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|
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| Filed
pursuant to Rule 424(b)(3) |
| Registration
No. 333-285831 |
PROSPECTUS
VanEck
Avalanche ETF
The
VanEck Avalanche ETF (the "Trust") is an exchange-traded fund that issues common
shares of beneficial interest (the "Shares") that are expected to be approved
for listing, subject to notice of issuance, on The Nasdaq Stock Market LLC (the
"Exchange") pursuant to the Exchange’s existing generic listing standards under
the ticker symbol VAVX. As a result, the Exchange is not required to submit a
separate application under Rule 19b-4 of the Securities Exchange Act of 1934
(the "Exchange Act"). The Trust's investment objective is to reflect the
performance of the price of “AVAX,” the native token of the Avalanche network
and rewards from staking a portion of the Trust's AVAX, to the extent the
Sponsor in its sole discretion determines that the Trust may do so without undue
legal or regulatory risk, such as, without limitation, by jeopardizing the
Trust's ability to qualify as a grantor trust for tax purposes, less the
expenses of the Trust's operations. In seeking to achieve its investment
objective, the Trust will hold AVAX and will value its Shares daily based on the
reported MarketVectorTM
Avalanche Benchmark Rate (the "Index" or "MarketVectorTM
Avalanche Benchmark Rate"), which is calculated based on prices contributed by
trading platforms that the Sponsor's (as defined below) affiliate, MarketVector
Indexes GmbH ("MarketVector"), believes represent the top five AVAX trading
platforms based on the industry leading BITA Cryptocurrency Real-Time Rates
report. See "The Trust and AVAX Prices—Description of the
MarketVectorTM
Avalanche Benchmark Rate Construction and Maintenance" for more information. To
the extent the Sponsor determines to stake a portion of the Trust's AVAX, the
Sponsor plans to engage one or more third party staking services providers (each
a "Staking Services Provider") to conduct such staking activities ("Staking
Activities"). The initial Staking Services Provider is Coinbase Crypto Services
LLC. To the extent the Sponsor engages additional Staking Services Providers,
the Sponsor will determine the amount of AVAX to allocate to each Staking
Services Provider based on such factors as the Sponsor, in its sole discretion,
deems relevant, such as each Staking Services Provider's performance, including
uptime and compliance with staking requirements, or operational security
considerations. In addition, the Sponsor may employ a staking rewards index to
benchmark the staking returns of each Staking Services Provider. VanEck Digital
Assets, LLC (the "Sponsor") is the sponsor of the Trust, CSC Delaware Trust
Company (the "Trustee") is the trustee of the Trust, and Anchorage Digital Bank
N.A., (the "First AVAX Custodian" or "Anchorage"), Coinbase Custody Trust
Company, LLC (the "Second AVAX Custodian" or "Coinbase Custody," and together
with the First AVAX Custodian, the “AVAX Custodians”), or any successor
custodians, are the custodians of the Trust, who will hold all of the Trust's
AVAX on the Trust's behalf.
The
Trust intends to issue Shares on a continuous basis and is registering an
indeterminate number of Shares with the Securities and Exchange Commission (the
"SEC") in accordance with Rule 456(d) and 457(u). When the Trust sells or
redeems its Shares, it will do so in blocks of 25,000 Shares (a "Basket") that
are based on the amount of AVAX represented by the Basket being created, the
amount of AVAX being equal to the combined net asset value of the number of
Shares included in the Basket (net of accrued but unpaid remuneration due to the
Sponsor (the "Sponsor Fee") and any accrued but unpaid expenses or liabilities
not assumed by the Sponsor). The Trust will conduct subscriptions and
redemptions in cash or in-kind transactions with financial firms that are
authorized to purchase or redeem Shares with the Trust (known as "Authorized
Participants" or "APs"). For a subscription in cash, the Authorized
Participant's subscription shall be in the amount of cash needed to purchase the
amount of AVAX represented by the Basket being created, as calculated by State
Street Bank and Trust Company (the "Administrator") based on the Index or the
other valuation policies described herein. The AP will deliver the cash to the
Trust's account at State Street Bank and Trust Company (the "Cash Custodian"),
which the Sponsor will then use to purchase AVAX from a third party selected by
the Sponsor who is not the Authorized Participant (such third party, a
"Liquidity Provider"). For a redemption in cash, the Sponsor shall arrange for
the AVAX represented by the Basket to be sold to a Liquidity Provider selected
by the Sponsor and the cash proceeds to be distributed from the Trust's account
at the Cash Custodian to the Authorized Participant in exchange for their
Shares. For an "in-kind" subscription, Authorized Participants will deliver, or
arrange for the delivery by the Authorized Participant's designee of, AVAX to
the Trust's account with the AVAX Custodians in exchange for Shares when they
purchase Shares. For an "in-kind" redemption transaction with the Trust, when
Authorized Participants redeem Shares, the Trust, through the AVAX Custodians,
will deliver AVAX to such Authorized Participants, or a designee thereof, in
exchange for their Shares.
Following
an Authorized Participant's subscription in cash for a Basket and issuance by
the Trust of the corresponding Shares to such AP, Authorized Participants may
then offer Shares to the public at prices that depend on various factors,
including the supply and demand for Shares, the value of the Trust's assets, and
market conditions at the time of a transaction. Shareholders who buy or sell
Shares during the day from their broker may do so at a premium or discount
relative to the net asset value of the Shares of the Trust.
Except
when aggregated in Baskets, Shares are not redeemable securities. Baskets are
only redeemable by Authorized Participants.
Shareholders
who decide to buy or sell Shares of the Trust will place their trade orders
through their brokers and may incur customary brokerage commissions and charges.
Prior to this offering, there has been no public market for the Shares. The
Shares are expected to be approved for listing, subject to notice of issuance,
on the Exchange under the ticker symbol VAVX.
Investing
in the Trust involves risks similar to those involved with an investment
directly in AVAX and other significant risks. See "Risk Factors"
beginning on page 17.
The
offering of the Trust's Shares is registered with the SEC in accordance with the
Securities Act of 1933, as amended (the "1933 Act"). The offering is intended to
be a continuous offering. The Trust is not registered under the Investment
Company Act of 1940, as amended (the "1940 Act") and is not subject to
regulation under the 1940 Act. The Trust is not a commodity pool for purposes of
the Commodity Exchange Act of 1936, as amended (the "CEA"), and the Sponsor is
not subject to regulation by the Commodity Futures Trading Commission (the
"CFTC") as a commodity pool operator or a commodity trading advisor. The Trust's
Shares are neither interests in nor obligations of the Sponsor or the
Trustee.
On
November 20, 2025, Van Eck Associates Corporation (the "Seed Capital Investor"),
the parent of the Sponsor, subject to certain conditions, purchased the "Seed
Shares," comprising 4,000 Shares at a per-Share price of $25.00. Delivery of the
Seed Shares was made on November 20, 2025. Total proceeds to the Trust from the
sale of the Seed Shares were $100,000. On December 22, 2025, the Seed Shares
were redeemed for cash and the Seed Capital Investor purchased the “Seed
Creation Baskets,” comprising 100,000 Shares a per-Share price equal to 2.060199
AVAX. The price of AVAX was determined using the Index on December 22, 2025. The
Index price on December 22, 2025 was $12.134750. Total proceeds to the Trust
from the sale of the Seed Creation Baskets were 206,019.901522 AVAX. The Seed
Capital Investor has acted as a statutory underwriter in connection with this
purchase.
The
price of the Seed Creation Baskets was determined as described above and such
Shares could be sold at different prices if sold by the Seed Capital Investor at
different times.
The
value of AVAX and, therefore, the value of the Trust's Shares could decline
rapidly, including to zero. You could lose your entire investment. The Shares
are neither insured nor guaranteed by the Federal Deposit Insurance Corporation,
or any other governmental agency or other person or entity. The Shares are not
interests in nor obligations of nor guaranteed by any of the Sponsor, the
Trustee, Seed Capital Investor, MarketVector, the Administrator, the Cash
Custodian, the AVAX Custodians, any Liquidity Provider, any Staking Services
Provider, or their respective affiliates.
AN
INVESTMENT IN THE TRUST INVOLVES SIGNIFICANT RISKS AND MAY NOT BE SUITABLE FOR
SHAREHOLDERS THAT ARE NOT IN A POSITION TO ACCEPT MORE RISK THAN MAY BE INVOLVED
WITH OTHER EXCHANGE-TRADED PRODUCTS THAT DO NOT HOLD AVAX OR INTERESTS RELATED
TO AVAX. THE SHARES ARE SPECULATIVE SECURITIES. THEIR PURCHASE INVOLVES A HIGH
DEGREE OF RISK AND YOU COULD LOSE YOUR ENTIRE INVESTMENT. YOU SHOULD CONSIDER
ALL RISK FACTORS BEFORE INVESTING IN THE TRUST. PLEASE REFER TO "RISK FACTORS"
BEGINNING ON PAGE 17.
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
TRUST IS AN "EMERGING GROWTH COMPANY" AS THAT TERM IS USED IN THE JUMPSTART OUR
BUSINESS STARTUPS ACT (THE "JOBS ACT") AND, AS SUCH, MAY ELECT TO COMPLY WITH
CERTAIN REDUCED REPORTING REQUIREMENTS.
The
date of this Prospectus is January 23, 2026
TABLE
OF CONTENTS
This
Prospectus contains information you should consider when making an investment
decision about the Shares of the Trust. You may rely on the information
contained in this Prospectus. The Trust and the Sponsor have not 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. This
Prospectus is not an offer to sell the Shares in any jurisdiction where the
offer or sale of the Shares is not permitted.
The
Shares of the Trust are not registered for public sale in any jurisdiction other
than the United States.
Until
25 calendar days after the date of this prospectus, all dealers effecting
transactions in the Shares, whether or not participating in this offering, may
be required to deliver a prospectus. This requirement is in addition to the
dealer's obligation to deliver a prospectus when acting as underwriters and with
respect to unsold allotments or subscriptions.
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This
Prospectus includes "forward-looking statements" which generally relate to
future events or future performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expect," "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 will or may
occur in the future, including such matters as movements in the cryptocurrencies
markets and indexes that track such movements, 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 the Sponsor has made based on its perception of
historical trends, current conditions and expected future developments, as well
as other factors 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. Consequently, all the
forward-looking statements made in this Prospectus are qualified by these
cautionary statements, and there can be no assurance that actual results or
developments the Sponsor anticipates will be realized or, even if substantially
realized, that they will result in the expected consequences to, or have the
expected effects on, the Trust's operations or the value of its
Shares.
PROSPECTUS
SUMMARY
This
is only a summary of the Prospectus and, while it contains material information
about the Trust and its Shares, it does not contain or summarize all of the
information about the Trust and the Shares contained in this Prospectus that is
material and/or which may be important to you. You should read this entire
Prospectus, including "Risk Factors" on page 17,
before making an investment decision about the Shares. For a glossary of defined
terms, see Appendix A.
Overview
of the Trust
The
VanEck Avalanche ETF (the "Trust") is an exchange-traded fund that issues common
shares of beneficial interest (the "Shares") that are expected to be approved
for listing, subject to notice of issuance, on the The Nasdaq Stock Market LLC
(the "Exchange") pursuant to the Exchange’s existing generic listing standards
under the ticker symbol VAVX. As a result, the Exchange is not required to
submit a separate application under Rule 19b-4 of the Exchange Act. The Trust is
not registered as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act") and is not required to register under such
act. The Trust is not a commodity pool for purposes of the CEA, and the Sponsor
is not subject to regulation by the CFTC as a commodity pool operator or a
commodity trading advisor. The Trust is a passive investment vehicle that does
not seek to pursue any investment strategy beyond reflecting the performance of
the price of AVAX and any rewards from staking a portion of the Trust’s AVAX
(“AVAX”). As a result, the Trust will not attempt to avoid losses or hedge
exposure arising from the risk of changes in the price of AVAX. The Trust's
investment objective is to reflect the performance of the price of AVAX, and
rewards from staking a portion of the Trust's AVAX, to the extent the Sponsor in
its sole discretion determines that the Trust may do so without undue legal or
regulatory risk, such as, without limitation, by jeopardizing the Trust's
ability to qualify as a grantor trust for U.S. federal income tax purposes, less
the expenses of the Trust's operations. In seeking to achieve its investment
objective, the Trust will hold AVAX and will value its Shares daily based on the
reported MarketVectorTM
Avalanche Benchmark Rate, which is calculated based on prices contributed by
trading platforms that the Sponsor's affiliate, MarketVector Indexes GmbH
("MarketVector"), believes represent the top five AVAX trading platforms based
on the industry leading BITA Cryptocurrency Real-Time Rates report. See "The
Trust and AVAX Prices— Description of the MarketVectorTM
Avalanche Benchmark Rate Construction and Maintenance" for more information. To
the extent the Sponsor determines to stake a portion of the Trust's AVAX, the
Sponsor plans to engage one or more third party staking services providers (each
a "Staking Services Provider") to conduct such staking activities ("Staking
Activities"). The initial Staking Services Provider is Coinbase Crypto Services
LLC. To the extent the Sponsor engages additional Staking Services Providers,
the Sponsor will determine the amount of AVAX to allocate to each Staking
Services Provider based on such factors as the Sponsor, in its sole discretion,
deems relevant, such as each Staking Services Provider's performance, including
uptime and compliance with staking requirements, or operational security
considerations. In addition, the Sponsor may, but is not obligated to, employ a
staking rewards index to benchmark the staking returns of each Staking Services
Provider. The Trust will not utilize leverage, derivatives or any similar
arrangements in seeking to meet its investment objective. The Trust is sponsored
by VanEck Digital Assets, LLC (the "Sponsor"), a wholly-owned subsidiary of Van
Eck Associates Corporation ("VanEck"), a U.S. registered investment adviser with
approximately $171.7 billion in assets under management as of October 31, 2025.
