn by the investor. For smart contracts that hold a pool of digital asset reserves, smart contract super users or admin key holders may be able to extract funds from the pool, liquidate assets held in the pool, or take other actions that decrease the value of the digital assets held by the smart contract in reserves. Even for digital assets that

 

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have adopted a decentralized governance mechanism, such as smart contracts that are governed by the holders of a governance token, such governance tokens can be concentrated in the hands of a small group of core community members, who would be able to make similar changes unilaterally to the smart contract. If any such super user or group of core members unilaterally makes adverse changes to a smart contract, the design, functionality, features and value of the smart contract and its related digital assets may be harmed. In addition, assets held by the smart contract in reserves may be stolen, misused, burnt or locked up, or otherwise become unusable and irrecoverable. Super users can also become targets of hackers and malicious attackers. If an attacker is able to access or obtain the super user privileges of a smart contract, or if a smart contract’s super users or core community members take actions that adversely affect the smart contract, users who transact with the smart contract may experience decreased functionality of the smart contract or may suffer a partial or total loss of any digital assets they have used to transact with the smart contract. Furthermore, the underlying smart contracts may be insecure, contain bugs or other vulnerabilities, or otherwise not work as intended. Any of the foregoing could cause users of the DeFi application to be negatively affected or could cause the DeFi application to be the subject of negative publicity and adversely affect the value of the relevant Portfolio Asset.

Proof-of-stake blockchains are a relatively recent innovation and have not been subject to as widespread use or adoption over as long of a period of time as traditional proof-of-work blockchains.

Certain digital assets, such as bitcoin, use a proof-of-work consensus algorithm. The genesis block on the Bitcoin Blockchain was mined in 2009, and bitcoin’s blockchain has been in operation since then. Many newer blockchains enabling smart contract functionality, including the current Ethereum Network following the completion of the Merge in 2022, the Solana Network and the Cronos Network, use a newer consensus algorithm known as “proof-of-stake.” While their proponents believe that they may have certain advantages, the “proof-of-stake” consensus mechanisms and governance systems underlying many newer blockchain protocols and their associated digital assets, including ether, SOL and CRO, have not been tested at scale over as long of a period of time or been subject to as widespread use or adoption as, for example, bitcoin’s proof-of-work consensus mechanism has. This could lead to these blockchains, and their associated digital assets, having undetected vulnerabilities, structural design flaws, suboptimal incentive structures for network participants (e.g., validators), technical disruptions, or a wide variety of other problems, any of which could cause these blockchains not to function as intended, could lead to outright failure to function entirely causing a total outage or disruption of network activity, or could cause the blockchains to suffer other operational problems or reputational damage, leading to a loss of users or adoption or a loss in value of the associated digital assets, including the Trust’s assets. Over the long term, there can be no assurance that the proof-of-stake blockchain on which some of the Portfolio Assets rely will achieve widespread scale or adoption or perform successfully. Any failure to do so could negatively impact the value of the Shares.

The Solana protocol or its proof-of-history timestamping mechanism may not function as intended, which could adversely affect the value of SOL and the Shares.

The Solana protocol, including its Proof-of-History (“PoH”) timestamping mechanism, was first introduced by Anatoly Yakovenko in a 2017 whitepaper. The PoH’s timestamping mechanism automatically orders on-chain transactions by creating a historical record that proves an event has occurred at a specific moment in time. The mechanism is intended to provide a transaction processing speed and capacity advantage over other blockchain networks like bitcoin and Ethereum, which rely on sequential production of blocks and can lead to delays caused by validator confirmations.

PoH is a new blockchain technology that is not widely used and may not function as intended. For example, it may require more specialized equipment to participate in the network and fail to attract a significant number of users. In addition, there may be flaws in the cryptography underlying PoH or the Solana protocol, including flaws that affect functionality of the Solana Network or make the network vulnerable to attack. For example, on September 14, 2021, the Solana Network experienced a significant disruption, later attributed to a type of denial-of-service attack, and was offline for 17 hours,

 

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only returning to full functionality 24 hours later. Any similar disruptions in the operations of the Solana Network could have a material adverse effect on the value of SOL and an investment in the Shares.

In another example, FTX, one of the largest Digital Asset Trading Platforms at the time, experienced a high-profile collapse in November 2022. Along with its CEO Sam Bankman-Fried and Alameda Research (a digital asset trading firm also owned by Bankman-Fried), FTX had provided substantial financial and developmental support to the Solana project. Bankman-Fried was also a strong and vocal supporter of SOL and the Solana Network. It does not appear, however, that FTX, Alameda Research or any other Bankman-Fried-affiliated entity had a formal relationship with Solana Labs, Inc. (“Solana Labs”), a Delaware corporation which administered the original network launch and token distribution or the Solana Foundation, or that the Solana Labs or the Solana Foundation were involved in any of FTX, Alameda Research or Bankman-Fried’s alleged misconduct. Based on public information it does not appear that FTX or Alameda Research operated a validator node on the Solana Network. Nevertheless, the price of SOL fell severely immediately following the news of FTX’s insolvency. In the event a high-profile contributor to the Solana Network, such as Anatoly Yakovenko, is perceived as no longer contributing to the Solana Network due to death, retirement, withdrawal, incapacity or otherwise, whether or not such perception is valid, it could negatively affect the price of SOL, which could adversely impact the value of the Shares.

Competition from the emergence or growth of other digital assets or methods of investing in the Portfolio Assets could have a negative impact on the prices of the Portfolio Assets and adversely affect the value of the Shares.

As of June 30, 2025, bitcoin and ether were the two largest digital assets by market capitalization, as tracked by CoinMarketCap.com. At the same time, the alternative digital assets had a total market capitalization of approximately $3.31 trillion (including the approximately $2.44 trillion market cap of bitcoin and ether), as calculated using market prices and total available supply of each digital asset, excluding tokens pegged to other assets. In addition, many consortiums and financial institutions are also researching and investing resources into private or permissioned smart contracts platforms rather than open platforms like the Portfolio Asset Networks. Competition from the emergence or growth of alternative digital assets and smart contracts platforms, such as Avalanche or Cardano, could have a negative impact on the demand for, and price of, the Portfolio Assets, thereby adversely affect the value of the Shares. For example, many institutions that are potential XRP users are researching and investing resources into private or permissioned blockchain platforms that could compete with XRP to facilitate cross-currency transactions.

In addition, some digital asset networks, including the Portfolio Asset Networks, may be the target of ill will from users of other digital asset networks. For example, in July 2016, the Ethereum Network underwent a contentious hard fork that resulted in the creation of a new digital asset network called Ethereum Classic. As a result, some users of the Ethereum Classic network may harbor ill will toward the Ethereum Network. These users may attempt to negatively impact the use or adoption of the Ethereum Network.

Further, investors may invest in the Portfolio Assets through means other than the Shares, including through direct investments in such digital assets and other potential financial vehicles, possibly including securities backed by or linked to such Portfolio Assets and digital asset financial vehicles similar to the Trust, or futures-based products. Market and financial conditions, and other conditions beyond the Sponsor’s control, may make it more attractive to invest in other financial vehicles or to invest in the Portfolio Assets directly, which could limit the market for, and reduce the liquidity of, the Shares. In addition, to the extent digital asset financial vehicles other than the Trust tracking the price of the Portfolio Assets are formed and represent a significant proportion of the demand for such assets, large purchases or redemptions of the securities of these digital asset financial vehicles, or private funds holding ether, could negatively affect the applicable Reference Price, and, as a result, the value of the Portfolio Assets.

The Trust faces competition with respect to the creation of competing exchange-traded digital asset products. If the SEC were to approve many or all of the currently pending applications for such exchange-traded ether products, many or all of such products, including the Trust, could fail to acquire

 

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substantial assets, initially or at all. The Trust’s competitors may also charge a substantially lower fee than the Sponsor’s Fee in order to achieve initial market acceptance and scale. Accordingly, the Sponsor’s competitors may commercialize a competing product more rapidly or effectively than the Sponsor is able to, which could adversely affect the Sponsor’s competitive position and the likelihood that the Trust will achieve initial market acceptance and could have a detrimental effect on the scale and sustainability of the Trust. If the Trust fails to achieve sufficient scale due to competition, the Sponsor may have difficulty raising sufficient revenue to cover the costs associated with launching and maintaining the Trust. Such shortfalls could impact the Sponsor’s ability to properly invest in robust ongoing operations and controls of the Trust to minimize the risk of operating events, errors or other forms of losses to the Shareholders. The Trust may also fail to attract adequate liquidity in the secondary market due to such competition, resulting in a substandard number of Authorized Participants willing to make a market in the Shares, which in turn could result in a significant premium or discount in the Shares for extended periods and the Trust’s failure to reflect the performance of the price of the Portfolio Assets.

Finally, central banks in various countries have introduced digital forms of legal tender (“CBDCs”). Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replace, the Portfolio Assets and other cryptocurrencies as a medium of exchange or store of value. Central banks and other governmental entities have also announced cooperative initiatives and consortia with private sector entities, with the goal of leveraging blockchain and other technology to reduce friction in cross-border and interbank payments and settlement, and commercial banks and other financial institutions have also recently announced a number of initiatives of their own to incorporate new technologies, including blockchain and similar technologies, into their payments and settlement activities, which could compete with, or reduce the demand for, the Portfolio Assets. As a result of any of the foregoing factors, the value of the Portfolio Assets could decrease, which could adversely affect an investment in the Trust.

The prices of digital assets, including the Portfolio Assets, may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment.

While the Trust does not invest in stablecoins, it may nonetheless be exposed to risks that stablecoins pose for the Portfolio Asset markets and other digital asset markets. Stablecoins are digital assets designed to have a stable value over time as compared to typically volatile digital assets and are typically marketed as being pegged to the value of a referenced asset, normally a fiat currency, such as the U.S. dollar. Although the prices of stablecoins are intended to be stable compared to their referenced asset, their market value may fluctuate. This volatility has in the past apparently impacted the price of Portfolio Assets. Stablecoins are a relatively new phenomenon, and it is impossible to know all of the risks that they could pose to participants in the Portfolio Asset markets. In addition, some have argued that some stablecoins, particularly Tether, are or have been improperly issued without sufficient backing in a way that, when the stablecoin is used to pay for the Portfolio Assets, could cause artificial rather than genuine demand for such digital asset, artificially inflating the digital asset’s price, and also argue that those associated with certain stablecoins may be involved in laundering money. Regulators have also charged stablecoin issuers with violations of law or otherwise required certain stablecoin issuers to cease certain operations. For example, on February 17, 2021, the New York Attorney General entered into an agreement with Tether’s operators, requiring them to cease any further trading activity with New York persons and pay $18.5 million in penalties for false and misleading statements made regarding the assets backing Tether. On October 15, 2021, the CFTC announced a settlement with Tether’s operators in which they agreed to pay $42.5 million in fines to settle charges that, among others, Tether’s claims that it maintained sufficient U.S. dollar reserves to back every Tether stablecoin in circulation with the “equivalent amount of corresponding fiat currency” held by Tether were untrue.

USDC is a reserve-backed stablecoin issued by Circle Internet Financial that is commonly used as a method of payment in digital asset markets, including the Portfolio Asset markets. The issuer of USDC uses the Circle Reserve Fund to hold cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Treasury, and repurchase agreements secured by such obligations or cash, which serve as reserves backing USDC stablecoins. While USDC is designed to maintain a stable value of $1.00 at all times, on March 10, 2023, the value of USDC fell below

 

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$1.00 for multiple days after Circle Internet Financial disclosed that $3.3 billion of the USDC reserves were held at Silicon Valley Bank, which had entered the FDIC receivership earlier that day. Stablecoins are reliant on the U.S. banking system and U.S. treasuries, and the failure of either to function normally could impede the function of stablecoins and therefore could adversely affect the value of the Shares.

Given the foundational role that stablecoins play in global digital asset markets, their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the markets for the Portfolio Assets. Because a large portion of the digital asset market still depends on stablecoins such as Tether and USDC, there is a risk that a disorderly de-pegging or a run on Tether or USDC could lead to dramatic market volatility in digital assets more broadly. Volatility in stablecoins, operational issues with stablecoins (for example, technical issues that prevent settlement), concerns about the sufficiency of any reserves that support stablecoins or potential manipulative activity when unbacked stablecoins are used to pay for other digital assets (including the Portfolio Assets), or regulatory concerns about stablecoin issuers or intermediaries, such as platforms, that support stablecoins, could impact individuals’ willingness to trade on trading venues that rely on stablecoins, reduce liquidity in the Portfolio Asset markets and affect the value of the Portfolio Assets, and in turn impact an investment in the Shares.

If a malicious actor or botnet obtains control of sufficient percentage of the processing power on the Portfolio Asset Network, or otherwise obtains control over the Portfolio Asset Network through its influence over core developers or otherwise, such actor or botnet could manipulate the applicable Portfolio Asset Blockchain to adversely affect the value of the Shares or the ability of the Trust to operate.

For the Bitcoin Network, which is a proof-of-work network, if a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains control of more than 50% of the processing power dedicated to mining on the Bitcoin Network, it may be able to alter the Bitcoin Blockchain on which transactions in bitcoin rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could also control, exclude or modify the ordering of transactions. Although the malicious actor or botnet would not be able to generate new digital assets or transactions using such control, it may be able to “double-spend” its own digital assets (i.e., spend the same tokens in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control.

The Ethereum Network, a proof-of-stake network, is currently vulnerable to several types of attacks, including:

•

“>33% attack” where, if a validator or group of validators were to gain control of more than 33% of the total staked digital asset on the applicable network, a malicious actor could temporarily impede or delay block confirmation or even cause a temporary fork in the blockchain.

​

•

“>50% attack” where, if a validator or group of validators acting in concert were to gain control of more than 50% of the total staked digital asset on the applicable network, a malicious actor would be able to gain full control of the applicable network and the ability to manipulate the blockchain on a forward-looking basis, including censoring transactions following the achievement of threshold, double-spending and fraudulent block propagation, while the attacker maintains the threshold.

​

•

“>66% attack” where, if a validator or group of validators acting in concert were to gain control of more than 66% of the total staked digital asset on the applicable network, a malicious actor could permanently and irreversibly manipulate the blockchain, including censorship, double-spending and fraudulent block propagation, both on a forward- and backward-looking basis. The attacker could unilaterally finalize their preferred chain without the votes of any other stakers and could also reverse past finalized blocks.

​

The Solana Network, the Cronos Network and the Ripple Network, other proof-of-stake networks, are also currently vulnerable to similar attacks by malicious actors or botnets.

 

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To the extent that such malicious actor or botnet did not yield its control of the processing power on the applicable Portfolio Asset Network or such Portfolio Asset’s community did not reject the fraudulent blocks as malicious, reversing any changes made to the Portfolio Asset Network may not be possible. Further, a malicious actor or botnet could create a flood of transactions in order to slow down such Portfolio Asset Network.

In an example from another network, in August 2020, the Ethereum Classic Network, a proof-of-work network, was the target of two double-spend attacks by an unknown actor or actors that gained more than 50% of the processing power of the Ethereum Classic network. The attacks resulted in reorganizations of the Ethereum Classic blockchain that allowed the attacker or attackers to reverse previously recorded transactions in excess of $5.0 million and $1.0 million. In addition, in May 2019, the Bitcoin Cash network, a proof-of-work network, experienced a >50% attack when two large mining pools reversed a series of transactions in order to stop an unknown miner from taking advantage of a flaw in a recent Bitcoin Cash protocol upgrade. Although this particular attack was arguably benevolent, the fact that such coordinated activity was able to occur may negatively impact perceptions of the Bitcoin Cash network. Any similar attacks on any of the Portfolio Asset Networks could negatively impact the value of the affected Portfolio Asset and the value of the Shares.

Although there are no known reports of malicious activity on, or control of, any of the Portfolio Asset Networks, it is believed that certain mining pools may have exceeded the 50% threshold on the Bitcoin Network since the Bitcoin Blockchain’s genesis block was mined in 2009, and others have come close. Also, there have been reports that two mining pools recently controlled in excess of 50% of the aggregate mining power on the Bitcoin Network and may do so now or in the future.

The possible crossing or near-crossing of the 50% threshold indicates a greater risk that a single entity or a small group of entities, for example, could exert authority over the validation of digital asset transactions on any of the Portfolio Asset Networks. Such risk is heightened if over 50% of the processing power on the network falls within the jurisdiction of a single governmental authority and is significantly heightened if over 66% falls within such a jurisdiction. If network participants, including the core developers and the administrators, do not act to ensure greater decentralization of the applicable Portfolio Asset Network processing power, the feasibility of a malicious actor obtaining control of the processing power on such network will increase, which may adversely affect the value of the Shares. Also, if miners or validators, as applicable, experience financial or other difficulties on a large scale and are unable to participate in mining activities, whether due to a downturn in the bitcoin market or other factors, the risks of one or more of the Portfolio Asset Networks becoming more centralized could increase.

A malicious actor may also obtain control over a Portfolio Asset Network through its influence over core developers by gaining direct control over a core developer or an otherwise influential programmer. To the extent that users and miners accept amendments to the source code proposed by the controlled core developer, other core developers do not counter such amendments, and such amendments enable the malicious exploitation of a Portfolio Asset Network, the risk that a malicious actor may be able to obtain control of such network in this manner exists. The less that the ecosystem related to the applicable Portfolio Asset grows, the greater the possibility that a malicious actor may be able to maliciously influence its network in this manner.

The Portfolio Asset Networks face significant scaling challenges, and efforts to increase the volume and speed of transactions may not be successful.

Many digital asset networks, including the Portfolio Asset Networks, face significant scaling challenges due to the fact that public, permissionless blockchains generally face a trade-off between security and scalability. One means through which digital asset networks achieve security is decentralization, meaning that no intermediary is responsible for securing and maintaining these systems. For example, a greater degree of decentralization of a public, permissionless blockchain generally means a given digital asset network is less susceptible to manipulation or capture. A digital asset network that utilizes a public, permissionless blockchain may be limited in the number of transactions it can process by the computing capabilities of each single fully participating node.

 

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In an effort to increase the volume of transactions that can be processed on a given digital asset network, many digital assets are being upgraded with various features to increase the speed and throughput of digital asset transactions. For example, in August 2017, the Bitcoin Network was upgraded with a technical feature known as “Segregated Witness” with the promise of increasing the number of transactions per second that can be handled on-chain and enabling so-called second layer solutions, such as the Lightning Network or payment channels, that increase transaction throughput by processing certain transactions outside the main Bitcoin Blockchain. However, this upgrade may fail to achieve the expected benefits or widespread adoption.

In the second half of 2020, the Ethereum Network began the first of several stages of an upgrade culminating in the “Merge.” The Merge amended the Ethereum Network’s consensus mechanism to a process known as proof-of-stake and was intended to address the perceived shortcomings of the proof-of-work consensus mechanism in terms of labor intensity and duplicative computational effort expended by validators (known under proof-of-work as “miners”) who did not win the race, under proof-of-work, to be the first in time to solve the cryptographic puzzle that would allow them to be the only validator permitted to validate the block and receive the resulting block reward (which was only given to the first validator to successfully solve the puzzle and hash a given block, and not to others). Instead, under proof-of-stake, a single validator is randomly selected to solve the cryptographic puzzle needed to validate a block, which it proposes to a committee of other validators, who vote for whether to include the block (or not), which reduces the computational work performed — and energy expended — to validate each block compared to proof-of-work networks. Following the Merge, core development of the Ethereum source code has increasingly focused on modifications of the Ethereum protocol to increase speed, throughput and scalability and also improve existing or next generation uses. Future upgrades to the Ethereum protocol and the Ethereum Blockchain to address scaling issues — such as network congestion, slow throughput and periods of high transaction fees owing to spikes in network demand — have been discussed by network participants, such as sharding. The purpose of sharding is to increase scalability of the Ethereum Blockchain by splitting the blockchain into subsections, called shards, and dividing validation responsibility so that a defined subset of validators would be responsible for each shard, rather than all validators being responsible for the entire blockchain, allowing for parallel processing and validation of transactions. However, there appears to be uncertainty and a lack of existing widespread consensus among network participants about how to solve the scaling challenges faced by the Ethereum Network. The rapid development of other competing scalability solutions, such as those which would rely on handling the bulk of computational work relating to transactions or smart contracts and applications built on the Ethereum Network (consistent with common usage, all such applications are referred to as “dApps” whether or not decentralized in fact) outside of the main Ethereum Network and Ethereum Blockchain, has caused alternatives to sharding to emerge. “Layer 2” is a collective term for solutions which are designed to help increase throughput and reduce transaction fees by handling or validating transactions off the main Ethereum Network (known as “Layer 1”) and then attempting to take advantage of the perceived security and integrity advantages of the Layer 1 Ethereum Network by uploading the transactions validated on the Layer 2 protocol back to the Layer 1 Ethereum Network. The details of how this is done vary significantly between different Layer 2 technologies and implementations. For example, “rollups” perform transaction execution outside the Layer 1 Ethereum Network and then post the data, typically in batches, back to the Layer 1 Ethereum Network where consensus is reached. “Zero knowledge rollups” are generally designed to run the computation needed to validate the transactions off-chain, on the Layer 2 protocol, and submit a proof of validity of a batch of transactions (not the entire transactions themselves) that is recorded on the Layer 1 Ethereum Network. By contrast, “optimistic rollups” assume transactions are valid by default and only run computation, via a fraud proof, in the event of a challenge. Other proposed Layer 2 scaling solutions include, among others, “state channels,” which are designed to allow participants to run a large number of transactions on the Layer 2 side channel protocol and only submit two transactions to the main Layer 1 Ethereum Network (the transaction opening the state channel, and the transaction closing the channel), “side chains,” in which an entire Layer 2 blockchain network with similar capabilities to the existing Layer 1 Ethereum Network runs in parallel with the existing Layer 1 Ethereum Network and allows smart contracts and dApps to run on the Layer 2 side chain without burdening the main Layer 1 network, and others. To date, the Ethereum Network community has not coalesced overwhelmingly around any particular Layer 2 solution, though this could change.

 

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There is no guarantee that any of the mechanisms in place or being explored for increasing the speed and throughput of settlement of transactions on any of the Portfolio Asset Networks will be effective, or how long these mechanisms will take to become effective, which could cause such networks to not adequately resolve scaling challenges and adversely impact the adoption of the affected Portfolio Asset and the related Portfolio Asset Network and the value of the Shares. It is also possible that any proposed changes to the Portfolio Asset Networks could divide the community, potentially even causing a hard fork, or that the decentralized governance of the Portfolio Asset Network causes network participants to fail to coalesce overwhelmingly around any particular solution, causing the such network to suffer reduced adoption or causing nodes, users or validators to migrate to other blockchain networks. It is also possible that scaling solutions could fail to work as intended or could introduce bugs, coding defects or flaws, security risks or other problems that could cause them to suffer operational disruptions. For example, in April 2024, Starknet, a Layer 2 built on the Layer 1 Ethereum Network, suffered an outage reportedly caused by a rounding error bug that halted production of new blocks on Starknet’s Layer 2 blockchain network. Similar outages, bugs, defects or other problems could affect other Portfolio Asset Networks in the future. Similarly, in multiple instances throughout 2022 and 2023, the Arbitrum Layer 2 network experienced outages due to failures in its primary node responsible for submitting transactions to the Layer 1 Ethereum Network. Although the Layer 1 Ethereum Network is believed not to have been affected by those outages, problems on Layer 2s in the future could conceivably affect or cause issues for the Layer 1 Ethereum Network. Alternatively, if a widely used Layer 2 network were to fail, it could reduce demand for ether because it would eliminate a source of demand for using ether to record transactions from the Layer 2 onto the Layer 1 Ethereum Network. Any of the foregoing could adversely affect the price of ether and, as a result, the value of the Shares.

There is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement or throughput of any of the Portfolio Asset Network transactions will be effective, or how long these mechanisms will take to become effective, which could cause such networks to not adequately resolve scaling challenges and adversely impact the adoption of bitcoin as a medium of exchange and the value of the Shares.

If increases in throughput on any of the Portfolio Asset Networks lag behind growth in usage of the applicable Portfolio Asset, average transaction fees and settlement times may increase considerably. For example, the Bitcoin Network has been, at times, at capacity, which has led to increased transaction fees. Since January 1, 2022, bitcoin transaction fees have ranged from $0.38 per bitcoin transaction on September 8, 2024 to a high of $124.17 per transaction on April 20, 2024. Similarly, in December 2017, the popularity of the blockchain-based game Cryptokitties led to significant network congestion on the Ethereum Network. The game, which allows players to trade and create virtual kitties, represented by non-fungible tokens (“NFTs”), was reported by some sources to have accounted for more than 10% of the entire Ethereum Network traffic at the time, causing increases in transaction fees and delays in transaction processing times and driving the Ethereum Network traffic to a reported then-all time high. Increased transaction fees and decreased settlement speeds could preclude certain uses for a Portfolio Asset (e.g., micropayments) and could reduce demand for, and the price of, such Portfolio Asset, which could adversely impact the value of the Shares. For example, in May 2023, events related to the adoption of ordinals, which are a means of inscribing digital content on the Bitcoin Blockchain, caused transaction fees to temporarily spike above $30 per transaction.

Congestion or delay in any of Portfolio Asset Networks may delay purchases or sales of such Portfolio Asset by the Trust.

The size of each block on a Portfolio Asset Blockchain is currently limited and the transaction rate is significantly below the level that centralized systems can provide. Increased transaction volume could result in delays in the recording of transactions due to congestion in the applicable Portfolio Asset Network. Moreover, unforeseen system failures, disruptions in operations, or poor connectivity may also result in delays in the recording of transactions on a Portfolio Asset Network. Any such delay could affect the Authorized Participant’s ability to buy or sell digital assets at an advantageous price resulting in decreased confidence in the affected Portfolio Asset Network. Over the longer term, delays in confirming transactions could reduce the attractiveness of that Portfolio Asset Network to merchants and other commercial parties, which could adversely affect the value of the Shares.

 

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High electricity usage may adversely affect PoW networks, including certain of the Portfolio Asset Networks.

The operations of certain of the Portfolio Asset Networks, including the Bitcoin Network, consume significant amounts of electricity to secure and maintain their networks. Measuring the precise energy consumption of these networks is challenging due to the variety of machines involved and their differing levels of efficiency. However, the energy-intensive nature of these operations may have a negative environmental impact, potentially contributing to increased carbon emissions and strain on public utility systems. This high electricity usage has prompted concerns among regulators and the public, leading various states and cities to implement or consider moratoriums on activities such as cryptocurrency mining within their jurisdictions. In addition to the direct energy costs of performing calculations to secure these networks, indirect costs, such as the energy required for cooling the machines performing these calculations, further increase the overall energy footprint of these networks. The significant electricity consumption associated with maintaining such Portfolio Asset Networks may lead to adverse public opinion or government regulations restricting the use of electricity for such operations, which could impact the functionality, adoption or value of such Portfolio Assets and, therefore, the value of the Shares.

Changes to supply constraints, or the inability to modify fixed supplies, may adversely affect the value, functionality and liquidity of certain of the Portfolio Assets.

Certain Portfolio Assets, including bitcoin and CRO, are subject to risks related to potential changes to their respective network protocols that could alter their supply limits, potentially adversely affecting their value. For bitcoin, the network’s source code currently enforces a 21 million supply cap, expected to be reached around the year 2140. Any significant change to the Bitcoin Network’s source code, such as a hard fork, could modify or remove this supply cap, which, in turn, could lead to a potential decline in bitcoin’s market price and, consequently, the value of the Trust’s shares.

Similarly, CRO has a fixed total supply of 100 billion tokens as of May 2025, distributed over time according to a predefined tokenomics plan for ecosystem development, community incentives and other allocations. However, changes to the Cronos Network’s protocol or governance decisions could similarly result in the issuance of additional CRO tokens, introducing the risk of dilution. For example, in March 2025, Crypto.com reissued 70 billion CRO that had been burned in 2021 to the Cronos Strategic Reserve. Such increases in supply could undermine CRO’s scarcity, adversely impacting its market price.

Additionally, XRP has a fully pre-mined and immutable supply of 100 billion tokens, with no capability to increase supply in response to changing economic conditions. While the absence of new issuance introduces scarcity, it also creates certain operational and economic risks. For example, XRP validators do not receive block rewards, which could affect long-term network participation. Additionally, a small portion of XRP is permanently destroyed through transaction fees, which over time may create deflationary pressure. As XRP’s supply slowly decreases, the XRP Network could face long-term liquidity constraints, especially if adoption scales significantly. The fixed supply structure may also contribute to price volatility — particularly during periods of rising demand — limiting XRP’s effectiveness as a medium of exchange or liquidity bridge for cross-border payments.

There is no assurance that the protocols or governance models governing bitcoin, CRO or XRP will maintain their current supply constraints or economic characteristics. Any developments that materially alter the supply or perceived scarcity of these digital assets — either through increased issuance, protocol upgrades or governance actions — could significantly reduce the value of such Portfolio Assets and negatively impact the value of the Trust’s portfolio.

Liquid staking applications pose centralization concerns.

Certain of the Portfolio Asset Networks, including the Ethereum Network and the Solana Network, permit liquid staking applications. These liquid staking applications pose centralization concerns which could negatively affect the use and adoption of such Portfolio Asset Networks.

 

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For example, validators on the Ethereum Network must deposit 32 ether to activate a unique validator key pair that is used to sign block proposals and attestations on behalf of its stake (i.e., vote on its view of the chain). For every 32 ether deposit that is staked, a unique validator key pair is generated. An application built on the Ethereum Network, or a single node operator, can manage many validator key pairs. For example, Lido, an application that provides a so-called “liquid staking” solution which permits holders of ether to deposit them with Lido, which stakes the ether while issuing the holder a transferrable token, is reported by some sources to have or have had up to 275,000 validator key pairs (each representing 32 staked ether) divided across over 30 node operators. At times, Lido has reportedly controlled around or in excess of 33% of the total staked ether on the Ethereum Network. While it is widely believed that Lido has little incentive to attempt to interfere with transaction finality or block confirmations using its reported 33% stake, since doing so would likely cause its entire stake to be slashed and thus lost (assuming good actors unaffiliated with Lido controlled the remainder), and also because Lido is believed to not control most of the third-party node operators where its ether is staked, and finally since the occurrence of such manipulation of the Ethereum Network’s consensus process by Lido or any other actor would likely cause ether to lose substantial value (which would obviously hurt Lido economically), it nevertheless poses centralization concerns. If Lido, or a bad actor with a similar sized stake, were to attempt to interfere with transaction finality or block confirmations, it could negatively affect the use and adoption of the Ethereum Network, the value of ether, and thus the value of the Shares.

Risks Related to Staking

The Trust is currently not permitted to engage in Staking activities, and, accordingly, the Shareholders will not receive any Staking rewards or other income, which could adversely affect the value of the Shares.

In common with other spot exchange-traded products that hold digital assets, at this time, the Trust is prohibited from engaging in Staking, and there can be no assurance that the Trust will be permitted to engage in Staking in the future. The Trust Agreement provides that the Trust may engage in Staking if the Sponsor deems such activity to be in the best interest of Shareholders and solely to the extent the Sponsor believes, in its sole discretion, that such Staking activities may be conducted in compliance with applicable law. As of the date of this prospectus, the Sponsor has made no such determination, and there can be no assurance as to whether or when the Sponsor will do so in the future. In addition, the regulatory landscape surrounding Staking is highly uncertain. Such uncertainty may expose the Sponsor, the Digital Asset Custodian, the Staking Provider and the Trust and the Shareholders to potential enforcement actions or unforeseen regulatory risks, which could have an adverse impact on the value of the Shares.

In the future the Trust may establish a program to participate in the staking mechanisms of the Portfolio Asset Networks to receive rewards comprising additional Portfolio Assets in respect of a portion of its Portfolio Asset holdings. However, unless and until the Sponsor determines to engage the Trust in Staking activities, the Trust will not participate in such staking mechanisms to receive rewards comprising additional Portfolio Assets in respect of its Portfolio Asset holdings. The current inability of the Trust to participate in Staking and receive such rewards could place the Shares at a comparative disadvantage relative to an investment in the Portfolio Assets directly or through a vehicle that is not subject to such a prohibition, which could negatively affect the value of the Shares.

Staking activities introduce a risk of loss of the Stakeable Digital Assets, which could adversely affect the value of the Shares.

Staking introduces a risk of loss of ether, SOL or CRO. None of the Trust’s assets, including potentially staked assets, are subject to the protections enjoyed by depositors or customers of institutions with FDIC or Securities Investor Protection Corporation membership. The Ethereum Network imposes three types of sanctions for validator misbehavior or inactivity, which would result in a portion of staked ether being destroyed or “burned”: penalties, slashing and inactivity leaks.

A validator may face penalties if it fails to take certain actions, such as providing a timely attestation to a block proposed by another validator. Under this scenario, a validator’s staked ether could be burned in an amount equal to the reward to which it would have been entitled for performing the actions.

 

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A more severe sanction (i.e., “slashing”) is imposed if a validator commits malicious acts related to the proposal or attestation of blocks with invalid transactions. Slashing can result in the validator having a portion of its staked ether immediately burned. After this initial slashing, the validator is queued for forceful removal from the Ethereum Network’s validator “pool,” and more of the validator’s stake is burned over a period of approximately 36 days (with the exact amount of ether burned and time period determined by the protocol) regardless of whether the validator makes any further slashable errors, at which point the validator is automatically removed from the validator pool.

Staked ether may also be burned through a process known as an “inactivity leak,” which is triggered if the Ethereum protocol has gone too long without finalizing a new block. For a new block to be successfully added to the blockchain, validators that account for at least two-thirds of all staked ether must agree on the validity of a proposed block. This means that if validators representing more than one-third of the total staked ether are offline, no new blocks can be finalized. To prevent this, an inactivity leak causes the ether staked by the inactive validators to gradually “bleed away” until these inactive validators represent less than one-third of the total stake, thereby allowing the remaining active validators to finalize proposed blocks. This provides a further incentive for validators to remain online and continue performing validation activities. Both the Solana Network and the Cronos Network impose penalties on its validators in certain situations, though the underlying mechanics differ.

There can be no guarantee that penalties, slashing or inactivity leaks and resulting losses will not occur as a result of the activities of the Staking Provider. Furthermore, the Staking Provider’s liability to the Trust is expected to be limited, and the Staking Provider may lack the assets or insurance in order to support the recovery of any losses incurred. While the Trust’s Staking arrangements may provide for indemnification up to a specified cap, slashing insurance or other reimbursement programs, there can be no guarantee that the Trust would recover any of its staked assets, or the value thereof, if it is subject to sanctions imposed by the applicable Portfolio Asset Network.

Staked Portfolio Assets may be inaccessible for a variable period of time, and the resulting liquidity risk could impact redemptions or rebalancing.