The Sponsor is not registered as an investment adviser and currently is not
required to register under the Advisers Act in connection with its activities on
behalf of the Trust. The Trust, the Sponsor and the service providers will not
loan or pledge the Trust's assets, nor will the Trust's assets serve as
collateral for any loan or similar arrangement.
AVAX
is a digital asset that is created and transmitted through the operations of the
peer-to-peer Avalanche Network, a dispersed network of computers that operates
on cryptographic software protocols based on open source code. No single
intermediary or entity owns or operates or controls the validation and
recordkeeping infrastructure of the Avalanche Network on a day to day basis
(referred to as "decentralization"), the transaction validation and
recordkeeping infrastructure being collectively maintained by a disparate user
base, although some entities, like Ava Labs and the Avalanche Foundation, and
core developers like Emin Gun Sirer, exert influence through a variety of means;
most validators use a single form of client software (e.g., AvalancheGo) meaning
that the prevalence of different client software implementations ("client
diversity") may be lower than on certain other public blockchains; and while
operating a validator node on the Avalanche Network is permissionless (i.e.,
anyone can become a validator), it is subject to certain minimum requirements,
such as hardware requirements and financial costs (e.g., a
validator
node must stake a minimum of 2,000 AVAX), which may result in a greater degree
of concentration among validators on the Avalanche Network than on certain other
public blockchains where the minimum requirements may be lower (though the
minimum requirements are lower, at 25 AVAX, for any AVAX holder to delegate
their tokens to a validator node, and receive a portion of the protocol rewards
earned by the validator from the delegated stake). The Avalanche Network allows
people to exchange tokens of value, or AVAX, which are recorded on a distributed
public recordkeeping system or ledger known as a blockchain (the "Avalanche
Blockchain"), and which can be used to pay for goods and services. Because AVAX
is issued by and can be used to interact directly with the Avalanche Network
through, e.g., the payment of transaction fees needed to execute smart contract
code or record transactions on the Avalanche Blockchain, AVAX is commonly
referred to as the native asset of the Avalanche Network.
The
Trust intends to stake a portion of the Trust's assets through one or more
Staking Services Providers. The Sponsor has adopted a staking program and
liquidity risk policy (the "Staking Policy"). The Sponsor is responsible for
administering the staking program, which will be overseen by a designated
staking committee. The Sponsor is responsible for evaluating several
factors—such as the underlying AVAX, the associated protocol, liquidity
(relative to the circulating market cap), and operational risks when determining
the percentage of the Trust's AVAX that will be allocated to staking. The
Sponsor will review historical redemption patterns as a part of its evaluation
to ensure sufficient buffers are in place during extreme market conditions.
Pursuant to the Staking Policy, a base staking percentage is set and adjusted
for unstaking delays, with a 5% buffer in place to prompt rebalancing if the
staked amount deviates significantly. Staking Services Providers will be chosen
based on cost, reputation, financial stability, and operational security. When
the Trust's assets held with the AVAX Custodians are staked with a Staking
Services Provider, Staking Services Providers are expected to receive 4.0% of
the staking rewards generated by the Trust's staking program (the "Staking
Services Provider Consideration"). The Staking Services Provider Consideration
will be paid from the Trust's staking proceeds by the AVAX Custodians or
deducted (or “netted”) from the Trust’s staking proceeds before such amounts are
received by the Trust. When the Trust's assets held with the AVAX Custodians are
staked with a Staking Services Provider, the Trust is expected to receive
approximately 96% of the staking proceeds. The Trust may be responsible for fees
charged by the AVAX Custodians for facilitating staking of the Trust’s assets
held with such AVAX Custodian (the “Custodian Staking Facilitation Fee”). To the
extent that a Custodian Staking Facilitation Fee is incurred, such fee shall be
paid from the Trust’s staking proceeds by the applicable custodian, deducted
from the Trust’s staking proceeds before such amounts are received by the Trust
or paid by the Sponsor, and the Sponsor shall be entitled to reimbursement by
the Trust of the amount of such Custodian Staking Facilitation Fee that it has
paid on the Trust's behalf. Other than reimbursement by the Trust of the amount
of such Custodian Staking Facilitation Fee that the Sponsor has paid on the
Trust's behalf, which is treated as an extraordinary expense, the
Sponsor and its affiliates will not receive any compensation from the staked
assets of the Trust.
Ongoing due diligence will be conducted on validators, including performance
monitoring and benchmarking. Staking rewards received by the applicable AVAX
Custodian, net of fees, will be automatically credited to the Trust (as earned)
and reflected in its daily NAV, with a 4:00 p.m. Eastern time cut-off.] The
Trust will generally re-stake the staking rewards it receives, subject to the
target staking percentage. Investors are not required to take any action to
receive rewards, and the Trust does not operate its own validator nodes. Key
staking metrics, such as current percentage of the Trust’s AVAX being staked and
gross staking yields of staked assets, are published and updated on the Trust's
website.
Pursuant
to the Staking Policy, the Sponsor is responsible for assessing, managing and
reviewing liquidity risk of the Trust at least annually based on the following
five factors: (i) the Trust's investment strategy and liquidity of the Trust's
assets during normal and stressed conditions, including use of borrowing for
investment purposes and derivatives and whether the investment strategy is
appropriate for effective and efficient arbitrage, (ii) holdings of cash and
cash equivalents, as well as borrowing arrangements and other funding sources,
(iii) percentage and description of the Trust's assets that are segregated,
pledged, hypothecated, encumbered, or otherwise restricted or prevented from
being liquidated, sold, transferred or assigned, (iv) the lock-up period,
including the bonding and unbonding periods (as applicable) and the entry and
exit wait times involved in the staking process, and (v) the historical
percentages of cumulative drawdowns in redemptions for U.S. listed crypto-based
ETFs and other similar instruments listed globally. With respect to factor (i)
above, the Staking Policy provides that the Sponsor has the authority to adjust
the size of the Baskets if it determines that such changes would improve the
effectiveness and efficiency of the arbitrage mechanism.
Following
the liquidity risk assessment, the Sponsor will determine whether changes to the
administration of the Trust's staking program are necessary.
The
Trust continues to update its liquidity risk policies and procedures and any
changes made or recommended will be evaluated during the next liquidity risk
assessment. The Staking Policy is intended to be and is in line with the generic
listing standards of the Exchange.
As
part of the “lock-up” process of staking, staked AVAX are locked for a fixed
period chosen by the staker — ranging from a minimum of two weeks to a maximum
of one year. During this time, the staked AVAX is inaccessible and cannot be
withdrawn or reallocated before the expiration of the lock-up term. As a result,
the Trust may not be able to promptly access or liquidate staked AVAX to meet
redemption requests in amounts that are greater than the portion of the Trust’s
AVAX that remains un-staked or respond to adverse market conditions. This delay
could adversely affect the Trust's liquidity and its ability to fulfil investor
redemptions in a timely manner, particularly during periods of heightened market
volatility or significant redemption activity.
The
Sponsor is responsible for assessing, managing, and periodically reviewing the
Trust's liquidity risk annually. In conducting the liquidity risk assessment,
the Sponsor considers all relevant risks, including the Trust's investment
strategy and liquidity during normal and stressed conditions, the Trust's
holdings of cash and cash equivalents and the "lock-up" period involved in the
staking process, and determines whether any adjustments to the management of the
Trust's liquidity risk are necessary. Potential adjustments may include reducing
the proportion of AVAX allocated to staking or increasing the amount of AVAX
kept readily available to meet redemption requests. There can be no assurance
that the Sponsor's liquidity risk assessment will ultimately prove successful in
managing liquidity risk
As
a result of any staking activity in which the Trust may engage, the Trust
expects to receive certain staking rewards of AVAX, which may be treated for
U.S. federal income tax purposes as income to the Trust (see "United States
Federal Income Tax Consequences," for a further description of the tax
implications of the receipt of staking rewards by the Trust. The Staking
Services Provider exercises no discretion as to the amount of the Trust's AVAX
to be staked or timing of the staking activities (other than as is incidental in
establishing or deactivating validator nodes). The AVAX Custodian and Second
AVAX Custodian will maintain exclusive possession and control of the private
keys associated with any staked AVAX at all times. Staking activity on the
Avalanche Network involves the delegation of AVAX to validators and carries
certain risks, such as bugs, software defects, unauthorized cybersecurity
breaches ("hacks"), theft, or loss. Additionally, the staking process includes a
protocol-defined activation period, during which staked AVAX is temporarily
locked and inaccessible. This phase affects when AVAX begins earning rewards,
participates in consensus and becomes available for transfer or redelegation.
The description and considerations related to staking are discussed more fully
in "Principal
Risks-Risks Associated with
AVAX
and the Avalanche Network."
Under
normal circumstances, the Sponsor will seek to stake all of the Trust’s AVAX
except for AVAX reserved by the Sponsor in its sole discretion to facilitate
foreseeable redemption transactions or otherwise protect the Trust and its
assets in a manner consistent with Rev Proc 2025-31. Currently the Trust intends
to have a target staking percentage of 70% of the Trust’s AVAX holdings (with
30% of the Trust’s AVAX holdings being reserved to facilitate foreseeable
redemption transactions or otherwise protect the Trust and its assets in a
manner consistent with Rev Proc 2025-31), subject to the Staking Policy and
fluctuations during the ramp-up staking period. “Normal circumstances” do not
include periods in which the Trust is required or elects under the Liquidity
Policy (which is a component of the Staking Policy), as determined by the
Sponsor in its sole discretion, to hold unstaked AVAX in connection with (a)
obtaining or disposing of digital assets through a “contingent liquidity
arrangement” described in section 6.02(12) of Rev Proc 2025-31, (b) the sale of
digital assets for cash in connection with the Trust’s liquidation, (c) the need
to take protective measures against potential systemic vulnerabilities in the
network’s protocol, the staking smart contracts, or the validator client
software, (d) the cessation of the arrangement between the Trust and a
Custodian, but only with respect to the digital assets affected by the
cessation, (e) the cessation of the arrangement with a Staking Provider, but
only with respect to the staked digital assets affected by the cessation, or (f)
a change in applicable law or regulation. The Liquidity Program will be
available in full at the Trust’s website at www.vaneck.com. See “Risk
Factors—Staking May Subject The Trust To Risks, Which In The Future May Include
Loss
Of Rewards And Operational Uncertainties.” And “—Risks Associated with Investing
in the Trust--Ramp-Up Staking Period Risk” for additional
information.
Because
peer-to-peer transfers of AVAX are recorded on the Avalanche Blockchain, which
is a digital public recordkeeping system or ledger, buying, holding and selling
AVAX is very different than buying, holding and selling more conventional
instruments like cash, stocks or bonds. For example, AVAX must either be
acquired as a reward for participating in the validation of transactions that
are added to the Avalanche Blockchain (the validation process is referred to
interchangeably in this Prospectus as "validation" or "staking", the rewards are
referred to as "staking rewards", and the parties performing such validation,
"validators"), obtained in a peer-to-peer transaction on the Avalanche Network,
or purchased through an online digital asset trading platform or other
intermediary, such as a broker in the institutional over-the-counter ("OTC")
market. Peer-to-peer transactions may be difficult to arrange, and involve
complex and potentially risky procedures around safekeeping, transferring and
holding the AVAX. Alternatively, purchasing AVAX on an AVAX trading platform
requires choosing a trading platform, opening an account, and transferring funds
to the trading platform in order to purchase the AVAX. Transactions on
centralized trading platforms are not ordinarily recorded on the Avalanche
Blockchain. There are currently a large number of AVAX trading platforms from
which to choose, the quality and reliability of which varies significantly. Some
trading platforms have been subject to hacks, resulting in significant losses to
end users.
The
Trust provides direct exposure to AVAX and the Shares of the Trust are valued on
a daily basis using prices drawn from a carefully evaluated group of trading
platforms selected by MarketVector, which utilizes the BITA Cryptocurrency
Real-Time Rates ranking data to construct the MarketVectorTM
Avalanche Benchmark Rate. The Trust provides investors with the opportunity to
access the market for AVAX through Shares held in a traditional brokerage
account without the potential barriers to entry or risks involved with holding
or transferring AVAX directly, acquiring it from an exchange, or participating
in staking and receiving AVAX as a reward as referenced above (to the extent the
Sponsor determines to stake a portion of the Trust's AVAX). The Trust will
custody its AVAX at Anchorage Digital Bank N.A. (the "First AVAX Custodian"), a
regulated third-party custodian that carries insurance and is a National Trust
Bank regulated by the Office of the Comptroller of the Currency. The Trust will
also custody its AVAX at Coinbase Custody Trust Company, LLC (the "Second AVAX
Custodian," and together with the First AVAX Custodian, the "AVAX Custodians"),
a regulated third-party custodian that carries insurance and is chartered as a
limited purpose trust company under the New York Banking Law. The initial
Staking Services Provider is an affiliate of the Second AVAX Custodian. In
determining the amount and percentage of the Trust’s AVAX to allocate to each
such AVAX Custodian, the Sponsor will consider any factors the Sponsor deems
relevant, in its sole discretion, such as, (i) the Sponsor’s assessment of the
safety and security policies and procedures of each AVAX Custodian, (ii) the
ability of each AVAX Custodian to implement the Trust’s staking program, (iii)
the node operator(s) offered through the AVAX Custodian, (iv) each AVAX
Custodian’s reputation and experience in providing AVAX custody and staking
services, (v) the concentration of the Trust’s AVAX at each AVAX Custodian, (vi)
the financial resources of each Custodian including its insurance policies,
(vii) the fees and expenses associated with the storage and/or staking of the
Trust’s AVAX at each Custodian, and (viii) any other factor the Sponsor deems
relevant in making the allocation determination. The Sponsor has no duty to hold
any particular percentage of the Trust's AVAX at either AVAX Custodian and may
elect to hold all or none of the Trust's AVAX at either AVAX Custodian, in its
sole discretion. Sponsor may in the future engage additional custodians for the
Trust’s SOL.
The
Trust will not use derivatives such as swaps, futures, or options in its
investment strategy. Using derivatives could subject the Trust to derivatives
counterparty, credit, and other risks, though the Trust also will not attempt to
use derivatives to hedge the risk of declines in the price of AVAX held by the
Trust. The Sponsor believes that the design of the Trust will enable certain
investors to more effectively and efficiently implement strategic and tactical
asset allocation strategies that use AVAX by investing in the Shares rather than
purchasing, holding and trading AVAX directly or through derivatives. The Trust
will employ its AVAX in Staking Activities and accordingly will earn staking
rewards and income from Staking Activities.
Except
as set forth in the Trust Agreement and described herein, Shareholders have no
voting rights with respect to the Trust.
AVAX
and the Avalanche Network
AVAX
is a digital asset that is created and transmitted through the operations of the
peer-to-peer Avalanche Network, a dispersed network of computers that operates
on cryptographic protocols based on open source code. It is widely believed that
no single entity owns or operates or controls the validation and recordkeeping
infrastructure of the Avalanche Network on a day to day basis, the validation
and recordkeeping infrastructure being collectively maintained by a global user
base., although some entities, like Ava Labs and the Avalanche Foundation, and
core developers like Emin Gun Sirer, exert influence through a variety of means;
the presence of client diversity is lower than on certain other public
blockchains; and while acting as a validator on the Avalanche Network is
permissionless (i.e., anyone can become a validator), it is subject to certain
minimum requirements, such as hardware requirements and financial costs, which
may result in greater barriers to entry to be a validator on the Avalanche
Network than on certain other public blockchains where the minimum requirements
may be lower. The Avalanche Network allows people to exchange tokens of value,
called AVAX, which are recorded on a public transaction ledger known as a
blockchain. AVAX can be used to pay for goods and services, including
computational power on the Avalanche 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 Avalanche 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 sophisticated 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 AVAX on the
Avalanche Network. Smart contract operations are executed on the Avalanche
blockchain in exchange for payment of AVAX. Like the Ethereum network, the
Avalanche Network is one of a number of projects intended to expand blockchain
use beyond just a peer-to-peer money system.
Avalanche
Network
Avalanche
is a Layer 1 blockchain and smart contract platform for decentralized
applications and custom blockchains. The Avalanche network is an open-source
protocol that enables users to deploy smart contracts to support their
blockchain projects and the network was created by Kevin Sekniqi, Maofan "Ted"
Yin and Emin Gün Sirer and was further developed by researchers from Cornell
University prior to its launch by Ava Labs US in September 2020. The Avalanche
network is one of the main competitors of Ethereum and aims to beat the leading
smart contract platform by offering higher transaction throughput without
compromising scalability or security. Avalanche is powered by the Avalanche
consensus protocol, which its proponents believe is a unique “proof-of-stake”
algorithm comprised of three blockchains, X-Chain (Exchange Chain), C-Chain
(Contract) and P-Chain (Platform), which allow the network to create and trade
assets such as AVAX, coordinate transaction validators and facilitate the
creation of smart contracts. Each chain serves a different purpose and run
different consensus mechanisms based on their use-cases. The X-Chain is used to
create and exchange native AVAX tokens and other assets. The C-Chain is used to
host smart contracts which are compatible not only with the Avalanche network,
but also with the Ethereum network. The P-Chain coordinates network validators,
tracks active subnets and allows the creation of new subnets.
The
AVAX Token
The
AVAX token is the native token of the Avalanche Network and serves as the base
currency for transactions, smart contract interactions and deployment. AVAX has
a capped supply of 720 million and is used as fee payment, for staking in
Avalanche's consensus process and provides a basic unit of account between
subnets created on the network. AVAX holders may participate in staking on the
Avalanche Network by becoming transaction validators, if they stake a minimum
number of coins (currently 2,000 AVAX), or by delegating their coins to an
already existing validator (currently 25 AVAX). The minimum number of coins
required for direct staking on the Avalanche network can be modified by the vote
of AVAX holders as part of network governance.
For
more information on AVAX and the Avalanche Network, see "AVAX, AVAX Market, AVAX
Exchanges and Regulation of AVAX" below. For more information on the risks of
AVAX, the Avalanche Network, and investing in the Shares, see "Risk Factors"
below.
The
Trust's Investment Objective and Strategies
The
Trust's investment objective is to reflect the performance of the price of AVAX,
and rewards from staking a portion of the Trust's AVAX, to the extent the
Sponsor in its sole discretion determines that the Trust may do so without undue
legal or regulatory risk, such as, without limitation, by jeopardizing the
Trust's ability to qualify as a grantor trust for U.S. federal income tax
purposes, less the expenses of the Trust's operations. In seeking to achieve its
investment objective, the Trust will hold AVAX and will value its Shares daily
based on the reported MarketVectorTM
Avalanche Benchmark Rate, which is calculated based on prices contributed by
exchanges that the Sponsor's affiliate, MarketVector, believes represent the top
five AVAX trading platforms based on the industry leading BITA Cryptocurrency
Real-Time Rates report as described below, and process all creations and
redemptions in transactions with Authorized Participants as described below. To
the extent the Sponsor determines to stake a portion of the Trust's AVAX, the
Sponsor plans to engage one or more Staking Services Providers to conduct such
staking activities. To the extent the Sponsor engages additional Staking
Services Providers, the Sponsor will determine the amount of AVAX to allocate to
each Staking Services Provider based on each Staking Services Provider's
performance, including uptime and compliance with staking requirements. The
Trust is a passive investment vehicle that does not seek to pursue any
investment strategy beyond reflecting the performance of the price of AVAX and
any rewards from staking a portion of the Trust’s AVAX. As a result, the Trust
will not attempt to speculatively sell AVAX at times when its price is high or
speculatively acquire AVAX at low prices in the expectation of future price
increases, nor will the Trust attempt to avoid losses or hedge exposure arising
from the risk of changes in the price of AVAX. The Trust will not utilize
leverage, derivatives or any similar arrangements in seeking to meet its
investment objective.
When
the Trust sells or redeems its Shares, it will do so in blocks of 25,000 Shares
("Baskets") that are based on the amount of AVAX represented by the Basket being
created, the amount of AVAX being equal to the combined net asset value of the
number of Shares included in the Basket (net of the accrued but unpaid
remuneration due the Sponsor ("Sponsor Fee") and any accrued but unpaid expenses
or liabilities not assumed by the Sponsor). The Trust conducts subscriptions and
redemptions in cash or in-kind transactions with financial firms that are
authorized to purchase or redeem Shares with the Trust (known as "Authorized
Participants" or "APs"), which must be registered broker-dealers.
For
a subscription in cash, the Authorized Participant's subscription for Shares
shall be in the amount of cash needed to purchase the amount of AVAX represented
by the Basket being created, as calculated by the Administrator based on the
Index or the other valuation policies described herein. The AP will deliver the
cash to the Trust's account at the Cash Custodian, which the Sponsor will then
use to purchase AVAX from a third party selected by the Sponsor who is not the
Authorized Participant (such third party, a "Liquidity Provider"). For a
redemption in cash, the Sponsor shall arrange for the AVAX represented by the
Basket to be sold to a Liquidity Provider selected by the Sponsor and the cash
proceeds to be distributed from the Trust's account at the Cash Custodian to the
Authorized Participant in exchange for their Shares. For an "in-kind"
subscription, Authorized Participants will deliver, or arrange for the delivery
by the Authorized Participant's designee of, AVAX to the Trust's Custody
Accounts with the AVAX Custodians in exchange for Shares when they purchase
Shares. For an "in-kind" redemption transaction with the Trust, when Authorized
Participants redeem Shares, the Trust, through the AVAX Custodians, will deliver
AVAX to such Authorized Participants, or a designee thereof, in exchange for
their Shares.
In
addition to selling AVAX to distribute cash to Authorized Participants redeeming
Shares, the Sponsor may sell AVAX to pay certain expenses not assumed by the
Sponsor (described below), which may be facilitated by one or more Liquidity
Providers and/or the AVAX Custodians or an affiliate thereof. All AVAX will be
held by a third-party custodian that carries insurance. The insurance carried by
the Trust's custodians may not be adequate to cover losses that might be
suffered by the Trust, as described further in "Risk Factors—The lack of full
insurance and Shareholders' limited rights of legal recourse against the Trust,
Trustee, Sponsor, Administrator, Cash Custodian and AVAX Custodians expose the
Trust and its Shareholders to the risk of loss of the Trust's AVAX for which no
person or entity is liable". The Transfer Agent (as defined below) will
facilitate the processing of purchase and sale orders in Baskets from the
Trust.
The
Trust will engage in AVAX transactions for converting cash into AVAX (in
association with cash purchase orders) and AVAX into cash (in association with
cash redemption orders). The Trust will conduct its AVAX
purchase
and sale transactions by trading directly with third parties selected by the
Sponsor, some of whom may be affiliated with APs (each, a "Liquidity Provider"),
who are not registered broker-dealers, pursuant to written agreements between
such Liquidity Providers and the Trust. Liquidity Providers may be added at any
time, subject to the discretion of the Sponsor. Alternatively, Liquidity
Providers may choose to terminate their participation as Liquidity Providers to
the Trust at any time. Each Liquidity Provider represents to the Trust that it
is acting for itself and not for another person. Upon receipt of an order from
an Authorized Participant to create or redeem Baskets, the Trust may obtain
quotes for a price to purchase or sell AVAX from one or more Liquidity
Providers. A Liquidity Provider may respond to the Trust's request with an offer
of a quote at which it is willing to sell the specified quantity of AVAX, or a
portion thereof, in the case of a creation, or a quote at which it is willing to
buy the specified quantity of AVAX, or a portion thereof, in the case of a
redemption, as indicated in such offer. The Trust then determines, in its sole
discretion, which Liquidity Provider that provided a quote to use. Once an offer
is accepted it becomes a trade that is binding on both the Trust and the
Liquidity Provider. Each Liquidity Provider is required to comply with U.S.
federal and/or state laws including licensing and registration requirements or
similar laws in non-U.S. jurisdictions and maintain practices and policies
designed to comply with AML and KYC regulations.
The
Liquidity Providers as of the date of this Prospectus, that have agreed to serve
as a Liquidity Provider and have consented to be named in this Prospectus are
Cumberland New York LLC, JSCT, LLC, Nonco LLC, Virtu Financial Singapore Pte
Ltd., and Wincent Investment Fund PCC Limited.
Current
or future Liquidity Providers may be affiliates of, or have material
relationships with, the Trust's current or future Authorized
Participants.
The
MarketVectorTM
Avalanche
Benchmark Rate
Market
Vector is the index sponsor and index administrator for the
MarketVectorTM
Avalanche Benchmark Rate ("MarketVectorTM
Avalanche Benchmark Rate" or "Index"). MarketVector is a wholly-owned subsidiary
of VanEck. BITA GmbH is the calculation agent for the MarketVectorTM
Avalanche Benchmark Rate and an affiliate of VanEck.
The
MarketVectorTM
Avalanche Benchmark Rate is a U.S. dollar-denominated composite reference rate
for the price of AVAX. The Index is calculated daily between 00:00 and 24:00
(CET) and the Index values are disseminated to data vendors. The Index is
disseminated in U.S. dollars and the closing and intraday value is calculated
over twenty three-minute intervals pursuant to a methodology referred to as an
equal-weighted average of the volume-weighted median price.
The
MarketVectorTM
Avalanche Benchmark Rate is designed to be a robust price for AVAX in U.S.
dollars. There is no component other than AVAX in the Index. The underlying
trading platforms are sourced from the industry leading BITA Cryptocurrency
Real-Time Rates report, which is issued by BITA GmbH. BITA GmbH (“BITA”) is a
Germany-based fintech company that provides enterprise-grade indexes, data and
infrastructure to institutions operating in the passive and quantitative
investment spaces. Active in the digital asset industry since 2018, BITA GmbH
provides crypto calculation, index administration and infrastructure solutions
to financial institutions globally. BITA reviews various trading exchanges and
analyzes such exchanges to determine whether the exchanges should be approved as
a data source (approved exchanges are referred to by BITA as “whitelisted”).