Under the current protocols of various Stakeable Digital Asset networks in which the Trust may invest, assets staked or delegated to validators to secure the network are subject to protocol-defined liquidity limitations. These limitations include mandatory lock-up or unbonding periods during which the staked assets are inaccessible and would not be able to be transferred or withdrawn. For example, under the Ethereum Network’s proof-of-stake protocol, staked ether undergoes an activation process to join the validator set and an exit process for withdrawal. These processes are subject to variable delays based on network conditions, such as validator demand and queue congestion. Typically, withdrawals take one to five days under normal conditions, but delays can extend to four to six weeks during periods of high validator churn. Additionally, staked ether is subject to slashing risks if validators fail to perform correctly, potentially resulting in partial loss of staked assets. On the Solana Network, staked SOL is subject to an unbonding period after undelegation, typically lasting approximately seven days, during which the assets remain inaccessible. Network disruptions or validator performance issues could further delay access or affect staking yields. On the Cronos Network, staked CRO is subject to a fixed 28-day unbonding period after undelegation, during which the assets cannot be accessed, making rapid rebalancing less feasible compared to other networks.

If staking is permitted, these staking-related delays would create liquidity risks for the Trust, including the inability to promptly meet redemption requests or efficiently rebalance its holdings to maintain the allocation ratio. Market volatility during unbonding periods could amplify losses, as the Trust would not be able to sell staked assets to respond to price declines. In extreme cases, these constraints could result in temporary delays in settlement or the temporary suspension of the Trust’s redemption program. The Sponsor intends to mitigate these liquidity risks through careful portfolio management, including limiting the proportion of staked assets and selecting reliable validators. There can be no assurance that the Sponsor’s risk management measures would be effective in all market conditions.

 

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The Trust will be dependent on third parties to execute any potential Staking arrangements.

Any Staking activities of the Trust would be effected by the Digital Asset Custodian and the Staking Provider, and the amount of Staking rewards that the Trust’s Staking activity would generate would be dependent on the performance of the Digital Asset Custodian and the Staking Provider, including with respect to the adequacy and reliability of the hardware and software utilized by them. If the Digital Asset Custodian or the Staking Provider experience service outages or otherwise are unable to optimally stake the Trust’s Portfolio Assets, the Trust’s rewards from Staking may be adversely affected, which could negatively impact the value of the Shares.

Validators may suffer losses due to Staking, or Staking may prove unattractive to validators, any of which could adversely affect the value of the Shares.

Validation on the Stakeable Digital Assets’ networks requires Stakeable Digital Assets to be transferred into smart contracts on the underlying blockchain network not under the control of the person who owns such Stakeable Digital Asset. If the Stakeable Digital Asset’s network’s source code or protocol were to fail to behave as expected, suffer cybersecurity attacks or hacks, experience security issues, or encounter other problems, such transferred (i.e., staked) Stakeable Digital Asset may be irretrievably lost.

If validators’ staked assets are slashed or otherwise subject to sanctions by the Ethereum Network, their assets may be confiscated, withdrawn or burnt by the network, resulting in losses to the validator, or the users who provided the ether to the validator to stake on their behalf. Any cybersecurity attacks, security issues, hacks, penalties, slashing events or other problems could damage validators’ willingness to participate in validation, discourage existing and future validators from serving as such, and adversely impact the Stakeable Digital Asset’s network’s adoption or the price of ether. Any disruption of validation on the Stakeable Digital Asset’s network could interfere with network operations and cause the Stakeable Digital Asset to be less attractive to users and application developers than competing blockchain networks, which could cause the price of the Stakeable Digital Asset to decrease. In addition, the limited liquidity during the “activation” or “exiting” processes could dissuade potential validators from participating, which could interfere with network operations or security and cause the Stakeable Digital Asset’s network to be less attractive to users and application developers than competing blockchain networks, which could cause the price of ether to decrease.

There can be no guarantee that penalties, slashing or inactivity leaks and resulting losses will not deter validators from Staking. Any such deterrence would affect the Stakeable Digital Asset’s network’s ability to process transactions, thus making such Network less attractive to potential users thereof and negatively affecting the value of the Shares.

Risks Related to the Trust and the Shares

The amount of the Trust’s assets represented by each Share will decline over time as the Trust pays the Sponsor’s Fee and additional expenses born by the Trust, and as a result, the value of the Shares may decrease over time.

The amount of the Portfolio Assets represented by each Share will decrease over the life of the Trust due to the sales of the Portfolio Assets necessary to pay the Sponsor’s Fee and other Trust expenses. Without increases in the prices of Portfolio Assets sufficient to compensate for that decrease, the price of the Shares will also decline, and you will lose money on your investment in Shares.

Although the Sponsor has agreed to assume all organizational and certain ordinary administrative and marketing expenses incurred by the Trust, not all Trust expenses have been assumed by the Sponsor. For example, any taxes and other governmental charges that may be imposed on the Trust’s property will not be paid by the Sponsor. As part of its agreement to assume some of the Trust’s ordinary administrative expenses, the Sponsor has agreed to pay ordinary legal fees and expenses of the Trust not in excess of $      per annum. Any legal fees and expenses in excess of the amount required under the Trust Agreement will be the responsibility of the Trust.

 

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Because the Trust does not have any income, it needs to sell its Portfolio Assets to cover the Sponsor’s Fee and expenses not assumed by the Sponsor. The Trust may also be subject to other liabilities (for example, as a result of litigation) that have also not been assumed by the Sponsor. The only source of funds to cover those liabilities will be sales of the Portfolio Assets held by the Trust. Even if there are no expenses other than those assumed by the Sponsor, and there are no other liabilities of the Trust, the Sponsor will still need to sell the Portfolio Assets to pay the Sponsor’s Fee. The result of these sales is a decrease in the amount of Portfolio Assets represented by each Share. New purchases of Portfolio Assets utilizing cash proceeds from new Shares issued by the Trust do not reverse this trend.

A decrease in the amount of Portfolio Assets represented by each Share will result in a decrease in its price even if the prices of the Portfolio Assets have not changed. To retain the Share’s original price, the prices of the Portfolio Assets have to increase. Without that increase, the lesser amount of Portfolio Assets represented by the Share will have a correspondingly lower price. If these increases do not occur or are not sufficient to counter the lesser amount of Portfolio Assets represented by each Share, you will sustain losses on your investment in Shares.

An increase in the Trust expenses not assumed by the Sponsor, or the existence of unexpected liabilities affecting the Trust, will force the Sponsor to sell larger amounts of its Portfolio Assets and will result in a more rapid decrease of the amount of the Portfolio Assets represented by each Share and a corresponding decrease in its value.

The Trust is a passive investment vehicle that does not seek to generate returns beyond tracking the prices of the Portfolio Assets and, to the extent the Trust engages in Staking, rewards earned from its staked Portfolio Assets. The Trust is not actively managed and will be affected by a general decline in the prices of the Portfolio Assets.

The Trust is a passive investment vehicle that does not seek to generate returns beyond tracking the prices of the Portfolio Assets and, to the extent the Trust engages in Staking, rewards earned from its staked Portfolio Assets. The Sponsor does not actively manage the Portfolio Assets held by the Trust. This means the Sponsor does not speculatively sell Portfolio Assets at times when its price is high or speculatively acquire Portfolio Assets at low prices in the expectation of future price increases. It also means the Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet its investment objective. Any losses sustained by the Trust will adversely affect the value of the Shares.

The value of the Shares may be influenced by a variety of factors unrelated to the value of the Portfolio Assets.

The value of the Shares may be influenced by a variety of factors unrelated to the prices of the Portfolio Assets and the digital asset platforms included in the Reference Prices that may have an adverse effect on the value of the Shares. These factors include the following:

•

unanticipated problems or issues with respect to the mechanics of the Trust’s operations and the trading of the Shares may arise, in particular due to the fact that the mechanisms and procedures governing the creation and redemption of the Shares in exchange for cash, offering of the Shares and storage of Portfolio Assets have been developed specifically for this product;

​

•

the Trust could experience difficulties in operating and maintaining its technical infrastructure, including in connection with expansions or updates to such infrastructure, which are likely to be complex and could lead to unanticipated delays, unforeseen expenses and security vulnerabilities;

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•

the Trust could experience unforeseen issues relating to the performance and effectiveness of the security procedures used to protect the Trust’s account with the Digital Asset Custodian, or the security procedures may not protect against all errors, software flaws or other vulnerabilities in the Trust’s technical infrastructure, which could result in theft, loss or damage of its assets;

​

•

service providers may default on or fail to perform their obligations or deliver services under their contractual agreements with the Trust, or decide to terminate their relationships with the Trust, for a variety of reasons, which could affect the Trust’s ability to operate; or

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•

if any of the Portfolio Asset Networks introduces privacy enhancing features in the future, service providers may decide to terminate their relationships with the Trust due to concerns that the introduction of privacy enhancing features to such Portfolio Asset Network may increase the potential for the affected Portfolio Asset to be used to facilitate crime, exposing such service providers to potential reputational harm.

​

Any of these factors could affect the value of the Shares, either directly or indirectly through their effect on the Trust’s assets.

The liquidity of the Shares may be affected by the withdrawal from participation of Authorized Participants or the Liquidity Provider.

In the event that one or more Authorized Participants or the Liquidity Provider withdraw from or cease participation in creation and redemption activity or Portfolio Asset transactions with the Trust for any reason, the liquidity of the Shares will likely decrease. This could adversely affect the market price of the Shares and result in your incurring a loss on your investment in Shares.

There may be situations where an Authorized Participant is unable to redeem a Basket of Shares. To the extent the price of any of the Portfolio Assets decreases, these delays may result in a decrease in the amount the Authorized Participant will receive when the redemption occurs, as well as a reduction in liquidity for all Shareholders in the secondary market.

Although Shares surrendered by Authorized Participants in Basket-size aggregations are redeemable in exchange for the cash proceeds from selling the underlying amount of the Portfolio Assets, redemptions may be suspended (1) during any period in which regular trading on NYSE Arca is suspended or restricted or NYSE Arca is closed (other than scheduled holiday or weekend closings) or (2) during a period when the Sponsor determines that delivery, disposal or evaluation of any of the Portfolio Assets is not reasonably practicable (for example, as a result of an interruption in services or availability of the Prime Execution Agent, the Digital Asset Custodian, the Cash Custodian, the Trust Administrator or other service providers to the Trust, act of God, catastrophe, civil disturbance, government prohibition, war, terrorism, strike or other labor dispute, fire, force majeure, interruption in telecommunications, internet services, or network provider services, unavailability of Fedwire, SWIFT or banks’ payment processes, significant technical failure, bug, error, disruption or fork of a Portfolio Asset Network, hacking, cybersecurity breach, or power, internet or Portfolio Asset Network outage or similar event). If any of these events occurs at a time when an Authorized Participant intends to redeem Shares, and the price of a Portfolio Asset decreases before such Authorized Participant is able again to surrender for redemption Baskets, such Authorized Participant will sustain a loss with respect to the amount that it would have been able to obtain in exchange for the Portfolio Assets received from the Trust upon the redemption of its Shares, had the redemption taken place when such Authorized Participant originally intended it to occur. As a consequence, Authorized Participants may reduce their trading in Shares during periods of suspension, decreasing the number of potential buyers of Shares in the secondary market and, therefore, decreasing the price a Shareholder may receive upon sale.

The Trust is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the Shares less attractive to investors.

The Trust is an “emerging growth company” as defined in the JOBS Act. For as long as the Trust continues to be an emerging growth company, it may choose to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging public companies, which include, among other things:

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exemption from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act;

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reduced disclosure obligations regarding executive compensation in the Trust’s periodic reports and audited financial statements in this prospectus;

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•

exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and shareholder advisory votes on “golden parachute” compensation; and

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•

exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and, unless otherwise determined by the SEC, any new audit rules adopted by the Public Company Accounting Oversight Board.

​

The Trust could be an emerging growth company until the last day of the fiscal year following the fifth anniversary after this offering, or until the earliest of (1) the last day of the fiscal year in which it has annual gross revenue of $1.235 billion or more, (2) the date on which it has, during the previous three-year period, issued more than $1 billion in non-convertible debt or (3) the date on which it is deemed to be a large accelerated filer under the federal securities laws. The Trust will qualify as a large accelerated filer as of the first day of the first fiscal year after it has (A) more than $700 million in outstanding equity held by nonaffiliates, (B) been public for at least 12 months and (C) filed at least one annual report on Form 10-K.

Under the JOBS Act, emerging growth companies are also permitted to elect to delay adoption of new or revised accounting standards until companies that are not subject to periodic reporting obligations are required to comply, if such accounting standards apply to non-reporting companies. The Trust intends to take advantage of these reporting exemptions until it is no longer an emerging growth company. The Trust’s election to use the phase-in periods permitted by this election may make it difficult to compare its financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under Section 107 of the JOBS Act and who will comply with new or revised financial accounting standards. If the Trust were to subsequently elect instead to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

The Trust cannot predict if investors will find an investment in the Trust less attractive if it relies on these exemptions.

The lack of an active trading market for the Shares may result in losses on your investment at the time of disposition of your Shares.

Although Shares are intended to be listed for trading on NYSE Arca, there can be no assurance that an active trading market for the Shares will develop or, to the extent an active market does develop, be maintained or continue to develop on NYSE Arca. In addition, NYSE Arca can halt the trading of the Shares at any time and for a variety of reasons. To the extent that NYSE Arca halts trading in the Shares, whether on a temporary or permanent basis, shareholders may not be able to buy or sell Shares, which could adversely affect the value of the Shares. If you need to sell your Shares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price you receive for your Shares (assuming you are able to sell them).

The lack of ability to facilitate in-kind creations and redemptions of Shares could have adverse consequences for the Trust.

The Trust is currently only able to accept cash purchase orders and redemption orders, which means that an Authorized Participant will deliver only cash to create Shares and will receive only cash when redeeming Shares. In turn, the Trust will choose, in its sole discretion, to enter into a transaction with the Liquidity Provider or the Prime Execution Agent to buy or sell Portfolio Assets in exchange for cash. However, and in common with other spot Portfolio Asset exchange-traded products, the Trust is not at this time able to create and redeem Shares via in-kind transactions with Authorized Participants in exchange for Portfolio Assets.

Authorized Participants must be registered broker-dealers. Registered broker-dealers are subject to various requirements of the federal securities laws and rules, including financial responsibility rules such as the customer protection rule, the net capital rule and recordkeeping requirements. There is limited regulatory guidance on whether and how registered broker-dealers can comply with these rules with regard to transacting in or holding the Portfolio Assets. However, there can be no assurance as to when NYSE Arca will seek or obtain this approval, if at all.

 

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To the knowledge of the Sponsor, exchange-traded products for all spot-market commodities other than the Portfolio Assets, such as gold and silver, employ in-kind creations and redemptions with the underlying asset. The Sponsor believes that it is generally more efficient, and therefore less costly, for spot commodity exchange-traded products to utilize in-kind orders rather than cash orders, because there are fewer steps in the process and therefore there is less operational risk involved when an authorized participant can manage the buying and selling of the underlying asset itself, rather than depend on an unaffiliated party such as the issuer or sponsor of the exchange-traded product. As such, a spot commodity exchange-traded product that only employs cash creations and redemptions and does not permit in-kind creations and redemptions is a novel product that has not been tested and could be impacted by any resulting operational inefficiencies.

In particular, the Trust’s inability to facilitate in-kind creations and redemptions could result in the exchange-traded product arbitrage mechanism failing to function as efficiently as it otherwise would, leading to the potential for the Shares to trade at premiums or discounts to the NAV per Share, and such premiums or discounts could be substantial. See “— The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the prices of the Portfolio Assets and, as a result, the price of the Shares may fall or otherwise diverge from NAV.” Furthermore, if cash creations or redemptions are unavailable, either due to the Sponsor’s decision to reject or suspend such orders, the unavailability of the Liquidity Provider or the Prime Execution Agent’s services or otherwise, it will not be possible for Authorized Participants to redeem or create Shares, in which case the arbitrage mechanism would be unavailable. This could result in impaired liquidity for the Shares, wider bid-ask spreads in secondary trading of the Shares and greater costs to investors and other market participants. In addition, the Trust’s inability to facilitate in-kind creations and redemptions, and resulting reliance on cash creations and redemptions, could cause the Sponsor to halt or suspend the creation or redemption of Shares during times of market volatility or turmoil, among other consequences.

Even if In-Kind Regulatory Approval were obtained, there can be no assurance that in-kind creations or redemptions of the Shares will be available in the future, or that broker-dealers would be willing to serve as Authorized Participants with respect to the in-kind creation and redemption of Shares. Any of these factors could adversely affect the performance of the Trust and the value of the Shares.

If the process of creation and redemption of Baskets encounters any unanticipated difficulties, the possibility for arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the prices of the Portfolio Assets may not exist and, as a result, the price of the Shares may fall or otherwise diverge from NAV per Share.

If the processes of creation and redemption of Shares (which depend on timely transfers of the Portfolio Assets to and by the Digital Asset Custodian and the Prime Execution Agent) encounter any unanticipated difficulties due to, for example, the price volatility of Portfolio Assets, the insolvency, business failure or interruption, default, failure to perform, security breach or other problems affecting the Prime Execution Agent, the Digital Asset Custodian, Authorized Participants or the Liquidity Provider, the change from the originally contemplated in-kind creations and redemptions to cash creations and redemptions, the closing of any of the Portfolio Asset trading platforms due to fraud, failures, security breaches or otherwise, or network outages or congestion, spikes in transaction fees demanded by miners or validators, as applicable, or other problems or disruptions affecting any Portfolio Asset Network, then potential market participants, such as the Authorized Participants and their customers, who would otherwise be willing to purchase or redeem Baskets (in the case of Authorized Participants) to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares and the price of the underlying Portfolio Assets or to engage in Portfolio Asset transactions (in the case of the Liquidity Provider or transactions facilitated by the Prime Execution Agent) may not take the risk that, as a result of those difficulties, they may not be able to realize the profit they expect. In certain such cases, as further described in “Description of the Shares and the Trust Agreement,” the Sponsor may suspend the process of creation and redemption of Baskets. During such times, trading spreads, and the resulting premium or discount, on Shares may widen. Alternatively, in the case of a network outage or other problems affecting the a Portfolio Asset Network, the processing of transactions on the Portfolio

 

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Asset Network may be disrupted, which in turn may prevent the Liquidity Provider from depositing or withdrawing Portfolio Assets from their accounts at the Prime Execution Agent, or prevent the Prime Execution Agent from facilitating Portfolio Asset transactions through its prime execution agent service, which in turn could affect the creation or redemption of Baskets. If this is the case, the liquidity of the Shares may decline, and the price of the Shares may fluctuate independently of the prices of the Portfolio Assets and may fall or otherwise diverge from NAV per Share. Furthermore, in the event that the markets for the Portfolio Assets should become relatively illiquid and thereby materially restrict opportunities for arbitraging, the price of Shares may diverge from the value of the Portfolio Assets.

The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the prices of the Portfolio Assets and, as a result, the price of the Shares may fall or otherwise diverge from NAV.

The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, could cause delays in trade execution due to potential operational issues arising from implementing a cash creation and redemption model, which involves greater operational steps (and therefore execution risk) than an in-kind creation and redemption model. Such delays could cause the execution price associated with such trades to materially deviate from the Reference Price prices used to determine the NAV. In addition, the Liquidity Provider must settle Portfolio Asset transactions with the Trust within a contractually specified time period, subject to customary exceptions. If the Liquidity Provider fails to perform its obligations within the contractually specified time period, the Trust would seek to use the Prime Execution Agent’s service or an alternate liquidity provider to execute the Portfolio Asset transaction. However, the pricing or terms of the ultimate Portfolio Asset transaction conducted through the Prime Execution Agent’s service or an alternate liquidity provider after the failure of the Liquidity Provider to perform its obligations could deviate, potentially significantly, from the pricing or terms of the transaction that the Trust originally entered with the Liquidity Provider. Even though the Authorized Participant is responsible for the dollar cost of such difference in prices, Authorized Participants could default on their obligations to the Trust, or such potential risks and costs could lead to Authorized Participants, who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares and the prices of the underlying Portfolio Assets, to elect to not participate in the Trust’s Share creation and redemption processes. This may adversely affect the arbitrage mechanism intended to keep the price of the Shares closely linked to the prices of Portfolio Assets, and as a result, the price of the Shares may fall or otherwise diverge from the NAV. If the arbitrage mechanism is not effective, purchases or sales of Shares on the secondary market could occur at a premium or discount to NAV, which could harm Shareholders by causing them to buy Shares at a price higher than the value of the underlying Portfolio Assets held by the Trust or sell Shares at a price lower than the value of the underlying Portfolio Assets held by the Trust, causing Shareholders to suffer losses. Alternatively, Authorized Participants could refrain from participating in creating and redeeming Baskets, and if not replaced, could disrupt the Trust’s ability to operate. Similarly, the Liquidity Provider or the parties to transactions with the Trust could refrain from transacting with the Trust, and if not replaced, could disrupt the Trust’s ability to operate. The reliance on the Prime Execution Agent and the Liquidity Provider initially creates a risk that if the Prime Execution Agent’s service or trading with the Liquidity Provider is unavailable or disrupted for any reason, the Trust will be unable to execute Portfolio Asset transactions and the Trust’s creation and redemption processes will be disrupted. In addition, a failure to settle Portfolio Asset transactions, whether with the Liquidity Provider or the Prime Execution Agent’s service, could disrupt the calculation of the Trust’s NAV or potentially cause inaccuracies in NAV calculation, which could disrupt the Trust’s operations or cause Shareholders to suffer losses.

Because the Trust holds only the Portfolio Assets and cash, an investment in the Trust may be more volatile than an investment in a more broadly diversified portfolio.

The Trust holds only the Portfolio Assets and cash. As a result, the Trust’s holdings are not diversified. Accordingly, the NAV may be more volatile than another investment vehicle with a more broadly diversified portfolio and may fluctuate substantially over short or long periods of time. Fluctuations in the prices of the Portfolio Assets are expected to have a direct impact on the value of the Shares.

 

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An investment in the Trust may be deemed speculative and is not intended as a complete investment program. An investment in Shares should be considered only by persons financially able to maintain their investment and who can bear the risk of total loss associated with an investment in the Trust. Investors should review closely the objective and strategy of the Trust and redemption rights, as discussed herein, and familiarize themselves with the risks associated with an investment in the Trust.

As an owner of Shares, you will not have the rights normally associated with ownership of other types of shares.

Shares are not entitled to the same rights as shares issued by a corporation. By acquiring Shares, you are not acquiring the right to elect directors, to receive dividends, to vote on certain matters regarding the issuer of your Shares or to take other actions normally associated with the ownership of shares. You will only have the limited rights contained in the Trust Agreement, as described under “Description of the Shares and the Trust Agreement.”

The Sponsor may amend the Trust Agreement without the consent of the Shareholders.

The Sponsor may amend the Trust Agreement, including to increase the Sponsor’s Fee, without Shareholder consent. The Sponsor shall determine the contents and manner of delivery of any notice of any Trust Agreement amendment. If an amendment imposes new fees and charges or increases existing fees or charges, including the Sponsor’s Fee (except for taxes and other governmental charges, registration fees or other such expenses), or prejudices a substantial right of Shareholders, it will become effective for outstanding Shares 30 days after notice of such amendment is given to registered owners. Shareholders that are not registered owners (which most shareholders will not be) may not receive specific notice of a fee increase other than through an amendment to the prospectus. Moreover, at the time an amendment becomes effective, by continuing to hold Shares, Shareholders are deemed to agree to the amendment and to be bound by the Trust Agreement as amended without specific agreement to such increase (other than through the “negative consent” procedure described above).

Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act or the protections afforded by the CEA.

The Investment Company Act is designed to protect investors by preventing insiders from managing investment companies to their benefit and to the detriment of public investors, such as: the issuance of securities having inequitable or discriminatory provisions; the management of investment companies by irresponsible persons; the use of unsound or misleading methods of computing earnings and asset value; changes in the character of investment companies without the consent of investors; and investment companies engaging in excessive leveraging. To accomplish these ends, the Investment Company Act requires the safekeeping and proper valuation of fund assets, restricts greatly transactions with affiliates, limits leveraging and imposes governance requirements as a check on fund management.

The Trust is not a registered investment company under the Investment Company Act, and the Sponsor believes that the Trust is not required to register under such act. As a result, Shareholders do not have the regulatory protections provided to investors in investment companies.

The Trust will not hold or trade in commodity interests regulated by the CEA, as administered by the CFTC. Furthermore, the Sponsor believes that the Trust is not a commodity pool for purposes of the CEA and that the Sponsor is not subject to regulation by the CFTC as a commodity pool operator or a commodity trading adviser in connection with the operation of the Trust. Consequently, Shareholders will not have the regulatory protections provided to investors in CEA-regulated instruments or commodity pools.

As the Sponsor and its management have limited history of operating investment vehicles like the Trust, their experience may be inadequate or unsuitable to manage the Trust.

The Sponsor and its management team have a limited track record in operating investment vehicles that specifically deal with digital assets such as the Trust. This limited experience poses

 

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several potential risks to the effective management and operation of the Trust. Digital assets, such as the Portfolio Assets, are known for their high volatility, unique technical, legal and regulatory challenges and rapidly evolving market dynamics. The Sponsor’s limited experience in this specific field may not fully equip them to navigate these complexities effectively.

The past performances of the Sponsor’s management in other investment vehicles are no indication of their ability to manage an investment vehicle such as the Trust. The unique nature of digital assets makes past performance an unreliable indicator of future success in this area. The digital asset market is technology-driven and requires a deep understanding of the underlying blockchain technology and security considerations. The Sponsor’s limited experience may not fully encompass the technical expertise required to mitigate risks such as cyber threats, technological failures or operational errors related to digital asset transactions and custody.

Should the Sponsor and its management team’s experience prove inadequate or unsuitable for managing a digital asset-based investment vehicle like the Trust, it could result in suboptimal decision-making, increased operational risks and potential legal or regulatory noncompliance. These factors could adversely affect the Trust’s operations, leading to potential losses for investors or a decrease in the Trust’s overall value.

Furthermore, the Sponsor is currently engaged in the management of other investment vehicles which could divert their attention and resources. If the Sponsor were to experience difficulties in the management of such other investment vehicles that damaged the Sponsor or its reputation, it could have an adverse impact on the Sponsor’s ability to continue to serve as Sponsor for the Trust.

Security threats to the Trust’s account at the Digital Asset Custodian could result in the halting of Trust operations and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the value of the Shares.

Security breaches, computer malware and computer hacking attacks have been a prevalent concern in relation to digital assets. The Sponsor believes that the Trust’s Portfolio Assets held in the Trust’s account at the Digital Asset Custodian or the Trading Balance held with the Prime Execution Agent will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal the Trust’s Portfolio Assets and will only become more appealing as the Trust’s assets grow. To the extent that the Trust, the Sponsor or the Digital Asset Custodian or the Prime Execution Agent is unable to identify and mitigate or stop new security threats or otherwise adapt to technological changes in the digital asset industry, the Trust’s Portfolio Assets may be subject to theft, loss, destruction or other attack.

The Sponsor believes that the security procedures in place for the Trust, including, but not limited to, offline storage, or cold storage, multiple encrypted private key “shards” and other measures, are reasonably designed to safeguard the Trust’s Portfolio Assets. Nevertheless, the security procedures cannot guarantee the prevention of any loss due to a security breach, software defect or act of God that may be borne by the Trust, and the security procedures may not protect against all errors, software flaws or other vulnerabilities in the Trust’s technical infrastructure, which could result in theft, loss or damage of its assets. The Sponsor does not control the Digital Asset Custodian’s or the Prime Execution Agent’s operations or their implementation of such security procedures, and there can be no assurance that such security procedures will actually work as designed or prove to be successful in safeguarding the Trust’s assets against all possible sources of theft, loss or damage. Assets not held in cold storage, such as assets held in a trading account, may be more vulnerable to security breach, hacking or loss than assets held in cold storage. Furthermore, assets held in a trading account, including the Trust’s Trading Balance (as defined below) at the Prime Execution Agent, are held on an omnibus, rather than segregated, basis, which creates greater risk of loss. Even though Portfolio Assets are only moved into the Trading Balance in connection with and to the extent of purchases and sales of Portfolio Assets by the Trust and such Portfolio Assets are swept from the Trust’s Trading Balance to the Trust’s Vault Balance each trading day pursuant to a regular end-of-day sweep process, there are no policies that would limit the amount of Portfolio Assets that can be held temporarily in the Trading Balance maintained by the Prime Execution Agent. This could create greater risk of loss of the Trust’s Portfolio Assets, which could cause Shareholders to suffer losses.

 

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The security procedures and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of the Sponsor, the Digital Asset Custodian or otherwise, and, as a result, an unauthorized party may obtain access to the Trust’s account at the Digital Asset Custodian, the relevant private keys (and therefore the Portfolio Assets) or other data or property of the Trust. Additionally, outside parties may attempt to fraudulently induce employees of the Sponsor or the Digital Asset Custodian to disclose sensitive information in order to gain access to the Trust’s infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, the Sponsor and the Digital Asset Custodian may be unable to anticipate these techniques or implement adequate preventative measures.

An actual or perceived breach of the Trust’s account at the Digital Asset Custodian could harm the Trust’s operations or result in partial or total loss of the Trust’s assets, resulting in a reduction or destruction in the value of the Shares. The Trust may also cease operations, the occurrence of which could similarly result in a reduction in the value of the Shares.

Portfolio Asset transactions are generally irrevocable, and stolen or incorrectly transferred Portfolio Assets may be irretrievable. As a result, any incorrectly executed Portfolio Asset transactions could adversely affect the value of the Shares.

Portfolio Asset transactions are typically not reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified and recorded in a block that is added to the applicable blockchain, an incorrect transfer or theft of a Portfolio Asset generally will not be reversible, and the Trust may not be capable of seeking compensation for any such transfer or theft. Although the Trust’s transfers of Portfolio Assets will regularly be made to or from the Trust’s account at the Digital Asset Custodian, it is possible that, through computer or human error, or through theft or criminal action, the Trust’s Portfolio Assets could be transferred from the Trust’s account at the Digital Asset Custodian in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts.

Such events have occurred in connection with digital assets in the past. To the extent that the Trust is unable to seek a corrective transaction with such third party or is incapable of identifying the third party which has received the Trust’s Portfolio Assets through error or theft, the Trust will be unable to revert or otherwise recover incorrectly transferred Portfolio Assets. The Trust will also be unable to convert or recover its Portfolio Assets transferred to uncontrolled accounts. If the Trust is unable to seek redress for such error or theft, such loss could adversely affect the value of the Shares.

If any of the Trust’s counterparties fails to provide services as required or any of their agreements is terminated, the Trust’s operations could be adversely affected.

The Trust is dependent on its various counterparties, including the Digital Asset Custodian, which is Foris DAX Trust Company, LLC, and the Prime Execution Agent, Foris DAX, Inc., to operate. Foris DAX Trust Company, LLC performs essential functions in terms of safekeeping the Trust’s Portfolio Assets in the Vault Balance, and Foris DAX, Inc., in its capacity as the Prime Execution Agent, facilitates the buying and selling or settlement of Portfolio Assets by the Trust in connection with cash creations and redemptions, and the selling of Portfolio Assets to pay the Sponsor’s Fee, to pay any other Trust expenses, to the extent applicable, and, in extraordinary circumstances, to liquidate the Trust’s Portfolio Assets. If the Digital Asset Custodian or the Prime Execution Agent fails to perform the functions they perform for the Trust, the Trust may be unable to operate or create or redeem Baskets, which could force the Trust to liquidate or adversely affect the price of the Shares.

Alternatively, the Sponsor could decide to replace the Digital Asset Custodian or the Prime Execution Agent or such service providers may decide to terminate their relationship with the Trust. Also, if either the Digital Asset Custodian or the Prime Execution Agent becomes insolvent, suffers business failure, ceases business operations, defaults on or fails to perform its obligations under its contractual agreements with the Trust, or abruptly discontinues the services it provides to the Trust for any reason, the Trust’s operations including its creation and redemption processes would be adversely affected.

 

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The Sponsor may not be able to find a party willing to serve as the custodian of the Trust’s Portfolio Assets or as the Trust’s prime execution agent under the same terms as the current agreement between the Trust and the Digital Asset Custodian regarding the custody of the Trust’s Portfolio Assets (the “Digital Asset Custodian Agreement”) or the current agreement between the Sponsor and the Prime Execution Agent (the “Prime Execution Agency Agreement”) or at all. To the extent that the Sponsor is not able to find a suitable party willing to serve as the custodian or prime execution agent, the Sponsor may be required to terminate the Trust and liquidate the Trust’s Portfolio Assets. In addition, to the extent that the Sponsor finds a suitable party but must enter into a modified Digital Asset Custodian Agreement or the Prime Execution Agency Agreement that is less favorable for the Trust or Sponsor, the value of the Shares could be adversely affected. If the Trust is unable to find a replacement prime execution agent, its operations could be adversely affected.

Similarly, if an Authorized Participant or the Liquidity Provider suffers insolvency, business failure or interruption, default, failure to perform, security breach or in certain circumstances a force majeure event, or if an Authorized Participant or the Liquidity Provider chooses not to participate in the creation and redemption process of the Trust, and the Trust is unable to engage replacement Authorized Participants or the Liquidity Provider or access alternative services on commercially acceptable terms or at all, then the creation and redemption process of the Trust, the arbitrage mechanism used to keep the Shares in line with the NAV and the Trust’s operations generally could be negatively affected. Termination of the Cash Custodian Agreement or the agreements with the Rebalancing Agent or the Staking Provider or any such counterparty’s failure to perform its services could similarly have a negative impact on the Trust’s operations and the value of the Shares.

The Prime Execution Agent currently performs, and may perform in the future, similar functions for several competing exchange-traded Portfolio Asset products, which could adversely affect the Trust’s operations and ultimately the value of the Shares.

The Prime Execution Agent currently performs, and may perform in the future, similar functions for several competing exchange-traded Portfolio Asset products, which could adversely affect the Trust’s operations and ultimately the value of the Shares. Therefore, the Prime Execution Agent may fail to properly resource its operations to adequately support all such products that use its services, which could harm the Trust, the Shareholders and the value of the Shares. In addition, if the Prime Execution Agent were to favor the interests of certain products over others, it could result in inadequate attention or comparatively unfavorable commercial terms to less favored products, which could adversely affect the Trust’s operations and ultimately the value of the Shares.

Authorized Participants may serve in a similar capacity for several competing exchange-traded Portfolio Asset products.

Some of the Authorized Participants working with the Trust also serve competing exchange-traded Portfolio Assets products. As a result, they may not be able to fully support all the products they work with, including the Trust. This risk is heightened by the price volatility of the Portfolio Assets and the amount of the Portfolio Assets needed to create or redeem Shares of the Trust. Authorized Participants may also prioritize creations and redemptions for competing products over those of the Trust, based on factors like the effectiveness of the Trust’s arbitrage mechanism, liquidity, bid-ask spreads and associated costs. Since there are a limited number of potential Authorized Participants, the Trust may struggle to find replacements if necessary. If any Authorized Participant stops serving the Trust or favors competing products, it could reduce the Trust’s attention or lead to less favorable terms, which could hurt the Trust’s operations and the value of the Shares.