BITA’s methodology for evaluating exchanges utilizes a combination of
qualitative and quantitative metrics to analyze a comprehensive data set,
covering five categories of evaluation. The categories of evaluation include
regulatory standing, trading volume and liquidity, data quality, technology and
usability/coverage. BITA evaluates each category of each exchange with respect
to each different digital asset, with different weights assigned to each
category to arrive at a “total score” for each exchange. BITA then ascribes a
rating to each exchange and determines the minimum total score for an exchange
to be included in each pricing index. Each qualifying exchanges is then ranked
by BITA according to their “total score” to determine their BITA ranking, which
determines the weighting of such exchange in the MarketVectorTM
Avalanche Benchmark Rate. See "The Trust and AVAX Prices—Description of the
MarketVectorTM
Avalanche Benchmark Rate Construction and Maintenance" for more details. The
BITA Cryptocurrency Real-Time Rates report provides a framework for assessing
risk of each trading platform and brings transparency and accountability to a
rapidly evolving market and industry. Based on the BITA Cryptocurrency Real-Time
Rates report, MarketVector initially selects the top five trading platforms by
rank for inclusion in the
MarketVectorTM
Avalanche Benchmark Rate. If an eligible trading platform is downgraded by two
or more notches in a semi-annual review and is no longer in the top five by
rank, it is replaced by the highest ranked non-component trading platform.
Adjustments to exchange coverage are announced four business days prior to the
first business day of each of March and September at 23:00 CET. The
MarketVectorTM
Avalanche Benchmark Rate is rebalanced at 16:00:00 GMT/BST on the last business
day of each of February and August. The current exchange composition of the
MarketVectorTM
Avalanche Benchmark Rate is Coinbase, Crypto.com, Gemini, Kraken, and
OKX.
Pricing
Information Available on the Exchange and Other Sources
The
following table lists the Exchange symbols and their descriptions with respect
to the Shares and the MarketVectorTM
Avalanche Benchmark Rate:
|
|
|
|
|
|
|
|
|
| Ticker |
|
Description |
|
VAVX |
|
Market
price per Share on the Exchange |
|
VAVX.IV |
|
Indicative
intra-day value per Share |
|
VAVX.NV |
|
End
of day NAV |
|
VAVX.SO |
|
Number
of outstanding Shares |
The
intra-day data in the above table is published once every 15 seconds throughout
each trading day.
The
current market price per Share (symbol: VAVX) will be published continuously as
trades occur throughout each trading day on the consolidated tape by market data
vendors.
The
intra-day indicative value per Share (symbol: VAVX.IV) will be published by the
Exchange once every 15 seconds throughout each trading day on the consolidated
tape by market data vendors.
The
Trust's most recent end-of-day net asset value ("NAV") (symbol: VAVX.NV) will be
published as of the close of business by market data vendors and available on
the Sponsor's website at www.vaneck.com, or any successor thereto, and will be
published on the consolidated tape.
Any
adjustments made to the MarketVectorTM
Avalanche Benchmark Rate will be published on the MarketVector website at
https://www.MarketVector.com/ or any successor thereto.
The
intra-day levels and closing levels of the MarketVectorTM
Avalanche Benchmark Rate are published by MarketVector, and the closing NAV is
published by the Administrator.
The
Shares are not issued, sponsored, endorsed, sold or promoted by the Exchange,
and the Exchange makes no representation regarding the advisability of investing
in the Shares.
MarketVector
makes no warranty, express or implied, as to the results to be obtained by any
person or entity from the use of the MarketVectorTM
Avalanche Benchmark Rate for any purpose. Index information and any other data
calculated and/or disseminated, in whole or part, by MarketVector is for
informational purposes only, not intended for trading purposes, and provided on
an "as is" basis. MarketVector does not warrant that the Index information will
be uninterrupted or error-free, or that defects will be corrected. MarketVector
also does not recommend or make any representation as to possible benefits from
any securities or investments, or third-party products or services. Shareholders
should undertake their own due diligence regarding securities and investment
practices.
For
more information on the MarketVectorTM
Avalanche Benchmark Rate and MarketVector, see "The Trust and AVAX Prices"
below.
The
Trust's Legal Structure
The
Trust is a Delaware statutory trust, formed on March 10, 2025 pursuant to the
Delaware Statutory Trust Act. The Trust continuously issues common shares
representing fractional undivided beneficial interest in and ownership of the
Trust that may be purchased and sold on the Exchange. The Trust operates
pursuant to the
Amended
and Restated Declaration of Trust and Trust Agreement (the "Trust Agreement"),
dated as of November 26, 2025. CSC Delaware Trust Company, a Delaware trust
company, is the Delaware trustee of the Trust (the "Trustee"). The Trust is
managed and controlled by the Sponsor. The Sponsor is a limited liability
company formed in the state of Delaware on December 8, 2020.
The
Trust's Service Providers
The
Sponsor
The
Sponsor arranged for the creation of the Trust and is responsible for the
ongoing registration of the Shares for their public offering in the United
States and the listing of Shares on the Exchange. The Sponsor has developed a
marketing plan for the Trust, will prepare marketing materials regarding the
Shares of the Trust, and will exercise the marketing plan of the Trust on an
ongoing basis. The Sponsor appoints and may remove the Trust's other service
providers, including the Trustee, Administrator, Transfer Agent, AVAX
Custodians, Staking Services Provider, and Marketing Agent (as defined below),
as well as any additional, replacement, or successor service providers. The
Sponsor has agreed to pay all ordinary operating expenses (except for litigation
expenses and other extraordinary expenses) out of the Sponsor's unified
fee.
The
Trustee
The
Trustee, a Delaware trust company, acts as the trustee of the Trust as required
to create a Delaware statutory trust in accordance with the Declaration of Trust
and the Delaware Statutory Trust Act.
The
Administrator
State
Street Bank and Trust Company serves as the Trust's administrator (the
"Administrator"). The Administrator's principal address is One Congress Street,
Boston, MA 02111. Under the Trust's Administration Agreement between State
Street Bank and Trust Company and the Trust (the "Trust Administration
Agreement") and a separate cash custodian agreement, the Administrator provides
certain administrative and accounting services and financial reporting for the
maintenance and operations of the Trust, including valuing the Trust's AVAX and
calculating the net asset value per Share of the Trust and the net asset value
of the Trust and maintaining the books of account of the Trust. In addition, the
Administrator makes available the office space, equipment, personnel and
facilities required to provide such services.
The
Transfer Agent
State
Street Bank and Trust Company serves as the transfer agent for the Trust (the
"Transfer Agent"). The Transfer Agent: (1) issues and redeems Shares of the
Trust; (2) responds to correspondence by Shareholders and others relating to its
duties; (3) maintains Shareholder accounts; and (4) makes periodic reports to
the Trust. The Trust's Transfer Agent will facilitate the settlement of Shares
in response to the placement of creation orders and redemption orders from
Authorized Participants.
The
Cash Custodian
Under
the cash custodian agreement (the "Cash Custody Agreement"), State Street Bank
and Trust Company will act as custodian for the Trust's cash (in such capacity,
the "Cash Custodian"). The Cash Custodian is responsible for, among other
things, maintaining a separate deposit account or accounts for cash in the name
of the Trust and determining the amount of AVAX and/or cash required for the
issuance or redemption, as the case may be, of Shares in creation unit
aggregations of the Trust after the end of each trading day.
The
Staking Services Provider
Coinbase
Crypto Services, LLC, an affiliate of the Second AVAX Custodian, is expected to
serve as the Staking Services Provider for the Trust from the date the Shares
are initially listed on the Exchange. Pursuant to the Staking Services Addendum
to the Custody Agreement (the "Staking Services Agreement"), dated as of
December 10, 2025, between Coinbase, Inc. and the Trust, the Staking Services
Provider will stake and use in validation on the underlying blockchain network
the Trust's AVAX made available to the Staking Services Provider (“Staked
Assets”)
and
transfer any rewards or distributions in respect of Staked Digital Assets to
Coinbase for the benefit of the Trust, less applicable fees (the "Staking
Services"). The Staking Services Provider will regularly credit staking rewards
on a recurring basis established by Staking Services Provider, after deducting
any (i) applicable payments to the Staking Services Provider as compensation for
its services under the Staking Services Agreement (the "Staking Provider
Consideration"); (ii) the Custodian Staking Facilitation Fee. The Staking
Provider Consideration is currently four percent (4.0%). Custodian Staking
Facilitation Fee is currently zero (0.0%). The Trust will pay the Staking
Services Provider a percentage of staking rewards for the Staking Services.
Staking rewards received by the applicable AVAX Custodian, net of fees, will be
automatically credited to the Trust (as earned) and reflected in its daily NAV,
with a 4:00 p.m. Eastern time cut-off.
Either
party may terminate the Staking Services Agreement upon 180 days’ advance
written notice to the other party, or within such timeframe, upon written
notice, as may be required by applicable law.
Once
the Trust's AVAX is staked and completes its pre-selected “lock-up” period, any
staking rewards will be posted to the staking ledger at the AVAX Custodians. The
date that such rewards are deposited to the AVAX Accounts will be considered the
trade date for the recognition of the staking rewards. The received rewards are
retained by the Trust and may be delegated for staking. The staking rewards will
be recognized as income to the Trust's daily records as earned. In accordance
with GAAP, the Trust will report such income in the financial statements based
upon trade date in the quarterly and annual reports.
The
First AVAX Custodian
Anchorage
Digital Bank N.A. serves as the Trust's First AVAX Custodian. The First First
AVAX Custodian is authorized to serve as the Trust's custodian under the Trust
Agreement and pursuant to the terms and provisions of the First AVAX Custody
Agreement. The First AVAX Custodian has its principal office at 101 S. Reid
Street, Suite 307 #329, Sioux Falls, South Dakota 57102.
The
First AVAX Custodian makes available to the Trust a custodial account for AVAX
maintained by the First AVAX Custodian ("First AVAX Account" or “First Custody
Account”) and access to an omnibus custodial account held at depository
institutions in the First AVAX Custodian's name for the benefit of its customers
at which a cash balance may be maintained ("Fiat Accounts"). The First AVAX
Custodian's services in respect of the First AVAX Account (i) allow AVAX to be
deposited from a public blockchain address to the Trust's First AVAX Account and
(ii) allow AVAX to be withdrawn from the First AVAX Account to a public
blockchain address as instructed by the Trust. The Trust expects to use the Fiat
Accounts to facilitate the purchase and sale of AVAX in connection with the cash
creations and redemptions. In respect of the Fiat Accounts, the First AVAX
Custodian holds the Trust's cash held in its Fiat Accounts in one or more
omnibus accounts for the benefit of the First AVAX Custodian's customers at
depository institutions.
The
Sponsor may, in its sole discretion, add or terminate other AVAX custodians. The
Sponsor has executed an agreement with Coinbase Custody that allows Coinbase
Custody to serve as the Second AVAX Custodian for the Trust's assets and to
maintain a custodian account for the Trust's AVAX ("Second AVAX Account" or
"Second Custody Account", and together with the First AVAX Account, the "AVAX
Accounts" or "Custody Accounts"). The Sponsor may, in its sole discretion,
change the custodian for the Trust's AVAX holdings, but it will have no
obligation to do so or to seek any particular terms for the Trust from other
such custodians. To the extent that the Sponsor adds or terminates other AVAX
custodians, or changes the custodian for the Trust's AVAX holdings, notification
will be made to Shareholders via a prospectus supplement and/or a current report
filed with the SEC.
The
Second AVAX Custodian
Coinbase
Custody Trust Company, LLC, serves as the Trust's Second AVAX Custodian and is a
fiduciary under § 100 of the New York Banking Law and a qualified custodian for
purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act of 1940, as
amended. The Second AVAX Custodian is authorized to serve as the Trust's
custodian under the Trust Agreement and pursuant to the terms and provisions of
the Second AVAX Custody Agreement. The Second AVAX Custodian has its principal
address at 55 Hudson Yards, 550 West 34th Street, 4th Floor, New York, NY
10001.
The
Second AVAX Custodian makes available to the Trust a custodial account for AVAX
maintained by the Second AVAX Custodian (the "Second AVAX Account"). The Second
AVAX Custodian's services in respect of the Second AVAX Account (i) allow all or
a portion of the Trust's AVAX allocated to the vault balance (the "Second AVAX
Vault Balance") to be held in the Second AVAX Account, (ii) allow AVAX to be
deposited from a public blockchain address to the Trust's Second AVAX Account,
(iii) allow AVAX to be withdrawn from the Second AVAX Account to a public
blockchain address as instructed by the Trust and (iv) certain additional
services as may be agreed to between the Trust and the Second AVAX Custodian
from time to time.
The
Marketing Agent
Van
Eck Securities Corporation (the "Marketing Agent"), a wholly-owned subsidiary of
VanEck, is responsible for reviewing and approving the marketing materials
prepared by the Trust for compliance with applicable SEC and Financial Industry
Regulatory Authority ("FINRA") advertising laws, rules, and
regulations.
The
Trust's Fees and Expenses
The
Trust will pay the Sponsor the Sponsor Fee, which is a unified fee of 0.20%. The
Sponsor Fee is paid by the Trust to the Sponsor as compensation for services
performed under the Trust Agreement. The Administrator will make its
determination regarding the Sponsor Fee in respect of each day by reference to
the Trust's NAV as of that day. The Sponsor Fee will accrue in U.S. dollars and
be payable monthly in arrears in AVAX on, or by, the tenth business day of the
next month in respect of the prior month. Each month, the Administrator will
calculate the Sponsor Fee for each day of the month, resulting in a cumulative
total in U.S. dollars, which the Administrator will then calculate the AVAX
equivalent of by reference to the Index as of the date of calculation, and the
Sponsor shall then withdraw the corresponding amount of AVAX from the Trust's
AVAX Accounts in payment of the Sponsor Fee. The Sponsor has agreed to pay all
ordinary operating expenses (except for extraordinary expenses, including but
not limited to, non-recurring expenses and costs of services performed by the
Sponsor or a service provider on behalf of the Trust to protect the Trust or the
interests of Shareholders, such as any applicable Staking Provider Consideration
or Custodian Staking Facilitation Fee, and in connection with any
indemnification of agents, service providers or counterparties of the Trust and
extraordinary legal fees and expenses, including any legal fees and expenses
incurred in connection with litigation, regulatory enforcement or investigation
matters) out of the Sponsor Fee. For extraordinary expenses not covered in the
previous sentence, the Sponsor shall pay these expenses as they become due and
seek contemporaneous reimbursement from the Trust in the form of AVAX at the
time of payment. For extraordinary expenses denominated in dollars, the Sponsor
shall convert the expense amounts into AVAX at the Index price on the date the
Sponsor seeks such reimbursement from the Trust, and shall withdraw the
corresponding amounts of AVAX from the Trust as reimbursement for paying such
extraordinary expenses of the Trust. For extraordinary expenses denominated in
AVAX, if any, the Sponsor shall withdraw the corresponding amounts of AVAX from
the Trust as reimbursement for paying such extraordinary expenses. Neither the
Trust nor the Shareholders shall be responsible for any fees and expenses,
including any Avalanche Network fees, incurred by the Sponsor to withdraw AVAX
from the Trust's AVAX Accounts in connection with payment of the Sponsor Fee or
Trust expenses not assumed by the Sponsor, or to convert such AVAX, once
withdrawn, into cash (if applicable). The Sponsor will sell AVAX which may be
facilitated by one or more Liquidity Providers and/or the AVAX Custodians or an
affiliate thereof, in connection with the termination of the Trust and the
liquidation of the Trust's AVAX holdings, which the Sponsor shall do at a price
which it is able to obtain through commercially reasonable efforts, and arrange
for the distribution of the cash proceeds to the Trust's Shareholders and
creditors (if any). The amount of AVAX held by the Trust may vary from time to
time depending on the level of the Trust's expenses and liabilities and the
market price of AVAX. Furthermore, the Sponsor may, in its sole discretion,
agree to rebate all or a portion of the Sponsor Fee attributable to Shares held
by certain investors, or share a portion of the Sponsor Fee with such investors,
subject to certain minimum Shareholding and lock up requirements as determined
by the Sponsor to foster stability in the Trust's asset levels. Any such rebate
or sharing of the Sponsor Fee will be subject to negotiation and agreement
between the Sponsor and the investor on a case-by-case basis. The Sponsor is
under no obligation to provide any rebates of, or share, the Sponsor Fee.
Neither the Trust nor the Trustee will be a party to any Sponsor Fee rebate or
sharing arrangements negotiated by the Sponsor. Any Sponsor Fee rebate, or any
sharing of the Sponsor Fee, will be paid from the funds of the Sponsor
(including the Sponsor Fee) and not from the assets of the Trust. In addition,
the Sponsor may, at its sole discretion and from time to time, waive all or a
portion of the Sponsor Fee for stated periods of time. The Sponsor is under no
obligation to waive any portion of its fees and any
such
waiver shall create no obligation to waive any such fees during any period not
covered by the waiver. During the period commencing on January 26, 2026 and
ending on February 28, 2026, the Sponsor will waive the entire Sponsor Fee for
the first $500 million of the Trust’s assets. If the Trust’s assets exceed $500
million prior to February 28, 2026, the Sponsor Fee charged on assets over $500
million will be 0.20%. All investors will incur the same Sponsor Fee which is
the weighted average of those fee rates. After February 28, 2026, the Sponsor
Fee will be 0.20%.
Custody
of the Trust's Assets
The
Trust's AVAX Custodians will keep custody of all of the Trust's AVAX and will
safeguard the private keys to the AVAX associated with the Trust's AVAX
Accounts. AVAX private keys are stored in "cold" storage, where digital currency
private keys are stored completely offline.
First
AVAX Account
The
First AVAX Custody Agreement requires the First AVAX Custodian to hold such of
the Trust's AVAX as the Sponsor shall determine, in its sole discretion, in cold
storage, the First AVAX Custodian will use segregated cold storage AVAX
addresses for the Trust's First AVAX Account. The addresses on the Avalanche
Blockchain at which the Trust's AVAX in the First AVAX Account are held by the
First AVAX Custodian are separate from the AVAX addresses that the First AVAX
Custodian uses for its other customers and are directly verifiable via the
Avalanche Blockchain. The First AVAX Custodian will at all times record and
identify in its books and records that such AVAX constitute the property of the
Trust. The First AVAX Custodian will not withdraw the Trust's AVAX from the
Trust's First AVAX Account with the First AVAX Custodian, or loan, hypothecate,
pledge or otherwise encumber the Trust's AVAX, without the Trust's instruction,
nor will the Sponsor or any other entity or service provider. The Trust will not
lease or loan AVAX held in the Trust's First AVAX Account with the First AVAX
Custodian and will not give instructions to that effect.
The
Sponsor has evaluated the First AVAX Custodian's policies, procedures, and
controls for safekeeping, exclusively possessing, and controlling the Trust's
AVAX holdings and believes these are designed consistent with accepted industry
practices to protect against theft, loss, and unauthorized and accidental use of
the private keys, though the Sponsor does not control the First AVAX Custodian's
operations or implementation of such policies, procedures and controls and there
can be no assurance that they 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.
Neither
the Trust's First AVAX Account nor Second AVAX Account is subject to the
protections or insurance provided by the Federal Deposit Insurance Corporation
or the Securities Investor Protection Corporation. Any insurance coverage
obtained by or for the AVAX Custodians is solely for the benefit of the AVAX
Custodians and does not guarantee or insure the Trust in any way. Neither the
Trust nor Shareholders are named beneficiaries under such policies. It is
unlikely the AVAX Custodians' insurance would cover the full amount of any
losses incurred by the Trust, and may not cover any such amount, nor, even if it
did, is there any assurance any such proceeds would be available to the Trust
and its Shareholders, given such proceeds would likely be shared with other
customers of such AVAX Custodian. There is no third-party insurance held by the
Trust or Sponsor on behalf of the AVAX Accounts.
The
Second AVAX Account
The
Second AVAX Custody Agreement requires the Second AVAX Custodian to hold the
Trust's AVAX in cold storage, unless required to facilitate withdrawals as a
temporary measure. The Second AVAX Custodian will use segregated cold storage
AVAX addresses for the Trust's Second AVAX Account. The addresses on the
Avalanche Blockchain at which the Trust's AVAX in the Second AVAX Account are
held by the Second AVAX Custodian are separate from the AVAX addresses that the
Second AVAX Custodian uses for its other customers and are directly verifiable
via the Avalanche Blockchain. The Second AVAX Custodian will at all times record
and identify in its books and records that such AVAX constitute the property of
the Trust. The Second AVAX Custodian will not withdraw the Trust's AVAX from the
Trust's Second AVAX Account with the Second AVAX Custodian, or loan,
hypothecate, pledge or otherwise encumber the Trust's AVAX, without the Trust's
instruction.
The
Sponsor has evaluated the Second AVAX Custodian's policies, procedures, and
controls for safekeeping, exclusively possessing, and controlling the Trust's
AVAX holdings and believes these are designed consistent with accepted industry
practices to protect against theft, loss, and unauthorized and accidental use of
the private keys, though the Sponsor does not control the Second AVAX
Custodian's operations or implementation of such policies, procedures and
controls and there can be no assurance that they 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.
Fiat
Accounts
The
Trust expects to use fiat accounts ("Fiat Accounts") at the First AVAX Custodian
and Coinbase respectively to facilitate cash movements to counterparties in
connection with the purchase and sale of AVAX for cash creations and
redemptions. In respect of the Fiat Account at the First AVAX Custodian, the
First AVAX Custodian holds the Trust's cash held in its account at the First
AVAX Custodian in one or more Customer Omnibus Accounts. "Customer Omnibus
Account" means, with respect to fiat currency held for customers of the First
AVAX Custodian (including the Trust's cash balance in its Fiat Accounts),
omnibus bank accounts (each an "Omnibus Account") at FDIC-insured, regulated
depository institutions selected by Anchorage (each, a “Fiat Institution”). The
First AVAX Custodian makes no representation that pass-through FDIC deposit
insurance will be available and disclaims liability for the insolvency of a Fiat
Institution. In respect of the Fiat Account at Coinbase, Coinbase holds the
Trust's cash held in its Trading Account at Coinbase in one of three ways: (i)
in one or more omnibus accounts in Coinbase’s name for the benefit of customers
at one or more U.S. insured depository institutions ("IDIs"); (ii) in liquid
investments, consisting of U.S. treasuries and money market funds rated “AAA” by
S&P (or the equivalent from any eligible rating service), in accordance with
state money transmitter laws and (iii) in Coinbase’s omnibus accounts at third
party trading venues. Coinbase makes no representation that pass-through FDIC
deposit insurance will be available. The Trust intends to maintain any cash not
held in the First AVAX Custodian's Fiat Accounts at the Cash Custodian in
accordance with the Cash Custody Agreement.
The
Trust generally does not intend to hold cash or cash equivalents except
temporarily in connection with a cash creation or redemption transaction or to
pay expenses. However, there may be situations where the Trust will unexpectedly
hold cash on a temporary basis. For additional information, see "CUSTODY
OF THE TRUST'S ASSETS"
below.
Net
Asset Value Determinations
As
described in more detail below in "NET ASSET VALUE DETERMINATIONS," "NAV" means
the total assets of the Trust which shall consist solely of AVAX and cash, less
total liabilities of the Trust.
The
Trust Agreement gives the Sponsor the exclusive authority to determine the
Trust's NAV and the Trust's NAV per Share, which it has delegated to the
Administrator. The Administrator determines the NAV of the Trust on each day
that the Exchange is open for regular trading, as promptly as practical after
4:00 p.m. Eastern time based on the MarketVectorTM
Avalanche Benchmark Rate. The NAV of the Trust is the aggregate value of the
Trust's assets less its estimated accrued but unpaid liabilities (which include
accrued expenses). In determining the Trust's NAV, the Administrator values the
AVAX held by the Trust based on the price set by the MarketVectorTM
Avalanche Benchmark Rate as of 4:00 p.m. Eastern time. The Administrator also
determines the NAV per Share. The Sponsor believes that use of the
MarketVectorTM
Avalanche Benchmark Rate mitigates against idiosyncratic market risk, as the
failure of any individual spot market will not materially impact pricing for the
Trust. It also allows the Administrator to calculate the NAV in a manner that
significantly deters manipulation.
However,
determining the value of Trust's AVAX using the MarketVectorTM
Avalanche Benchmark Rate is not in accordance with U.S. generally accepted
accounting principles ("GAAP"), and therefore is not used in the Trust's
financial statements. The Trust's AVAX are carried, for financial statement
purposes, at fair value, as required by GAAP. The Trust determines the fair
value of AVAX based on the price provided by the AVAX market that the Trust
considers its "principal market" as of 11:59 p.m., Eastern time, on the
valuation date. A disparity between the fair value of the Trust's AVAX
determined using "principal market" and the fair value of the Trust's AVAX using
the MarketVectorTM
Avalanche Benchmark Rate could be material. In the case of such a material
disparity that is
ongoing,
the Trust will notify Shareholders in a prospectus supplement and a current
report on Form 8-K or in its annual or quarterly reports.
Plan
of Distribution
The
Trust is an exchange-traded fund. When the Trust sells or redeems its Shares, it
will do so in Baskets that are based on the amount of AVAX represented by the
Basket being created, the amount of AVAX being equal to the combined net asset
value of the number of Shares included in the Basket (net of the Sponsor Fee and
any accrued but unpaid expenses or liabilities not assumed by the Sponsor). The
Trust currently conducts subscriptions and redemptions in cash and in-kind.
Authorized Participants will deliver cash or AVAX to create Shares and will
receive cash or AVAX when redeeming Shares. For a subscription in cash, the
Authorized Participant's subscription shall be in the amount of cash needed to
purchase the amount of AVAX represented by the Basket being created, as
calculated by the Administrator based on the Index or the other valuation
policies described herein. The AP will deliver the cash to the Trust's account
at the Cash Custodian, which the Sponsor will then use to purchase AVAX from a
Liquidity Provider. For a redemption in cash, the Sponsor shall arrange for the
AVAX represented by the Basket to be sold to a Liquidity Provider selected by
the Sponsor and the cash proceeds distributed from the Trust's account at the
Cash Custodian to the Authorized Participant. For an "in-kind" subscription,
Authorized Participants will deliver, or arrange for the delivery by the
Authorized Participant's designee of, AVAX to the Trust's Custody Accounts in
exchange for Shares when they purchase Shares. For an "in-kind" redemption
transaction with the Trust, when Authorized Participants redeem Shares, the
Trust, through the AVAX Custodians, will deliver AVAX to such Authorized
Participants, or a designee thereof, in exchange for their Shares.