The lack of full insurance and Shareholders’ limited rights of legal recourse against the Trust, the Trustee, the Sponsor, the Trust Administrator, the Cash Custodian, the Prime Execution Agent and the Digital Asset Custodian could expose the Trust and its Shareholders to the risk of loss of the Trust’s Portfolio Assets for which no person or entity is liable.

The Trust is not a banking institution or otherwise a member of the FDIC or Securities Investor Protection Corporation (“SIPC”) and, therefore, deposits held with or assets held by the Trust are not

 

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subject to the protections enjoyed by depositors with FDIC- or SIPC-member institutions. In addition, neither the Trust nor the Sponsor insures the Trust’s Portfolio Assets. The Digital Asset Custodian maintains insurance policies in the amount of $120 million, in the aggregate, which are intended to cover the loss of client assets held by the Digital Asset Custodian, including from employee collusion or fraud, physical loss including theft, damage of key material, security breach or hack, and fraudulent transfer. The insurance maintained by the Digital Asset Custodian may not be available or sufficient to protect the Trust from all possible losses or sources of losses. The Digital Asset Custodian’s insurance may not cover the type of losses experienced by the Trust. Alternatively, the Trust may be forced to share such cash insurance proceeds with other clients or customers of the Digital Asset Custodian, which could reduce the amount of such proceeds that are available to the Trust. In addition, the Portfolio Asset insurance markets are limited, and the level of insurance maintained by the Digital Asset Custodian may be substantially lower than the assets of the Trust. While the Digital Asset Custodian maintains certain capital reserve requirements based on the value of the assets under custody, and such capital reserves may provide additional means to cover client asset losses, the Trust cannot be assured that the Digital Asset Custodian will maintain capital reserves sufficient to cover actual or potential losses with respect to the Trust’s digital assets.

Moreover, in the event of an insolvency or bankruptcy of the Prime Execution Agent (in the case of the Trading Balance) or the Digital Asset Custodian (in the case of the Vault Balance) in the future, given that the contractual protections and legal rights of customers with respect to digital assets held on their behalf by third parties are relatively untested in a bankruptcy of an entity such as the Digital Asset Custodian or Prime Execution Agent in the digital asset industry, there is a risk that customers’ assets — including the Trust’s assets — may be considered the property of the bankruptcy estate of the Prime Execution Agent (in the case of the Trading Balance) or the Digital Asset Custodian (in the case of the Vault Balance), and customers — including the Trust — may be at risk of being treated as general unsecured creditors of such entities and subject to the risk of total loss or markdowns on value of such assets.

There is a risk that the Trading Balance, in which the Trust’s Portfolio Assets and cash are held in omnibus accounts by the Prime Execution Agent (in the latter case, as described below in “— Loss of a critical banking relationship for, or the failure of a bank used by, the Prime Execution Agent could adversely impact the Trust’s ability to create or redeem Baskets and could cause losses to the Trust”), could be considered part of the Prime Execution Agent’s bankruptcy estate in the event of the Prime Execution Agent’s bankruptcy. The Trust’s Trading Balance represents an entitlement to a pro rata share of the Portfolio Assets (and cash) the Prime Execution Agent has allocated to the omnibus wallets the Prime Execution Agent holds, as well as the accounts in the Prime Execution Agent’s name that the Prime Execution Agent maintains at Connected Trading Venues (the “Connected Trading Venue”) (which are typically held on an omnibus, rather than segregated, basis). If the Prime Execution Agent suffers an insolvency event, there is a risk that the Trust’s assets held in the Trading Balance could be considered part of the Prime Execution Agent’s bankruptcy estate and the Trust could be treated as a general unsecured creditor of the Prime Execution Agent, which could result in losses for the Trust and Shareholders. Moreover, in the event of the bankruptcy of the Prime Execution Agent, an automatic stay could go into effect and protracted litigation could be required in order to recover the assets held with the Prime Execution Agent, all of which could significantly and negatively impact the Trust’s operations and the value of the Shares.

Under the Trust Agreement, the Sponsor will not be liable for any liability or expense incurred, including, without limitation, as a result of any loss of Portfolio Assets by the Digital Asset Custodian or the Prime Execution Agent, absent willful misconduct, gross negligence, reckless disregard or bad faith on the part of the Sponsor or breach by the Sponsor of the Trust Agreement, as the case may be. As a result, the recourse of the Trust or the Shareholders to the Sponsor, including in the event of a loss of Portfolio Assets by the Digital Asset Custodian or Prime Execution Agent, is limited.

The Shareholders’ recourse against the Sponsor and the Trust’s other service providers for the services they provide to the Trust, including, without limitation, those relating to the holding of the Portfolio Assets or the provision of instructions relating to the movement of the Portfolio Assets, is limited. For the avoidance of doubt, none of the Sponsor, TMTG, Crypto.com or any of their respective

 

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affiliates (including, among others, Yorkville), nor any other party has guaranteed the assets or liabilities, or otherwise assumed the liabilities, of the Trust, or the obligations or liabilities of any service provider to the Trust, including, without limitation, the Digital Asset Custodian and the Prime Execution Agent. Consequently, a loss may be suffered with respect to the Trust’s Portfolio Assets that is not covered by the Digital Asset Custodian’s insurance and for which no person is liable in damages. As a result, the recourse of the Trust or the Shareholders, under applicable law, is limited.

Loss of a critical banking relationship for, or the failure of a bank used by, the Prime Execution Agent could adversely impact the Trust’s ability to create or redeem Baskets and could cause losses to the Trust.

The Prime Execution Agent facilitates the buying and selling or settlement of the Portfolio Assets by the Trust in connection with cash creations and redemptions between the Trust and the Authorized Participants, and the sale of Portfolio Assets to pay the Sponsor’s Fee and any other Trust expenses, to the extent applicable, and in extraordinary circumstances, to effect the liquidation of the Trust’s Portfolio Assets. The Prime Execution Agent relies on bank accounts to provide its trading platform services, including temporarily holding any cash related to a customer’s purchase or sale of Portfolio Assets. To the extent that the Prime Execution Agent faces difficulty establishing or maintaining banking relationships, the loss of the Prime Execution Agent’s banking partners or the imposition of operational restrictions by these banking partners and the inability for the Prime Execution Agent to utilize other financial institutions may result in a disruption of creation and redemption activity of the Trust or cause other operational disruptions or adverse effects for the Trust. In the future, it is possible that the Prime Execution Agent could be unable to establish accounts at new banking partners or establish new banking relationships, or that the banks with which the Prime Execution Agent is able to establish relationships may not be as large or well capitalized or subject to the same degree of prudential supervision as the existing providers.

The Trust could also suffer losses in the event that a bank in which the Prime Execution Agent holds customer cash, including the cash associated with the Trust’s Trading Balance (which is used by the Prime Execution Agent to move cash flows associated with the Trust’s orders to sell Portfolio Assets in connection with payment of the Sponsor’s Fee, and to the extent applicable, other Trust expenses), fails, becomes insolvent, enters receivership, is taken over by regulators, enters financial distress or otherwise suffers adverse effects to its financial condition or operational status. Recently, some banks have experienced financial distress. For example, on March 8, 2023, the California Department of Financial Protection and Innovation (the “DFPI”) announced that Silvergate Bank had entered voluntary liquidation, and on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the DFPI, which appointed the FDIC as receiver. Similarly, on March 12, 2023, the New York Department of Financial Services took possession of Signature Bank and appointed the FDIC as receiver. A joint statement by the Department of the Treasury, the Federal Reserve and the FDIC on March 12, 2023 stated that depositors in Signature Bank and SVB will have access to all of their funds, including funds held in deposit accounts, in excess of the insured amount. On May 1, 2023, First Republic Bank was closed by the DFPI, which appointed the FDIC as receiver. Following a bidding process, the FDIC entered into a purchase and assumption agreement with JPMorgan Chase Bank, National Association, to acquire the substantial majority of the assets and assume certain liabilities of First Republic Bank from the FDIC.

The Prime Execution Agent maintains banking relationships with numerous banks but in the past had relationships with two troubled banks: Silvergate Bank and Signature Bank. The Sponsor does not believe there is a direct risk to the Trust’s assets from the failures of any banking institution. However, changing circumstances and market conditions, some of which may be beyond the Trust’s or the Sponsor’s control, could impair the Trust’s ability to access the Trust’s cash held with the Prime Execution Agent in the Trust’s Trading Balance or associated with the Trust’s orders to sell Portfolio Assets in connection with payment of the Sponsor’s Fee, and to the extent applicable, other Trust expenses, in the event that one or more of the banks used by the Prime Execution Agent is insolvent, voluntarily closes or becomes illiquid. If the Prime Execution Agent were to experience financial distress or its financial condition is otherwise affected by the failure of its banking partners, the Prime Execution Agent’s ability to provide services to the Trust could be affected. Moreover, the future failure of a bank at which the

 

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Prime Execution Agent maintains customer cash in the Trust’s Trading Balance associated with the Trust’s orders to sell Portfolio Assets in connection with payment of the Sponsor’s Fee, and to the extent applicable, other Trust expenses, could result in losses to the Trust, to the extent the balances are not subject to deposit insurance, notwithstanding the regulatory requirements to which the Prime Execution Agent is subject or other potential protections. In addition, the Trust may maintain cash balances with the Prime Execution Agent that are not insured or are in excess of the FDIC’s insurance limits, or which are maintained by the Prime Execution Agent in cash and cash equivalents and subject to the attendant risks (e.g., “breaking the buck”). As a result, the Trust could suffer losses.

The Prime Execution Agent routes orders through Connected Trading Venues in connection with trading services. The loss or failure of any such Connected Trading Venues may adversely affect the Prime Execution Agent’s business and cause losses for the Trust.

In connection with trading services under the Prime Execution Agency Agreement, the Prime Execution Agent routinely routes customer orders to one or more Connected Trading Venues, which are third-party platforms or other trading venues (including the trading venue operated by affiliates of the Prime Execution Agent). In connection with these activities, the Prime Execution Agent may hold Portfolio Assets with such Connected Trading Venues in order to effect customer orders, including the Trust’s orders. If the Prime Execution Agent were to experience a disruption in the Prime Execution Agent’s access to these Connected Trading Venues, the Prime Execution Agent’s trading services under the Prime Execution Agency Agreement could be adversely affected to the extent that the Prime Execution Agent is limited in its ability to execute order flow for its customers, including the Trust. In addition, while the Prime Execution Agent has policies and procedures to help mitigate the Prime Execution Agent’s risks related to routing orders through third-party trading venues, if any of these third-party trading venues experience any technical, legal, regulatory or other adverse events, such as shutdowns, delays, system failures, suspension of withdrawals, illiquidity, insolvency or loss of customer assets, the Prime Execution Agent might not be able to fully recover the customer’s Portfolio Assets that the Prime Execution Agent has deposited with these third parties. As a result, the Prime Execution Agent’s business, operating results and financial condition could be adversely affected, potentially resulting in its failure to provide services to the Trust or perform its obligations under the Prime Execution Agency Agreement, and the Trust could suffer resulting losses or disruptions to its operations. The failure of a Connected Trading Venue at which the Prime Execution Agent maintains customer Portfolio Assets, including Portfolio Assets associated with the Trust, could result in losses to the Trust, notwithstanding the regulatory requirements to which the Prime Execution Agent is subject or other potential protections.

The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to Shareholders.

Pursuant to the terms of the Trust Agreement, the Trust is required to dissolve under certain circumstances. In addition, the Sponsor may, in its sole discretion, direct the Trustee to dissolve the Trust for a number of reasons, including if the Sponsor determines, in its sole discretion, that it is desirable or advisable for any reason to discontinue the affairs of the Trust.

If the Trust is required to terminate and liquidate, or the Sponsor determines in accordance with the terms of the Trust Agreement that it is appropriate to terminate and liquidate the Trust, such termination and liquidation could occur at a time that is disadvantageous to Shareholders, such as when the actual exchange rate of a Portfolio Asset at such time is lower than the applicable Reference Price was at the time when Shareholders purchased their Shares. In such a case, when the Trust’s Portfolio Assets are sold as part of its liquidation, the resulting proceeds distributed to Shareholders will be less than if the actual exchange rate at such time were higher at the time of sale.

The Trust Agreement includes provisions that limit Shareholders’ voting rights and restrict Shareholders’ right to bring a derivative action.

Under the Trust Agreement, Shareholders have no voting rights and the Trust will not have regular Shareholder meetings. Shareholders take no part in the management or control of the Trust. Accordingly,

 

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Shareholders do not have the right to authorize actions, appoint service providers or take other actions as may be taken by shareholders of other trusts or companies where shares carry such rights. The Shareholders have no voting rights, which gives almost all control under the Trust Agreement to the Sponsor. The Sponsor may take actions in the operation of the Trust that may be adverse to the interests of Shareholders and may adversely affect the value of the Shares.

Moreover, pursuant to the terms of the Trust Agreement, Shareholders’ statutory right under Nevada law to bring a derivative action (i.e., to initiate a lawsuit in the name of the Trust in order to assert a claim belonging to the Trust against a fiduciary of the Trust or against a third party when the Trust’s management has refused to do so) is restricted. Under Nevada law, a Shareholder may bring a derivative action if the Shareholder is a Shareholder at the time the action is brought and either (i) was a Shareholder at the time of the transaction at issue or (ii) acquired the status of Shareholder by operation of law or the Trust’s governing instrument from a person who was a Shareholder at the time of the transaction at issue. Additionally, Section 88A.410(5) of Nevada Revised Statutes Chapter 88A (the “Nevada Statutory Trust Act”) specifically provides that a “beneficial owner’s right to bring a derivative action may be subject to additional standards and restrictions set forth in the governing instrument, including, without limitation, a requirement that beneficial owners of a specified beneficial interest join in the action.” In addition to the requirements of applicable law and in accordance with the foregoing, the Trust Agreement provides that (a) no Shareholder will have the right, power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of the Trust unless (1) two or more Shareholders who (A) are not “Affiliates” ​(as defined in the Trust Agreement and below) of one another and (B) collectively hold at least 10.0% of the outstanding Shares join in the bringing or maintaining of such action, suit or other proceeding and (2) (A) prior to bringing such action, the Shareholder must make a demand upon the Sponsor to direct the Trustee to bring the subject action unless an effort to cause the Sponsor to direct the Trustee to bring such an action is not likely to succeed, and a demand on the Sponsor shall only be deemed not likely to succeed and therefore excused if the Sponsor has a personal financial interest in the transaction at issue, and the Sponsor shall not be deemed interested in a transaction or otherwise disqualified from ruling on the merits of a Shareholder demand by virtue of the fact that the Sponsor receives remuneration for its service as the Sponsor or as a trustee or director of one or more investment companies that are under common management with or otherwise affiliated with the Trust; and (B) unless a demand is not required under clause (2) (A) of this paragraph, the Sponsor must be afforded a reasonable amount of time to consider such Shareholder request and to investigate the basis of such claim, and the Sponsor shall be entitled to retain counsel or other advisers in considering the merits of the request and may require an undertaking by the Shareholder making such request to reimburse the Trust for the expense of any such advisers in the event that the Sponsor determines not to direct the Trustee to bring such action.

Due to this additional requirement, a Shareholder attempting to bring or maintain a derivative action in the name of the Trust will be required to locate other Shareholders with which it is not affiliated and that have sufficient Shares to meet the 10.0% threshold based on the number of Shares outstanding on the date the claim is brought and thereafter throughout the duration of the action, suit or proceeding. This may be difficult and may result in increased costs to a Shareholder attempting to seek redress in the name of the Trust in court. Moreover, if Shareholders bringing a derivative action, suit or proceeding pursuant to this provision of the Trust Agreement do not hold 10.0% of the outstanding Shares on the date such an action, suit or proceeding is brought, or such Shareholders are unable to maintain Share ownership meeting the 10.0% threshold throughout the duration of the action, suit or proceeding, such Shareholders’ derivative action may be subject to dismissal. As a result, the Trust Agreement limits the likelihood that a Shareholder will be able to successfully assert a derivative action in the name of the Trust, even if such Shareholder believes that he or she has a valid derivative action, suit or other proceeding to bring on behalf of the Trust.

The exclusive jurisdiction for certain types of actions and proceedings and waiver of trial by jury clauses set forth in the Trust Agreement may have the effect of limiting a Shareholder’s rights to bring legal action against the Trust and could limit a purchaser’s ability to obtain a favorable judicial forum for disputes with the Trust.

The Trust Agreement provides that the courts of the state of Nevada and any federal courts located in Clark County, Nevada will be the exclusive jurisdiction for any claims, suits, actions or

 

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proceedings, provided that causes of action for violations of the Exchange Act or the Securities Act will not be governed by the exclusive jurisdiction provision of the Trust Agreement. By purchasing Shares in the Trust, Shareholders waive certain claims that the courts of the state of Nevada and any federal courts located in Clark County, Nevada are inconvenient venues or are otherwise inappropriate. As such, a Shareholder could be required to litigate a matter relating to the Trust in a Nevada court, even if that court may otherwise be inconvenient for the Shareholder.

The Trust Agreement also waives the right to trial by jury in any such claim, suit, action or proceeding, provided that causes of action for violations of the Exchange Act or the Securities Act will not be governed by the waiver of the right to trial by jury provision of the Trust Agreement. If a lawsuit is brought against the Trust, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including results that could be less favorable to the plaintiffs in any such action. By purchasing Shares, Shareholders waive a right to a trial by jury, which may limit a Shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Trust.

The Sponsor is solely responsible for determining the value of the NAV and NAV per Share, and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares.

The Sponsor has the exclusive authority to determine the NAV and the NAV per Share. The Sponsor has delegated to the Trust Administrator the responsibility to calculate the NAV and the NAV per Share, based on a pricing source selected by the Sponsor. The Trust Administrator determines the NAV and NAV per Share as of 4:00 p.m. ET, on each Business Day, as soon as practicable after that time. The Trust Administrator’s determination is made utilizing data from the operations of the Trust and the Reference Prices, calculated at 4:00 p.m. ET, on such day. If the Sponsor determines in good faith that a Reference Price does not reflect an accurate price for a Portfolio Asset, as applicable, then the Sponsor will instruct the Trust Administrator to employ an alternative method to determine the fair value of the Trust’s assets. There are no predefined criteria to make a good faith assessment as to which of the rules the Sponsor will apply, and the Sponsor may make this determination in its sole discretion. The Trust Administrator may calculate the Reference Prices in a manner that ultimately inaccurately reflects the prices of the Portfolio Assets. To the extent that the NAV, the NAV per Share, the Reference Prices or the Trust Administrator’s or the Sponsor’s other valuation methodology is incorrectly calculated, neither the Sponsor, the Trust Administrator nor the Sponsor may be liable for any error, and such misreporting of valuation data could adversely affect the value of the Shares, and investors could suffer a substantial loss on their investment in the Trust. Moreover, the terms of the Trust Agreement do not prohibit the Sponsor from changing the Reference Prices or other valuation methods used to calculate the NAV. Any such change in the Reference Prices or other valuation methods could affect the value of the Shares and investors could suffer a substantial loss on their investment in the Trust.

To the extent the methodology used to calculate the Reference Prices is deemed not to be consistent with GAAP, the Trust’s periodic financial statements may not utilize the NAV or the NAV per Share. For purposes of the Trust’s financial statements, the Trust will utilize a pricing source that is consistent with GAAP, as of the financial statement measurement date. The Sponsor will determine in its sole discretion the valuation sources and policies used to prepare the Trust’s financial statements. To the extent that such valuation sources and policies used to prepare the Trust’s financial statements result in an inaccurate price, the value of the Shares could be adversely affected and investors could suffer a substantial loss on their investment in the Trust. Moreover, the terms of the Trust Agreement do not prohibit the Sponsor from changing the valuation method used to calculate the NAV to be reported in the Trust’s financial statements. Any such change in such valuation method could affect the value of the Shares and investors could suffer a substantial loss on their investment in the Trust.

Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares.

In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed ordinary course operational and periodic expenses of the Trust, with the exception of those described in “Activities of

 

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the Trust — Trust Expenses.” Expenses incurred by the Trust but not assumed by the Sponsor, such as, among others, taxes and governmental charges, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders, or extraordinary legal fees and expenses, are not assumed by the Sponsor and are borne by the Trust. The Sponsor will cause the Trust to either (i) sell Portfolio Assets held by the Trust or (ii) deliver Portfolio Assets in kind to the Sponsor to pay Trust expenses not assumed by the Sponsor on an as-needed basis. Accordingly, the Trust may be required to sell or otherwise dispose of Portfolio Assets at a time when the trading prices for those assets are depressed.

The sale or other disposition of assets of the Trust in order to pay extraordinary expenses could have a negative impact on the value of the Shares for several reasons. These include the following factors:

•

The Trust is not actively managed, and no attempt will be made to protect against or to take advantage of fluctuations in the prices of the Portfolio Assets. Consequently, if the Trust incurs expenses in U.S. dollars, the Trust’s Portfolio Assets may be sold at a time when the values of the disposed Portfolio Assets are low, resulting in a negative impact on the value of the Shares; and

​

•

Because the Trust does not generate any income, every time that the Trust pays expenses, it will deliver Portfolio Assets to the Sponsor or sell Portfolio Assets. Any sales of the Trust’s assets in connection with the payment of expenses will decrease the amount of the Trust’s assets represented by each Share each time its assets are sold or transferred to the Sponsor.

​

The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Trust Administrator, the Liquidity Provider, the Rebalancing Agent, the Digital Asset Custodian or the Cash Custodian under the Trust Documents.

Under the Trust Agreement and the Trust’s agreements with its service providers (collectively, the “Trust Documents”), each of the Sponsor, the Trustee, the Trust Administrator, the Liquidity Provider, the Rebalancing Agent and the Custodians has a right to be indemnified by the Trust for certain liabilities or expenses that it incurs without, depending on the applicable Trust Document, gross negligence, bad faith or willful misconduct on its part. Therefore, such parties may require that the assets of the Trust be sold in order to cover losses or liability suffered by them. Any sale of that kind would reduce the Portfolio Asset holdings of the Trust and the value of the Shares.

Intellectual property rights claims may adversely affect the Trust and the value of the Shares.

The Sponsor is not aware of any intellectual property rights claims that may prevent the Trust from operating and holding the Portfolio Assets. However, third parties may assert intellectual property rights claims relating to the operation of the Trust and the mechanics instituted for the investment in, holding of and transfer of Portfolio Assets. Regardless of the merit of an intellectual property or other legal action, any legal expenses to defend or payments to settle such claims would be extraordinary expenses that would be borne by the Trust through the sale or transfer of its Portfolio Assets. Additionally, a meritorious intellectual property rights claim could prevent the Trust from operating and force the Sponsor to terminate the Trust and liquidate its Portfolio Assets. As a result, an intellectual property rights claim against the Trust could adversely affect the value of the Shares.

The Trust may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and the markets and service providers relevant to the performance of the Trust.

A public health emergency, such as the coronavirus (“COVID-19”) pandemic, could adversely affect the economics of many nations and could have serious negative effects on social, economic and financial systems, including significant uncertainty and volatility in the digital asset markets. For example, digital asset prices, including the Portfolio Assets, decreased significantly in the first quarter of 2020 amidst broader market declines as a result of the COVID-19 outbreak.

 

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Future public health emergencies could result in an increase of the costs of the Trust and affect liquidity in the digital asset market, as well as the correlation between the price of the Shares and the NAV, any of which could adversely affect the value of the Shares. In addition, future public health emergencies could impair the information technology and other operational systems upon which the Trust’s service providers, including the Sponsor, the Trustee and the Custodians, rely, and could otherwise disrupt the ability of employees of the Trust’s service providers to perform essential tasks on behalf of the Trust. Governmental and quasi-governmental authorities and regulators throughout the world have at times responded to major economic disruptions with a variety of fiscal and monetary policy changes, including, but not limited to, direct capital infusions into companies and other issuers, new monetary tools and lower interest rates. An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, is likely to increase volatility in the digital asset markets, which could adversely affect the value of the Portfolio Assets and the price of the Shares.

Further, future public health emergencies could also interfere with the operations of the Reference Prices or the Index Administrator, which the Sponsor uses to value the Portfolio Assets held by the Trust to calculate the NAV. The COVID-19 pandemic or other future public health emergencies could also cause the closure of futures platforms, which could eliminate the ability of Authorized Participants to hedge purchases of Baskets, increasing trading costs of Shares and resulting in a sustained premium or discount in the Shares. Each of these outcomes would negatively impact the Trust.

The Sponsor or one or more of its affiliates may be a party in interest or a disqualified person with respect to one or more benefit plan investors considering an investment in the Trust, which may prohibit such investors from purchasing the Shares.

The Sponsor or one or more of its affiliates may be a party in interest or a disqualified person with respect to one or more “benefit plan investors” ​(as defined in Section 3(42) of ERISA) considering an investment in the Trust. Given the Sponsor’s or an affiliate’s expected initial ownership interest of 50% or more of the Trust (as described in “Seed Capital Investor”), the Trust could be a “party in interest” (under ERISA) or “disqualified person” ​(under Section 4975 of the Code) to any benefit plan investor with respect to which the Sponsor or an affiliate is a party in interest or a disqualified person. Therefore, the purchase by any such benefit plan investor of interests in the Trust could be prohibited under ERISA and/or Section 4975 of the Code absent an exemption. Fiduciaries of benefit plan investors should consider whether a purchase of interests constitutes a non-exempt prohibited transaction under ERISA and/or Section 4975 of the Code. Available exemptions from the prohibited transaction rules of ERISA and the Code include PTCE 84-14, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and Section 408(b)(17) of ERISA (and the corresponding provisions of Section 4975(d)(20) of the Code).

The application of ERISA (including the corresponding provisions of the Code and other relevant laws) may be complex and dependent upon the particular facts and circumstances of the Trust and of each benefit plan investor, and it is the responsibility of the appropriate fiduciary of each investing benefit plan investor to ensure that its investment in the Trust is consistent with all applicable requirements. Each Shareholder, whether or not subject to Title I of ERISA or Section 4975 of the Code, should consult its own legal and other advisers regarding the considerations discussed above and all other relevant ERISA and other considerations before purchasing the Shares.

Risks Related to the Regulation of the Trust and the Shares

Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of the Portfolio Assets or the Shares.

There is a lack of consensus regarding the regulation of digital assets, including the Portfolio Assets, and their markets. As a result of the growth in the size of the digital asset market, as well as the 2022 Events, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, the SEC, OFAC, the Office of the Comptroller of the Currency (the “OCC”), the CFTC, the Financial Industry Regulatory Authority, Inc. (“FINRA”), the Consumer Financial Protection Bureau (the “CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation,

 

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the Internal Revenue Service (the “IRS”), state financial institution regulators and others) have been examining the operations of digital asset networks, digital asset users and the digital asset markets, with particular focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, evade sanctions or fund criminal or terrorist enterprises and the safety and soundness of trading platforms and other service providers that hold or custody digital assets for users. Many of these state and federal agencies have brought enforcement actions or issued consumer advisories regarding the risks posed by digital assets to investors. Ongoing and future regulatory actions with respect to digital assets generally or the Portfolio Assets in particular may alter, perhaps to a materially adverse extent, the nature of an investment in the Shares or the ability of the Trust to continue to operate.

The 2022 Events, including among others the bankruptcy filings of FTX and its subsidiaries, Three Arrows Capital, Celsius Network, Voyager Digital, Genesis, BlockFi and others, and other developments in the digital asset markets, have resulted in calls for heightened scrutiny and regulation of the digital asset industry, with a specific focus on intermediaries such as digital asset platforms and custodians. Federal and state legislatures and regulatory agencies may introduce and enact new laws and regulations to regulate digital asset intermediaries, such as digital asset platforms and custodians. The March 2023 collapses of Silicon Valley Bank, Silvergate Bank and Signature Bank, which in some cases provided services to the digital assets industry, may amplify and/or accelerate these trends.

U.S. federal and state regulators, as well as the White House, have issued reports and releases concerning digital assets, including the Portfolio Assets and digital asset markets. Further, in 2023, the House of Representatives formed two new subcommittees: the Digital Assets, Financial Technology and Inclusion Subcommittee and the Commodity Markets, Digital Assets and Rural Development Subcommittee, each of which were formed in part to analyze issues concerning digital assets and demonstrate a legislative intent to develop and consider the adoption of federal legislation designed to address the perceived need for regulation of and concerns surrounding the crypto industry. However, the extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and may not be ascertainable in the near future. We cannot predict how these and other related events will affect us or the digital asset business.

On January 23, 2025, President Trump issued an executive order titled Strengthening American Leadership in Digital Financial Technology, which aims to support the responsible growth and use of digital assets and blockchain technology across the economy. In February 2025, a 60-day stay was granted in the SEC’s lawsuit against Binance in response to a joint request by both the SEC and Binance, which acknowledged that the SEC’s newly formed Crypto Task Force’s focus on developing a federal securities laws framework for digital assets may resolve the case. Between February 2025 and May 2025, the SEC entered into a court-approved joint stipulation to dismiss with prejudice each of the lawsuits against Coinbase, Kraken and Binance. Several other digital assets market participants have also announced that the SEC informed them that the SEC was terminating its investigation or enforcement action into their firm. The outcome of these lawsuits (to the extent not yet dismissed), their effect on the broader cryptoeconomy and the reputational impact on industry participants, remain uncertain.

It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators, what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of digital asset markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets generally and the Portfolio Assets held by the Trust specifically. The consequences of increased federal regulation of digital assets and digital asset activities could have an adverse effect on the Trust and the Shares.

A determination that any Portfolio Asset is a “security” may adversely affect the price of such asset and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.

Depending on its characteristics, a digital asset, including a Portfolio Asset, may be considered a “security” under U.S. federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Public, though non-binding, statements by senior officials at the SEC have indicated that the SEC does not currently

 

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consider bitcoin to be a security. While publicly non-committal on ether’s status a security, there is reason to believe that the SEC has also concluded that ether is not a security. The SEC staff has also provided informal assurances via no-action letter to a handful of promoters that their digital assets are not securities.

On the other hand, the SEC has brought enforcement actions in the past against the issuers and promoters of several other digital assets on the basis that the digital assets in question are securities. More recently, albeit under the prior chair’s leadership, the SEC has also brought enforcement actions against digital asset trading platforms for allegedly operating unregistered securities exchanges on the basis that certain of the digital assets traded on their platforms are securities.

Whether a digital asset is a security under the U.S. federal securities laws depends on whether it is included in the lists of instruments making up the definition of “security” in the Securities Act, the Exchange Act and the Investment Company Act. Digital assets do not appear in any of these lists, although each list includes the terms “investment contract” and “note,” and the SEC has typically analyzed whether a particular digital asset is a security by reference to whether it meets the tests developed by the federal courts interpreting these terms, known as the “Howey” and “Reves” tests, respectively. For many digital assets, whether or not the Howey or Reves tests are met is difficult to resolve definitively, and substantial legal arguments can often be made both in favor of and against a particular digital asset qualifying as a security under one or both of the Howey and Reves tests. Adding to the complexity, the SEC staff has indicated that the security status of a particular digital asset can change over time as the relevant facts evolve.

If the Sponsor determines that any of its Portfolio Assets is a security under the U.S. federal securities laws, whether that determination is initially made by the Sponsor itself, or because a federal court upholds an allegation that a Portfolio Asset is a security, the Sponsor does not intend to permit the Trust to continue holding such Portfolio Asset in a way that would violate the federal securities laws (and therefore would either dissolve the Trust or potentially seek to operate the Trust in a manner that complies with the federal securities laws, including the Investment Company Act).

Any enforcement action by the SEC or a state securities regulator asserting that a Portfolio Asset is a security, or a court decision to that effect, would be expected to have an immediate material adverse impact on the trading price of such Portfolio Asset, as well as the Shares. This is because the business models behind most digital assets are incompatible with regulations applying to transactions in securities. If a digital asset is determined to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied in the United States through the same channels used by non-security digital assets, which in addition to materially and adversely affecting the trading value of the digital asset is likely to significantly impact its liquidity and market participants’ ability to convert the digital asset into U.S. dollars. Any assertion that a digital asset is a security by the SEC or another regulatory authority may have similar effects.

In particular, in December 2020, the SEC filed a complaint against Ripple Labs (the “Ripple Complaint”) and two of its executives (the “Ripple Defendants”), in the United States District Court for the Southern District of New York (the “S.D.N.Y.”) alleging that the Ripple Defendants had conducted unregistered securities offerings by selling XRP in contravention of Section 5 of the Securities Act. Under Section 5 of the Securities Act, it is unlawful for any person, directly or indirectly, to offer to sell, offer to buy or purchase or sell a “security” unless a registration statement is in effect or has been filed with the SEC as to the offer and sale of such security to the public. The Ripple Defendants did not dispute that they had offered to sell and sold XRP through interstate commerce and that they had not filed a registration statement with the SEC for any offer or sale of XRP. Accordingly, the question before the S.D.N.Y. was whether the Ripple Defendants offered to sell or sold XRP as a security.

In the years prior to the filing of the Ripple Complaint, XRP’s market capitalization at times reached over $140 billion. However, in the weeks following the Ripple Complaint, XRP’s market capitalization fell to less than $10 billion, which was less than half of its market capitalization in the days prior to the complaint. On July 13, 2023, the S.D.N.Y. issued several key rulings in the case. Most notably, the court did not find that XRP was inherently a security. The court distinguished between the XRP token itself and the manner in which it was sold. This finding was contrary to the SEC’s argument,

 

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which was that XRP, by its nature, was a security under the definition provided by the Securities Act, notwithstanding the manner in which it was sold. The court found that the direct sale of XRP by the Ripple Defendants to certain sophisticated individuals and entities pursuant to written contracts did constitute the unregistered offer and sale of securities in violation of Section 5 of the Securities Act. However, the court also found that the programmatic sale of XRP by the Ripple Defendants over digital asset trading platforms in the secondary market did not constitute an unregistered sale of securities. Similarly, the court found that the XRP that Ripple Defendants granted to Ripple Labs employees as compensation or to third-party companies to incentivize the development of new applications for XRP and the XRP Network also did not constitute an unregistered sale of securities. The S.D.N.Y. entered a final judgment in the case on August 7, 2024. While the SEC initially appealed the final judgment, it subsequently withdrew the appeal. However, in July 2023, another judge in the S.D.N.Y., in litigation between the SEC and the issuer of the TerraUSD and LUNA digital assets, suggested that he disagreed with the approach underlying the XRP decision. In future litigation, other courts might disagree with the assessment that XRP is not a security. The Binance Complaint, the Coinbase Complaint, and the SEC’s actions against XRP’s issuer and the issuer of the TerraUSD and LUNA digital assets, as well as seemingly inconsistent views of different district court judges, underscore the continuing uncertainty around which digital assets are securities, and demonstrate that such factors as how long a digital asset has been in existence, how widely held it is, how large its market capitalization is and that it has actual use in commercial transactions, ultimately may have no bearing on whether the SEC or a court will find it to be a security.

If XRP or any of the other Portfolio Assets is found by a court or other regulatory body to be a security, the Trust could be considered an unregistered “investment company” under the Investment Company Act, which could necessitate the Trust’s liquidation under the terms of the Trust Agreement. Furthermore, the Trust could be considered to be engaged in a distribution (i.e., a public offering) of unregistered securities in violation of Section 5 of the Securities Act, which could impose significant civil and criminal liability on the Trust.

Moreover, whether or not the Sponsor or the Trust were subject to additional regulatory requirements as a result of any determination that its assets include securities, the Sponsor may nevertheless decide to terminate the Trust, in order, if possible, to liquidate the Trust’s assets while a liquid market still exists. For example, in response to the SEC’s action against the issuer of XRP, certain significant market participants announced they would no longer support XRP and announced measures, including the delisting of XRP from major digital asset trading platforms. If the SEC or a federal court were to determine that XRP is a security, it is likely that the value of the Shares of the Trust would decline significantly. Furthermore, if a federal court upholds an allegation that XRP is a security, the Trust itself may be terminated and, if practical, its assets liquidated.

FinCEN’s money transmitter registration and related requirements may increase the cost of buying and selling the Portfolio Assets and therefore may adversely affect the price of the Portfolio Assets and the value of the Shares.

FinCEN requires any administrator or exchanger of convertible digital assets to register with FinCEN as a money transmitter and comply with the anti-money laundering regulations applicable to money transmitters. Entities which fail to comply with such regulations are subject to fines, may be required to cease operations and could have potential criminal liability. For example, in 2015, FinCEN assessed a $700,000 fine against a sponsor of a digital asset for violating several requirements of the BSA by acting as an MSB and selling the digital asset without registering with FinCEN and by failing to implement and maintain an adequate anti-money laundering program. In 2017, FinCEN assessed a $110 million fine against BTC-e, a now defunct digital asset platform, for similar violations. The requirement that exchangers that do business in the United States register with FinCEN and comply with anti-money laundering regulations may increase the cost of buying and selling the Portfolio Assets and therefore may adversely affect the prices of the Portfolio Assets and an investment in the Shares.

OFAC has added digital currency addresses, including addresses on the Bitcoin Network, to the list of Specially Designated Nationals whose assets are blocked, and with whom U.S. persons are generally prohibited from dealing. A large portion of validators globally, as well as notable industry

 

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participants such as Circle, the issuer of the USDC stablecoin, have reportedly complied with the sanctions and blacklisted the sanctioned addresses from interacting with their networks. Such actions by OFAC, or by similar organizations in other jurisdictions, may introduce uncertainty in the market as to whether any Portfolio Assets that have been associated with such addresses in the past can be easily sold. These “tainted” Portfolio Assets may trade at a substantial discount to applicable untainted Portfolio Assets. Reduced fungibility in the Portfolio Asset markets may reduce the liquidity of the Portfolio Assets and therefore adversely affect their respective prices.

In October 2023, FinCEN issued a notice of proposed rulemaking that identified convertible virtual currency (“CVC”) mixing as a class of transactions of primary money laundering concern and proposed requiring covered financial institutions to implement certain recordkeeping and reporting requirements on transactions that covered financial institutions know, suspect or have reason to suspect involve CVC mixing within or involving jurisdictions outside the United States. In April 2024, the DOJ arrested and charged the developers of the Samourai Wallet mixing service with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business. In May 2024, a co-founder of Tornado Cash was sentenced to more than five years imprisonment in the Netherlands for developing Tornado Cash on the basis that he had helped launder more than $2 billion worth of digital assets through Tornado Cash.

Law enforcement agencies have often relied on the transparency of blockchains to facilitate investigations. However, certain privacy-enhancing features have been, or are expected to be, introduced to a number of digital asset networks.

Europol, the European Union’s law enforcement agency, released a report in October 2017 noting the increased use of privacy-enhancing digital assets like Zcash and Monero in criminal activity on the internet. Although no regulatory action has been taken to treat privacy-enhancing digital assets differently, this may change in the future. If a Portfolio Asset Network were to adopt any of these features, these features may provide law enforcement agencies with less visibility into transaction-level data, reduce investors’ confidence in the Portfolio Assets and adversely affect the value of the Shares.

The inconsistency in applying money transmitting licensure requirements to certain businesses may make it more difficult for these businesses to provide services, which may affect consumer adoption of the Portfolio Assets and their respective prices.

Under regulations from the NYDFS, businesses involved in digital asset business activity for third parties in or involving New York, excluding merchants and consumers, generally must apply for a license, commonly known as a BitLicense, from the NYDFS and must comply with anti-money laundering, cybersecurity, consumer protection and financial and reporting requirements, among others. As an alternative to a BitLicense, a firm can apply for a charter to become a limited purpose trust company under New York law qualified to engage in certain digital asset business activities. Other states have considered or approved digital asset business activity statutes or rules, passing, for example, regulations or guidance indicating that certain digital asset business activities constitute money transmission requiring licensure.

The inconsistency in applying money transmitting licensure requirements to certain businesses may make it more difficult for these businesses to provide services, which may affect consumer adoption of the Portfolio Assets and their respective prices. In an attempt to address these issues, the Uniform Law Commission passed a model law in July 2017, the Uniform Regulation of Virtual Currency Businesses Act, which has many similarities to the BitLicense and features a multistate reciprocity licensure feature, wherein a business licensed in one state could apply for accelerated licensure procedures in other states. It is still unclear, however, how many states, if any, will adopt some or all of the model legislation.

Competing industries may have more influence with policymakers than the digital asset industry, which could lead to the adoption of laws and regulations that are harmful to the digital asset industry.

The digital asset industry is relatively new and may not have the same access to policymakers and lobbying organizations in many jurisdictions compared to industries with which digital assets may be

 

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seen to compete, such as banking, payments and consumer finance. Competitors from other, more established industries may have greater access to and influence with governmental officials and regulators and may be successful in persuading these policymakers that digital assets require heightened levels of regulation compared to the regulation of traditional financial services. As a result, new laws and regulations may be proposed and adopted in the United States and elsewhere, or existing laws and regulations may be interpreted in new ways, that disfavor or impose compliance burdens on the digital asset industry or digital asset platforms, which could adversely impact the value of the Portfolio Assets and therefore the value of the Shares.

Regulatory changes or actions in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, mining activity or the operation of their networks or the digital asset platform markets in a manner that adversely affects the value of the Shares.

Various foreign jurisdictions have adopted, and may continue to adopt, laws, regulations or directives that affect digital asset networks (including the Portfolio Asset Networks), the digital asset markets (including the Portfolio Asset markets) and their users, particularly digital asset platforms and service providers that fall within such jurisdictions’ regulatory scope. For example, if foreign jurisdictions in addition to China were to ban or otherwise restrict manufacturers’ ability to produce or sell semiconductors or hard drives in connection with bitcoin mining, it would have a material adverse effect on digital asset networks (including the Portfolio Asset Networks), the digital asset market, and as a result, impact the value of the Shares.

A number of foreign jurisdictions have recently taken regulatory action aimed at digital asset activities. China has made transacting in cryptocurrencies illegal for Chinese citizens in mainland China, and additional restrictions may follow. Both China and South Korea have banned initial coin offerings entirely and regulators in other jurisdictions, including Canada, Singapore and Hong Kong, have opined that initial coin offerings may constitute securities offerings subject to local securities regulations. In May 2021, the Chinese government announced renewed efforts to restrict cryptocurrency trading, validating and mining activities. Regulators in Inner Mongolia and other regions of China have proposed regulations that would create penalties for companies engaged in cryptocurrency mining and validating activities and introduce heightened energy saving requirements on industrial parks, data centers and power plants providing electricity to cryptocurrency miners and validators. The United Kingdom’s Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange-traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors citing extreme volatility, valuation challenges and association with financial crime. A new bill, the Financial Services and Markets Bill (the “FSMB”), has made its way through the House of Commons. The FSMB would bring digital asset activities within the scope of existing laws governing financial institutions, markets and assets. In addition, the European Council of the European Union approved the text of Markets in Crypto-Assets (“MiCA”) in October 2022, establishing a regulatory framework for digital asset services across the European Union. MiCA is intended to serve as a comprehensive regulation of digital asset markets and imposes various obligations on digital asset issuers and service providers. The main aims of MiCA are industry regulation, consumer protection, prevention of market abuse and upholding the integrity of digital asset markets. Certain parts of MiCA became effective as of June 2024, and the remainder became effective as of December 2024.

Foreign laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of one or more digital assets by users, merchants and service providers outside the United States and may therefore impede the growth or sustainability of the digital asset economy in the European Union, China, Japan, Russia and the United States and globally, or otherwise negatively affect the value of the Portfolio Assets. Moreover, other events, such as the interruption in telecommunications or internet services, cyber-related terrorist acts, civil disturbances, war or other catastrophes, could also negatively affect the digital asset economy in one or more jurisdictions. For example, Russia’s invasion of Ukraine on February 24, 2022 led to volatility in digital asset prices, with an initial steep decline followed by a sharp rebound in prices. The effect of any future regulatory change or other events on the Trust or the Portfolio Assets is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Shares.

 

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If regulators or public utilities take actions that restrict or otherwise impact mining activities, there may be a significant decline in such activities, which could adversely affect the Bitcoin Network and the value of the Shares.

Concerns have been raised about the electricity required to secure and maintain digital asset networks. For example, as of December 31, 2024, approximately 704 million tera hashes were performed every second in connection with mining on the Bitcoin Network. Although measuring the electricity consumed by this process is difficult because these operations are performed by various machines with varying levels of efficiency, the process consumes a significant amount of energy. The operations of the Bitcoin Network and other digital asset networks may also consume significant amounts of energy. Further, in addition to the direct energy costs of performing calculations on any given digital asset network, there are indirect costs that impact a network’s total energy consumption, including the costs of cooling the machines that perform these calculations.

Driven by concerns around energy consumption and the impact on public utility companies, various states and cities have implemented, or are considering implementing, moratoriums on mining activity in their jurisdictions. A significant reduction in mining activity as a result of such actions could adversely affect the security of the Bitcoin Network by making it easier for a malicious actor or botnet to manipulate the relevant blockchain. In addition, if regulators or public utilities take action that restricts or otherwise impacts mining activities, such actions could result in decreased security of a digital asset network, including the Bitcoin Network, and consequently adversely impact the value of the Shares.

If regulators subject the Trust, the Sponsor the Staking Provider, the Rebalancing Agent or the Liquidity Provider to regulations for which they are not properly licensed, this could result in extraordinary expenses to these parties and also result in decreased liquidity for the Shares.

To the extent that the activities of the Trust or the Sponsor cause it to be deemed an MSB under the regulations promulgated by FinCEN, the Trust or the Sponsor may be required to comply with FinCEN regulations, make certain reports to FinCEN and maintain certain records. Similarly, the activities of the Trust or the Sponsor may require it to be licensed as a money transmitter, and the activities of the Trust, the Sponsor, the Staking Provider, the Rebalancing Agent or the Liquidity Provider may require it to be licensed as a digital asset business, such as under the New York State Department of Financial Services’ BitLicense regulation or California’s Digital Financial Assets Law, once effective.

Such additional regulatory obligations may cause the Trust or the Sponsor to incur extraordinary expenses. If the Trust or the Sponsor decided to seek the required licenses, there is no guarantee that they will timely receive them. The Sponsor may decide to direct the Trustee to discontinue and wind up the Trust. A dissolution of the Trust in response to the changed regulatory circumstances may be at a time that is disadvantageous to the Shareholders. The Staking Provider, the Rebalancing Agent or the Liquidity Provider may also instead decide to terminate their respective roles, which may decrease the liquidity of the Shares.

Additionally, to the extent the Trust, the Sponsor, the Staking Provider, the Rebalancing Agent or the Liquidity Provider are found to have operated without appropriate state or federal licenses, they may be subject to investigation, administrative or court proceedings and civil or criminal monetary fines and penalties, all of which would harm the reputation of the Trust, the Sponsor, the Staking Provider, the Rebalancing Agent or the Liquidity Provider and have a material adverse effect on the price of the Shares. As a result, the Trust’s operations could be adversely affected and the Shareholders may experience decreased liquidity for the Shares, which could result in losses.

Digital assets, including the Portfolio Assets, may be used for illicit activity.

Although transaction details of peer-to-peer transactions are recorded on the Portfolio Asset Blockchains, a buyer or seller of digital assets on a peer-to-peer basis directly on a Portfolio Asset Network may never know to whom the public key belongs or the true identity of the party with whom it is transacting. Public key addresses are randomized sequences of alphanumeric characters that, standing alone, do not provide sufficient information to identify users. In addition, certain technologies may obscure the origin or chain of custody of digital assets. In May 2022, OFAC banned all U.S. persons

 

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from using Blender.io, a digital asset mixing application that operates on the Bitcoin Blockchain to obfuscate the origin, destination and counterparties of blockchain transactions, by adding certain digital asset wallet addresses associated with Blender.io to its Specially Designated Nationals list. Blender.io receives a variety of transactions and mixes them together before transmitting them to their ultimate destinations. On March 23, 2022, Lazarus Group, a state-sponsored cyber hacking group associated with North Korea, carried out a major virtual currency heist from a blockchain project linked to the online game Axie Infinity; Blender.io was used in processing some of the illicit proceeds. The U.S. Department of the Treasury’s (the “U.S. Treasury Department”) press release announcing the sanctions on Blender.io observed that, while most virtual currency activity is licit, virtual currency can be used for illicit activity, including sanctions evasion, through mixers, peer-to-peer exchangers, darknet markets and exchanges. This includes the facilitation of heists, ransomware schemes and other cybercrimes. On October 19, 2023, FinCEN published a proposed rulemaking under authorities in Section 311 of the USA PATRIOT Act that would impose requirements on financial institutions that engage in convertible CVC transactions that involve CVC mixing within or involving a jurisdiction outside the United States. FinCEN’s rulemaking states that CVC mixing transactions can play a central role in facilitating the laundering of CVC derived from a variety of illicit activity, and are frequently used by criminals and state actors to facilitate a range of illicit activity, including, but not limited to, money laundering, sanctions evasion and weapons of mass destruction proliferation. Given that blockchain networks, including the Portfolio Asset Networks, are global and anyone can access them, validate transactions or transfer digital assets through them, and the fact that their operators, creators or programmers sometimes remain anonymous, it is not inconceivable that bad actors, such as those subject to sanctions, could seek to do so. The opaque nature of the market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops and pump-and-dump schemes. Digital assets have in the past been used to facilitate illicit activities, or a digital asset or network participants, such as miners, validators or users, were associated with bad actors or illicit activity. If a digital asset was used to facilitate illicit activities, businesses that facilitate transactions in such digital assets could be at increased risk of potential criminal or civil liability or lawsuits, or of having banking or other services cut off, and such digital asset could be removed from digital asset platforms. Any of the aforementioned or similar occurrences could adversely affect the price of the relevant digital asset, the attractiveness of the respective blockchain network and an investment in the Shares. If the Trust or the Sponsor were to transact with a sanctioned entity, the Trust or the Sponsor would be at risk of potential criminal or civil lawsuits or liability.

The Trust takes measures with the objective of reducing illicit financing risks in connection with the Trust’s activities. However, illicit financing risks are present in the digital asset markets, including markets for the Portfolio Assets. There can be no assurance that the measures employed by the Trust will prove successful in reducing illicit financing risks, and the Trust is subject to the complex illicit financing risks and vulnerabilities present in the digital asset markets. If such risks eventuate, the Trust, the Sponsor or its affiliates could face civil or criminal liability, fines, penalties or other punishments, be subject to investigation, have their assets frozen, lose access to banking services or services provided by other service providers or suffer disruptions to their operations, any of which could negatively affect the Trust’s ability to operate or cause losses in the value of the Shares.

The Trust and affiliates of the Sponsor have adopted and implemented policies and procedures that are designed to comply with applicable anti-money laundering laws and sanctions laws and regulations, including applicable know your customer (“KYC”) laws and regulations. The Sponsor and the Trust will only interact with known third-party service providers with respect to whom the Sponsor or its affiliates have engaged in a thorough due diligence process and/or a thorough KYC process, such as the Authorized Participants, the Liquidity Provider, the Prime Execution Agent, the Cash Custodian and the Digital Asset Custodian. The Prime Execution Agent and the Digital Asset Custodian must undergo counterparty due diligence by the Sponsor. Each Authorized Participant and the Liquidity Provider must undergo onboarding by the Sponsor prior to placing creation or redemption orders with respect to the Trust. The Liquidity Provider, by depositing Portfolio Assets as part of a purchase made by the Trust in connection with a cash creation or receiving Portfolio Assets from the Trust as part of a sale made by the Trust in connection with a cash redemption must establish an account — and transfer or receive such Portfolio Assets through such account — at the Prime Execution Agent. When trading

 

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through the Prime Execution Agent acting in an agency capacity with third parties, the Portfolio Assets delivered to the Trust is delivered through execution with the Prime Execution Agent. As a result, the Sponsor and the Trust have instituted procedures reasonably designed to ensure that a situation would not arise where the Trust would engage in transactions with a counterparty whose identity the Sponsor and the Trust did not know.

Furthermore, Authorized Participants, as broker-dealers, and the Prime Execution Agent and the Digital Asset Custodian, as an entity licensed to conduct virtual currency business activity by the NYFDS and a limited purpose trust company subject to New York Banking Law, respectively, are “financial institutions” subject to the BSA and U.S. economic sanctions laws. The Trust will only accept creation and redemption requests from Authorized Participants who have represented to the Trust that they have implemented compliance programs that are designed to ensure compliance with applicable sanctions and anti-money laundering laws. In addition, with respect to all Portfolio Assets delivered by the Liquidity Provider, the Liquidity Provider must represent to the Trust that it will form a reasonable belief (i) as to the identities of, and conduct necessary diligence with respect to, any counterparties from whom the Liquidity Provider obtains the Portfolio Assets being transferred and (ii) that such Portfolio Assets being transferred by such party to the Trust were not derived from, or associated with, unlawful or criminal activity. The Trust will not hold any Portfolio Assets except that which has been delivered by the Liquidity Provider or by execution through the Prime Execution Agent, in connection with Authorized Participant creation requests.

Moreover, the Prime Execution Agent has represented to the Trust that it has implemented and will maintain and follow compliance programs that are designed to comply with applicable sanctions and anti-money laundering laws and will perform both initial and ongoing due diligence on each of its customers as well as ongoing transaction monitoring that is designed to identify and report suspicious activity conducted through customer accounts opened at the Prime Execution Agent, including any opened by the Trust’s counterparties for purposes of facilitating Portfolio Asset deposits to, and withdrawals from, the Trust’s Trading Balance, as required by law.

The Prime Execution Agent, the Digital Asset Custodian, the Cash Custodian and the Liquidity Provider have adopted and implemented anti-money laundering and sanctions compliance programs, which provide additional protections to ensure that the Sponsor and the Trust do not transact with a sanctioned party. Notably, the Liquidity Provider must establish an account at the Prime Execution Agent through which the Liquidity Provider transfers Portfolio Assets to the Trust during a purchase order or receives Portfolio Assets from the Trust in connection with a redemption order. The Prime Execution Agent performs screening using blockchain analytics to identify, detect and mitigate the risk of transacting with a sanctioned or other unlawful actor. Pursuant to the Prime Execution Agent’s blockchain analytics screening program, any Portfolio Assets that are delivered to the Trust’s account will undergo screening designed to assess whether the origins of those Portfolio Assets are illicit.

The Liquidity Provider represents to the Trust that it conducts due diligence on its own counterparties from whom it sources the Portfolio Assets it deposits with the Trust in creation baskets, and that it has formed a reasonable belief that such Portfolio Assets being transferred by the Liquidity Provider to the Trust were not derived from, or associated with, unlawful or criminal activity.

However, there is the risk that the Liquidity Provider may not conduct sufficient due diligence processes on the sources of its Portfolio Assets or that its representations to the Trust may turn out to be inaccurate, which could cause the Trust to suffer a loss. If the Authorized Participants or the Liquidity Provider have inadequate policies, procedures and controls for complying with applicable anti-money laundering and applicable sanctions laws or the Trust’s procedures or diligence prove to be ineffective, violations of such laws could result, which could result in regulatory liability for the Trust, the Sponsor or its affiliates under such laws, including governmental fines, penalties and other punishments, as well as potential liability to or cessation of services by the Prime Execution Agent and its affiliates, including the Digital Asset Custodian, under the Prime Execution Agency Agreement and Digital Asset Custodian Agreement, or the Trust’s other service providers and counterparties. Any of the foregoing could result in losses to the Shareholders or negatively affect the Trust’s ability to operate.

 

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Regulatory changes or interpretations could obligate the Trust or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust.

Current and future federal or state legislation, CFTC and SEC rulemaking and other regulatory developments may impact the manner in which Portfolio Assets are treated. In particular, a Portfolio Asset may be classified by the CFTC as a “commodity interest” under the CEA or may be classified by the SEC as a “security” under U.S. federal securities laws. It is possible that a new administration and Congress in the United States could create a new classification for digital assets. The Sponsor and the Trust cannot be certain as to how future regulatory developments will impact the treatment of Portfolio Assets under the law. In the face of such developments, the required registrations and compliance steps may result in extraordinary, nonrecurring expenses to the Trust. If the Sponsor decides to terminate the Trust in response to the changed regulatory circumstances, the Trust may be dissolved or liquidated at a time that is disadvantageous to Shareholders.

To the extent that a Portfolio Asset is deemed to fall within the definition of a “commodity interest” under the CEA, the Trust and the Sponsor may be subject to additional regulation under the CEA and CFTC regulations. The Sponsor may be required to register as a commodity pool operator or commodity trading adviser with the CFTC and become a member of the National Futures Association and may be subject to additional regulatory requirements with respect to the Trust, including disclosure and reporting requirements. These additional requirements may result in extraordinary, recurring and/or nonrecurring expenses of the Trust, thereby materially and adversely impacting the Shares. If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will terminate the Trust. Any such termination could result in the liquidation of the Trust’s Portfolio Assets at a time that is disadvantageous to Shareholders. See “Risks Related to the Regulation of the Trust and the Shares — Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of the Portfolio Assets or the Shares.”

To the extent that a Portfolio Asset is deemed to fall within the definition of a security under U.S. federal securities laws, the Trust and the Sponsor may be subject to additional requirements under the Investment Company Act and the Sponsor may be required to register as an investment adviser under the Investment Advisers Act. Such additional registration may result in extraordinary, recurring and/or nonrecurring expenses of the Trust, thereby materially and adversely impacting the Shares. If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will terminate the Trust. Any such termination could result in the liquidation of the Trust’s Portfolio Assets at a time that is disadvantageous to Shareholders.

The SEC has recently proposed amendments to the custody rules under Rule 406(4)-2 of the Investment Advisers Act. The proposed rule changes would amend the definition of a “qualified custodian” under Rule 206(4)-2(d)(6) and expand the current custody rule in 406(4)-2 to cover all digital assets, including the Portfolio Assets, and related advisory activities. If enacted as proposed, these rules would likely impose additional regulatory requirements with respect to the custody and storage of digital assets, including the Portfolio Assets. The Sponsor is studying the impact that such amendments may have on the Trust and its arrangements with the Digital Asset Custodian and the Prime Execution Agent. It is possible that such amendments, if adopted, could prevent the Digital Asset Custodian and the Prime Execution Agent from serving as service providers to the Trust, or require potentially significant modifications to existing arrangements under the Digital Asset Custodian Agreement and the Prime Execution Agency Agreement, which could cause the Trust to bear potentially significant increased costs. If the Sponsor is unable to make such modifications or appoint successor service providers to fill the roles that the Digital Asset Custodian and the Prime Execution Agent currently play, the Trust’s operations (including in relation to creations and redemptions of Baskets and the holding of Portfolio Assets) could be negatively affected, the Trust could dissolve (including at a time that is potentially disadvantageous to Shareholders) and the value of the Shares or an investment in the Trust could be affected.

Further, the proposed amendments could have a severe negative impact on the prices of the Portfolio Assets and therefore the value of the Shares if enacted, by, among other things, making it

 

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more difficult for investors to gain access to the Portfolio Assets, or causing certain holders of the Portfolio Assets to sell their holdings.

Risks Related to Tax Treatment of the Trust and the Shares

The Trust could be treated as a corporation for U.S. federal income tax purposes, which may substantially reduce the value of your Shares.

The Trust intends to take the position that it is a partnership that is not taxable as a corporation for U.S. federal income tax purposes, provided that, among other things, (i) at least 90 percent of the Trust’s annual gross income consists of “qualifying income” as defined in the Code, (ii) the Trust is organized and operated in accordance with its governing agreements and applicable law, and (iii) the Trust does not elect to be taxed as a corporation for U.S. federal income tax purposes. No assurance can be given that the IRS or a court will agree with this treatment or that the Trust will satisfy the “qualifying income” requirement for all of its taxable years. There is very limited authority on the U.S. federal income tax treatment of digital assets. The Trust has not requested and will not request any ruling from the IRS with respect to its classification as a partnership not taxable as a corporation for U.S. federal income tax purposes. If the IRS were to successfully assert that the Trust is taxable as a corporation for U.S. federal income tax purposes in any taxable year, rather than passing through its income, gains, losses and deductions proportionately to Shareholders, the Trust would be subject to tax on its net income for the year at corporate tax rates. Any such distributions would be taxable to Shareholders as dividend income to the extent of the Trust’s current and accumulated earnings and profits, then treated as a tax-free return of capital to the extent of a Shareholder’s basis in the Shares (thus reducing the Shareholder´s basis), and thereafter as capital gain for Shareholders who hold their Shares as capital assets. Distributions made (or deemed made) to non-U.S. Holders (as defined in “Material U.S. Federal Income Tax Consequences — Non-U.S. Holders” below) treated as dividends will be subject to a withholding tax of 30% (or such lower rate as is provided by an applicable income tax treaty). Taxation of the Trust as a corporation could materially reduce the after-tax return on an investment in Shares and could substantially reduce the value of Shares.

Your tax liability from holding Shares may exceed the amount of distributions, if any, on your Shares.

Assuming the Trust qualifies to be taxed as a partnership for U.S. federal income tax purposes, you will be required to pay U.S. federal income tax and, in some cases, state, local, or foreign income tax, on your allocable share of the Trust’s taxable income, without regard to whether you receive distributions or the amount of any distributions. Therefore, the tax liability resulting from your ownership of Shares may exceed the amount of cash or value of property (if any) distributed.

Your allocable share of income or loss for U.S. federal income tax purposes may differ from your economic income or loss on your Shares.

Due to the application of the assumptions and conventions applied by the Trust in making allocations for U.S. federal income tax purposes and other factors, your allocable share of the Trust’s income, gain, deduction, loss or credit may be different than your economic profit or loss from your Shares for a taxable year. This difference could be temporary or permanent and, if permanent, could result in your being taxed on amounts in excess of your economic income.

Items of income, gain, deduction, loss and credit with respect to Shares could be reallocated, and the Trust itself could be liable for U.S. federal income tax along with any interest or penalties if the IRS does not accept the assumptions and conventions applied by the Trust in allocating those items, with potential adverse consequences for you.

The Trust intends to be treated as a partnership for U.S. federal income tax purposes. The U.S. tax rules pertaining to entities taxed as partnerships are complex and their application to publicly traded partnerships such as the Trust is, in many respects, uncertain. The Trust will apply certain assumptions and conventions in an attempt to comply with the intent of the applicable rules and to report taxable

 

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income, gains, deductions, losses and credits in a manner that properly reflects Shareholders’ economic gains and losses. These assumptions and conventions may not fully comply with all aspects of the Code and applicable Treasury Regulations, however, and it is possible that the IRS will successfully challenge the Trust’s allocation methods and require the Trust to reallocate items of income, gain, deduction, loss or credit in a manner that adversely affects you.

The Trust may be liable for U.S. federal income tax on any “imputed underpayment” of tax resulting from an adjustment as a result of an IRS audit. If the Trust is required to pay any U.S. federal income tax on any imputed underpayment, the resulting tax liability would reduce the net assets of the Trust and would likely have an adverse impact on the value of the Shares. In such a case, the tax liability would in effect be borne by Shareholders that own Shares at the time of such assessment, which may be different persons, or persons with different ownership percentages, than persons owning Shares for the tax year under audit. Under certain circumstances, the Trust may be able to cause investors who owned Shares in the year to which the audit relates to take into account the amount of any imputed underpayment, including any interest and penalties, instead of the Trust, but there can be no assurances in that regard. For an additional discussion please see “Material U.S. Federal Income Tax Consequences.”

Shareholders will receive partner information tax returns on Schedule K-1, which could increase the complexity of tax returns.

The partner information tax returns on Schedule K-1, which the Trust will distribute to Shareholders, will contain information regarding the income items and expense items of the Trust. If you have not received Schedule K-1s from other investments, you may find that preparing your income tax returns may require additional time, or it may be necessary for you to retain an accountant or other tax preparer, at an additional expense to you, to assist you in the preparation of your returns.

Shareholders of the Trust may recognize significant amounts of ordinary income and short-term capital gain.

Due to the investment strategy of the Trust, the Trust may realize and pass through to Shareholders significant amounts of ordinary income and short-term capital gains as opposed to long-term capital gains. Ordinary income and short-term capital gains are generally taxed at higher U.S. federal income tax rates than the preferential U.S. federal income rates applicable to long-term capital gains.

The treatment of digital assets for U.S. federal income tax purposes is uncertain.

Due to the new and evolving nature of digital assets and the absence of comprehensive guidance with respect to digital assets, many significant aspects of the U.S. federal income tax treatment of digital assets are uncertain.

In 2014, the IRS released a notice (the “Notice”) discussing certain aspects of the treatment of “convertible virtual currency” ​(that is, digital assets that have an equivalent value in fiat currency or that act as substitutes for fiat currency) for U.S. federal income tax purposes and, in particular, stating that such digital assets (i) are “property,” ​(ii) are not “currency” for purposes of the rules relating to foreign currency gain or loss and (iii) may be held as a capital asset. The IRS subsequently has released revenue rulings (the “Rulings”) and a set of “Frequently Asked Questions” ​(the “FAQs”) that provide some additional guidance, including guidance to the effect that, under certain circumstances, the receipt of digital assets in a hard fork and the receipt of staking rewards are both taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of digital assets. However, the Notice, the Rulings and the FAQs do not address other significant aspects of the U.S. federal income tax treatment of digital assets. For example, there currently is no guidance directly addressing whether or in what circumstances trading by a non-U.S. person in digital assets, or engaging in certain activities to generate yield on digital assets, could give rise to income that is effectively connected with a trade or business in the United States. Because the treatment of digital assets is uncertain, it is possible that the treatment of owning or transacting in of any particular digital asset may be adverse to the Trust. For example, ownership of a digital asset could be treated as ownership in an entity, in which case the consequences of ownership of that digital asset would depend on the type and place of

 

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organization of the deemed entity. Moreover, although the Rulings and the FAQs address the treatment of hard forks, there continues to be uncertainty with respect to the timing and amount of the income inclusions.

There can be no assurance that the IRS will not alter its position with respect to digital assets in the future or that a court would uphold the treatment set forth in the Notice, the Rulings and the FAQs. It is also unclear what additional guidance on the treatment of digital assets for U.S. federal income tax purposes may be issued in the future. Any such alteration of the current IRS positions or additional guidance could result in adverse tax consequences for Shareholders and could have an adverse effect on the value of digital assets held in the Trust. Future developments that may arise with respect to digital assets may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes. For example, the Notice addresses only digital assets that are “convertible virtual currency,” and it is conceivable that, as a result of a fork, airdrop or similar occurrence, the Trust could hold certain types of digital assets that are not within the scope of the Notice.

Prospective investors are urged to consult their tax advisers regarding the tax consequences of an investment in the Trust and in digital assets in general.

Future tax developments regarding the treatment of digital assets could adversely affect the value of the Shares.

As discussed above, many significant aspects of the U.S. federal income tax treatment of digital assets, such as the Portfolio Assets, are uncertain, and it is unclear what legislation or guidance regarding the treatment of digital assets for U.S. federal income tax purposes may be adopted or issued in the future. It is possible that any such legislation or guidance would have an adverse effect on the prices of digital assets, including on the price of the Portfolio Assets in the digital asset markets, and therefore may have an adverse effect on the value of the Shares. In addition, state, local or non-U.S. tax developments may also have an adverse effect on the value of digital assets and the Shares.

Because of the evolving nature of digital assets, it is not possible to predict potential future developments that may arise with respect to digital assets, including forks, airdrops and similar occurrences. Such developments may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes.

Future developments in the treatment of digital assets for tax purposes other than U.S. federal income tax purposes could adversely affect the value of the Shares.

The taxing authorities of certain states, including New York, (i) have announced that they will follow the Notice with respect to the treatment of digital assets for state income tax purposes and/or (ii) have issued guidance exempting the purchase and/or sale of digital assets for fiat currency from state sales tax. However, it is unclear what further guidance on the treatment of digital assets for state tax purposes may be issued in the future.

The treatment of digital assets for tax purposes by non-U.S. jurisdictions may differ from the treatment of digital assets for U.S. federal, state or local tax purposes. It is possible, for example, that a non-U.S. jurisdiction would impose sales tax or value-added tax on purchases and sales of digital assets for fiat currency. If a foreign jurisdiction with a significant share of the market of digital assets users imposes onerous tax burdens on digital asset users, or imposes sales or value-added tax on purchases and sales of digital assets for fiat currency, such actions could result in decreased demand for digital assets held by the Trust in such jurisdiction.

Any future guidance on the treatment of digital assets for state, local or non-U.S. tax purposes could increase the expenses of the Trust and could have an adverse effect on the prices of digital assets, including on the price of digital assets. As a result, any such future guidance could have an adverse effect on the value of the Shares.

A U.S. tax-exempt Shareholder may recognize “unrelated business taxable income” as a consequence of an investment in Shares.

Under the guidance provided in the Ruling and the FAQs, hard forks, airdrops and similar occurrences with respect to digital assets will under certain circumstances be treated as taxable events

 

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giving rise to ordinary income. Moreover, staking rewards will, under certain circumstances, be treated as giving rise to taxable income. In the absence of guidance to the contrary, it is possible that any such income recognized by a U.S. tax-exempt shareholder would constitute “unrelated business taxable income” ​(“UBTI”). A tax-exempt shareholder should consult its tax adviser regarding whether such shareholder may recognize UBTI as a consequence of an investment in Shares.

The Trust may derive income that is treated as “effectively connected” with the conduct of a trade or business in the United States and non-U.S. Holders may be required to file a U.S. federal income tax return, and pay U.S. federal income tax on a net basis, as a result.