Following
the issuance of Shares by the Trust to the AP in connection with a Basket
subscription, APs may then offer Shares to the public at prices that depend on
various factors, including the supply and demand for Shares, the value of the
Trust's assets, and market conditions at the time of a transaction. Shareholders
who buy or sell Shares during the day from their broker may do so at a premium
or discount relative to the NAV of the Shares of the Trust.
Shareholders
who decide to buy or sell Shares of the Trust will place their trade orders
through their brokers and may incur customary brokerage commissions and charges.
Prior to this offering, there has been no public market for the Shares. The
Shares are expected to be approved for listing, subject to notice of issuance,
on the Exchange under the ticker symbol VAVX.
Federal
Income Tax Considerations
It
is expected that owners of Shares will be treated, for U.S. federal income tax
purposes, as if they own a proportionate share of the assets of the Trust, as if
they directly receive a proportionate share of any income of the Trust, and as
if they will incur a proportionate share of the expenses of the Trust.
Consequently, each sale of AVAX by the Trust (which includes under current
Internal Revenue Service ("IRS") guidance using AVAX to pay expenses of the
Trust) would constitute a taxable event to Shareholders. See "United States
Federal Income Tax Consequences—Taxation of U.S. Shareholders."
Use
of Proceeds
Proceeds
received by the Trust from the issuance of Baskets consist of AVAX, or cash.
Deposits of AVAX are held by the AVAX Custodians on behalf of the
Trust.
Principal
Investment Risks of an Investment in the Trust
An
investment in the Trust involves a high degree of risk. Some of the risks you
may face are summarized below. A more extensive discussion of these risks
appears beginning on page 17.
•Digital
assets such as AVAX were only introduced within the past decade, and the
medium-to-long term value of the Shares is subject to a number of factors
relating to the capabilities and development of blockchain technologies and to
the fundamental investment characteristics of digital assets that are uncertain
and difficult to evaluate.
•The
trading prices of many digital assets, including AVAX, have experienced extreme
volatility in recent periods and may continue to do so. Extreme volatility in
the future, including further declines in the trading prices of AVAX, could have
a material adverse effect on the value of the Shares and the Shares could lose
all or substantially all of their value.
•The
value of the Shares is subject to a number of factors relating to the
fundamental investment characteristics of AVAX as a digital asset, including the
fact that digital assets are bearer instruments and loss, theft, destruction, or
compromise of the associated private keys could result in permanent loss of the
asset, and the capabilities and development of blockchain technologies such as
the Avalanche Blockchain.
•Due
to the nature of private keys, AVAX transactions are irrevocable and stolen or
incorrectly transferred AVAX may be irretrievable. As a result, any incorrectly
executed AVAX transactions could adversely affect an investment in the
Trust.
•The
value of the Shares relates directly to the value of AVAX, the value of which
may be highly volatile and subject to fluctuations due to a number of
factors.
•The
Index has a limited history, the Index price could fail to track the global AVAX
price, and a failure of the Index price could adversely affect the value of the
Shares.
•The
Index price used to calculate the value of the Trust's AVAX may be volatile,
adversely affecting the value of the Shares.
•Security
threats to the Trust's account with the AVAX Custodians 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 price
of the Shares.
•The
Avalanche Network's decentralized governance structure may negatively affect its
ability to grow and respond to challenges.
•A
temporary or permanent "fork" of the Avalanche Blockchain could adversely affect
the short-, medium-, or long-term value of AVAX and an investment in the
Trust.
•Blockchain
technologies are based on the 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.
•Competition
from the emergence or growth of other digital assets or methods of investing in
AVAX could have a negative impact on the price of AVAX and adversely affect the
value of the Shares.
•Due
to the unregulated nature and lack of transparency surrounding the operations of
AVAX trading platforms, which may be subject to regulation in a relevant
jurisdiction but may not be complying, they may experience fraud, manipulation,
security failures or operational problems, which may adversely affect the value
of AVAX and, consequently, the value of the Shares.
•Digital
asset markets in the U.S. exist in a state of regulatory uncertainty, and
adverse legislative or regulatory developments could significantly harm the
value of AVAX or the Shares, such as by banning, restricting or imposing onerous
conditions or prohibitions on the use of AVAX, mining activity, digital wallets,
the provision of services related to trading and custodying AVAX, the operation
of the Avalanche Network, or the digital asset markets generally.
•Shareholders
do not have the protections associated with ownership of Shares in an investment
company registered under the 1940 Act or the protections afforded by the
CEA.
•If
regulatory changes or interpretations of an Authorized Participant's, Liquidity
Provider's, the Trust's or the Sponsor's activities require the regulation of an
Authorized Participant, Liquidity Provider, the Trust or the Sponsor as a money
service business under the regulations promulgated by FinCEN under the authority
of
the U.S. Bank Secrecy Act or as a money transmitter or digital asset business
under state regimes for the licensing of such businesses, an Authorized
Participant, Liquidity Provider, the Trust or the Sponsor may be required to
register and comply with such regulations, which could result in extraordinary,
recurring and/or nonrecurring expenses to the Authorized Participant, Trust or
Sponsor or increased commissions for the Authorized Participant's clients,
thereby reducing the liquidity of the shares.
•The
treatment of digital currency for U.S. federal income tax purposes is
uncertain.
•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.
RISK
FACTORS
You
should consider carefully the risks described below before making an investment
decision. You should also refer to the other information included in this
Prospectus, as well as information found in documents incorporated by reference
in this Prospectus, before you decide to purchase any Shares. 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
Associated with AVAX And The Avalanche Network
The
Trading Prices Of Many Digital Assets, Including AVAX, Have Experienced Extreme
Volatility In Recent Periods And May Continue To Do So. Extreme Volatility In
The Future, Including Further Declines In The Trading Prices Of AVAX, Could Have
A Material Adverse Effect On The Value Of The Shares And The Shares Could Lose
All Or Substantially All Of Their Value.
The
trading prices of many digital assets, including AVAX, have experienced extreme
volatility in recent periods and may continue to do so. For instance, there were
steep increases in the value of certain digital assets, including AVAX, over the
course of 2021, and multiple market observers asserted that digital assets were
experiencing a "bubble." These increases were followed by steep drawdowns
throughout 2022 in digital asset trading prices, including for AVAX. These
episodes of rapid price appreciation followed by steep drawdowns have occurred
multiple times throughout AVAX's history. AVAX prices have continued to exhibit
extreme volatility through the date of this Prospectus.
Extreme
volatility may persist and the value of the Shares may significantly decline in
the future without recovery. The digital asset markets may still be experiencing
a bubble or may experience a bubble again in the future. For example, in the
first half of 2022, each of Celsius Network, Voyager Digital Ltd., and Three
Arrows Capital declared bankruptcy, resulting in a loss of confidence in
participants of the digital asset ecosystem and negative publicity surrounding
digital assets more broadly. In November 2022, FTX Trading Ltd. ("FTX"), one of
the largest digital asset exchanges by volume at the time, 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 U.S. 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. In addition, several
other entities in the digital asset industry filed for bankruptcy following
FTX's bankruptcy filing, such as BlockFi Inc. and Genesis Global Capital, LLC
("Genesis"). In response to these events (collectively, the "2022 Events"), the
digital asset markets have experienced extreme price volatility and other
entities in the digital asset industry have been, and may continue to be,
negatively affected, further undermining confidence in the digital asset
markets. Some sources report the price of Solana (“SOL”) declined 94% overall in
2022, including over 50% in the two months following FTX's declaration of
bankruptcy. The 2022 events have also negatively impacted the liquidity of the
digital asset markets as certain entities affiliated with FTX engaged in
significant trading activity. If the liquidity of the digital asset markets
continues to be negatively impacted by these events, digital asset prices,
including AVAX, may continue to experience significant volatility or price
declines and confidence in the digital asset markets may be further undermined.
In addition, regulatory and enforcement scrutiny has increased, including from,
among others, the Department of Justice, the SEC, the CFTC, the White House and
Congress, as well as state regulators and authorities. These events are
continuing to develop and the full facts are continuing to emerge. It is not
possible to predict at this time all of the risks that they may pose to the
Trust, its service providers or to the digital asset industry as a
whole.
Many
expect the Trump administration to facilitate a supportive regulatory approach
toward the digital asset industry. Through his executive orders, President Trump
has indicated that the administration will work toward providing greater
regulatory clarity for blockchain technology and digital assets, thereby
fostering their development in the U.S. Similarly, the digital asset industry
expects favorable legislation from the new U.S. Congress as certain members have
expressed interest in advancing digital asset specific legislation. There can be
no assurance that market expectations around future activity by the
administration or Congress will be fulfilled, or that digital asset
prices
will rise or maintain their current levels. Some commentators have referred to
the digital asset market post-President Trump's election as a bubble. There can
be no assurance that such a bubble does not exist. The failure of the
administration and Congress to provide the expected level of regulatory clarity
and support for blockchain technology and digital assets, could lead to a
decline in digital asset prices, including AVAX. Such a decline could cause a
decline in the value of the Shares and cause Shareholders to suffer losses.
Moreover, there can be no assurance that political dynamics and sentiments
toward the digital asset industry, or market perceptions of those sentiments,
will not shift over time.
On
March 6, 2025, President Trump issued an executive order for the "Establishment
of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile" (the
"Order"). The Order requires the Secretary of the U.S. Department of Treasury to
establish two offices to administer and maintain a "Strategic Bitcoin Reserve"
(the "Bitcoin Reserve") and a U.S. Digital Asset Stockpile (the "Digital Asset
Stockpile"), respectively. The Bitcoin Reserve will be capitalized with bitcoin
forfeited as part of U.S. criminal or civil proceedings or in satisfaction of
penalties imposed by executive agencies. The Order directs the Secretaries of
the U.S. Treasury Department and the U.S. Department of Commerce to develop
budget-neutral strategies for acquiring additional bitcoin for the Bitcoin
Reserve. As established by the Order, the Bitcoin Reserve will not contain AVAX,
and there can be no assurance, and there is no present indication, that it would
be changed to include AVAX in the future. The Digital Asset Stockpile will be
capitalized initially with digital assets other than bitcoin forfeited as part
of criminal or civil asset forfeiture proceedings; however, there will be no new
acquisitions of AVAX as part of the Digital Asset Stockpile. The anticipation of
a U.S. government-funded strategic cryptocurrency reserve might have motivated
large-scale purchases of AVAX in the expectation of the U.S. government
potentially acquiring AVAX to fund such an expected reserve. While legislation
has been introduced in the U.S. Senate and the U.S. House of Representatives,
which would direct the acquisition of 1 million bitcoin by the federal
government over a five-year period, no such similar federal legislation has been
introduced that would provide for acquiring AVAX. Even if such legislation
providing for the acquisition of AVAX were to be introduced at the federal
level, it could fail to pass. Bills have also been introduced in several state
legislatures to authorize the acquisition of bitcoin by state governments or
their instrumentalities, some of which have failed to pass; however, the Sponsor
is not aware as of the date of this Prospectus that similar legislation at the
state level has been introduced in respect of AVAX. There can be no assurance
that any particular legislation will ever be introduced or passed at either the
federal or state level providing for the acquisition of AVAX by governmental
instrumentalities.
Extreme
volatility in the future, including further declines in the trading prices of
AVAX, could have a material adverse effect on the value of the Shares and the
Shares could lose all or substantially all of their value. Furthermore, negative
perception, a lack of stability and standardized regulation in the digital asset
economy may reduce confidence in the digital asset economy and may result in
greater volatility in the price of AVAX and other digital assets, including a
depreciation in value. The Trust is not actively managed and will not take any
actions to take advantage, or mitigate the impacts, of volatility in the price
of AVAX.
The
Value Of The Shares Depends On The Development And Acceptance Of The Avalanche
Network. The Slowing Or Stopping Of The Development Or Acceptance Of The
Avalanche Network May Adversely Affect An Investment In The Trust.
Digital
assets such as AVAX have only been introduced within the past 15 years, and the
value of the Shares is subject to a number of factors over time relating to the
capabilities and development of blockchain technologies, such as the recentness
of their development, their dependence on the internet and other technologies,
their dependence on the role played by users, developers, and validators and the
potential for malicious activity. AVAX itself was conceived only in 2020. For
example, the realization of one or more of the following risks could materially
adversely affect the value of the Shares: digital asset networks, including the
Avalanche peer-to-peer network and associated blockchain ledger (such
blockchain, the "Avalanche Blockchain" and together with the peer-to-peer
network, the "Avalanche Network" or "Layer 1 Avalanche Network"), and the
software used to operate them are in the early stages of development. Given the
recentness of the development of digital asset networks, digital assets 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. Because AVAX is a
digital asset, the value of the Shares is subject to a number of factors
relating to the fundamental investment characteristics of digital assets,
including the fact that
digital
assets are bearer instruments and loss, theft, compromise, or destruction of the
associated private keys could result in permanent loss of the
asset.
The
Avalanche Network, including the cryptographic and algorithmic protocols
associated with the operation of the Avalanche Blockchain, has only been in
existence since 2020, and AVAX markets have a limited performance record, making
them part of a new and rapidly evolving industry that is subject to a variety of
factors that are difficult to evaluate. For example, the following are some of
the risks could materially adversely affect the value of the
Shares:
•Digital
assets, including AVAX, are controllable only by the possessor of both the
unique public key and private key or keys relating to the Avalanche Network
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.
•Digital
asset networks are dependent upon the internet. A disruption of the internet or
a digital asset network, such as the Avalanche Network, would affect the ability
to transfer digital assets, including AVAX, and, consequently, their
value.
•Governance
of the Avalanche Network is by voluntary consensus and open competition. As a
result, there may be a lack of consensus or clarity on the governance of the
Avalanche Network, which may stymie the Avalanche Network's utility and ability
to grow and face challenges. In particular, it may be difficult to find
solutions or martial sufficient effort to overcome any future problems on the
Avalanche Network, especially long-term problems.
•The
foregoing notwithstanding, the Avalanche Network's protocol is informally
overseen by a collective of core developers who propose amendments to the
relevant network's source code. Core developers' roles evolve over time, largely
based on self-determined participation. If a significant majority of users and
validators were to adopt amendments to the Avalanche Network based on the
proposals of such core developers, the Avalanche Network would be subject to new
protocols that may adversely affect the value of AVAX.
•To
the extent that any validators cease to record transactions that do not include
the payment of a transaction fee or do not record a transaction because the
transaction fee is too low, such transactions will not be recorded on the
Avalanche Blockchain until a block is 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.
•As
the Avalanche Network continues to develop and grow, certain technical issues
might be uncovered and the trouble shooting and resolution of such issues
requires the attention and efforts of Avalanche's global development community.
Like all software, the Avalanche Network is at risk of vulnerabilities and bugs
that can disrupt ordinary operations or potentially be exploited by malicious
actors.
•Many
digital asset networks, including the Avalanche Network, face significant
scaling challenges and are being upgraded with various features designed to
increase the speed of digital asset transactions and the number of transactions
that can processed in a given period (known as "throughput"). These attempts to
increase the volume of transactions may not be effective, and such upgrades may
fail, resulting in potentially irreparable damage to the Avalanche Network and
the value of AVAX.
•Moreover,
in the past, bugs, defects and flaws in the source code for digital assets have
been exposed and exploited, including flaws that disrupted normal Avalanche
Network, Avalanche Client, or DApp and smart contract operations or disabled
related functionality for users, exposed users' personal information and/or
resulted in the theft of users' digital assets. See "—The Avalanche Blockchain
Could Be Vulnerable To
Centralization
Concerns Which Could Adversely Affect The Security And Stability of the
Avalanche Network As Well As The Value Of The Shares.” The cryptography
underlying the Avalanche Network or AVAX as an asset 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. Quantum computing technology
is an emerging phenomenon which, because it is still developing, makes it
difficult to predict its ultimate effect on the future value of AVAX and other
digital assets. However, if quantum computing technology is able to advance and
significantly increase its capacity relative to the capacity of today's leading
quantum computers, it could potentially undermine the viability of many of the
cryptographic algorithms used across the world's information technology
infrastructure, including the cryptographic algorithms used for digital assets
like AVAX. If quantum computing is able to advance in that way, there is a risk
that quantum computing could result in the cryptography underlying the Avalanche
Network becoming ineffective, which, if realized, could compromise the security
of the Avalanche Network, or allow a malicious actor to compromise the wallets
holding AVAX owned by the Trust or others on the Avalanche Network, which would
result in losses to Shareholders. There is no guarantee that new quantum-proof
architectures for the Avalanche Network will be built and appropriate
transitions will be implemented across the network at scale in a timely manner;
any such changes could require the achievement of broad consensus within the
Avalanche Network community and a fork (or multiple forks), and there can be no
assurance that such consensus would be achieved or the changes implemented
successfully. See "— The Avalanche Network's Decentralized Governance Structure
May Negatively Affect Its Ability To Grow And Respond To Challenges." and "— A
Temporary Or Permanent "Fork" or a "Clone" Of The Avalanche Blockchain Could
Adversely Affect The Value Of The Shares." If any of the foregoing were to
occur, it could result in losses to Shareholders. Moreover, normal operations
and functionality of the Avalanche Network may be negatively affected. Such
losses of functionality could lead to the Avalanche Network losing
attractiveness to users, nodes, validators, or other stakeholders, thereby
dampening demand for AVAX. Even if another digital asset other than AVAX were
affected by similar circumstances, any reduction in confidence in the source
code or cryptography underlying digital assets generally could negatively affect
the demand for digital assets and therefore adversely affect the value of the
Shares.
•The
Avalanche Network is still in the process of developing and making significant
decisions that will affect policies that govern the supply and issuance of AVAX
as well as other Avalanche Network protocols. The open-source nature of many
digital asset network protocols, such as the protocol for the Avalanche Network,
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. If the Avalanche
Network does not successfully develop its policies on supply and issuance, and
other major design decisions or does so in a manner that is not attractive to
network participants it could lead to a decline in adoption of the Avalanche
Network and price of AVAX.
•In
addition to the Layer 1 Avalanche Network, the Avalanche Network allows users to
create non-core blockchains historically called “subnets,” which are managed by
distinct validator sets, responsible for their own security, and which can
follow custom rules. Subnets, software applications running on top of the Layer
1 Avalanche Network or subnets (often referred to as "decentralized
applications" or "DApps", whether or not decentralized in fact) and smart
contract developers depend on being able to obtain AVAX to be able to run their
programs and operate their businesses. In particular, many subnets,
decentralized applications and smart contracts require AVAX in order to pay the
gas fees needed to power such applications and smart contracts and execute
transactions. As such, they represent a significant source of demand for AVAX.
AVAX's price volatility (particularly where AVAX prices increase), or the
Avalanche Network's wider inability to meet the demands of subnets,
decentralized applications and smart contracts in terms of inexpensive,
reliable, and prompt transaction execution (including during congested periods),
or to solve its scaling challenges or increase its throughput, may discourage
such subnet, decentralized application and smart contract developers from using
the Avalanche Network as the foundational
infrastructure
layer for building their subnets, applications and smart contracts. If subnet,
decentralized application and smart contract developers abandon the Avalanche
Blockchain for other blockchain or digital asset networks or protocols for
whatever reason, the value of AVAX could be negatively affected.
Moreover,
because digital assets, including AVAX, 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.
Components
Of The Avalanche Protocol Were Only Conceived In 2018 And The Avalanche Protocol
Or Its Avalanche Layer 1 Mechanisms May Not Function As Intended, Which Could
Have An Adverse Impact On The Value Of AVAX And An Investment In The
Shares.
Components
of the Avalanche protocol were first conceived in a 2018 document by the
pseudonymous “Team Rocket” and introduced the Snowball Proof-of-Stake consensus
mechanism. Consensus protocols in the Avalanche family operate through repeated
sub-sampled voting. When a node is determining whether a transaction should be
accepted, it asks a small, random subset of validator nodes for their
preference. Each queried validator replies with the transaction that it prefers,
or thinks should be accepted. If a sufficient majority of the validators sampled
reply with the same preferred transaction, this becomes the preferred choice of
the validator that inquired. In the future, this node will reply with the
transaction preferred by the majority. The node repeats this sampling process
until the validators queried reply with the same answer for a sufficient number
of consecutive rounds. The number of validators required to be considered a
"sufficient majority" is referred to as "α" (alpha). The number of consecutive
rounds required to reach consensus, a.k.a. the "Confidence Threshold," is
referred to as "β" (beta). When a transaction has no conflicts, finalization
happens very quickly. When conflicts exist, honest validators are expected to
quickly cluster around conflicting transactions, and are anticipated to enter a
positive feedback loop until all correct validators prefer that transaction,
provided the number of honest validators exceeds certain thresholds compared to
the number of malicious validators (or validators which are offline or otherwise
not reporting correct transactions). This leads to the acceptance of
non-conflicting transactions and the rejection of conflicting transactions,
provided the thresholds are not exceeded. The thresholds are believed to be, if
a single well-resourced, sophisticated malicious actor were able to control more
than 20% of the total staked AVAX, they may be able to bring the network to a
halt, and potentially cause a fork in the chain, as different validators elect
to finalize different blocks. Snowball 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.
Snowball
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 Snowball specifically or the
Avalanche Network generally, including flaws that affect functionality of the
Avalanche Network, the proof-of-stake consensus algorithm, a particular client
software implementation, or a user's wallet software, or make the network
vulnerable to attack.
Development
of the Avalanche Network, which only launched in 2020, was historically overseen
by Ava Labs Inc. (“Ava Labs”), a Delaware corporation headquartered in New York,
which was founded by Cornell University Professor Emin Gun Sirer and graduate
student Maofan Yin to formalize the Avalanche Protocol, along with the Avalanche
Foundation and other core developers. However, currently, the Avalanche codebase
is publicly available under open source licenses and neither Ava Labs nor the
Avalanche Foundation oversees network development. The Avalanche Network is
composed of the “Primary Network,” which is comprised of three blockchains—the
Exchange (X) Chain, the Platform (P) Chain, and the Contract (C) Chain—which
each have a specific use. Avalanche Network users can create tokens and transact
on subnets for specific applications and use cases. Avalanche, the architecture
of the Layer 1 Avalanche Network, and subnets are new blockchain technologies
that are not widely used. Snowball, the architecture of the Layer 1 Avalanche
Network, or subnets may not function as intended. For example, there may be
flaws in the cryptography underlying the Avalanche Network, including flaws that
affect functionality of the Avalanche Network or make the network vulnerable to
attack.
The
development of the Avalanche Network is ongoing and future disruptions, outages,
bugs, or other problems could have a material adverse effect on the value of
AVAX and an investment in the Shares. Likewise, the client software
implementation and wallets used by users and validators to access the Avalanche
Network or AVAX could suffer future disruptions, bugs, or other problems that
could have a material adverse effect on the value of AVAX and an investment in
the Shares.
Digital
Assets Represent A New And Rapidly Evolving Industry, And The Value Of The
Shares Depends On The Acceptance Of AVAX.
The
first major blockchain-based digital asset, bitcoin, was launched in 2009. The
Avalanche Network launched in 2020. In general, digital asset networks,
including the Avalanche Network and other cryptographic and algorithmic
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:
•Banks
and other established financial institutions may refuse to process funds for
AVAX transactions; process wire transfers to or from Digital Asset Trading
Platforms, AVAX-related companies or service providers; or maintain accounts for
persons or entities transacting in AVAX. As a result, the prices of AVAX are
largely determined by speculators and validators, thus contributing to price
volatility that makes retailers less likely to accept AVAX in the
future.
•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 as
payment, which could dampen liquidity in the market and damage the public
perception of digital assets generally or any one digital asset in particular,
such as AVAX, and their or its utility as a payment system, which could decrease
the price of digital assets generally or individually.
•Certain
privacy-preserving features have been or are expected to be introduced to a
number of digital asset networks. If any such features are introduced to the
Avalanche Network, any trading platforms or businesses that facilitate
transactions in AVAX 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.
•Users,
developers and validators may otherwise switch to or adopt certain digital
assets at the expense of their engagement with AVAX or the Avalanche
Network.
•The
Trust is not actively managed and will not have any formal strategy relating to
the development of the Avalanche Network and will not attempt to avoid or
mitigate losses caused by declines in the price of AVAX.
Due
To The Nature Of Private Keys, AVAX Transactions Are Irrevocable And Stolen Or
Incorrectly Transferred AVAX May Be Irretrievable. As A Result, Any Incorrectly
Executed AVAX Transactions Could Adversely Affect An Investment In The
Trust.
AVAX
transactions are typically not reversible without the consent and active
participation of the recipient of the transaction. Once a transaction has been
signed with private keys, verified and recorded in a block that is added to the
Avalanche Blockchain, an incorrect transfer of cryptocurrency, such as AVAX, or
a theft of AVAX 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 AVAX will regularly be made to or from the Trust's accounts
at the AVAX Custodians, it is possible that, through computer or human error, or
through theft or criminal action, the Trust's AVAX could be transferred from the
Trust's account at the AVAX Custodians in incorrect amounts or to unauthorized
third parties, or to uncontrolled accounts. To the extent that the Trust is
unable to successfully seek redress for such error or theft, such loss could
adversely affect an investment in the Trust.
The
custody of the Trust's AVAX is handled by the AVAX Custodians, and the transfer
of AVAX to and from Liquidity Providers is directed by the Administrator and the
Transfer Agent. The Sponsor has evaluated the
procedures
and internal controls of the Trust's AVAX Custodians to safeguard the Trust's
AVAX holdings, as well as the procedures and internal controls of the Trust's
Administrator. However, it is possible that, through computer or human error, or
through theft or criminal action, the Trust's AVAX could be transferred from the
Trust's AVAX Accounts at the AVAX Custodians in incorrect amounts or to
unauthorized third parties, or to incorrect destination addresses on the
Avalanche Blockchain. Alternatively, if the AVAX Custodians' internal procedures
and controls are inadequate to safeguard the Trust's AVAX holdings, and the
Trust's private key(s) is (are) lost, destroyed or otherwise compromised and no
backup of the private key(s) is (are) accessible, the Trust will be unable to
access its AVAX, which could adversely affect an investment in the Shares of the
Trust. In addition, if the Trust's private key(s) is (are) misappropriated and
the Trust's AVAX holdings are stolen, including from or by the AVAX Custodians,
the Trust could lose some or all of its AVAX holdings, which could adversely
impact an investment in the Shares of the Trust.