As discussed above, there currently is no guidance directly addressing whether or in what circumstances trading by a non-U.S. person in digital assets, or engaging in certain activities to generate yield on digital assets, could give rise to income that is effectively connected with the conduct of a trade or business in the United States (“effectively connected income”). Accordingly, while the Trust intends to take the position that it is not engaged in the conduct of a trade or business in the United States, there can be no complete assurance that the Trust will not earn effectively connected income. If the Trust were to earn effectively connected income, the Trust generally would be required to withhold amounts in respect of a non-U.S. Holder’s (as defined under “Material U.S. Federal Income Tax Consequences — Non-U.S. Holders”) allocable share of such effectively connected income, and the non-U.S. Holder generally would be required to file a U.S. federal income tax return and pay U.S. federal income tax on that allocable share of effectively connected income, reduced by certain associated expenses. A non-U.S. Holder that is a corporation may also be subject to branch profits tax at a 30% rate (or such lower rate as is provided by an applicable income tax treaty) in respect of such effectively connected income.

Non-U.S. Holders may be subject to U.S. federal withholding tax on certain income derived by the Trust.

The Rulings and FAQs do not address whether income recognized by a non-U.S. person as a result of a fork, airdrop or similar occurrence, or income from engaging in certain activities to generate yield on digital assets, could be subject to the withholding tax imposed on U.S.-source “fixed or determinable annual or periodical” income (currently 30%). Non-U.S. persons should assume that, in the absence of guidance, a withholding agent (including the Trust) is likely to withhold on any such income (currently at a rate of 30%) recognized by a non-U.S. person in respect of its Shares.

If the Trust is required to withhold tax with respect to any Non-U.S. Holders, all Shareholders may bear the cost of such withholding.

Under certain circumstances, the Trust may be required to pay withholding tax with respect to allocations to non-U.S. Holders. Although the Trust Agreement provides that any such withholding will be treated as being distributed to the non-U.S. Holder, the Trust may not be able to cause the economic cost of such withholding to be borne by the non-U.S. Holder on whose behalf such amounts were withheld since the Trust does not intend to make any distributions. Under such circumstances, all Shareholders may bear the economic cost of the withholding, not just the Shareholders on whose behalf such amounts were withheld. This could have a material impact on the value of your Shares.

Risks Related to Potential Conflicts of Interest

Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no fiduciary duties to the Trust and its Shareholders other than as provided in the Trust Agreement, which may permit them to favor their own interests to the detriment of the Trust and its Shareholders.

Under the Trust Agreement, the Sponsor will manage the affairs of the Trust. Conflicts of interest may arise among the Sponsor and its affiliates, including as a result of their existing or future business relationships with third parties, on the one hand, and the Trust and its Shareholders, on the other

 

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hand. As a result of these conflicts, the Sponsor may favor its own interests and the interests of its affiliates over the Trust and its Shareholders. These potential conflicts include, among others, the following:

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the Sponsor has no fiduciary duties to, and is allowed to take into account the interests of parties other than, the Trust and its Shareholders in resolving conflicts of interest, provided the Sponsor does not act in bad faith;

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the Trust has agreed to indemnify the Sponsor, the Trustee and their respective affiliates pursuant to the Trust Agreement;

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the Sponsor is responsible for allocating its own limited resources among different clients and potential future business ventures, to each of which it may owe fiduciary duties;

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the Sponsor and its staff also service affiliates of the Sponsor, and may also service other digital asset investment vehicles and their respective clients, and cannot devote all of its, or their, respective time or resources to the management of the affairs of the Trust;

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the Sponsor, its affiliates and their officers and employees are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with the Trust;

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•

affiliates of the Sponsor may start to have substantial direct investments in some or all of the Portfolio Assets, stablecoins (such as USDC) or other digital assets or companies in the digital assets ecosystem that they are permitted to manage taking into account their own interests without regard to the interests of the Trust or its Shareholders, and any increases, decreases or other changes in such investments could affect the Reference Prices and, in turn, the value of the Shares;

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the Sponsor decides whether to retain separate counsel, accountants or others to perform services for the Trust; and

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the Sponsor may appoint an agent to act on behalf of the Shareholders, which agent may be the Sponsor or an affiliate of the Sponsor.

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By purchasing the Shares, Shareholders agree and consent to the provisions set forth in the Trust Agreement.

Affiliates of the Sponsor have existing business relationships with TMTG.

Yorkville, a direct parent company of the Sponsor, is a party to several commercial agreements with TMTG, the licensor of certain of its intellectual property to the Trust. These relationships could give rise to conflicts of interest that may negatively affect the Trust and the Shareholders. For example, Yorkville has been selected by TMTG to advise it on the creation, implementation and operation of various investments and financial products for Truth.Fi, a platform designed to offer investment products aligned with “America First” economic priorities. Such products may include additional exchange-traded products that may hold digital assets, including the Portfolio Assets. For example, on June 5, 2025, the Sponsor filed a registration statement on Form S-1 for Truth Social Bitcoin ETF, B.T., an exchange-traded fund that will invest its assets exclusively in bitcoin, and on June 16, 2025, the Sponsor filed a registration statement on Form S-1 for Truth Social Bitcoin and Ethereum ETF, B.T., an exchange-traded fund that will invest its assets in bitcoin and ether. Additionally, an affiliate of Yorkville has entered into a standby equity purchase agreement (the “SEPA”) with TMTG pursuant to which Yorkville has committed to purchase up to $2.5 billion in shares of TMTG’s common stock, subject to certain limitations and conditions set forth in the SEPA. Further, in connection with a $2.44 billion private placement of TMTG’s securities in May 2025, the proceeds of which will be used by TMTG to establish a bitcoin treasury, Yorkville Securities, LLC, an affiliate of the Sponsor, served as a co-lead placement agent, and the Digital Asset Custodian was selected to provide custody services for some of the bitcoin included in such treasury. These existing relationships with TPMG may be viewed by potential investors as affecting the Sponsor’s decisions concerning the Trust and its administration, for example by causing the Sponsor to refrain from taking actions that are in the best interests of the Trust but that could harm TMTG. This could make the Shares less attractive to investors than the shares of similar

 

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vehicles that do not present these concerns, adversely affect investor sentiment about the Trust and negatively affect the trading prices of the Shares.

Pursuant to contractual arrangements, certain service providers are the exclusive service providers to the Trust.

Pursuant to certain contractual arrangements, Crypto.com and its affiliates exclusively provide certain services to the Trust, including as the Liquidity Provider and the Digital Asset Custodian. Foris DAX, Inc. and its affiliates may also provide other services to the Trust in the future on an exclusive basis. While the Sponsor believes that such services are or will be provided on terms no worse than prevailing market terms, the exclusivity of these arrangements may nevertheless limit the Trust’s ability to select optimal service providers, potentially affecting the efficiency, quality and cost-effectiveness of the Trust’s operations. Additionally, any negative publicity or regulatory actions involving Crypto.com or its affiliates could have a direct impact on the operations of the Trust, including its ability to manage assets, facilitate trading or maintain its regulatory compliance. Such events could harm the Trust’s reputation, reduce investor confidence and negatively affect the market price of the Shares. Moreover, if Crypto.com or its affiliates experience operational, legal or financial difficulties, the Trust’s performance and operations may be adversely impacted, and the Trust could be unable to quickly replace these service providers without incurring additional costs or delays. Consequently, the exclusivity of these arrangements introduces risks that could materially affect the Trust’s operations and its attractiveness to potential investors, and therefore, the price of the Shares.

Shareholders cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Trust.

Shareholders cannot be assured that the Sponsor will be willing or able to continue to serve as sponsor to the Trust for any length of time. If the Sponsor discontinues its activities on behalf of the Trust and a substitute sponsor is not appointed, the Trust will terminate and liquidate its Portfolio Assets. Appointment of a substitute sponsor will not guarantee the Trust’s continued operation, successful or otherwise. Because a substitute sponsor may have no experience managing a digital asset financial vehicle, a substitute sponsor may not have the experience, knowledge or expertise required to ensure that the Trust will operate successfully or continue to operate at all. Therefore, the appointment of a substitute sponsor may not necessarily be beneficial to the Trust, and the Trust may terminate.

The Digital Asset Custodian could resign or be removed by the Sponsor, which may trigger early dissolution of the Trust.

The Digital Asset Custodian has represented that it is a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Advisers Act and is licensed to custody the Trust’s Portfolio Assets in trust on the Trust’s behalf. However, if the Digital Asset Custodian resigns, is removed or is prohibited by applicable law or regulation to act as custodian, and no successor custodian has been employed, the Sponsor may direct the Trustee to dissolve the Trust in accordance with the terms of the Trust Agreement.

The Trust’s Authorized Participants act in similar or identical capacities for several competing exchange-traded Portfolio Asset products which may impact the ability or willingness of one or more Authorized Participants to participate in the creation and redemption process, adversely affect the Trust’s ability to create or redeem Baskets and adversely affect the Trust’s operations and ultimately the value of the Shares.

Many of the Trust’s Authorized Participants currently act or may in the future act in the same capacity for several competing exchange-traded Portfolio Asset products. Each Authorized Participant has limited balance sheet capacity, which means that, particularly during times of heightened market trading activity or market volatility or turmoil, Authorized Participants may not be able or willing to submit creation or redemption orders with the Trust or may do so in limited capacities. The inability or unwillingness of Authorized Participants to do so could lead to the potential for the Shares to trade at premiums or discounts to the NAV, and such premiums or discounts could be substantial.

 

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Furthermore, if creations or redemptions are unavailable due to the inability or unwillingness of one or more of the Trust’s Authorized Participants to submit creation or redemption orders with the Trust (or do so in a limited capacity), the arbitrage mechanism may fail to function as efficiently as it otherwise would or be unavailable. This could result in impaired liquidity for the Shares, wider bid-ask spreads in the secondary trading of the Shares and greater costs to investors and other market participants, all of which could cause the Sponsor to halt or suspend the creation or redemption of Shares during such times, among other consequences.

Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust.

The Sponsor has consulted with counsel, accountants and other advisers regarding the formation and operation of the Trust. No counsel was appointed to represent investors in connection with the formation of the Trust or the establishment of the terms of the Trust Agreement and the Shares. Moreover, no counsel has been appointed to represent an investor in connection with the offering of the Shares. Accordingly, an investor should consult his, her or its own legal, tax and financial advisers regarding the desirability of the value of the Shares. Lack of such consultation may lead to an undesirable investment decision with respect to investment in the Shares.

Shareholders and Authorized Participants lack the right under the Digital Asset Custodian Agreement to assert claims directly against the Digital Asset Custodian, which significantly limits their options for recourse.

Neither the Shareholders nor any Authorized Participant has a right under the Digital Asset Custodian Agreement to assert a claim against the Digital Asset Custodian. Claims under the Digital Asset Custodian Agreement may only be asserted by the Sponsor on behalf of the Trust. These restrictions significantly limit the shareholders’ options of recourse against the Digital Asset Custodian.

There is no guarantee that every employee, officer, director or similar person associated with the Sponsor or the Trust Affiliates will comply with the Policies, duties and training and refrain from engaging in insider trading in violation of their duties to the Trust and Sponsor.

While the Sponsor has adopted and implemented the Policies (as defined below) and will adopt standard operating practices requiring that certain applicable personnel pre-clear personal trading activity in which a Portfolio Asset is the referenced asset, there is no way to guarantee that every employee, officer, director or similar person associated with the Sponsor or the Trust Affiliates (as defined in “Conflicts of Interest — General”) will comply at all times with such Policies, duties and training and refrain from engaging in insider trading in violation of their duties to the Trust and Sponsor. This risk is present in traditional financial markets and is not unique to the Portfolio Assets. If such employees or others affiliated with the Sponsor or the Trust Affiliates, respectively, do engage in illegal conduct or conduct which fails to meet applicable regulatory standards, the Sponsor or the relevant Trust Affiliate, respectively, could be the target of civil or criminal fines, penalties, punishments or other regulatory or other sanctions or lawsuits or could be the target of an investigation, whether directly or indirectly, such as on a failure to diligently supervise theory. Any of these outcomes could cause the Trust and Shareholders to suffer harm.

The Sponsor and the Trust Affiliates may also participate in transactions related to Portfolio Assets, either for their own account (subject to certain internal employee trading operating practices) or for the account of others, such as clients, and such transactions may occur prior to, during or after the commencement of this offering. Such transactions may not serve to benefit the Shareholders of the Trust and may have a positive or negative effect on the value of the Portfolio Assets held by the Trust and, consequently, on the market value of the Portfolio Assets.

 

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USE OF PROCEEDS

Proceeds received by the Trust from the issuance and sale of Baskets consist of cash deposits. Such cash deposits are held by the Cash Custodian or the Prime Execution Agent on behalf of the Trust until (i) transferred in connection with the purchase of Portfolio Assets, (ii) delivered to the Liquidity Provider in connection with a redemption of Baskets, (iii) staked, should the Trust decide to pursue any Staking activities and solely to the extent the Sponsor believes, in its sole discretion, that such Staking activities may be conducted in compliance with applicable law, or (iv) transferred (or converted to U.S. dollars, if necessary) to pay the Sponsor’s Fee and Trust expenses or liabilities not assumed by the Sponsor. See “Activities of the Trust — Trust Expenses.”

 

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OVERVIEW OF THE BITCOIN NETWORK

Introduction

Bitcoin is a digital asset that is created and transmitted through the operations of the peer-to-peer Bitcoin Network, a decentralized network of computers that operates pursuant to cryptographic protocols. No single entity owns or operates the Bitcoin Network, the infrastructure of which is collectively maintained by its user base. The Bitcoin Network allows people to exchange tokens of value, called bitcoin, which are recorded on a public transaction ledger known as the Bitcoin Blockchain. Bitcoin can be used to pay for goods and services, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on bitcoin platforms that enable trading in bitcoin or in individual end-user-to-end-user transactions under a barter system.

The Bitcoin Network is commonly understood to be decentralized and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of bitcoin. Rather, bitcoin is created and allocated by the Bitcoin Network’s cryptographic protocols through a “mining” process. The value of bitcoin is determined by the supply of and demand for bitcoin on bitcoin platforms or in private end-user-to-end-user transactions.

New bitcoin is created and rewarded to the miners of a block in the Bitcoin Blockchain for verifying transactions. The Bitcoin Blockchain is a shared database that includes all blocks that have been added by miners, and it is updated to include new blocks as they are added. Each bitcoin transaction is broadcast to the Bitcoin Network and, when included in a block, recorded in the Bitcoin Blockchain. As each new block records outstanding bitcoin transactions, and outstanding transactions are settled and validated through such recording, the Bitcoin Blockchain represents a complete, transparent and unbroken history of all transactions of the Bitcoin Network.

History of Bitcoin

The Bitcoin Network was initially contemplated in a white paper that also described bitcoin and the operating software to govern the Bitcoin Network. The white paper was purportedly authored by Satoshi Nakamoto. However, no individual with that name has been reliably identified as bitcoin’s creator, and the general consensus is that the name is a pseudonym for the actual inventor or inventors. The first bitcoin was created in 2009 after Nakamoto released the Bitcoin Network source code (the software and protocol that created and launched the Bitcoin Network). The Bitcoin Network has been under active development since that time by a loose group of software developers who have come to be known as core developers.

Overview of Bitcoin Network Operations

In order to own, transfer or use bitcoin directly on the Bitcoin Network (as opposed to through an intermediary, such as a trading platform), a person generally must have internet access to connect to the Bitcoin Network. Bitcoin transactions may be made directly between end users without the need for a third-party intermediary. To prevent the possibility of double-spending bitcoin, a user must notify the Bitcoin Network of the transaction by broadcasting the transaction data to its network peers. The Bitcoin Network provides confirmation against double-spending by memorializing every transaction in the Bitcoin Blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending is accomplished through the Bitcoin Network mining process, which adds “blocks” of data, including recent transaction information, to the Bitcoin Blockchain.

Overview of Bitcoin Transfers

Prior to engaging in bitcoin transactions directly on the Bitcoin Network, a user generally must first install on its computer or mobile device a Bitcoin Network software program that will allow the user to generate a private and public key pair associated with a bitcoin address commonly referred to as a “wallet.” The Bitcoin Network software program and the bitcoin address also enable the user to connect to the Bitcoin Network and transfer bitcoin to, and receive bitcoin from, other users.

 

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Each Bitcoin Network address, or wallet, is associated with a unique “public key” and “private key” pair. To receive bitcoin, the bitcoin recipient must provide its public key to the party initiating the transfer. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The payor approves the transfer to the address provided by the recipient by “signing” a transaction that consists of the recipient’s public key with the private key of the address from where the payor is transferring the bitcoin. The recipient, however, does not make public or provide to the sender its related private key.

Neither the recipient nor the sender reveals its private keys in a transaction because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses his private key, the user may permanently lose access to the bitcoin contained in the associated address. When sending bitcoin, a user’s Bitcoin Network software program must validate the transaction with the associated private key. The resulting digitally validated transaction is sent by the user’s Bitcoin Network software program to the Bitcoin Network to allow transaction confirmation.

Some bitcoin transactions are conducted “off-blockchain” and are therefore not recorded in the Bitcoin Blockchain. Some “off-blockchain transactions” involve the transfer of control over, or ownership of, a specific digital wallet holding bitcoin or the reallocation of ownership of certain bitcoin in a digital wallet containing assets owned by multiple persons, such as a digital wallet maintained by a digital asset trading platform. In contrast to on-blockchain transactions, which are publicly recorded on the Bitcoin Blockchain, information and data regarding off-blockchain transactions are generally not publicly available. Off-blockchain transactions do not involve the transfer of transaction data on the Bitcoin Network and do not reflect a movement of bitcoin between addresses recorded in the Bitcoin Blockchain. For these reasons, off-blockchain transactions are subject to risks as any such transfer of bitcoin ownership is not protected by the protocol behind the Bitcoin Network or recorded in, and validated through, the blockchain mechanism.

Summary of a Bitcoin Transaction

In a bitcoin transaction directly on the Bitcoin Network between two parties (as opposed to through an intermediary, such as a platform or a custodian), the following circumstances must initially be in place: (i) the party seeking to send bitcoin must have a Bitcoin Network public key, and the Bitcoin Network must recognize that public key as having sufficient bitcoin for the transaction; (ii) the receiving party must have a Bitcoin Network public key; and (iii) the spending party must have internet access with which to send its spending transaction.

The receiving party must provide the spending party with its public key and allow the Bitcoin Blockchain to record the sending of bitcoin to that public key. After the provision of a recipient’s Bitcoin Network public key, the spending party must enter the address into its Bitcoin Network software program along with the number of bitcoin to be sent. The number of bitcoin to be sent will typically be agreed upon between the two parties based on a set number of bitcoin or an agreed-upon conversion of the value of fiat currency to bitcoin.

Since every computation on the Bitcoin Network requires the payment of bitcoin, including verification and memorialization of bitcoin transfers, there is a transaction fee involved with the transfer, which is based on computation complexity and not on the value of the transfer and is paid by the payor with a fractional number of bitcoin.

After the entry of the Bitcoin Network address, the number of bitcoin to be sent and the transaction fees, if any, to be paid will be transmitted by the spending party. The transmission of the spending transaction results in the creation of a data packet by the spending party’s Bitcoin Network software program, which is transmitted onto the Bitcoin Network, resulting in the distribution of the information among the software programs of users across the Bitcoin Network for eventual inclusion in the Bitcoin Blockchain.

As discussed in greater detail below in “— Creation of New Bitcoin,” Bitcoin Network miners record transactions when they solve for and add blocks of information to the Bitcoin Blockchain. When a miner solves for a block, it creates that block, which includes data relating to (i) the solution to the

 

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block, (ii) a reference to the prior block in the Bitcoin Blockchain to which the new block is being added and (iii) transactions that have occurred but have not yet been added to the Bitcoin Blockchain. The miner becomes aware of outstanding, unrecorded transactions through the data packet transmission and distribution discussed above.

Upon the addition of a block included in the Bitcoin Blockchain, the Bitcoin Network software program of both the spending party and the receiving party will show confirmation of the transaction on the Bitcoin Blockchain and reflect an adjustment to the bitcoin balance in each party’s Bitcoin Network public key, completing the bitcoin transaction. Once a transaction is confirmed on the Bitcoin Blockchain, it is irreversible.

Creation of New Bitcoin

New bitcoin is created through the mining process.

The Bitcoin Network is kept running by computers all over the world. In order to incentivize those who incur the computational costs of securing the network by validating transactions, there is a reward that is given to the computer that was able to create the latest block on the chain. Every 10 minutes, on average, a new block is added to the Bitcoin Blockchain with the latest transactions processed by the network, and the computer that generated this block is currently awarded 3.125 bitcoin. Due to the nature of the algorithm for block generation, this process (called “proof-of-work” consensus) is random. Over time, rewards are expected to be proportionate to the computational power of each machine.

The process by which bitcoin is “mined” results in new blocks being added to the Bitcoin Blockchain and new bitcoin tokens being issued to the miners. Computers on the Bitcoin Network engage in a set of prescribed complex mathematical calculations in order to add a block to the Bitcoin Blockchain and thereby confirm bitcoin transactions included in that block’s data.

To begin mining, a user can download and run Bitcoin Network mining software, whereby the user’s computer acts as a “node” on the Bitcoin Network that validates blocks. Each block contains the details of some or all of the most recent transactions that are not memorialized in prior blocks, as well as a record of the award of bitcoin to the miner who added the new block. Each unique block can be solved and added to the Bitcoin Blockchain by only one miner. Therefore, all individual miners and mining pools on the Bitcoin Network are engaged in a competitive process of constantly seeking to increase their computing power to improve their likelihood of solving for new blocks. As more miners join the Bitcoin Network and its processing power increases, the Bitcoin Network adjusts the complexity of the block-solving equation to maintain a predetermined pace of adding a new block to the Bitcoin Blockchain approximately every 10 minutes. A miner’s proposed block is added to the Bitcoin Blockchain once a majority of the nodes on the Bitcoin Network confirm the miner’s work. Miners that are successful in adding a block to the Bitcoin Blockchain are automatically awarded bitcoin for their effort and may also receive transaction fees paid by transferors whose transactions are recorded in the block. This reward system is the method by which new bitcoin enter circulation.

The Bitcoin Network is designed in such a way that the reward for adding new blocks to the Bitcoin Blockchain decreases over time. More specifically, the reward rate halves approximately every four years. Once new bitcoin tokens are no longer awarded for adding a new block (expected to occur in the year 2140), miners will only have transaction fees to incentivize them, and as a result, it is expected that miners will need to be better compensated with higher transaction fees to ensure that there is adequate incentive for them to continue mining.

Limits on Bitcoin Supply

Under the source code that governs the Bitcoin Network, the supply of new bitcoin is mathematically controlled so that the number of bitcoin grows at a limited rate pursuant to a preset schedule. The number of bitcoin awarded for solving a new block is automatically halved after every 210,000 blocks are added to the Bitcoin Blockchain, approximately every four years. Currently, the fixed reward for solving a new block is 3.125 bitcoin per block, and this is expected to decrease by half to become 1.5625 bitcoin in approximately mid-2028. This deliberately controlled rate of bitcoin creation means that the number

 

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of bitcoin in existence will increase at a controlled rate until the number of bitcoin in existence reaches the predetermined 21 million bitcoin. However, the 21 million supply cap could be changed pursuant to a hard fork. For further information, see “Risk Factors — Risks Related to Digital Asset Markets — Changes to supply constraints, or the inability to modify fixed supplies, may adversely affect the value, functionality and liquidity of certain of the Portfolio Assets.” As of June 30, 2025, approximately 19.9 million bitcoin were outstanding, and the date when the 21 million bitcoin limitation will be reached is estimated to be the year 2140.

Modifications to the Bitcoin Protocol

Bitcoin is an open-source project with no official developer or group of developers that controls the Bitcoin Network. However, the Bitcoin Network’s development is overseen by a core group of developers. The core developers are able to access, and can alter, the Bitcoin Network source code and, as a result, they are responsible for quasi-official releases of updates and other changes to the Bitcoin Network’s source code. The release of updates to the Bitcoin Network’s source code does not guarantee that the updates will be automatically adopted. Users and miners must accept any changes made to the bitcoin source code by downloading the proposed modification of the Bitcoin Network’s source code. A modification of the Bitcoin Network’s source code is effective only with respect to the bitcoin users and miners that download it. If a modification is accepted by only a percentage of users and miners, a division in the Bitcoin Network will occur such that one network will run the premodification source code and the other network will run the modified source code. Such a division is known as a “fork.” See “Risk Factors — Risks Related to Digital Assets — A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares.” Consequently, as a practical matter, a modification to the source code becomes part of the Bitcoin Network only if accepted by participants collectively having most of the processing power on the Bitcoin Network.

There have been several forks in the Bitcoin Network, including, but not limited to, forks resulting in the creation of Bitcoin Cash (August 1, 2017), Bitcoin Gold (October 24, 2017) and Bitcoin SegWit2X (December 28, 2017), among others.

Core development of the Bitcoin Network source code has increasingly focused on modifications of the Bitcoin Network protocol to increase speed and scalability and also allow for nonfinancial, next-generation uses. For example, following the activation of Segregated Witness on the Bitcoin Network, an alpha version of the Lightning Network was released. The Lightning Network is an open-source decentralized network that enables instant off-Bitcoin Blockchain transfers of the ownership of bitcoin without the need of a trusted third party. The system utilizes bidirectional payment channels that consist of multi-signature addresses. One on-blockchain transaction is needed to open a channel and another on-blockchain transaction can close the channel. Once a channel is open, value can be transferred instantly between counterparties, who are engaging in real bitcoin transactions without broadcasting them to the Bitcoin Network. New transactions will replace previous transactions and the counterparties will store everything locally as long as the channel stays open to increase transaction throughput and reduce computational burden on the Bitcoin Network. Other efforts include increased use of smart contracts and distributed registers built into, built atop or pegged alongside the Bitcoin Blockchain. The Trust’s activities will not directly relate to such projects, though such projects may utilize bitcoin as tokens for the facilitation of their nonfinancial uses, thereby potentially increasing demand for bitcoin and the utility of the Bitcoin Network as a whole. Conversely, projects that operate and are built within the Bitcoin Blockchain may increase the data flow on the Bitcoin Network and could either “bloat” the size of the Bitcoin Blockchain or slow confirmation times. At this time, such projects remain in early stages and have not been materially integrated into the Bitcoin Blockchain or the Bitcoin Network.

Forms of Attack Against the Bitcoin Network

All networked systems are vulnerable to various kinds of attacks. As with any computer network, the Bitcoin Network contains certain flaws. For example, the Bitcoin Network is currently vulnerable to a “51% attack” where, if a mining pool were to gain control of more than 50% of the hash rate for a digital asset, a malicious actor would be able to prevent new transactions from confirmation, and reverse

 

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new transactions that are completed while they are in control of the network, effectively enabling them to double-spend their bitcoin.

In addition, many digital asset networks have been subjected to a number of denial of service attacks, which has led to temporary delays in block creation and in the transfer of bitcoin. Any similar attacks on the Bitcoin Network that impact the ability to transfer bitcoin could have a material adverse effect on the price of bitcoin and the value of the Shares.

Market Participants

Miners

Miners are primarily professional mining operations that design and build dedicated machines and data centers, including mining pools, which are groups of miners that act cohesively and combine their processing to solve blocks. When a pool solves a new block, the pool operator receives the bitcoin and, after taking a nominal fee, splits the resulting reward among the pool participants based on the processing power each of them contributed to solve for such block. Mining pools provide participants with access to smaller, but steadier and more frequent, bitcoin payouts.

Investment and Speculative Sector

This sector includes the investment and trading activities of both private and professional investors and speculators. Historically, larger financial services institutions are publicly reported to have limited involvement in investment and trading in digital assets, although the participation landscape is beginning to change.

Retail Sector

The retail sector includes users transacting in direct peer-to-peer bitcoin transactions through the direct sending of bitcoin over the Bitcoin Network, as well as users accessing bitcoin through digital asset platforms. The retail sector also includes transactions in which consumers pay for goods or services from commercial or service businesses through direct transactions or third-party service providers.

Service Sector

This sector includes companies that provide a variety of services, including the buying, selling, payment processing and storing of bitcoin. Bitstamp by Robinhood, Coinbase, Kraken and LMAX Digital are some of the larger bitcoin trading platforms by volume traded. Foris DAX Trust Company, LLC, the Digital Asset Custodian for the Trust, is a digital asset custodian that provides custodial accounts that store bitcoin for users. If the Bitcoin Network grows in adoption, it is anticipated that service providers may expand the currently available range of services and that additional parties will enter the service sector for the Bitcoin Network.

Competition

More than 10,000 other digital assets have been developed since the inception of bitcoin; currently bitcoin is the most developed digital asset because of the length of time it has been in existence, the investment in the infrastructure that supports it and the network of individuals and entities that are using bitcoin in transactions. Some industry groups are also creating private, permissioned blockchain versions of digital assets. See “Risk Factors — Risks Related to the Digital Asset Markets — Competition from the emergence or growth of other digital assets or methods of investing in the Portfolio Assets could have a negative impact on the prices of the Portfolio Assets and adversely affect the value of the Shares.”

Government Oversight, Though Increasing, Remains Limited

As digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, the SEC, the OCC, the CFTC, FINRA, the CFPB,

 

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the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS and state financial institution regulators) have been examining the operations of digital asset networks, digital asset users and the digital asset platform markets, with a particular focus on the extent to which digital assets can be used to launder the proceeds of illegal activities or fund criminal or terrorist enterprises and the safety and soundness of platforms or other service providers that hold digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies and other countries have issued rules or guidance about the treatment of digital asset transactions or requirements for businesses engaged in digital asset activity. However, no U.S. federal or state agency exercises comprehensive supervisory jurisdiction over global or domestic markets for bitcoin.

In addition, the SEC, U.S. state securities regulators and several foreign governments have issued warnings that certain digital assets or activities involving them, including, without limitation, those sold initial coin offerings (“ICOs”), may be classified as securities and that both those digital assets and ICOs may be subject to securities regulations. Ongoing and future regulatory actions may alter, perhaps to a materially adverse extent, the nature of an investment in the Shares or the ability of the Trust to continue to operate. Additionally, U.S. state and federal, and foreign regulators and legislatures have taken action against virtual currency businesses or enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm or criminal activity stemming from virtual currency activity. The U.S. Treasury Department has expressed concern regarding digital assets’ potential to be used to fund illicit activities and may seek to implement new regulations governing digital asset activities to address these concerns.

Various foreign jurisdictions have adopted, and may continue to adopt, in the near future, laws, regulations or directives that may affect the Bitcoin Network, digital asset platforms and their users, particularly digital asset platforms and service providers that fall within such jurisdictions’ regulatory scope. There remains significant uncertainty regarding foreign governments’ future actions with respect to the regulation of digital assets and digital asset platforms. Such laws, regulations or directives may conflict with those of the United States and may negatively impact the acceptance of bitcoin by users, merchants and service providers outside the United States and may therefore impede the growth or sustainability of the bitcoin economy in their jurisdictions or globally, or otherwise negatively affect the value of bitcoin. The effect of any future regulatory change on the Trust or bitcoin is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Shares.

See “Risk Factors — Risks Related to the Regulation of the Trust and the Shares — Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of the Portfolio Assets or the Shares.”

 

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OVERVIEW OF THE ETHEREUM NETWORK

Introduction

Ether is a digital asset that is created and transmitted through the operations of the peer-to-peer Ethereum Network, a network of computers, known as nodes, that operates pursuant to cryptographic protocols. No single entity owns or operates the Ethereum Network, the infrastructure of which is collectively maintained by a distributed user base. Ether is not issued by governments, banks or any other centralized authority. The Ethereum Network allows people to exchange tokens of value, called ether, which are recorded on a public transaction ledger known as the Ethereum Blockchain. Ether can be used to pay for goods and services, including computational power on the Ethereum Network, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on digital asset exchanges or in individual end-user-to-end-user transactions under a barter system.

The Ethereum Network allows users to write and implement computer programs called smart contracts — that is, general-purpose code that executes on every computer in the network and can instruct the transmission of information and value based on a set of logical conditions. Using smart contracts, users can create markets, store registries of debts or promises, represent the ownership of property, move funds in accordance with conditional instructions and create digital assets other than ether on the Ethereum Network. Smart contract operations are executed on the Ethereum Blockchain in exchange for payment of ether. The Ethereum Network is one of a number of projects intended to expand blockchain use beyond just a peer-to-peer money and payments system.

The Ethereum Network is commonly understood to be decentralized and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of ether. Rather, following the initial distribution of ether, ether is created, burned and allocated by the Ethereum Network protocol through a process that is currently subject to an issuance and burn rate as further described under “— Limits on Ether Supply” below. The value of ether is determined by the supply of and demand for ether on the digital asset exchanges or in private end-user-to-end-user transactions. There is no hard cap which would limit the number of outstanding ether at any one time to a predetermined maximum.

New ether is created and rewarded to the validators of a block in the Ethereum Blockchain for verifying transactions. The Ethereum Blockchain is effectively a decentralized database that includes all blocks that have been validated and it is updated to include new blocks as they are validated. Each ether transaction is broadcast to the Ethereum Network and, when included in a block, recorded in the Ethereum Blockchain. As each new block records outstanding ether transactions, and outstanding transactions are settled and validated through such recording, the Ethereum Blockchain represents a complete, transparent and unbroken history of all transactions of the Ethereum Network. For further details, see “— Creation of New Ether.”

Among other things, ether is used to pay for transaction fees and computational services (e.g., smart contracts) on the Ethereum Network; users of the Ethereum Network pay for the computational power of the machines executing the requested operations with ether. Requiring payment in ether also is designed to ensure that the Ethereum Network remains economically viable by compensating people for their contributed computational resources and making it costly to spam the network.

Assets in the Ethereum Network are held in accounts. Each account, or “wallet,” is made up of at least two components: a public address and a private key. An Ethereum private key controls the transfer or “spending” of ether from its associated public ether address. An ether “wallet” is a collection of a public Ethereum address and its associated private key. This design allows only the owner of ether to send ether, the intended recipient of ether to unlock it, and the validation of the transaction and ownership to be verified by any third party anywhere in the world.

Transaction fees (including transactions that involve the operation of smart contracts) are only payable in ether. An Ethereum improvement proposal known as EIP-1559 simplified the transaction fee process. Instead of performing complex calculations to estimate the fee that is charged (“gas”), users instead pay an algorithmically determined transaction fee set by the protocol itself. Gas price is often a

 

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small fraction of ether, which is denoted in the unit of Gwei (10^9 Gwei = 1 ether). Gas is essential in sustaining the Ethereum Network. It motivates validators to process and verify transactions for a monetary reward. Gas price fluctuates with supply. Gas has another important function in preventing unintentional waste of energy. Because the coding language for Ethereum is Turing-complete, there is a possibility of a program running indefinitely, and a transaction can be left consuming a lot of energy. A gas limit is imposed as the maximum price users are willing to pay to facilitate transactions. When gas runs out, the program will be terminated, and no additional energy would be used.

In 2022, the Ethereum Network implemented software upgrades and other changes to its protocol, including the adoption of network upgrades collectively referred to as the Merge, or Ethereum 2.0. Ethereum 2.0 aimed to improve the network’s speed, scalability, efficiency, security, accessibility and transaction throughput in part by reducing its energy footprint and decreasing transaction times for the network. As part of Ethereum 2.0, in mid-September 2022, a shift from the proof-of-work to the proof-of-stake model occurred. Ethereum 2.0 also encompassed the addition of other new features, such as “sharding.” Sharding is a multi-phase upgrade to improve Ethereum’s scalability and capacity. Shard chains spread the network’s load across numerous new chains splitting the data processing responsibility among many nodes and allowing for parallel processing and validation of transactions. Sharding makes it easier to run a node by keeping hardware requirements low. A digital asset network’s consensus mechanism is an aspect of its source code, and any failure to properly implement such a change could have a material adverse effect on the value of ether and the value of the Shares. The move to proof-of-stake may subject Ethereum and ether to new and unexpected vulnerabilities not applicable to proof-of-work consensus models.

History of Ethereum

The Ethereum Network was originally described in a 2013 white paper by Vitalik Buterin, a programmer involved with bitcoin, with the goal of creating a peer-to-peer, open-source network enabling users to create so-called decentralized applications powered by smart contracts. By combining the Ethereum Blockchain with a flexible scripting language that is designed to be capable of implementing sophisticated logic and executing a wide variety of instructions, the Ethereum Network was designed to act as a programmable infrastructure layer that would enable users to create their own rules for ownership, transaction formats and state transition functions that they could build into custom software programs of their own creation. The formal development of the Ethereum Network began through a Swiss firm called Ethereum Switzerland GmbH (“EthSuisse”) in conjunction with several other entities. Subsequently, the Ethereum Foundation, a Swiss nonprofit organization, was set up to oversee the protocol’s development. The Ethereum Network went live on July 30, 2015. Smart contracts, including those relating to DeFi applications, are a new technology and their ongoing development and operation may result in problems, which could reduce the demand for ether or cause a wider loss of confidence in the Ethereum Network, either of which could have an adverse impact on the value of ether.

Ether is the digital asset that powers the Ethereum Network and serves as the network’s native unit of account used to pay transaction fees to the protocol itself and to validators. Unlike other digital assets, such as bitcoin, which are solely created through a progressive mining process, 72.0 million ether were created in connection with the launch of the Ethereum Network. For additional information on the initial distribution, see “— Creation of New Ether.” Coinciding with the network launch, it was decided that EthSuisse would be dissolved, designating the Ethereum Foundation as the sole organization dedicated to protocol development.

Smart Contracts and Development on the Ethereum Network

Smart contracts are programs that run on a blockchain that can execute automatically when certain conditions are met. Smart contracts facilitate the exchange of anything representative of value, such as money, information, property or voting rights. Using smart contracts, users can send or receive digital assets, create markets, store registries of debts or promises, represent ownership of property or a company, move funds in accordance with conditional instructions and create new digital assets, among other actions.

 

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Development on the Ethereum Network involves building more complex tools on top of smart contracts, such as dApps, decentralized autonomous organizations (“DAOs”) and entirely new decentralized networks. For example, a company that distributes charitable donations on behalf of users could hold donated funds in smart contracts that are paid to charities only if the charities satisfy certain predefined conditions.

Moreover, the Ethereum Network has also been used as a platform for creating new digital assets. A majority of digital assets not issued as the native token on their own blockchains were built on the Ethereum Network, with such assets representing a significant amount of the total market value of all digital assets.

More recently, the Ethereum Network has been used for DeFi platforms, which seek to democratize access to financial services, such as borrowing, lending, custody, trading, derivatives and insurance, by replacing third-party intermediaries with autonomous code. DeFi platforms can allow users to lend and earn interest on their digital assets, exchange one digital asset for another and create derivative digital assets such as stablecoins, which are digital assets pegged to a reference asset such as fiat currency.

In addition, the Ethereum Network and other smart contract platforms have been used for creating NFTs. Unlike digital assets native to smart contract platforms which are fungible, NFTs allow for digital ownership of unique assets that convey certain rights to other digital or real-world assets. For example, an NFT may convey rights to a digital asset that exists in an online game or a dApp, and users can trade their NFTs in the dApp or game and carry them to other digital experiences.

The DAO and Ethereum Classic

In July 2016, the Ethereum Network experienced what is referred to as a permanent hard fork that resulted in two different versions of its blockchain: Ethereum and Ethereum Classic.

In April 2016, a blockchain solutions company known as Slock.it announced the launch of a decentralized autonomous organization, known as “The DAO,” on the Ethereum Network. The DAO was designed as a decentralized crowdfunding model, in which anyone could contribute ether tokens to The DAO in order to become a voting member and equity stakeholder in the organization. Members of The DAO could then make proposals about different projects to pursue and put them to a vote. By committing to profitable projects, members would be rewarded based on the terms of a smart contract and their proportional interest in The DAO. As of May 27, 2016, $150 million, or approximately 14% of all ether outstanding, was contributed to, and invested in, The DAO.

On June 17, 2016, an anonymous hacker exploited The DAO’s smart contract code to syphon approximately $60 million, or 3.6 million ether, into a segregated account. Upon the news of the breach, the price of ether was quickly cut in half as investors liquidated their holdings and members of the Ethereum community worked to develop a solution.

In the days that followed, several attempts were made to retrieve the stolen funds and secure the Ethereum Network, but none were successful. Members of the community subsequently coalesced around performing a hard fork that would create an entirely new version of the Ethereum Blockchain, erasing any record of the theft, and restoring the stolen funds to their original owners. The counterargument was that it would be antithetical to the core principle of immutability of the Ethereum Blockchain.

The decision over whether or not to hard fork the Ethereum Blockchain was put to a vote of Ethereum community members. A majority of votes were cast in favor of a hard fork. On July 15, 2016, a hard fork specification was implemented by the Ethereum Foundation. On July 20, 2016, the Ethereum Network completed the hard fork, and a new version of the blockchain, without recognition of the theft, went live.

Many believed that after the hard fork the original version of the Ethereum Blockchain would dissipate entirely. However, a group of validators continued to mine the original Ethereum Blockchain for philosophical and economic reasons. On July 20, 2016, the original Ethereum protocol was rebranded

 

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as Ethereum Classic, and its native token as ether classic (“ETC”), preserving the untampered transaction history (including the DAO theft). Following the hard fork of Ethereum, each holder of original ether (subsequently regarded as ETC) automatically received an equivalent number of new ether (subsequently regarded as simply “ether”).

Overview of the Ethereum Network’s Operations

In order to own, transfer or use ether directly on the Ethereum Network on a peer-to-peer basis (as opposed to through an intermediary, such as a custodian or centralized exchange), a person generally must have internet access to connect to the Ethereum Network. Ether transactions may be made directly between end-users without the need for a third-party intermediary. To prevent the possibility of double-spending ether, a user must broadcast the transaction data to the Ethereum Network. The Ethereum Network provides confirmation against double-spending by memorializing every peer-to-peer transaction in the Ethereum Blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending of peer-to-peer transactions is accomplished through the Ethereum Network validation process, which adds “blocks” of data, including recent transaction information, to the Ethereum Blockchain.

Summary of an Ether Transaction

A “transaction request” refers to a request to the Ethereum Network made by a user, in which the requesting user (the “sender”) asks the Ethereum Network to send some ether or execute some code. A “transaction” refers to a fulfilled transaction request and the associated change in the Ethereum Network’s state. An Ethereum Client is a software application that implements the Ethereum Network specification and communicates with the Ethereum Network. A node is a computer or other device, such as a mobile phone, running an individual Ethereum Client that is connected to other computers also running their own Ethereum Clients, which collectively form the Ethereum Network. Nodes can be full nodes (meaning they host a local copy of the entire Ethereum Blockchain) or light nodes, which only host a local copy of a sub-portion of the full Ethereum Blockchain with reduced data. Nodes may (but do not have to) be validators, which requires them to download an additional piece of software in the node’s Ethereum Client and stake a certain amount of ether, which is discussed below.

Any user can broadcast a transaction request to the Ethereum Network from a node located on the network. A user can run its own node, or it can connect to a node operated by others. For the transaction request to actually result in a change to the current state of the Ethereum Network, it must be validated, executed and “committed to the network” by another node (specifically, a validator node). Execution of the transaction request by the validator results in a change to the state of the Ethereum Network once the transaction is broadcast to all other nodes across the Ethereum Network. Transactions can include, for example, sending ether from one account to another, as discussed below; publishing a new smart contract onto the Ethereum Network; or activating and executing the code of an existing smart contract, in accordance with the terms and conditions specified in the sender’s transaction request.

The Ethereum Blockchain can be thought of as a ledger recording a history of transactions and the balances associated with individual accounts, each of which has an address on the Ethereum Network. An Ethereum Network account can be used to store ether. There are two types of Ethereum accounts: “externally owned accounts,” which are controlled by a private key, and “smart contract accounts,” which are controlled by their own code. Externally owned accounts are controlled by users, do not contain executable code and are associated with a unique “public key” and “private key” pair, commonly referred to as a “wallet,” with the private key being used to execute transactions. Smart contract accounts contain, and are controlled by, their own executable code: every time the smart contract account receives a transaction from, or is “called” by, another user, the smart contract account’s code activates, allowing it to read and write to internal storage, send ether or perform other operations. Both externally owned accounts and smart contract accounts can be used to send, hold or receive ether, and both can interact with other smart contracts. However, only externally owned accounts have the power to initiate transactions; smart contract accounts can only send transactions of their own after they are first activated or called by another transaction. An externally owned account is associated with both a public address on the Ethereum Network and a private key, while a smart contract account

 

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is only associated with a public address. While a smart contract account does not use a private key to authorize transactions, including transfers of ether, the developer of a smart contract may hold an “admin key” to the smart contract account, or have special access privileges, allowing the developer to make changes to the smart contract, enable or disable features on the smart contract or change how the smart contract receives external inputs and data, among others.

Accounts depend on nodes to access the peer-to-peer Ethereum Network. Through the node’s Ethereum Client, a user’s Ethereum wallet and its associated Ethereum Network address enable the user to connect to the Ethereum Network and transfer ether to, and receive ether from, other users, and interact with smart contracts, on a peer-to-peer basis. A user with an externally owned account can either run its own node (and its own Ethereum Client) and connect that node to its Ethereum wallet, allowing it to make transactions from its Ethereum wallet on the Ethereum Network, or a user’s wallet can connect to third-party nodes operated as a service (e.g., Infura) and access the Ethereum Network that way. Multiple accounts can access the Ethereum Network through one node.

Each user’s Ethereum wallet is associated with a unique “public key” and “private key” pair. To receive ether in a peer-to-peer transaction, the ether recipient must provide its public key to the sender. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The sender approves the transfer to the address provided by the recipient by “signing” a transaction that consists of the recipient’s public key with the private key of the address from which the sender is transferring the ether. The recipient, however, does not make public or provide to the sender the recipient’s related private key, only its public key.

Neither the recipient nor the sender reveals its private keys in a peer-to-peer transaction, because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses its private key, the user may permanently lose access to the ether contained in the associated address. When sending ether, a user’s Ethereum wallet must sign the transaction with the sender’s associated private key. In addition, since every computation on the Ethereum Network requires processing power, there is a mandatory transaction fee involved with the transfer that is paid by the sender to the Ethereum Network itself (“base fee”), plus additional transaction fees the sender can elect (or not) to pay at their discretion to the validators who validate their transaction (“tip”). The resulting digitally signed transaction is sent by the user’s Ethereum wallet, via a node (whether run by the user or operated by others), to other Ethereum Network nodes, who in turn broadcast it on a peer-to-peer basis to validators to allow transaction confirmation.

Ethereum Network validators record and confirm transactions when they validate and add blocks of information to the Ethereum Blockchain. Validators operate through nodes whose Ethereum Clients have an extra piece of software that permits the node to perform validation transactions. In a proof-of-stake consensus protocol like that used by the Ethereum Network, validators compete to be randomly selected to validate transactions. A validator must stake 32 ether to become a validator, which allows it to activate a unique validator key pair (consisting of a public and private validator key). Each stake of 32 ether results in issuance of a validator key pair, meaning that multiple validators can operate through a single validator node (including a validator node operated by a third party as a service). Validators may engage in two categories of activities: first, they may propose blocks (“proposers”) and second, they may approve a proposer’s block (“attesters”). Staking more ether (in chunks of 32 ether) can increase the numerical chances that a given validator will be randomly selected to propose a new block. When a validator is randomly selected by the protocol’s algorithm to propose a block, it creates that block, which includes data relating to (i) the verification of newly submitted transaction requests submitted by senders and (ii) a reference to the prior block in the Ethereum Blockchain to which the new block is being added. The proposing validator becomes aware of outstanding transaction requests through peer-to-peer data packet transmission and distribution enforced by the Ethereum protocol rules, which connects the proposer to users who want transactions recorded. If — once created — the proposing validator’s block is confirmed by a committee of randomly selected attesters, the block is broadcast to the Ethereum Network and added to the Ethereum Blockchain. Any smart contract code that has been called by the transaction request is also executed (provided the requisite fee is paid for the Ethereum Network’s computational power associated with executing the code). Upon the addition of a

 

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block included in the Ethereum Blockchain, an adjustment to the ether balance in both the sender and recipient’s Ethereum Network public key will occur, completing the ether transaction. Once a transaction is confirmed on the Ethereum Blockchain, it is irreversible.

As a reward for their services in adding the block to the Blockchain, both the proposing validator and the attesting validators receive newly minted ether from the Ethereum Network. If the proposing validator’s block is determined by the approving validator committee to be faulty or to break protocol rules, the proposer is penalized by having its staked ether reduced. Validators can also be penalized for attesting to transactions that break protocol rules or are inconsistent with the majority of other validators, or for inactivity or missing attestations that the Ethereum Network protocol assigned to them. In extreme cases, a proposing or attesting validator can be “slashed,” meaning forcibly ejected by other validators, with its staked ether continuously drained, potentially up to the loss of its entire stake. In this way, the Ethereum Network attempts to reduce double-spend and other attacks by validators and incentivize validator integrity.

Some ether transactions are conducted “off-blockchain” and are therefore not recorded in the Ethereum Blockchain. Some “off-blockchain transactions” involve the transfer of control over, or ownership of, a specific digital wallet holding ether or the reallocation of ownership of certain ether in a pooled-ownership digital wallet, such as a digital wallet owned by a digital asset exchange. If a transaction can also take place through a centralized digital asset exchange or a custodian’s internal books and records, it is not broadcast to the Ethereum Network or recorded on the Ethereum Blockchain. In contrast to on-blockchain transactions, which are publicly recorded on the Ethereum Blockchain, information and data regarding off-blockchain transactions are generally not publicly available. Therefore, off-blockchain transactions are not peer-to-peer ether transactions in that they do not involve a transaction on the Ethereum Network and do not reflect a movement of ether between addresses recorded in the Ethereum Blockchain. For these reasons, off-blockchain transactions are not necessarily immutable or irreversible as any such transfer of ether ownership is not cryptographically protected by the protocol behind the Ethereum Network or recorded in, and validated through, the blockchain mechanism.

Ether has generally exhibited high price volatility relative to more traditional asset classes. One volatility measure, standard deviation, is based on the variability of historical price returns. A higher standard deviation indicates a wider dispersion of past price returns and thus greater historical volatility.

Creation of New Ether

Initial Creation of Ether

Unlike other digital assets, such as bitcoin, which are solely created through a progressive mining process, 72.0 million ether were created in connection with the launch of the Ethereum Network. The initial 72.0 million ether were distributed as follows:

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Initial Distribution:   60.0 million ether, or 83.33% of the supply, was sold to the public in a crowd sale conducted between July and August 2014 that raised approximately $18 million.

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Ethereum Foundation:   6.0 million ether, or 8.33% of the supply, was distributed to the Ethereum Foundation for operational costs.

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Ethereum Developers:   3.0 million ether, or 4.17% of the supply, was distributed to developers who contributed to the Ethereum Network.

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Developer Purchase Program:   3.0 million ether, or 4.17% of the supply, was distributed to members of the Ethereum Foundation to purchase at the initial crowd sale price.

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Following the launch of the Ethereum Network, ether supply initially increased through a progressive validation process. Following the introduction of EIP-1559, described below, ether supply and issuance rates vary based on factors such as recent use of the network.

 

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Proof-of-Work Validation Process

Prior to September 2022, Ethereum operated using a proof-of-work consensus mechanism. Under proof-of-work, in order to incentivize those who incurred the computational costs of securing the network by validating transactions, there was a reward given to the computer (under proof-of-work, nodes that participate in proposing and verifying new blocks were known as “miners”) that was able to create the latest block on the chain. Every 12 seconds, on average, a new block was added to the Ethereum Blockchain with the latest transactions processed by the network, and the miner that generated this block was awarded a variable amount of ether, depending on use of the network at the time. In certain validation scenarios, ether was sometimes sent from one miner to another if it was also able to find a solution but its block was not included. This is referred to as an “uncle/aunt reward.” Due to the nature of the algorithm for block generation, this process (generating a “proof-of-work”) was guaranteed to be random. Prior to the Merge upgrade (described below) miners on the Ethereum Network engaged in a set of prescribed complex mathematical calculations in order to add a block to the Ethereum Blockchain and thereby confirm ether transactions included in that block’s data.

Proof-of-Stake Process

In the second half of 2020, the Ethereum Network began the first of several stages of an upgrade that was initially known as “Ethereum 2.0” and eventually became known as the “Merge” to transition the Ethereum Network from a proof-of-work consensus mechanism to a proof-of-stake consensus mechanism. The Merge was completed on September 15, 2022, and the Ethereum Network has operated on a proof-of-stake model since such time.

Unlike proof-of-work, in which validators expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational resources expended, in proof-of-stake, validators risk or “stake” tokens to compete to be randomly selected to validate transactions and are rewarded in tokens. Any malicious activity, such as validating multiple blocks, disagreeing with the eventual consensus or otherwise violating protocol rules, results in the forfeiture or “slashing” of a portion of the staked coins. Proof-of-stake is commonly regarded as more energy efficient than proof-of-work. Approximately every 12 seconds, a new block is added to the Ethereum Blockchain with the latest transactions processed by the network, and the validator that generated this block is awarded ether.

Limits on Ether Supply

The rate at which new ether are issued and put into circulation is expected to vary. In September 2022 the Ethereum Network converted from proof-of-work to a new proof-of-stake consensus mechanism. Following the Merge, approximately 1,700 ether are issued per day, though the issuance rate varies based on the number of validators on the network. In addition, the issuance of new ether could be partially or completely offset by the burn mechanism introduced by the EIP-1559 modification, under which ether are removed from supply at a rate determined by network usage. On many occasions, the ether supply has been deflationary over 24-hour periods as a result of the burn mechanism. The attributes of the new consensus algorithm are subject to change, but in sum, the new consensus algorithm and related modifications reduced total new ether issuances and may turn the ether supply deflationary over the long term.

As of June 30, 2025, approximately 121 million ether were outstanding.

Modifications to the Ethereum Protocol

The Ethereum Network is an open-source project with no official developer or group of developers that controls it. However, historically the Ethereum Network’s development has been overseen by the Ethereum Foundation and other core developers. The Ethereum Foundation and core developers are able to access and alter the Ethereum Network source code and, as a result, they are responsible for quasi-official releases of updates and other changes to the Ethereum Network’s source code. However, the release of proposed updates to the Ethereum Network’s source code by core developers does not guarantee that the updates will be automatically adopted. Nodes must accept any changes made to

 

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the Ethereum source code by choosing to download the proposed modification of the Ethereum Network’s source code in their individual Ethereum Client, and ultimately a critical mass (in practice, a substantial majority) of validators and users — such as dApp and smart contract developers, as well as users of dApps and smart contracts, and anyone else who transacts on the Ethereum Blockchain or the Ethereum Network — must support the shift, or the upgrades will lack adoption. A modification of the Ethereum Network’s source code is only effective with respect to the Ethereum nodes that download it and modify their Ethereum Clients accordingly, and in practice such decisions are heavily influenced by the preferences of validators and users. If a modification is accepted only by a percentage of nodes, a division in the Ethereum Network will occur such that one network will run the premodification source code and the other network will run the modified source code. Such a division is known as a “fork.” A temporary or permanent “fork” of the Ethereum Blockchain could adversely affect the value of the Shares. Consequently, as a practical matter, a modification to the source code becomes part of the Ethereum Network only if accepted by a sufficiently broad cross-section of the Ethereum Network’s participants.

For example, in 2019 the Ethereum Network completed a network upgrade called Metropolis that was designed to enhance the usability of the Ethereum Network and was introduced in two stages. The first stage, called Byzantium, was implemented in October 2017. The purposes of Byzantium were to increase the network’s privacy, security and scalability and to reduce the block reward for validators (at that time, validators on the proof-of-work consensus version of Ethereum were known as “miners”) who created new blocks in proof-of-work consensus from 5.0 ether to 3.0 ether. The second stage, called Constantinople, was implemented in February 2019, along with another upgrade, called St. Petersburg. Another network upgrade, called Istanbul, was implemented in December 2019. The purpose of Istanbul was to make the network more resistant to denial-of-service attacks, to enable greater ether and Zcash interoperability as well as other Equihash-based proof-of-work digital assets, and to increase the scalability and performance for solutions on zero-knowledge privacy technology like SNARKs and STARKs. The purposes of these upgrades were to prepare the Ethereum Network for the introduction of a proof-of-stake algorithm and reduce the block reward from 3.0 ether to 2.0 ether.

In the second half of 2020, the Ethereum Network began the first of several stages of an upgrade culminating in the Merge. The Merge amended the Ethereum Network’s consensus mechanism to include proof-of-stake and was intended to address the perceived shortcomings of the proof-of-work consensus mechanism in terms of labor intensity and duplicative computational effort expended by validators (known under proof-of-work as “miners”) who did not win the race, under proof of work, to be the first in time to solve the cryptographic puzzle that would allow them to be the only validator permitted to validate the block and receive the resulting block reward (which was only given to the first validator to successfully solve the puzzle and hash a given block, and not to others).

Following the Merge, core development of the Ethereum source code has increasingly focused on modifications of the Ethereum protocol to increase speed, throughput and scalability and also improve existing or next-generation uses. Future upgrades to the Ethereum protocol and Ethereum Blockchain to address scaling issues — such as network congestion, slow throughput and periods of high transaction fees owing to spikes in network demand — have been discussed by network participants, such as “sharding.” The purpose of sharding, which has been discussed for years, is to increase scalability of the Ethereum Blockchain by splitting the blockchain into subsections, called shards, and dividing validation responsibility so that a defined subset of validators would be responsible for each shard, rather than all validators being responsible for the entire blockchain, allowing for parallel processing and validation of transactions. However, there appears to be uncertainty and a lack of existing widespread consensus among network participants about how to solve the scaling challenges faced by the Ethereum Network.

The rapid development of other competing scalability solutions, such as those which would rely on handling the bulk of computational work relating to transactions or smart contracts and dApps outside of the main Ethereum Network and Ethereum Blockchain, has caused alternatives to sharding to emerge. “Layer 2” is a collective term for solutions that are designed to help increase throughput and reduce transaction fees by handling or validating transactions off the main Ethereum Network (known as “Layer 1”) and then attempting to take advantage of the perceived security and integrity advantages of

 

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the Layer 1 Ethereum Network by uploading the transactions validated on the Layer 2 protocol back to the Layer 1 Ethereum Network. The details of how this is done vary significantly between different Layer 2 technologies and implementations. For example, “rollups” perform transaction execution outside the Layer 1 blockchain and then post the data, typically in batches, back to the Layer 1 Ethereum Blockchain where consensus is reached. “Zero knowledge rollups” are generally designed to run the computation needed to validate the transactions off-chain, on the Layer 2 protocol, and submit a proof of validity of a batch of transactions (not the entire transactions themselves). By contrast, “optimistic rollups” assume transactions are valid by default and only run computation, via a fraud proof, in the event of a challenge. Other proposed Layer 2 scaling solutions include, among others, “state channels,” which are designed to allow participants to run a large number of transactions on the Layer 2 side channel protocol and only submit two transactions to the main Layer 1 Ethereum Blockchain (the transaction opening the state channel, and the transaction closing the channel); and “side chains,” in which an entire Layer 2 blockchain network with similar capabilities similar to those of the existing Layer 1 Ethereum Blockchain runs in parallel with the existing Layer 1 Ethereum Blockchain and allows smart contracts and dApps to run on the Layer 2 side chain without burdening the main Layer 1 network, and others. To date, the Ethereum Network community has not coalesced overwhelmingly around any particular Layer 2 solution, though this could change.

Apart from solutions designed to address scalability challenges, there have been other upgrades as well. In 2021, the Ethereum Network implemented the EIP-1559 upgrade. EIP-1559 changed the methodology used to calculate the fees paid to validators. EIP-1559 resulted in the splitting of fees into two components: a base fee and tip. Ether used to pay the base fee as a result of EIP-1559 is removed from circulation, or “burnt,” and the tip is paid to validators. EIP-1559 has reduced the total net issuance of ether fees to validators. Future updates may impact the supply of or demand for ether or its price.

The Trust’s activities will not directly relate to scalability or upgrade projects, though such projects may potentially increase demand for ether and the utility of the Ethereum Network as a whole. Conversely, if they are unsuccessful or they cause users or application or smart contract developers to migrate away from the Ethereum Blockchain, demand for ether could potentially be reduced. Also, projects that operate and are built within the Layer 1 Ethereum Blockchain and the Ethereum Network may increase the data flow on the Ethereum Network and could either “bloat” the size of the Ethereum Blockchain or slow confirmation times.

Forms of Attack Against the Ethereum Network

All networked systems are vulnerable to various kinds of attacks. As with any computer network, the Ethereum Network contains certain flaws. For example, the Ethereum Network is currently vulnerable to a “>50% attack” whereby, if a validator or group of validators acting in concert were to gain control of more than 50% of the staked ether, a malicious actor would be able to gain full control of the network and the ability to manipulate the Ethereum Blockchain. As of the date of this prospectus, the top three largest staking pools controlled nearly 50% of the ether staked on the Ethereum Network.

Many digital asset networks have been subjected to a number of denial-of-service attacks, which has led to temporary delays in block creation and in the transfer of ether. Any similar attacks on the Ethereum Network that impact the ability to transfer ether could have a material adverse effect on the price of ether and the value of the Shares.

Market Participants

Validators

In proof-of-stake, validators risk or stake coins to compete to be randomly selected to validate transactions and are rewarded for performing their responsibilities and behaving in accordance with protocol rules. Any malicious activity, such as validating multiple blocks, disagreeing with the eventual consensus or otherwise violating protocol rules, results in the penalization or, in extreme cases, slashing of a portion of the staked coins.

 

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Validators range from Ethereum enthusiasts to professional operations that design and build dedicated machines and data centers. On the Ethereum Network, a validator must stake 32 ether in order to participate in maintaining the network. When a validator confirms a transaction, the validator receives fees, including a base fee and a discretionary tip. During the course of ordering transactions and validating blocks, validators may be able to prioritize certain transactions in return for increased transaction fees, particularly tips, an incentive system known as “Maximal Extractable Value” ​(“MEV”). For example, in blockchain networks that facilitate DeFi protocols in particular, such as the Ethereum Network, users may attempt to gain an advantage over other users by increasing offered transaction fees to incentivize validators to give their submitted transaction requests priority. Certain software services, such as Flashbots, have been developed to facilitate validators in capturing MEV produced by these increased fees.

Investment and Speculative Sector

This sector includes the investment and trading activities of both private and professional investors and speculators. Historically, larger financial services institutions are publicly reported to have limited involvement in investment and trading in digital assets, although the participation landscape is beginning to change. Currently, there is relatively limited use of digital assets in the retail and commercial marketplace in comparison to relatively extensive use by speculators, and a significant portion of demand for digital assets is generated by speculators and investors seeking to profit from the short- or long-term holding of digital assets.

Retail Sector

The retail sector includes users transacting in direct peer-to-peer ether activity through the direct sending of ether over the Ethereum Network. The retail sector also includes transactions in which consumers pay for goods or services from commercial or service businesses through direct transactions or third-party service providers, although the use of ether as a means of payment is still developing and has not been accepted in the same manner as bitcoin due to ether’s relative nascency and because ether has a generally different purpose than bitcoin.

Service Sector

This sector includes companies that provide a variety of services, including the buying, selling, payment processing and storing of ether. For example, Crypto.com, Coinbase, Kraken, Bitstamp by Robinhood, Gemini and LMAX Digital are some of the largest digital asset exchanges by volume traded. Foris DAX Trust Company, LLC, the Digital Asset Custodian of the Trust, is a digital asset custodian that provides custodial accounts that store ether for users. As the Ethereum Network continues to grow in acceptance, it is anticipated that service providers will expand the currently available range of services and that additional parties will enter the service sector for the Ethereum Network.

Competition

Thousands of other digital assets have been developed since the inception of bitcoin, which is currently the most developed digital asset because of the length of time it has been in existence, the investment in the infrastructure that supports it, and the network of individuals and entities that are using bitcoin in transactions. While ether has enjoyed some success in its limited history, the aggregate value of outstanding ether is smaller than that of bitcoin and may be eclipsed by the more rapid development of other digital assets. In addition, while ether was the first digital asset with a network that served as a smart contracts platform, a number of newer digital assets also function as smart contracts platforms, including Solana, Avalanche and Cardano. Some industry groups are also creating private, permissioned blockchain versions of Ethereum.

 

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OVERVIEW OF THE SOLANA NETWORK

Introduction

SOL is a digital asset that can be transferred among participants on the Solana Network on a peer-to-peer basis via the internet.

No single entity is known to own or operate the Solana Network, the infrastructure of which is collectively maintained by what is understood to be a decentralized user base. The Solana Network allows people to exchange tokens of value, called SOL, which are recorded on a public transaction ledger known as a blockchain. SOL can be used to pay for goods and services, including computational power on the Solana Network, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on digital asset trading platforms or in individual end-user-to-end-user transactions under a barter system. Furthermore, the Solana Network was designed to allow users to write and implement smart contracts — that is, general-purpose code that executes on every computer in the network and can instruct the transmission of information and value based on a set of logical conditions. Using smart contracts, users can create markets, store registries of debts or promises, represent the ownership of property, move funds in accordance with conditional instructions and create digital assets other than SOL on the Solana Network. Smart contract operations are executed on the Solana Blockchain in exchange for payment of SOL. Like the Ethereum Network, the Solana Network is one of a number of projects intended to expand blockchain use beyond just a peer-to-peer money system.

The Solana protocol introduced the Proof-of-History timestamping mechanism. PoH orders on-chain transactions by creating a historical record that proves an event has occurred at a specific moment in time. PoH is intended to provide a transaction processing speed and capacity advantage over other blockchain networks like the Bitcoin Network or the Ethereum Network, which rely on sequential production of blocks and can lead to delays caused by validator confirmations. PoH is a new blockchain technology that is not widely used. PoH may not function as intended. For example, it may require more specialized equipment to participate in the network and fail to attract a significant number of users or may be subject to outages or fail to function as intended. In addition, there may be flaws in the cryptography underlying PoH, including flaws that affect functionality of the Solana Network or make the network vulnerable to attack.

In addition to the PoH mechanism described above, the Solana Network uses a proof-of-stake consensus mechanism to incentivize SOL holders to validate transactions. Unlike proof-of-work, in which miners expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational resources expended, in proof-of-stake, validators risk or “stake” coins to compete to be randomly selected to validate transactions and are rewarded coins in proportion to the amount of coins staked. Proof-of-stake is viewed as more energy efficient and scalable than proof-of-work and is sometimes referred to as “virtual mining.”

The Solana protocol was first conceived by Anatoly Yakovenko in a 2017 whitepaper. Development of the Solana Network is overseen by the Solana Foundation, a Swiss nonprofit organization, and the Solana Labs.

In order to own, transfer or use SOL directly on the Solana Network (as opposed to through an intermediary, such as a custodian), a person generally must have internet access to connect to the Solana Network. SOL transactions may be made directly between end-users without the need for a third-party intermediary. To prevent the possibility of double-spending SOL, a user must notify the Solana Network of the transaction by broadcasting the transaction data to its network peers. The Solana Network provides confirmation against double-spending by memorializing every transaction in the Solana Blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending is accomplished through the Solana Network validation process, which adds “blocks” of data, including recent transaction information, to the Solana Blockchain. Unlike other blockchains that rely solely on sequential production of blocks through PoW or PoS mechanisms, the Solana Network introduces PoH, which creates a historical record for determining that an event has occurred at a specific moment in time.

 

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Smart Contracts and Development on the Solana Network

Smart contracts are programs that run on a blockchain that can execute automatically when certain conditions are met. Smart contracts facilitate the exchange of anything representative of value, such as money, information, property or voting rights. Using smart contracts, users can send or receive digital assets, create markets, store registries of debts or promises, represent ownership of property or a company, move funds in accordance with conditional instructions and create new digital assets.

Development on the Solana Network includes building more complex tools using smart contracts, such as dApps and organizations that are autonomous, known as DAOs. For example, a company that distributes charitable donations on behalf of users could hold donated funds in smart contracts that are paid to charities only if the charity satisfies certain pre-defined conditions. In total, as of June 30, 2025, more than 400 dApps were built on the Solana Network, including dApps in the collectible nonfungible token, gaming, music streaming and DeFi categories.

Additionally, the Solana Network has been used for DeFi platforms, which seek to democratize access to financial services, such as borrowing, lending, custody, trading, derivatives and insurance, by removing third-party intermediaries. DeFi can allow users to lend and earn interest on their digital assets and exchange one digital asset for another.

Further, the Solana Network and other smart contract platforms have been used for creating and exchanging NFTs. For example, an NFT may convey rights to a digital asset that exists in an online game or a dApp, and users can trade their NFT in the dApp or game, and carry them to other digital experiences.

Solana Protocol Development and Modifications

Historically the Solana Network’s development has been overseen by Solana Labs, the Solana Foundation and other core developers. Solana Labs, the Solana Foundation and core developers are able to access and alter the Solana Network source code and, as a result, they are responsible for quasi-official releases of updates and other changes to the Solana Network’s source code. For example, in March 2020, Solana Labs and the Solana Foundation launched the Mainnet Beta version of the Solana Network, one month after launching the testnet, Tour de SOL. Solana Labs led the development of these reference implementations. The release of updates to the Solana Network’s source code does not guarantee that the updates will be automatically adopted. Nodes must accept any changes made to the Solana source code by downloading the proposed modification of the Solana Network’s source code. A modification of the Solana Network’s source code is only effective with respect to the nodes that download it. If a modification is accepted only by a percentage of nodes, a division in the Solana Network will occur such that one network will run the pre-modification source code and the other network will run the modified source code. Such a division is known as a “fork.” See “Risk Factors — Related to Digital Assets — A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares.” Consequently, as a practical matter, a modification to the source code becomes part of the Solana Network only if accepted by participants collectively having a majority of the processing power on the Solana Network.