Such
events have occurred in connection with digital assets in the past. For example,
in September 2014, the Chinese digital asset exchange Huobi announced that it
had sent approximately 900 bitcoins and 8,000 Litecoins (worth approximately
$400,000 at the prevailing market prices at the time) to the wrong customers. 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 AVAX through error or theft, the Trust will be unable to revert or
otherwise recover incorrectly transferred AVAX. The Trust will also be unable to
convert or recover its AVAX transferred to uncontrolled accounts. To the extent
that the Trust is unable to seek redress for such error or theft, such loss
could adversely affect the value of the Shares.
In
September 2022, hackers used a flash loan attack on the Avalanche Network to
steal $370,000 worth of stablecoins from a smart contract. A flash loan exploit
is an abuse of a smart contracts security whereby a malicious actor borrows
uncollateralized funds from a lending protocol and manipulates the price of a
given asset, driving up its value, or otherwise takes advantage of
vulnerabilities in the lending protocol. The attack affected a lending protocol,
a decentralized exchange and an automated market maker. Again, in October 2023,
a smart contract operating on the Avalanche Network experienced a flash-loan
exploit resulting in a loss of more than $2 million. Although these did not
occur at the network level, future exploits might not be, which could lead to a
wider loss of confidence or decrease adoption of the Avalanche Network.
If
A Malicious Actor Were To Compromise One Or More Of The Subnets Running On The
Avalanche Network, Such Activity Might Undermine Trust In Avalanche, Which Could
Adversely Affect The Value Of The Shares.
In
addition to the Layer 1 Avalanche Network, users can create subnets that are
managed by distinct validator sets, responsible for their own security, and
which can follow custom rules. Because these subnets do not share the Avalanche
Network’s overarching security they may be more susceptible to attack. While a
successful attack on a subnet is not expected to have a direct impact on the
performance or safety of the main Avalanche blockchain, such an event could
undermine the public perception of Avalanche security, and could therefore have
a negative impact on the performance of the Trust. Similar dynamics could result
from a hack of a prominent decentralized application or smart contract on either
the Layer 1 Avalanche Network or a subnet.
A
Disruption Of The Internet May Affect Avalanche Operations, Which May Adversely
Affect The AVAX Industry And An Investment In The Trust.
The
Avalanche Network relies on the Internet. A significant disruption of Internet
connectivity (i.e., one that affects large numbers of users or geographic
regions) could disrupt the Avalanche Network's functionality and operations
until the disruption in the Internet is resolved. A disruption in the Internet
could adversely affect an investment in the Trust or the ability of the Trust to
operate. In addition, data center hosting and cloud services providers play a
crucial role in the global Internet economy. Many of the Trust’s service
providers conduct their business operations and processes using cloud providers
and third-party data center hosting facilities, including Amazon Web Services,
Google Cloud, Microsoft Azure, and other cloud services. In October 2025, news
outlets reported that Amazon Web Services and Microsoft Azure both suffered
significant service interruptions which caused disruptions to some of their
cloud services customers. Any disruptions or failures of the Sponsor’s systems
or the third-party hosting facility or cloud services that the Sponsor uses, or
may use in the future, or of the Trust’s
service
providers’ systems or the third party hosting facilities or cloud services that
they use, or may use in the future, including as a result of a natural disaster,
fire, cyberattack, act of terrorism, geopolitical conflict, pandemic, the
effects of climate change, or other catastrophic event, as well as power
outages, service disruptions or interruptions, scheduled or unscheduled
downtime, software or hardware defects, telecommunications infrastructure
outages, a decision to close such facilities or cease providing such services,
or other problems with the Sponsor’s or a Trust service provider’s systems or
third-party data center hosting or cloud providers that the Sponsor or a Trust
service provider uses, or may use in the future, such as a failure to meet
service standards, could severely impact the Trust’s or Sponsor’s ability to
conduct business operations, such as creation and redemption processes or
deposits or withdrawals into the Trust’s custodial accounts, any of which could
materially adversely affect the Trust’s operations or cause losses to the
Trust’s Shareholders.
The
Avalanche Network's Decentralized Governance Structure May Negatively Affect Its
Ability To Grow And Respond To Challenges.
The
governance of decentralized networks, such as the Avalanche Network, is by
voluntary consensus and open competition. In other words, the Avalanche Network
has no central decision-making body or clear manner in which participants can
come to an agreement other than through voluntary, widespread consensus. As a
result, a lack of widespread consensus in the governance of the Avalanche
Network may adversely affect the network's utility and ability to adapt and face
challenges, including technical and scaling challenges. Historically the
development of the source code of the Avalanche Network has been overseen by Ava
Labs, the Avalanche Foundation, and other core developers. However, currently,
the Avalanche codebase is publicly available under open source licenses and
neither Ava Labs nor the Avalanche Foundation oversees network development. Ava
Labs is one contributor to the codebase rather than responsible for updates or
overseeing development or maintenance of the codebase. Core developers' roles
evolve over time, largely based on self determined participation. If a
significant majority of users and validators adopt amendments to a decentralized
network based on the proposals of such core developers, such network will be
subject to new protocols that may adversely affect the value of the relevant
digital asset. However, the Avalanche Network would cease to operate
successfully without both validators and users, and the core developers cannot
formally compel them to adopt the changes to the source code desired by core
developers, or to continue to render services or participate in the Avalanche
Network. As a general matter, the governance of the Avalanche Network generally
depends on most of members of the Avalanche community ultimately reaching some
form of voluntary agreement on significant changes.
The
decentralized governance of the Avalanche Network may make it difficult to find
or implement solutions or marshal sufficient effort to overcome existing or
future problems, especially protracted ones requiring substantial directed
effort and resource commitment over a long period of time, such as scaling
challenges. The Avalanche Network's failure to overcome governance challenges
could exacerbate problems experienced by the network or cause the network to
fail to meet the needs of its users, and could cause users, miners, and
developer talent to abandon the Avalanche Network or to choose competing
blockchain protocols, or lead to a drop in speculative interest, which could
cause the value of AVAX to decline. If the Avalanche community is unable to
reach consensus in the future, it could have adverse consequences for the
network or lead to a fork, which could affect the value of AVAX.
Digital
Asset Networks Are Developed By A Diverse Set Of Contributors And The Perception
That Certain High-Profile Contributors Will No Longer Contribute To The Network
Could Have An Adverse Effect On The Market Price Of The Related Digital
Asset.
Digital
asset networks and related protocols are often developed by a diverse set of
contributors but certain identifiable and high-profile contributors may be
perceived as playing an impactful role. 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 core developer Vitalik Buterin had
died. Following the rumor, the price of ETH 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 ETH. In the event a high-profile
contributor to the Avalanche Network such as Emin Gun Sirer is perceived as no
longer able to contribute to the Avalanche Network due to death, retirement,
withdrawal, incapacity, or otherwise,
whether
or not such perception is valid, it could negatively affect the price of AVAX,
which could adversely impact the value of 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 or the Solana Foundation, or that Solana Labs or
the Solana Foundation were involved in any of FTX, Alameda Research or
Bankman-Fried's alleged misconduct. The price of SOL fell severely immediately
following the news of FTX's insolvency and remained negatively affected by the
perceived entanglement with FTX for some time.
In
the event a high-profile contributor to the Avalanche Network, such as Emin Gün
Sirer, is perceived as no longer contributing to the Avalanche Network due to
death, retirement, withdrawal, incapacity, or otherwise, whether or not such
perception is valid, it could negatively affect the price of AVAX, which could
adversely impact the value of the Shares.
The
Open-Source Structure Of The Avalanche Network Protocol Means That The Core
Developers And Other Contributors Are Generally Not Directly Compensated For
Their Contributions In Maintaining And Developing The Avalanche Network
Protocol. A Failure To Properly Monitor And Upgrade The Avalanche Network
Protocol Could Damage The Avalanche Network And An Investment In The
Trust.
The
Avalanche Network operates based on an open-source protocol maintained by the
core developers and other contributors, largely on the GitHub resource section
dedicated to AVAX development. As new AVAX are rewarded solely for validator
activity (other than the 360 million created in 2020 upon launch of the
Avalanche mainnet) and are not sold on an ongoing basis to generate revenue to
support development activity, and the Avalanche Network protocol itself is made
available for free rather than sold or made available subject to licensing or
subscription fees and its use does not generate revenues for its development
team, the core developers are generally not compensated for maintaining and
updating the source code for the Avalanche Network protocol. Consequently, there
is a lack of financial incentive for developers to maintain or develop the
Avalanche Network and the core developers may lack the resources to adequately
address emerging issues with the Avalanche Network protocol. Although the
Avalanche Network is currently supported by the core developers, there can be no
guarantee that such support will continue or be sufficient in the future.
Alternatively,
some developers may be funded by entities whose interests are at odds with other
participants in the Avalanche Network. In addition, a bad actor could also
attempt to interfere with the operation of the Avalanche Network by attempting
to exercise a malign influence over a core developer. For example, in May 2025,
Solana Labs' co-founder Raj Gokal's personal information was stolen and leaked
by a hacker on the social media website of the music group Migos, which was also
hacked. Such attempts could continue, which could interfere with the core
developers' work and ability to maintain and upgrade the source code of the
Solana Network. A failure to properly monitor and upgrade the protocol of the
Avalanche Network could damage the network or hurt its ability to appeal to
users, validators and application developers. To the extent that material issues
arise with the Avalanche Network protocol and the core developers and
open-source contributors are unable to address the issues adequately or in a
timely manner, the Avalanche 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, Or Any Ability To Participate In Or Otherwise
Influence A Digital Asset's Underlying Network, Could Have An Adverse Effect On
The Market Price Of Such Digital Asset.
As
of November 25, 2025, the largest 100 AVAX wallets held approximately 28% of the
AVAX in circulation. Moreover, it is possible that other persons or entities
control multiple wallets that collectively hold a significant number of AVAX,
even if they individually only hold a small amount, and it is possible that some
of these wallets are controlled by the same person or entity. As a result of
this concentration of ownership, large sales or distributions by such holders
could have an adverse effect on the market price of AVAX. Also, because the
Snowball
consensus mechanism depends on having a certain percentage of honest validators,
concentrated ownership by a bad actor or colluding bad actors could potentially
lead to malicious behavior, such as halting the consensus process or, in the
worst case, double spending. See "—The Avalanche Blockchain Could Be Vulnerable
To Attacks on Transaction Finality and Consensus Processes, Which Could
Adversely Affect An Investment In The Trust Or The Ability Of The Trust To
Operate." Any such malicious behavior, if the bad actor or colluding bad actors
had a sufficiently large portion of the total outstanding staked assets, could
lead to an immediate loss of value of AVAX.
The
Avalanche Blockchain Could Be Vulnerable To Centralization Concerns Which Could
Adversely Affect The Security And Stability of the Avalanche Network As Well As
The Value Of The Shares.
In
the context of blockchain networks and digital assets, although there is no
universally accepted definition of "centralization", concerns arise when a
limited number of persons, entities, or software infrastructure have a
disproportionate amount of control over the network's operations or governance
or could serve as a single point of failure, thereby undermining the network's
ability as a distributed system to continue functioning correctly even if some
of its nodes or participants are faulty or malicious (also known as "Byzantine
Fault Tolerance"). See also "—The Avalanche Blockchain Could Be Vulnerable To
Attacks on Transaction Finality and Consensus Processes, Which Could Adversely
Affect An Investment In The Trust Or The Ability Of The Trust To
Operate."
Ava
Labs and the Avalanche Foundation continue to exert influence over the direction
of the development of Avalanche. Most validators on Avalanche use a single
client software implementation called AvalancheGo, developed and maintained by
Ava Labs. As a result, there is a lack of client diversity on the Avalanche
Network. If there are bugs, defects, outages, disruptions, or other problems
with the AvalancheGo client, it could take the Avalanche Network offline, cause
the consensus process to halt, or lead to a variety of other problems, all of
which could cause the price of AVAX to decline. Bugs and other defects in the
AvalancheGo client have led to multiple outages and disruptions of the Avalanche
Network's operations as recently as 2024. For example, on February 1, 2024, a
bug in AvalancheGo caused a temporary outage on the C-Chain, highlighting the
risks of relying on a single client implementation. A similar issue occurred on
February 23, 2024, when a surge in inscription-style transactions triggered
mempool congestion and halted block production for nearly two hours. See "—
Components of the Avalanche Protocol Were Only Conceived In 2018 And The
Avalanche Protocol Or Its Avalanche Layer 1 Mechanisms May Not Function As
Intended, Which Could Have An Adverse Impact On The Value Of AVAX And An
Investment In The Shares."
The
Avalanche Network is believed to be decentralized in that it does not require
governmental authorities or financial institution intermediaries to create,
transmit or determine the value of AVAX. The source code of the Avalanche
Network is open-source and available to the public. As of November 25, 2025,
more than 700 applications were built on the Avalanche Network. As of October
31,
2025,
stats.avax.network reports there were approximately