Core development of the Solana source code has increasingly focused on modifications of the Solana protocol to increase speed and scalability and also allow for additional financial and non-financial uses. The Trust’s activities will not directly relate to such projects, though such projects may utilize SOL as tokens for the facilitation of their uses, thereby potentially increasing demand for SOL and the utility of the Solana Network as a whole. Conversely, projects that operate and are built within the Solana Blockchain may increase the data flow on the Solana Network and could either “bloat” the size of the Solana Blockchain or slow confirmation times.

Forms of Attack Against the Solana Network

All networked systems are vulnerable to various kinds of attacks. For example, the Solana Network is currently vulnerable to an attack where, if a party or group were to gain control of more

 

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than the relevant threshold of the staked SOL, a malicious actor would be able to gain control of the network and the ability to manipulate the Solana Blockchain. As of June 30, 2025, the top three largest staking pools controlled approximately 70% of the SOL staked on the Solana Network. In addition, many digital asset networks have been subjected to a number of denial of service attacks, which has led to temporary delays in block creation. For example, on September 14, 2021, the Solana Network experienced a significant disruption, later attributed to a type of denial of service attack, and was offline for 17 hours, only returning to full functionality 24 hours later. While persons associated with Solana Labs and/or the Solana Foundation are understood to have played a key role in bringing the network back online, the broader community also played a key role, as the Solana validators coordinated to upgrade and restart the network. Any similar attacks on the Solana Network that impact the ability to transfer SOL could have a material adverse effect on the price of SOL and the value of the Shares.

Summary of a SOL Transaction

Prior to engaging in SOL transactions directly on the Solana Network, a user generally must first install on its computer or mobile device a Solana Network software program that will allow the user to generate a private and public key pair associated with a SOL address. The Solana Network software program and the SOL address also enable the user to connect to the Solana Network and transfer SOL to, and receive SOL from, other users.

Each Solana Network address, or wallet, is associated with a unique “public key” and “private key” pair. To receive SOL, the SOL recipient must provide its public key to the party initiating the transfer. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The payor approves the transfer to the address provided by the recipient by “signing” a transaction that consists of the recipient’s public key with the private key of the address from where the payor is transferring the SOL. The recipient, however, does not make public or provide to the sender its related private key.

Neither the recipient nor the sender reveals its private keys in a transaction, because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses his or her private key, the user may permanently lose access to the SOL contained in the associated address. Likewise, SOL is irretrievably lost if the private key associated with them is deleted and no backup has been made. When sending SOL, a user’s Solana Network software program must validate the transaction with the associated private key. In addition, since every computation on the Solana Network requires processing power, there is a transaction fee involved with the transfer that is paid by the payor. The resulting digitally validated transaction is sent by the user’s Solana Network software program to the Solana Network validators to allow transaction confirmation.

The Solana Network validators record and confirm transactions when they validate and add blocks of information to the Solana Blockchain. When a validator is selected to validate a block, it creates that block, which includes data relating to (i) the verification of newly submitted and accepted transactions and (ii) a reference to the prior block in the Solana Blockchain to which the new block is being added. The validator becomes aware of outstanding, unrecorded transactions through the data packet transmission and distribution discussed above.

Upon the addition of a block of SOL transactions, the Solana Network software program of both the spending party and the receiving party will show confirmation of the transaction on the Solana Blockchain and reflect an adjustment to the SOL balance in each party’s Solana Network public key, completing the SOL transaction. Once a transaction is confirmed on the Solana Blockchain, it is irreversible.

Some SOL transactions are conducted “off-blockchain” and are therefore not recorded in the Solana Blockchain. These “off-blockchain transactions” involve the transfer of control over, or ownership of, a specific digital wallet holding SOL or the reallocation of ownership of certain SOL in a pooled-ownership digital wallet, such as a digital wallet owned by a Digital Asset Trading Platform. In contrast to on-blockchain transactions, which are publicly recorded on the Solana Blockchain, information and data regarding off-blockchain transactions are generally not publicly available. Therefore, off-blockchain transactions do not involve the transfer of transaction data on the Solana Network and do

 

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not reflect a movement of SOL between addresses recorded in the Solana Blockchain. For these reasons, off-blockchain transactions are subject to different risks as any such transfer of SOL ownership is not protected by the protocol behind the Solana Network or recorded in, and validated through, the blockchain mechanism.

Creation of New SOL

Initial Creation of SOL

500 million SOL were created in connection with the launch of the Solana Network. The initial 500 million SOL were distributed as follows:

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Third-party purchasers:   189 million SOL, or 37.8% of the supply, was sold in private sales to third-party purchasers conducted between 2018 to 2021.

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Solana Foundation:   52 million SOL, or 10.4% of the supply, was distributed to the Solana Foundation for operational costs incurred in the development of the Solana Network.

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Solana Labs, Inc.:   64 million SOL, or 12.8% of the supply, was retained by the Solana Labs to be used, at least in part, to compensate the employees of the Solana Labs.

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Community:   195 million SOL, or 39.0% of the supply, was distributed to the Solana Foundation to be deployed as bounties, incentive programs, marketing and grants.

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Following the launch of the Solana Network, SOL supply increases through a progressive minting process.

Proof-of-Stake Process

Unlike proof-of-work, in which validators expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational resources expended, in proof-of-stake, validators risk or “stake” coins to compete to be randomly selected to validate transactions and are rewarded coins in proportion to the amount of coins staked. Any malicious activity, such as validating multiple blocks, disagreeing with the eventual consensus or otherwise violating protocol rules, results in the forfeiture or “slashing” of a portion of the staked coins. Proof-of-stake is believed by some to be more energy efficient and scalable than proof-of-work. Every 400 milliseconds, approximately, a new block is added to the Solana Blockchain with the latest transactions processed by the network, and the validator that generated this block is awarded SOL.

Limits on SOL Supply

The rate at which new SOL supply has been minted and put into circulation has varied since network launch. Additionally, the Solana protocol reduces the SOL supply by eliminating 50% of transaction fees paid to the network. As a result, net changes in SOL supply are expected to vary in the future.

At network launch, the SOL circulating supply was 8 million SOL. Between network launch and June 30, 2025, the circulating supply of SOL increased by roughly 6,700% to approximately 534 million SOL. In February 2021, the SOL supply inflation rate was changed from 0.1% to a new initial inflation rate of 8%. The 8% initial inflation rate is scheduled to decline in 15% increments until a long-term inflation rate of 1.5% is reached. As of June 30, 2025, the SOL supply issuance rate was approximately 4.5% on an annual basis before any offsets for eliminated transaction fees.

SOL Market and SOL Exchanges

SOL can be transferred in direct peer-to-peer transactions through the direct sending of SOL over the Solana Blockchain from one SOL address to another. Among end-users, SOL can be used to pay other users of the Solana Network for goods and services under what resembles a barter system. Consumers can also pay merchants and other commercial businesses for goods or services through direct peer-to-peer transactions on the Solana Blockchain or through third-party service providers. In

 

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addition to using SOL to engage in transactions, interested parties may purchase and sell SOL to speculate as to the value of SOL in the SOL market, or as a long-term investment to diversify their portfolio. The value of SOL within the market is determined, in part, by the supply of and demand for SOL in the global SOL market, market expectations for the adoption of SOL as a store of value, the number of merchants that accept SOL as a form of payment, and the volume of peer-to-peer transactions, among other factors. SOL spot markets provide investors with a website that permits investors to open accounts with the spot market and then purchase and sell SOL. Sale prices for trades on SOL trading platforms are typically reported publicly. An investor opening a trading account typically must deposit an accepted government-issued currency into their account with the trading platforms, or a previously acquired digital asset, before they can purchase or sell assets on the trading platforms. The process of establishing an account with an SOL trading platforms and trading SOL is different from, and should not be confused with, the process of users sending SOL from one SOL address to another SOL address on the Solana Blockchain. This latter process is an activity that occurs on the Solana Network, while the former is an activity that occurs offchain on the trading platform. The trading platforms typically records the investor’s ownership of SOL in its internal books and records, rather than on the Solana Blockchain. The trading platforms ordinarily does not transfer SOL to the investor on the Solana Blockchain unless the investor makes a request to the trading platforms to withdraw the SOL in their exchange account to an off-exchange SOL wallet. Outside of trading platforms, SOL can be traded over-the-counter (“OTC”) in transactions that are not publicly reported. The OTC market is largely institutional in nature, and OTC market participants generally consist of institutional entities, such as firms that offer two-sided liquidity for SOL, investment managers, proprietary trading firms, high-net-worth individuals that trade SOL on a proprietary basis, entities with sizeable SOL holdings and family offices. The OTC market provides a relatively flexible market in terms of quotes, price, quantity, and other factors, although it tends to involve large blocks of SOL. The OTC market has no formal structure and no open-outcry meeting place. Parties engaging in OTC transactions will agree upon a price — often via phone or email — and then one of the two parties will then initiate the transaction. For example, a seller of SOL could initiate the transaction by sending the SOL to the buyer’s SOL address. The buyer would then wire U.S. dollars to the seller’s bank account. OTC trades are sometimes hedged and eventually settled with concomitant trades on SOL trading platforms. Authorized Participants will deliver, or facilitate the delivery of, SOL or cash to the Trust’s account with the Digital Asset Custodian in exchange for Shares of the Trust, and the Trust, through the Digital Asset Custodian, will deliver SOL or cash when such Authorized Participants redeem Shares of the Trust.

 

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OVERVIEW OF THE CRONOS NETWORK

Introduction

The Cronos ecosystem consists of:

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the Cronos Network Chain (the “Cronos Network”), a proof-of-stake Cosmos chain positioned as the “layer zero” blockchain network of the Cronos ecosystem;

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Cronos EVM Chain (“Cronos EVM”), an Ethereum-compatible Layer 1 blockchain of the Cosmos ecosystem;

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Cronos zkEVM Chain (“Cronos zkEVM”), a zero-knowledge Layer 2 blockchain network that utilizes ZKsync technology; and

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CRO, the native token of the Cronos ecosystem.

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The Cronos Network

The Cronos Network is the “layer-zero” blockchain network that guarantees the security of the Cronos ecosystem. It is the native chain of the CRO token, secured by a network of approximately 100 validators, representing approximately $1.0 billion in staked value. Since its inception, the Cronos Network chain has validated tens of millions of transactions, with an average transaction fee of $0.00001 per transaction. The Cronos Network utilizes the CRO token to pay for transaction fees (“gas”), which are collected by validators who play a crucial role in maintaining the security and integrity of the network, ensuring that transactions are processed efficiently and securely.

The Cronos Network utilizes a proof-of-stake consensus mechanism, based on Tendermint Core’s consensus engine and the Cosmos SDK framework, relying on a set of validators to participate in the PoS consensus protocol who are responsible for committing new blocks in the blockchain. Validators risk, or “stake,” CRO to compete to be randomly selected to validate transactions and are rewarded CRO in proportion to the amount of CRO staked, which results in comparably fewer new CRO rewarded.

The Cronos Network also supports the Inter-Blockchain Communication (“IBC”) protocol. Accordingly, end-users can import cryptocurrencies from the Cosmos and other chain families into the Cronos Network, and subsequently use, trade or invest them in smart contract-based protocols leveraging the application of other IBC compatible ecosystems, and port apps and smart contracts from IBC-compatible chains.

Cronos EVM

Cronos EVM is a Layer 1, open-source public blockchain with high speed and low transaction fees compatible with the Ethereum Virtual Machine (“EVM”). Cronos EVM is designed to support the creator economy with Web3 applications such as DeFi and game finance (“GameFi”) and is intended to serve as the foundational infrastructure for an open metaverse of dApps.

Cronos EVM utilizes a proof-of-authority (“PoA”) consensus mechanism, a permissioned variant of the PoS consensus mechanism that relies on validators that have been vetted and selected based on their commitment to the Cronos ecosystem, technical ability to implement upgrades, track record in operating high availability nodes, and economic viability. Selected validators are rewarded with CRO for validating transactions on Cronos EVM.

Cronos zkEVM

Cronos zkEVM is a Layer 2 zero-knowledge blockchain network. Cronos zkEVM is built on a customized deployment of ZK Stack (an open-source framework for creating ZK-powered blockchains). Cronos zkEVM utilizes a consensus contract that supports permissionless participation of multiple coordinators to produce and validate batches of Layer 2 transactions which are then published on Cronos EVM. Cronos zkEVM utilizes zkCRO, a yield-generating liquid staked version of CRO as its protocol token, which is backed by an amount of CRO staked on the Cronos Network.

 

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Consensus Engine

The Cronos Network is based on Tendermint Core’s consensus engine and the Cosmos SDK framework, relying on a set of validators to participate in the PoS consensus mechanism who are responsible for committing new blocks in the blockchain.

Tendermint

Tendermint is a software used to consistently and securely replicate an application on many machines. Tendermint relies on the (i) consensus engine, Tendermint Core (“Tendermint Core”), and (ii) application interface, Application BlockChain Interface (“ABCI”). Tendermint Core ensures that validators receive the same transactions and in the same order. Validators on the Cronos Network are running a Byzantine Fault Tolerant (“BFT”) consensus protocol meaning the Cronos Network consensus engine is able to tolerate machines failing or becoming malicious. Validators on the Cronos Network go through a multi-round voting process before coming to a consensus on the contents of a block. When the majority of the validators on the Cronos Network agree on this block, this block will be added to the blockchain on the network. ABCI makes it possible for developers to use Tendermint for applications in different programming languages and select the development environment suited for them.

Cosmos SDK

Cosmos SDK is an open-source framework suited for PoS and PoA blockchains. With the Cosmos SDK, developers can create custom blockchains from scratch on top of Tendermint, and natively interoperate with other Cosmos SDK blockchains. The Cosmos SDK allows for composable open-source modules that can be easily integrated. Developers can use pre-built modules or create custom modules that can be imported into the existing blockchain application. The Cosmos SDK is purportedly inspired by a capabilities-based security model, allowing developers to think more about the security of interactions between modules.

Fee Structure

The Cronos Network is designed to have lower transaction fees than a typical proof-of-work chain by virtue of its design architecture and its PoS consensus engine. Each transaction on the Cronos Network requires the payment of CRO as a transaction fee, which is calculated based on the computational effort needed to execute the transaction. The transaction fee on the Cronos Network is calculated as the total of CRO consumed during transaction execution multiplied by the CRO price. The Cronos Network adopts a fee market module with a dynamic fee structure. At each block on the Cronos Network, a common base fee is calculated dynamically for the next block, depending on the whole network utilization. The module’s formula to calculate the base fee at each block is designed such that the transaction fees will increase when the network is congested, and they will decrease when the network has spare capacity. In contrast with certain other PoS protocols, the fee market module implemented on the Cronos Network does not burn any of the base fees. The base fee and priority fee continue to be collected by the validators on the Cronos Network.

Security and Performance

The Cronos Network is powered by the Tendermint consensus engine, which is a BFT protocol, meaning the Cronos Network is designed to have (i) instant finality, making sure transactions are confirmed immediately once they are included in a block, (ii) scalability, because Tendermint can process more transactions per minute than the EVM and (iii) security, because BFT can tolerate up to one-third of the network’s nodes’ failure, including detection of explicit malicious behavior.

CRO Initial Distribution and Supply

New CRO tokens are not created through mining like in the Bitcoin Network. Instead, the entire supply of CRO was pre-mined at launch, with a fixed total supply of 100 billion CRO. This means there is no ongoing token creation. The pre-mined tokens are distributed over time according to a defined tokenomics plan, which includes allocations for ecosystem development, community incentives and team

 

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reserves. Rewards for validators and delegators on the Cronos Network are paid from these allocated pools, not from newly minted tokens. As a result, all token distribution follows a scheduled unlocking plan.

Governance

The Cronos Network validators receive CRO from users of the network in the form of transaction fees and as block rewards allocated to validators as part of the PoS governance of the Cronos Network, which are then distributed to delegators after taking a validator commission. CRO held by validators represents their voting power in the consensus and other on-chain decisions.

The Cronos Network community may make governance proposals as they see fit. For example, when there is a request to change blockchain parameters or community spending, community members can draft an initial proposal with feedback from the community. To officially submit a proposal on the mainnet, a minimum amount of CRO needs to be deposited during the deposit period, which lasts 14 days or until the minimum amount of deposit is reached. Voting power is counted depending on bonded stake. A governance proposal is passed when the deposit requirements are met (i.e., 33.4 % of the network’s voting power has voted, and a majority of the voting power has backed the “yes” vote).

Rewards and Penalties

Validators on the Cronos Network are expected to maintain a stable infrastructure and help to secure the network. If the validators fail to achieve this, they are subjected to certain forms of punishment depending on the severity, including jailing and byzantine faults.

Jailing

Validators are “jailed” if they do not sign blocks for a certain period of time. During the jailing period, validators are excluded from the active validator list and are not allowed to sign any blocks. The jailing period provides validators a chance to recover their infrastructure without further impacting the network stability. At the same time, the exclusion from signing blocks is a punishment to the validator because they cannot obtain any rewards during this period.

Byzantine Faults

A validator on the Cronos Network makes a byzantine fault when they sign conflicting messages/​blocks at the same height and consensus round. Tendermint has mechanisms to publish evidence of validators that signed conflicting votes so they can be punished by being slashed.

When byzantine faults are detected, validators are immediately slashed and jailed. Their stake will be deducted and validators who commit this double-signing fault will also be put into the “tombstone state,” which means they are blacklisted and jailed forever.

Ecosystem Support

Cronos Labs

Cronos Labs is a blockchain startup accelerator that focuses on DeFi, blockchain games and development of the Cronos ecosystem. Cronos Labs helps builders create user-friendly applications on the Cronos ecosystem and drive mainstream adoption of Web3. Ecosystem programs include financial incentives, technical support, marketing support and investor introductions. This includes:

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Cronos Ecosystem Grants:   The ecosystem grant program focuses on accelerating the implementation of infrastructure components, developer tools, product integrations and user/​developer education programs that are critical for the development of the Cronos ecosystem.

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Cronos Accelerator:   The accelerator program is a structured 10-week launchpad that helps app builders to achieve product-market fit and significantly increases the effectiveness of their fundraising efforts.

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Cronos Labs Incubator:   Cronos Labs incubates talented DApp product development teams and provides them with the means and tools to create outstanding DeFi and GameFi applications.

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Strategic Partnerships:   Cronos Labs establishes ad-hoc partnerships with proven founders, Web3 protocols and technology companies who can significantly advance the user and developer experience on the Cronos Network.

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Hackathons:   Cronos Labs supports a number of hackathon programs as organizer, sponsor or judge.

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Cronos Labs also supports the Cronos Ecosystem Grants Program, which is intended to support early-stage projects in the Cronos ecosystem by bootstrapping initial product development and providing technical support.

Cronos Play

Cronos Play is a comprehensive modular suite of developer tools and services to streamline the creation of gaming and GameFi applications in the Cronos ecosystem. Cronos Play is an essential pillar of the Cronos ecosystem’s strategy to bring tens of millions of end-users to Web3.

The Cronos Play roadmap includes integration with many open-source libraries and connectivity to commercial services such as Crypto.com Pay. Games will be able to receive payment cards and crypto payment processing easily. Users will be able to sign blockchain transactions via the Crypto.com Onchain, the MetaMask wallet or other wallets compatible with Wallet Connect.

CRO Market and Digital Asset Trading Platforms

All transactions on the Cronos Network require CRO to pay for fees. In addition, investors may purchase and sell CRO to speculate as to the value of CRO in the CRO market or as a long-term investment to diversify their portfolio. The value of CRO within the CRO market is determined, in part, by the supply of and demand for CRO, market expectations for adopting CRO and the Cronos ecosystem by individuals, the volume of commercial and private end-user-to-end-user transactions.

The most common means of determining a reference value is surveying trading platforms where secondary markets for CRO exist. The most prominent digital asset trading platforms are often referred to as “exchanges.” However, they are not regulated and do not report trade information in the same way as a national securities exchange. As such, there are some differences in the form, transparency, and reliability of trading data from digital asset trading platforms. Generally speaking, CRO data is available from these digital asset trading platforms, which have publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the USD or Euro or another digital asset such as a stablecoin like USDC or USDT. In addition, CRO and Cronos ecosystem-based tokens (and the cryptocurrency and crypto tokens transiting other smart contract networks) are often traded through decentralized smart contract platforms, referred to as “decentralized exchanges.” OTC dealers or market makers do not typically disclose their trade data.

Currently, several digital asset trading platforms are operating worldwide and trading platforms represent a substantial percentage of CRO buying and selling activity and provide the most data concerning prevailing valuations of CRO. CRO is currently listed for trading on a limited number of U.S.-based digital asset trading platforms, including Crypto.com, Coinbase and Kraken. Additionally, derivative instruments based on CRO actively trade as well, including via contracts listed on the North America Derivatives Exchange, Inc., a CFTC regulated designated contract market and derivatives clearing organization. A digital asset trading platform provides investors with a way to purchase and sell CRO, similar to stock exchanges like the New York Stock Exchange or NASDAQ, which provide ways to buy stocks and bonds in the so-called “secondary market.” Unlike stock exchanges regulated to monitor securities trading activity, digital asset trading platforms are largely regulated as money services businesses (or a foreign regulatory equivalent) that monitor against money laundering and other illicit financing. Digital asset trading platforms typically operate websites that permit investors to open accounts with the trading platform and then purchase and sell CRO and other digital assets.

 

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Although bitcoin was the first cryptocurrency, since 2009, the number of digital assets, market participants and companies in the space has increased dramatically. There are currently many other prominent digital assets. The digital asset marketplace is still evolving, including with respect to the practices of exchanges, the behavior of investors, and the protocols and prominence of particular digital assets. Before 2017, bitcoin accounted for approximately 85% or more of the total market capitalization of all digital assets. By June 30, 2025, this figure had dropped to around 65% as other digital assets, such as ether, launched and/or grew faster than bitcoin.

Investors in CRO can acquire CRO either on digital asset trading platforms, in the OTC markets or in direct bilateral transactions. OTC trading and direct transactions of CRO are generally accomplished via bilateral agreements on a principal-to-principal basis. All risks and issues related to creditworthiness are between the parties directly involved in the transaction.

Potential Forms of Attack Against the Cronos Network

All blockchain-based networked systems are vulnerable to various attacks, including majority-controlled attacks, distributed DDos attacks, botnet attacks and Sybil attacks. For example, a Sybil attack could occur if an attacker manages to create a large number of validator nodes, either by splitting their stake into multiple smaller nodes or by acquiring enough CRO.

Since CRO interacts with other blockchains, vulnerabilities in connected chains or their smart contracts could be exploited to compromise the Cronos Network’s operations. Attacks may also use fraudulent cross-chain transactions to steal funds or disrupt communication. As with any computer network, the Cronos Network could be subject to certain flaws, which attackers could exploit.

Many digital asset networks have also been subjected to DDoS attacks, which led to temporary delays in transaction recording and the transfer of digital assets. Any similar attacks on the Cronos Network or the Cronos ecosystem that impact the ability to transfer CRO could adversely affect the price of CRO and the value of the Shares. The development of software on and consensus around the Cronos ecosystem could be temporarily or more permanently impacted by any attack.

Competition

Thousands of other digital assets have been developed since the inception of CRO. CRO also faces competition from other blockchain interoperability solutions, each of which addresses the need for cross-chain communication asset tokenization and transfer. Other blockchain interoperability solutions include Cosmos, Polkadot, LayerZero, Wormhole, Hyperlane, Across and ChainLink CCIP. While CRO has enjoyed some success in its limited history, it may be eclipsed by the more rapid development of other digital assets, including other interoperability solutions.

 

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OVERVIEW OF THE XRP NETWORK

Introduction

XRP is a digital asset that is created and transmitted through the operations of the XRP Network (the “XRP Network”), a decentralized ledger upon which XRP transactions are processed and settled. XRP can be used to pay for goods and services or it can be converted to fiat currencies, such as the U.S. dollar. The XRP Network is based on a shared public ledger, similar to the Bitcoin Network. However, the XRP Network seeks to differentiate itself from other digital asset networks in that its stated primary function is transactional utility, not store of value. The XRP Network is designed to be a global real-time payment and settlement system. As a result, the XRP Network and XRP aim to improve the speed at which parties on the network may transfer value while also reducing the fees and delays associated with the traditional methods of interbank payments.

A network of independent nodes validates transactions on the XRP Network pursuant to a consensus-based algorithm. The XRP project was handed over to Jed McCaleb, Arthur Britto and David Schwartz in 2011, who were seeking to address some of their concerns related to the scalability of bitcoin and the energy intensive nature of the proof-of-work validation mechanism utilized by the Bitcoin Network that relied on “mining.” Their goal was to create a decentralized ledger that used a network of validators that would agree on transactions in a fast and secure manner, without relying upon mining. This led to the development of the XRP Newtork’s consensus-based algorithm.

Transactions are validated on the XRP Network by a network of validator nodes. These nodes do not mine new blocks but participate in a consensus process to ensure that transactions are valid and correctly ordered on the XRP Network. Any node can be a validator, but for practical purposes, the XRP Network depends on a list of trusted validators known as the Unique Node List (“UNL”). Validators are entities (which can be individuals, institutions or other organizations) that run nodes to participate in the consensus process. These validators ensure the integrity and accuracy of the ledger. Each node in the network maintains a Unique Node List — a list of other validators that the node trusts to reliably validate transactions. The XRP Network’s architecture means that different nodes may maintain different UNLs, but there needs to be some overlap in the UNLs for the consensus mechanism to work effectively. Similar to the Bitcoin Network, anyone can join and start using the XRP Network. However, unlike the Bitcoin Network, which operates on a fully permissionless blockchain, the XRP Network is maintained by a network of trusted nodes that accept or reject transactions on the XRP Network.

A transaction on the XRP Network begins when a user submits a transaction to the XRP Network. The submitted transaction is broadcast to all validator nodes. Validators do not immediately confirm transactions as final. Instead, they go through a process of reaching consensus on which transactions should be included in the next ledger version. Each validator collects incoming transactions into a proposed ledger, called a candidate ledger, and then exchanges their proposed candidate ledgers (also known as proposals) with other validators. The actual consensus process happens over several rounds. In each round, validators attempt to come to an agreement on which transactions should be included in the next ledger version. In each round, validators examine the transactions in the proposed ledger from the previous round and compare it to the proposals from other validators in their UNL. If the validator sees that a supermajority (typically 80% of validators) of trusted validators have proposed the same set of transactions, the validator updates its proposal to align with the majority. After a few rounds of exchanging proposals, when a supermajority (typically 80%) of validators have agreed on the same set of transactions, that version of the ledger is considered valid. All participating validators then update their copy of the ledger with the new, agreed-upon transactions. The final ledger version is broadcast to all nodes, and it becomes the new “official” state of the ledger.

Prior to engaging in XRP transactions directly on the XRP Network, a user generally must first install on its computer or mobile device an XRP Network software program that will allow the user to generate a private and public key pair associated with an XRP address. The XRP Network software program and the XRP address also enable the user to connect to the XRP Network and transfer XRP to, and receive XRP from, other users.

 

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Each XRP Network address, or wallet, is associated with a unique “public key” and “private key” pair. To receive XRP, the XRP recipient must provide its public key to the party initiating the transfer. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The payor approves the transfer to the address provided by the recipient by “signing” a transaction that consists of the recipient’s public key with the private key of the address from where the payor is transferring the XRP. The recipient, however, does not make public or provide to the sender its related private key.

XRP can be held in different types of wallets, including hardware wallets, software wallets and custodial wallets provided by digital asset trading platforms. The wallet essentially holds the private keys that control the account on the XRP Network. The private key is crucial for signing transactions on the ledger. Whoever possesses the private key associated with an XRP Network account effectively controls the XRP held by that account. While XRP is the native asset, the XRP Network also supports the holding and transferring of other assets (like U.S. dollar, euro or other digital assets) through a system of trust lines. However, these other assets are not XRP itself; they are IOUs issued by institutions or individuals on the ledger.

Neither the recipient nor the sender reveals its private keys in a transaction, because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses his or her private key, the user may permanently lose access to the XRP contained in the associated address. Likewise, XRP is irretrievably lost if the private key associated with them is deleted and no backup has been made. When sending XRP, a user’s XRP Network software program must validate the transaction with the associated private key. In addition, since every computation on the XRP Network requires processing power, there is a transaction fee involved with the transfer that is paid by the payor. The resulting digitally validated transaction is sent by the user’s XRP Network software program to the XRP Network validators to allow transaction confirmation.

Some XRP transactions are conducted “off-blockchain” ​(i.e., through centralized bookentries) and are therefore not recorded on the XRP Network. These “off-blockchain transactions” involve the transfer of control over, or ownership of, a specific digital wallet holding XRP or the reallocation of ownership of certain XRP in a pooled-ownership digital wallet, such as a digital wallet owned by a digital asset trading platform. In contrast to on-blockchain transactions, which are publicly recorded on the XRP Network, information and data regarding off-blockchain transactions are generally not publicly available. Therefore, off-blockchain transactions are not XRP Network transactions in that they do not involve the transfer of transaction data on the XRP Network and do not reflect a movement of XRP between addresses recorded in the XRP Network. For these reasons, off-blockchain transactions are subject to risks as any such transfer of XRP ownership is not protected by the protocol behind the XRP Network or recorded in, and validated through, the ledger mechanism.

XRP can also be held in escrow on the XRP Network, meaning the XRP is locked up and released only when certain conditions are met (e.g., at a specific time or when a particular event occurs). This is a native feature of the ledger, providing flexibility for complex financial contracts. XRP can also be held in payment channels, which allow for off-ledger transactions to occur between two parties, with the final balance being settled on the ledger later. Each XRP Network account must also hold a minimum reserve of XRP (currently 10 XRP) which cannot be spent. This ensures that only legitimate accounts are created and maintained. The XRP Network supports multi-signature accounts, where multiple keys can be required to authorize transactions. This adds an extra layer of security for holding and transferring large amounts of XRP.

Summary of an XRP Transaction

A transaction is initiated by a user who holds an XRP Network account. The user uses their wallet (software, hardware or digital asset trading platform-based) to create a transaction. This transaction includes details such as the destination address, the amount of XRP to be transferred and any additional flags or conditions (e.g., destination tag, which is used for transactions to exchanges or multi-user platforms).

 

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To authenticate the transaction, the user’s wallet signs the transaction using the private key associated with their XRP Network account. The private key is critical, as it proves ownership of the account and authorizes the movement of funds. The signing process involves creating a cryptographic signature unique to the transaction details and the private key. This signature ensures that the transaction cannot be altered after it is signed.

Once signed, the transaction is submitted to the XRP Network. This involves broadcasting the transaction to a network of decentralized validator nodes. The transaction is propagated across the network, where it is received by multiple validators. Validators are independent nodes that maintain a copy of the XRP Network and participate in the consensus process.

The XRP Network uses a unique consensus algorithm rather than proof-of-work or proof-of-stake. Validators participate in a consensus round, where they agree on the set of transactions to be included in the next ledger version. During this process, validators check the validity of each transaction (e.g., ensuring the sender has sufficient funds, the transaction is correctly signed). If 80% or more of the validators agree that the transaction is valid, it is included in the next ledger update.

The XRP Network operates in “ledger versions,” where each version is a new snapshot of the ledger’s state, including all confirmed transactions since the last version. When a transaction is confirmed through consensus, it is included in the next ledger version. Once the ledger version is closed and published (which happens approximately every 3-5 seconds), the transaction is considered final and irreversible. The recipient’s balance is updated, and the sender’s balance is deducted accordingly. In addition, a small transaction fee (measured in drops, where 1 XRP = 1,000,000 drops) is deducted from the sender’s account. Each transaction is assigned a unique transaction hash, which can be used to track and verify the transaction on the XRP Network. Once recorded in the ledger, the transaction is immutable, providing a permanent record of the transfer.

XRP Markets and Exchanges

XRP can be transferred in direct peer-to-peer transactions through the direct sending of XRP over the XRP Network from one XRP address to another. While XRP was originally intended to be used primarily as a means to conduct cross-border payments, XRP can also be used to pay other users of the XRP Network for goods and services under what resembles a barter system. Consumers can also pay merchants and other commercial businesses for goods or services through direct peer-to-peer transactions on the XRP Network or through third-party service providers.

In addition to using XRP to engage in cross-border transactions or payment for goods and services, investors may purchase and sell XRP to speculate as to the price of XRP in the XRP market, or as a long-term investment to diversify their portfolio. The price of XRP within the market is determined, in part, by the supply of and demand for XRP in the global XRP market, market expectations for the adoption of XRP as a store of value or as a viable cross-border payments facilitator, the number of merchants that accept XRP as a form of payment, the regulatory challenges faced by Ripple Labs and XRP, and the volume of peer-to-peer transactions, among other factors.

XRP spot markets typically permit investors to open accounts with the market and then purchase and sell XRP via websites or through mobile applications. Prices for trades on XRP spot markets are typically reported publicly. An investor opening a trading account on a digital asset trading platform must deposit an accepted government-issued currency into its account with the trading platform, or a previously acquired digital asset, before they can purchase or sell assets on the trading platform. The process of establishing an account with a digital asset trading platform and trading XRP is different from, and should not be confused with, the process of users sending XRP from one XRP address to another XRP address on the XRP Network. This latter process is an activity that occurs on the XRP Network, while the former is an activity that occurs entirely within the Order Book operated by the digital asset trading platform. The digital asset trading platform typically records the investor’s ownership of XRP in its internal books and records, rather than on the XRP Network. The digital asset trading platform ordinarily does not transfer XRP to the investor on the XRP Network unless the investor makes a request to the exchange to withdraw the XRP in its platform trading account to an off-platform XRP wallet.

 

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Outside of the spot markets, XRP can be traded OTC. The OTC market is largely institutional in nature, and OTC market participants generally consist of institutional entities, such as firms that offer two-sided liquidity for XRP, investment managers, proprietary trading firms, high-net-worth individuals that trade XRP on a proprietary basis, entities with sizeable XRP holdings, and family offices. The OTC market provides a relatively flexible market in terms of quotes, price, quantity and other factors, although it tends to involve large blocks of XRP. The OTC market has no formal structure and no open-outcry meeting place. Parties engaging in OTC transactions will agree upon a price — often via phone or email — and then one of the two parties will then initiate the transaction. For example, a seller of XRP could initiate the transaction by sending the XRP to the buyer’s XRP address. The buyer would then wire U.S. dollars to the seller’s bank account. OTC trades are sometimes hedged and eventually settled with concomitant trades on digital asset trading platforms.

Limits on XRP Supply

Unlike other digital assets, XRP was not mined gradually over time. Instead, all 100 billion XRP tokens were created at the time of the XRP Network’s launch in 2012. This means that every XRP token that exists today was generated from the outset, without the need for a mining process. Of the 100 billion XRP generated by the XRP Network’s code, the founders of Ripple Labs retained 20 billion XRP and the rest, nearly 80 billion XRP, was provided to Ripple Labs.

In 2017, to address concerns about the large portion of XRP held by Ripple Labs, the company introduced an escrow mechanism to lock up a significant portion of its XRP holdings. Under this mechanism, Ripple Labs placed 55 billion XRP (55% of the total supply) into a series of time-locked escrow accounts. The escrow releases 1 billion XRP per month over 55 months. This process is intended to add a level of predictability and transparency with respect to how much XRP can enter the market each month. If Ripple Labs does not use all of the 1 billion XRP released in a given month, the remaining amount is placed back into escrow for future release. The intended purpose of this escrow system is to reassure the market that Ripple Labs will not release too much XRP at once, which could potentially disrupt XRP’s price or market dynamics.

Modifications to the XRP Network Protocol

Modifications to the XRP Network protocol involves a structured process. The first step is identifying a need or improvement that could benefit the XRP Network. This might be related to performance, security, new features or other enhancements. The proposer drafts a formal proposal outlining the suggested change. This proposal typically includes technical details, rationale, potential benefits and any drawbacks or risks.

The proposal is shared with the XRP Network community, typically through forums such as the XRP Network GitHub repository or community discussion platforms. This allows for initial feedback, questions, and suggestions from developers, validators and other stakeholders. During this phase, the proposer may refine the proposal based on community input. Open dialogue is crucial to ensure the proposal addresses the community’s needs and concerns.

If the proposal is generally well-received, the next step involves writing the necessary code to implement the change. This is often done by the proposer or a group of developers with expertise in the XRP Network’s codebase. The new code is rigorously tested in various environments. This might include test networks (such as the XRP Network Testnet) to ensure that the change does not introduce bugs or vulnerabilities and works as intended under different scenarios. The code is then reviewed by other developers, especially those with a deep understanding of the XRP Network. This peer review process is critical to maintain the integrity and security of the ledger.

Once the code is developed and tested, it is proposed as an “amendment” to the XRP Network. The amendment process is a governance mechanism that allows validators to vote on whether to adopt the proposed changes. Validators on the network signal their approval or disapproval of the amendment by updating their validator configuration. For the amendment to be activated, it must receive approval from at least 80% of the validators on the network for two weeks continuously. If the

 

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amendment meets the required threshold, it is automatically activated on the XRP Network, and the new functionality or modification becomes part of the ledger’s protocol.

Once activated, the changes are deployed across the XRP Network. All nodes running the XRP Network software must update to the latest version to remain compatible with the network. Even after deployment, the change is monitored to ensure it behaves as expected in the live environment. If any issues arise, the community may need to address them through additional updates or modifications.

After the change is implemented, the relevant documentation (such as the XRP Network technical documentation, API references, etc.) is updated to reflect the new features or modifications. The community is informed of the successful implementation through official channels, including developer blogs, forums, and updates to the GitHub repository.

Forms of Attack Against the XRP Network

All networked systems are vulnerable to various kinds of attacks. As with any computer network, the XRP Network contains certain vulnerabilities. The XRP Network relies on a decentralized network of validator nodes that agree on the order and validity of transactions. These nodes form the backbone of the consensus process. Each validator node maintains a Unique Node List, which is a list of other validators it trusts. For a malicious actor to take over, they would need to control a significant portion of the validators on the majority of these UNLs. To successfully alter the ledger, the malicious actor would likely need to control more than 80% of the validator nodes or the voting power on the most widely used UNLs. If the malicious actor cannot control the validator nodes directly, they might attempt to compromise the validators that are already trusted by the network (i.e., those on the commonly used UNLs). This could involve hacking, bribery, deception or coercion. A malicious actor could also conduct an “eclipse attack.” In an eclipse attack, a malicious actor could isolate parts of the network so that the malicious actor’s nodes can influence the consensus in isolated sections of the network, eventually leading to a split or takeover.

Market Participants

Validators

Validators are crucial to the operation and security of the XRP Network. Validators participate in the consensus process by validating and agreeing on the order and validity of transactions. They ensure that transactions are consistent across the network, which helps prevent issues like double-spending. Validators also maintain a copy of the entire XRP Network and work together to decide which transactions are included in each new ledger version. They confirm transactions approximately every 3-5 seconds, making the ledger both fast and reliable. Validators vote on proposed changes to the XRP Network protocol through the amendment process. If 80% or more of the validators agree on a proposed amendment for two weeks continuously, the change is adopted and becomes part of the network’s code. Validators contribute to the overall health and stability of the network. By participating in the consensus process, they help secure the ledger against attacks and ensure that it remains decentralized and trustworthy.

Ripple Labs currently runs only 1 of the 35 validators in the default Trusted Nodes List. Some universities and research institutions operate validators as part of their research into blockchain technology and to support the decentralization of the network. Independent companies, developers, and other entities that support the XRP Network’s ecosystem also run validators. These could include blockchain-focused companies or other technology firms. Enthusiastic community members and developers who are committed to the success and decentralization of the XRP Network may also operate validators.

Unlike some other blockchain networks, validators on the XRP Network are not directly compensated for their participation in the consensus process. The XRP Network does not have a block reward system like that of the Bitcoin Network’s mining rewards or the XRP Network’s staking rewards. Since the XRP Network is pre-mined and the total supply of XRP was created at the outset, there is no ongoing issuance of XRP to distribute as rewards. While validators play a crucial role in the network,

 

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they do not receive the transaction fees that are burned as part of each transaction. Instead, these fees are destroyed to reduce the overall supply of XRP, which indirectly benefits all XRP holders by increasing the scarcity of the asset. Running a validator on the XRP Network is generally considered a voluntary contribution to the health and decentralization of the network. Participants run validators for reasons other than direct financial gain, such as supporting the network’s decentralization, ensuring its security or for reputational benefits within the XRP community. Institutions like banks, financial entities, or tech companies might run validators because they use the XRP Network in their business operations. By running a validator, they can have more influence over the reliability and stability of the network they rely on.

Investment and Speculative Sector

This sector includes the investment and trading activities of both private and professional investors and speculators. Historically, larger financial services institutions are publicly reported to have limited involvement in investment and trading in digital assets, although the participation landscape is beginning to change. Currently, there is relatively limited use of digital assets in the retail and commercial marketplace in comparison to relatively extensive use by speculators, and a significant portion of demand for digital assets is generated by speculators and investors seeking to profit from the short- or long-term holding of digital assets.

Retail Sector

The retail sector includes users transacting in direct peer-to-peer XRP activity through the direct sending of XRP over the XRP Network. The retail sector also includes transactions in which consumers pay for goods or services from commercial or service businesses through direct transactions or third-party service providers, although the use of XRP as a means of payment is still developing and has not been accepted in the same manner as bitcoin because XRP has a generally different purpose than bitcoin.

Service Sector

This sector includes companies that provide a variety of services, including the buying, selling, payment processing and storing of XRP. For example, Crypto.com, Coinbase, Kraken, Bitstamp by Robinhood, Gemini and LMAX Digital are some of the largest digital asset trading platforms by volume traded. As the XRP Network continues to grow in acceptance, it is anticipated that service providers will expand the currently available range of services and that additional parties will enter the service sector for the XRP Network.

Competition

As of June 30, 2025, more than 10,000 other digital assets, as tracked by CoinMarketCap.com, have been developed since the inception of bitcoin, which is currently the most developed digital asset because of the length of time it has been in existence, the investment in the infrastructure that supports it, and the network of individuals and entities that are using bitcoin in transactions. While XRP has enjoyed some success in its limited history, the aggregate value of outstanding XRP is smaller than that of bitcoin and may be eclipsed by the more rapid development of other digital assets.

 

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ACTIVITIES OF THE TRUST

The activities of the Trust are limited to (1) issuing Baskets in exchange for the Portfolio Assets (or cash to acquire Portfolio Assets) deposited with the Trust as consideration, (2) selling or delivering Portfolio Assets as necessary to cover the Sponsor’s Fee, Trust expenses not assumed by the Sponsor and other liabilities and (3) delivering Portfolio Assets in exchange for Baskets in connection with creation and redemption.

The Trust is not actively managed. It does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the prices of the Portfolio Assets.

Trust Objective

The Trust is a passive investment vehicle that seeks to reflect generally the performance of the prices of the Portfolio Assets. The Trust seeks to reflect such performance before payment of the Trust’s expenses and liabilities. The Trust seeks to reflect generally the performance of the respective prices of the Portfolio Assets proportionate to their respective allocation in the Trust’s total assets. As provided for in the Trust Agreement, the allocation ratio is initially expected to approximate percentages by value of 70% bitcoin, 15% ether, 8% SOL, 5% CRO and 2% XRP. Any change to the allocation ratio is subject to applicable law and regulatory approval, if any, and will require an amendment to the Trust Agreement. Additionally, upon any amendment of the Trust Agreement to change the allocation ratio, the Trust will notify Shareholders in a prospectus supplement, in its periodic reports filed pursuant to the requirements of the Exchange Act and/or on the Trust’s website. The Shares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in a diversified portfolio comprised of the Portfolio Assets rather than by acquiring, holding and trading the Portfolio Assets directly on a peer-to-peer or other basis or via a digital asset platform. The Shares have been designed to remove the obstacles represented by the complexities and operational burdens involved in a direct investment in Portfolio Assets, while at the same time having an intrinsic value that reflects, at any given time, the investment exposure to the Portfolio Assets owned by the Trust at such time, less the Trust’s expenses and liabilities. Although the Shares are not the exact equivalent of a direct investment in Portfolio Assets, they provide investors with an alternative method of achieving investment exposure to Portfolio Assets through the securities market, which may be more familiar to them.

An investment in Shares is:

Backed by the Portfolio Assets held by the Digital Asset Custodian on behalf of the Trust.

The Shares represent ownership interests in the Trust, which owns assets consisting solely of the Portfolio Assets and cash. Shareholders will not have a direct ownership interest, or a security interest, in the Trust’s assets. The Digital Asset Custodian will keep custody of all of the Trust’s Portfolio Assets, other than those which are maintained in the Trading Balance with the Prime Execution Agent, in the Vault Balance. The Digital Asset Custodian will keep all of the private keys associated with the Trust’s Portfolio Assets in the Vault Balance. The hardware, software, systems and procedures of the Digital Asset Custodian may not be available or cost-effective for many investors to access directly. The Trust’s Portfolio Assets and cash holdings from time to time may be held with the Prime Execution Agent, an affiliate of the Digital Asset Custodian, in the Trading Balance, in connection with creations and redemptions of Baskets, and the sale of Portfolio Assets to pay the Sponsor’s Fee and any other Trust expenses not assumed by the Sponsor, to the extent applicable, and in extraordinary circumstances, in connection with the liquidation of the Trust’s Portfolio Assets as well as to buy and sell Portfolio Assets in connection with rebalancing. These periodic holdings held in the Trading Balance with the Prime Execution Agent represent an omnibus claim on the Prime Execution Agent’s Portfolio Assets held on behalf of clients; these holdings exist across a combination of omnibus hot wallets, omnibus cold wallets or in accounts in the Prime Execution Agent’s name on a trading venue (including third-party venues and the Prime Execution Agent’s own execution venue) where the Prime Execution Agent executes orders to buy and sell Portfolio Assets on behalf of clients.

 

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As convenient and easy to handle as any other investment in shares.

Investors may purchase and sell Shares through traditional securities brokerage accounts and can avoid the complexities of handling the Portfolio Assets directly (e.g., managing wallets and public and private keys themselves or interfacing with a trading platform), which some investors may not prefer or may find unfamiliar.

Listed.

Although there can be no assurance that an actively traded market in the Shares will develop, the Shares will be listed and traded on NYSE Arca under the ticker symbol “      .”

There can be no assurance that the Trust will be able to achieve its investment objective.

Competition

The Trust and the Sponsor face competition with respect to the creation of competing exchange-traded products that hold some or all of the Portfolio Assets. There can be no assurance that the Trust will achieve initial market acceptance and scale due to competition.

Secondary Market Trading

While the Trust seeks to reflect generally the performance of the price of the Portfolio Assets before the payment of the Trust’s expenses and liabilities, Shares may trade at, above or below their NAV per Share. The NAV per Share will fluctuate with changes in the market value of the Trust’s assets. The trading prices of Shares will fluctuate in accordance with changes in their NAV per Share as well as market supply and demand. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between the major markets for the Portfolio Assets and NYSE Arca. While the Shares will trade on NYSE Arca until 4:00 p.m. ET, liquidity in the markets for the Portfolio Assets may be reduced, negatively affecting the trading volume; alternatively, developments in such markets (which operate around the clock), including the price volatility, declines in trading volumes and the closing of Portfolio Asset trading platforms due to fraud, failures, security breaches or otherwise that occur outside of NYSE Arca trading hours will not be reflected in trading prices of the Shares until trading on NYSE Arca opens. As a result, during this time, trading spreads, and the resulting premium or discount, on Shares may widen. However, given that Baskets can be created and redeemed in exchange for the underlying amount of the Portfolio Assets, and that the Trust will utilize a Basket of 10,000 Shares which would equate to $      million (assuming an initial NAV of $      per share compared to the average daily trading volume of the Portfolio Assets in excess of $1 billion), the Sponsor believes that the Basket size of 10,000 Shares will enable Authorized Participants and the Liquidity Provider to manage inventory and facilitate an effective arbitrage mechanism for the Trust. The Sponsor believes that the arbitrage opportunities may provide a mechanism to mitigate the effect of such premium or discount.

The Trust is not registered as an investment company for purposes of U.S. federal securities laws and is not subject to regulation by the SEC as an investment company. Consequently, the owners of Shares do not have the regulatory protections provided to investors in registered investment companies. For example, the provisions of the Investment Company Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under certain limited circumstances) or limit sales loads, among others, do not apply to the Trust. The Sponsor is not registered with the SEC as an investment adviser and is not subject to regulation by the SEC as such in connection with its activities with respect to the Trust. Consequently, the owners of Shares do not have the regulatory protections provided to advisory clients of SEC-registered investment advisers.

The Trust does not hold or trade in commodity futures contracts or any other instruments regulated by the Commodity Exchange Act as administered by the CFTC. Furthermore, the Trust is not a commodity pool for purposes of the CEA. Consequently, the Sponsor is not subject to registration as a commodity pool operator or commodity trading adviser with respect to the Trust. The owners of Shares do not receive the CEA disclosure document and certified annual report required to be delivered by the

 

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registered commodity pool operator with respect to a commodity pool, and the owners of Shares do not have the regulatory protections provided to investors in commodity pools operated by registered commodity pool operators.

Net Asset Value

The NAV will be equal to the total assets of the Trust, which will consist solely of the Portfolio Assets and cash, less total liabilities of the Trust, each determined by the Sponsor pursuant to policies established from time to time by the Sponsor or otherwise described herein. The methodology used to calculate the Reference Prices to value the Portfolio Assets in determining the NAV may not be deemed consistent with GAAP.

The Sponsor has the exclusive authority to determine the NAV under the Trust Agreement. The Sponsor has delegated to the Trust Administrator the responsibility to calculate the NAV and the NAV per Share, based on a pricing source selected by the Sponsor. The Trust Administrator will determine the NAV each Business Day. In determining the NAV, the Trust Administrator values the Portfolio Assets held by the Trust based on the Reference Prices, unless otherwise determined by the Sponsor in its sole discretion. If a Reference Price is not available or the Sponsor determines, in its sole discretion, that a Reference Price should not be used, the Trust’s holdings of the applicable Portfolio Asset may be fair valued on a temporary basis in accordance with the fair value policies approved by the Sponsor. Additionally, the Trust Administrator will monitor for unusual prices and escalate to the Sponsor if detected. If a Reference Price is not used for one or more of the Portfolio Assets, the Trust will notify Shareholders in a prospectus supplement, in its periodic Exchange Act reports and/or on the Trust’s website.

The Trust Administrator calculates the NAV per Share of the Trust once each Business Day. The NAV per Share for a normal trading day will be released after 4:00 p.m. ET. Trading during the core trading session on NYSE Arca typically closes at 4:00 p.m. ET. However, NAVs per Share are not officially released until after the completion of a comprehensive review of the NAV per Share and prices utilized to determine the NAV per Share of the Trust by the Trust Administrator. Upon the completion of the end of day reviews by the Trust Administrator, the NAV per Share is released to the public, typically by 5:30 p.m. ET and generally no later than 8:00 p.m. ET. The period between 4:00 p.m. ET and the NAV per Share release after 5:30 p.m. ET (or later) provides an opportunity for the Trust Administrator and the Sponsor to detect, flag, investigate and correct unusual pricing should it occur and implement a Fair Value Event, if necessary. Any such correction could adversely affect the value of the Shares.

A Fair Value Event value determination will be based upon all available factors that the Sponsor deems relevant at the time of the determination and may be based on analytical values determined by the Sponsor using third-party valuation models.

Fair value policies approved by the Sponsor will seek to determine the fair value price that the Trust might reasonably expect to receive from the current sale of that asset or liability in an arm’s-length transaction on the date on which the asset or liability is being valued consistent with Relevant Transactions. In the instance of a Fair Value Event and pursuant to the Sponsor’s fair valuation policies and procedures, another reference price (“Secondary Reference Price”) will be utilized as a secondary pricing source for the affected Portfolio Asset.

If a Secondary Reference Price is not available or the Sponsor in its sole discretion determines the Secondary Reference Price is unreliable, the price set by the Trust’s principal market as of 4:00 p.m. ET on the valuation date would be utilized. In the event the principal market price is not available or the Sponsor in its sole discretion determines the principal market valuation is unreliable, the Sponsor will use its best judgment to determine a good-faith estimate of fair value.

For financial reporting purposes only, the Sponsor has adopted a valuation policy that outlines the methodology for valuing the Trust’s assets. The policy also outlines the methodology for determining the principal market (or in the absence of a principal market, the most advantageous market) in accordance with ASC 820-10. The Sponsor will determine the Trust’s principal markets (or in the absence of a principal market, the most advantageous market) at least quarterly to determine whether

 

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any changes have occurred in Portfolio Asset markets and the Trust’s affairs that would require a change in the Sponsor’s determination of the Trust’s principal markets.

The Sponsor identifies and determines the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for each Portfolio Asset consistent with the application of fair value measurement framework in FASB ASC 820-10. The principal market is the market where the reporting entity would normally enter into a transaction to sell the asset or transfer the liability. The reporting entity must be available to and be accessible by the principal market. The reporting entity is the Trust.

Under ASC 820-10, a principal market is generally the market with the greatest volume and activity level for the asset or liability. The determination of the principal market will generally be based on the market with the greatest volume and level of activity that can be accessed.

ASC 820-10 determines fair value to be the price that would be received for each Portfolio Asset in a current sale, which assumes an exit price resulting from an orderly transaction between market participants on the measurement date. ASC 820-10 requires the assumption that each Portfolio Asset is sold in its principal market to market participants (or in the absence of a principal market, the most advantageous market). Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable and willing and able to transact.

The Trust expects the Liquidity Provider to transact in an exchange market, when necessary, to buy and sell Portfolio Assets in association with cash creations and redemptions and to sell Portfolio Assets to satisfy the Trust’s liabilities. As such, the Trust expects the Liquidity Provider to use an exchange market (as defined by ASC 820-10) as the principal market for each of the Portfolio Assets. Although Authorized Participants (and their liquidity providers) may transact in other Portfolio Asset markets, their market accessibility is not considered because they are not part of the reporting entity.

The Sponsor intends to engage a third-party vendor to obtain a price from the Trust’s principal market for each Portfolio Asset. The third-party vendor is expected to follow the Trust’s valuation policies and obtain relevant reliable volume and relevant activity information to identify the principal market. The information will be reviewed in the following order:

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First, a list of exchange markets operating in compliance with applicable laws and regulations are scoped into the principal market determination. Market accessibility and transactability are considered as part of this process;

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Second, the remaining exchange markets are sorted from high to low based on relevant reliable volume and activity information of the Portfolio Assets traded on these exchange markets;

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Third, pricing fluctuations and the degree of variances in price on exchange markets are reviewed to identify any material notable variances that may impact the volume or price information of a particular exchange market; and

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Fourth, an exchange market is selected as the principal market based on the highest relevant market-based volume, level of activity and price stability in comparison to the other exchange markets on the list. In comparison to other markets, exchange markets have the greatest reliable volume and level of activity for the Portfolio Assets. As a result, an exchange market will be the Trust’s principal market as opposed to a brokered market, a dealer market and principal-to-principal market.

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For purposes of the Trust’s periodic financial statements, it is expected that exchange-traded prices from the Trust’s principal markets for the Portfolio Assets as of 11:59 p.m. ET will be utilized on the Trust’s financial statement measurement date.

The website for the Trust, which will be publicly accessible at no charge, will contain the following information: (a) the prior Business Day’s NAV per Share; (b) the prior Business Day’s NYSE Arca official closing price; (c) calculation of the premium or discount of such NYSE Arca official closing price against such NAV per Share; (d) data in chart form displaying the frequency distribution of discounts and premiums of the NYSE Arca official closing price against the NAV per Share, within appropriate

 

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ranges for each of the four previous calendar quarters (or for the life of the Trust, if shorter); (e) the prospectus; and (f) other applicable quantitative information. The Trust Administrator will also disseminate the Trust’s holdings on a daily basis on the Trust’s website. The NAV per Share for the Trust will be calculated by the Trust Administrator once a day and will be disseminated daily to all market participants at the same time. Quotation and last sale information regarding the Shares will be disseminated through the facilities of the Consolidated Tape Association.

Valuation of Portfolio Assets and Determination of NAV

The NAV will be equal to the total assets of the Trust, which will consist solely of the Portfolio Assets and cash, less total liabilities of the Trust.

On each Business Day, as soon as practicable after 4:00 p.m. ET, the Trust Administrator evaluates the Portfolio Assets held by the Trust as reflected by the Reference Prices and determines the NAV and the NAV per Share. For purposes of making these calculations, a Business Day means any day other than a day when NYSE Arca is closed for regular trading.

The Constituent Platforms for each Portfolio Asset are selected by the Index Administrator according to each Reference Price’s applicable eligibility criteria, as more fully described below.

The Bitcoin Reference Price

The Trust’s bitcoin holdings are valued on a daily basis with reference to the CME CF Bitcoin Reference Rate — New York Variant, the Bitcoin Reference Price, a standardized reference rate published by CF Benchmarks Ltd., the Index Administrator, that is designed to reflect the performance of bitcoin in U.S. dollars. The Bitcoin Reference Price was created to facilitate financial products based on bitcoin. It serves as a once-a-day benchmark rate of the U.S. dollar price of bitcoin (USD/BTC), calculated as of 4:00 p.m. ET. The Bitcoin Reference Price aggregates the trade flow of several bitcoin platforms during an observation window between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one bitcoin at 4:00 p.m. ET. Specifically, the Bitcoin Reference Price is calculated based on the “Relevant Bitcoin Transactions” ​(as defined below) of all of its constituent bitcoin platforms, as follows:

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All Relevant Bitcoin Transactions are added to a joint list, recording the time of execution and trade price for each transaction;

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The list is partitioned by timestamp into 12 equally sized time intervals of five minutes in length;

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For each partition separately, the volume-weighted median trade price is calculated from the trade prices and sizes of all Relevant Bitcoin Transactions, i.e., across all Bitcoin Constituent Platforms. A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation; and

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The Bitcoin Reference Price is then determined by the equally weighted average of the volume medians of all partitions.

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The Bitcoin Reference Price is solely calculated from spot bitcoin-USD transactions conducted on Constituent Platforms within the observation window of 3:00 p.m. to 4:00 p.m. ET, it does not include any futures prices in its methodology. A “Relevant Bitcoin Transaction” is any cryptocurrency versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 p.m. ET on a Bitcoin Constituent Platform in the BTC/USD pair that is reported and disseminated by a Bitcoin Constituent Platform through its publicly available Application Programming Interface (“API”) and observed by the Index Administrator. Although the Bitcoin Reference Price is intended to accurately capture the market price of bitcoin, third parties may be able to purchase and sell bitcoin on public or private markets and such transactions may take place at prices materially higher or lower than the Bitcoin Reference Price.

In seeking to ensure that the Bitcoin Reference Price is administered through the Index Administrator’s codified policies for index integrity, the Bitcoin Reference Price is subject to oversight by the CME CF Oversight Committee (the “Oversight Committee”), whose Founding Charter and quarterly meeting minutes are publicly available.

 

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As of June 30, 2025, the Bitcoin Constituent Platforms included in the Bitcoin Reference Price were as follows:

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Crypto.com:   Foris DAX, Inc. d/b/a Crypto.com is a U.S.-based platform that is registered as an MSB with FinCEN and licensed as a money transmitter in more than 40 states.

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Bitstamp by Robinhood:   A U.K.-based platform registered as an MSB with FinCEN and licensed as a virtual currency business under the NYDFS BitLicense regulation, as well as a money transmitter in various U.S. states.

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Bullish:   A Gibraltar based platform operated by Bullish (GI) Limited and regulated by the Gibraltar Financial Services Commission (“GFSC”) as a distributed ledger technology (“DLT”) provider for execution and custody services.

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Coinbase:   A U.S.-based platform registered as an MSB with FinCEN and licensed as a virtual currency business under the NYDFS BitLicense regulation as well as a money transmitter in various U.S. states.

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Gemini:   A U.S.-based platform that is licensed as a virtual currency business under the NYDFS BitLicense regulation. Gemini is also registered with FinCEN as an MSB and is licensed as a money transmitter in various U.S. states.

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itBit:   A U.S.-based platform that is licensed as a virtual currency business under the NYDFS BitLicense regulation. ItBit is also registered with FinCEN as an MSB and is licensed as a money transmitter in various U.S. states.

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Kraken:   A U.S.-based platform that is registered as an MSB with FinCEN in various U.S. states. Kraken is also registered with the FCA and is authorized by the Central Bank of Ireland as a virtual asset service provider. Kraken also holds a variety of other licenses and regulatory approvals, including those from the Japan Financial Services Agency and the Canadian Securities Administrators.

​

•

LMAX Digital:   A Gibraltar-based platform registered as an MSB with FinCEN and regulated by the GFSC as a DLT provider for execution and custody services. LMAX Digital does not hold a BitLicense and is part of LMAX Group, a U.K.-based operator of an FCA-regulated multilateral trading facility and broker-dealer.

​

The eight Bitcoin Constituent Platforms that contribute transaction data to the Bitcoin Reference Price with the aggregate volumes traded on their respective BTC/USD markets over the four calendar quarters of the year ended June 30, 2025 are listed in the table below:

The market share for BTC/USD trading of the eight Bitcoin Constituent Platforms over the four calendar quarters of the year ended June 30, 2025 is shown in the table below:

 

118

 

*

Source: CF Benchmarks

​

**

Bullish.com became a Bitcoin Constituent Platform on December 30, 2024 and thus its aggregate volume for Q4 2024 is that observed for two days (December 30 and 31, 2024). Crypto.com became a Bitcoin Constituent Platform on March 31, 2025 and thus its aggregate volume is that observed for one day within 2025 Q1 (March 31, 2025).

​

The Ether Reference Price

The Trust’s ether holdings are valued on a daily basis with reference to the CME CF Ether Reference Rate — New York Variant, the Ether Reference Price, a standardized reference rate published by CF Benchmarks Ltd., the Index Administrator, that is designed to reflect the performance of ether in U.S. dollars. The Ether Reference Price was created to facilitate financial products based on ether. It serves as a once-a-day benchmark rate of the U.S. dollar price of ether (USD/ETH), calculated as of 4:00 p.m. ET. The Ether Reference Price aggregates the trade flow of several ether platforms during an observation window between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one ether at 4:00 p.m. ET. Specifically, the Ether Reference Price is calculated based on the “Relevant Ether Transactions” ​(as defined below) of all of the Ether Constituent Platforms, as follows:

•

All Relevant Ether Transactions are added to a joint list, recording the time of execution and trade price for each transaction;

​

•

The list is partitioned by timestamp into 12 equally sized time intervals of five minutes in length;

​

•

For each partition separately, the volume-weighted median trade price is calculated from the trade prices and sizes of all Relevant Ether Transactions, i.e., across all Ether Constituent Platforms. A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation; and

​

•

The Ether Reference Price is then determined by the equally weighted average of the volume medians of all partitions.

​

The Ether Reference Price is solely calculated from spot ether/USD transactions conducted on Constituent Platforms within the observation window of 3:00 p.m. to 4:00 p.m. ET, it does not include any futures prices in its methodology. A “Relevant Ether Transaction” is any cryptocurrency versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 p.m. ET on an Ether Constituent Platform in the ETH/USD pair that is reported and disseminated by an Ether Constituent Platform through its publicly available API and observed by the Index Administrator. Although the Ether Reference Price is intended to accurately capture the market price of ether, third parties may be able to purchase and sell ether on public or private markets and such transactions may take place at prices materially higher or lower than the Ether Reference Price.

In seeking to ensure that the Ether Reference Price is administered through the Index Administrator’s codified policies for index integrity, the Ether Reference Price is subject to oversight by the Oversight Committee, whose Founding Charter and quarterly meeting minutes are publicly available.

As of June 30, 2025, the Ether Constituent Platforms included in the Ether Reference Price were Crypto.com, Bitstamp by Robinhood, Coinbase, Gemini, itBit, Kraken and LMAX Digital.

The seven Ether Constituent Platforms that contribute transaction data to the Ether Reference Price with the aggregate volumes traded on their respective ETH/USD markets over the four calendar quarters of the year ended June 30, 2025 are listed in the table below:

 

119

 

The market share for ETH/USD trading of the seven Ether Constituent Platforms over the four calendar quarters of the year ended June 30, 2025 is shown in the table below:

​

*

Source: CF Benchmarks

​

**

Crypto.com became an Ether Constituent Platform on March 31, 2025 and thus its aggregate volume is that observed for one day (March 31, 2025).

​

The SOL Reference Price

The Trust’s SOL holdings are valued on a daily basis with reference to the CME CF Solana Reference Rate — New York Variant, the SOL Reference Price, a standardized reference rate published by CF Benchmarks Ltd., the Index Administrator, that is designed to reflect the performance of SOL in U.S. dollars. The SOL Reference Price was created to facilitate financial products based on SOL. It serves as a once-a-day benchmark rate of the U.S. dollar price of SOL (USD/SOL), calculated as of 4:00 p.m. ET. The SOL Reference Price aggregates the trade flow of several SOL platforms during an observation window between 3:00 p.m. and 4:00 p.m. ET, into the U.S. dollar price of one SOL at 4:00 p.m. ET. Specifically, the SOL Reference Price is calculated based on the “Relevant SOL Transactions” ​(as defined below) of all of the SOL Constituent Platforms, as follows:

•

All Relevant SOL Transactions are added to a joint list, recording the time of execution and trade price for each transaction;

​

•

The list is partitioned by timestamp into 12 equally sized time intervals of five minutes in length;

​

•

For each partition separately, the volume-weighted median trade price is calculated from the trade prices and sizes of all Relevant SOL Transactions, i.e., across all SOL Constituent Platforms. A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation; and

​

•

The SOL Reference Price is then determined by the equally weighted average of the volume medians of all partitions.

​

The SOL Reference Price is solely calculated from spot SOL/USD transactions conducted on the SOL Constituent Platforms within the observation window of 3:00 p.m. to 4:00 p.m. ET, it does not include any futures prices in its methodology. A “Relevant SOL Transaction” is any cryptocurrency versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 p.m. ET on a SOL Constituent Platform in the SOL/USD pair that is reported and disseminated by a SOL Constituent Platform through its publicly available API and observed by the Index Administrator. Although the SOL Reference Price is intended to accurately capture the market price of SOL, third parties may be able to purchase and sell SOL on public or private markets and such transactions may take place at prices materially higher or lower than the SOL Reference Price.

 

120

 

In seeking to ensure that the SOL Reference Price is administered through the Index Administrator’s codified policies for index integrity, the SOL Reference Price is subject to oversight by the Oversight Committee, whose Founding Charter and quarterly meeting minutes are publicly available.

As of June 30, 2025, the SOL Constituent Platforms included in the SOL Reference Price were Coinbase, Gemini, Kraken and LMAX Digital.

The four SOL Constituent Platforms that contribute transaction data to the SOL Reference Price with the aggregate volumes traded on their respective SOL/USD markets over the four calendar quarters of the year ended June 30, 2025 are listed in the table below:

The market share for SOL/USD trading of the four SOL Constituent Platforms over the four calendar quarters of the year ended June 30, 2025 is shown in the table below:

The CRO Reference Price

The Trust’s CRO holdings are valued on a daily basis with reference to the CF CRO Reference Rate — New York Variant, the CRO Reference Price, a standardized reference rate published by CF Benchmarks Ltd., the Index Administrator, that is designed to reflect the performance of CRO in U.S. dollars. The CRO Reference Price was created to facilitate financial products based on CRO. It serves as a once-a-day benchmark rate of the U.S. dollar price of CRO (USD/CRO), calculated as of 4:00 p.m. ET. The CRO Reference Price aggregates the trade flow of several CRO platforms during an observation window between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one CRO at 4:00 p.m. ET. Specifically, the CRO Reference Price is calculated based on the “Relevant CRO Transactions” ​(as defined below) of all of the CRO Constituent Platforms, as follows:

•

All Relevant CRO Transactions are added to a joint list, recording the time of execution and trade price for each transaction;

​

•

The list is partitioned by timestamp into 12 equally sized time intervals of five minutes in length;

​

•

For each partition separately, the volume-weighted median trade price is calculated from the trade prices and sizes of all Relevant CRO Transactions, i.e., across all CRO Constituent Platforms. A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation; and

​

•

The CRO Reference Price is then determined by the equally weighted average of the volume medians of all partitions.

​

The CRO Reference Price is solely calculated from spot CRO/USD transactions conducted on the CRO Constituent Platforms within the observation window of 3:00 p.m. to 4:00 p.m. ET, it does not include any futures prices in its methodology. A “Relevant CRO Transaction” is any cryptocurrency versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 p.m. ET on a CRO Constituent Platform in the CRO/USD pair that is reported and disseminated by a CRO

 

121

 

Constituent Platform through its publicly available API and observed by the Index Administrator. Although the CRO Reference Price is intended to accurately capture the market price of CRO, third parties may be able to purchase and sell CRO on public or private markets and such transactions may take place at prices materially higher or lower than the CRO Reference Price.

In seeking to ensure that the CRO Reference Price is administered through the Index Administrator’s codified policies for index integrity, the CRO Reference Price is subject to oversight by the CF Cryptocurrency Index Family Oversight Function (the “Oversight Function”), whose founding documents and quarterly meeting minutes are publicly available.

As of June 30, 2025, the CRO Constituent Platforms included in the CRO Reference Price were Coinbase and Kraken.

The two CRO Constituent Platforms that contribute transaction data to the CRO Reference Price with the aggregate volumes traded on their respective CRO/USD markets over the four calendar quarters of the year ended June 30, 2025 listed in the table below: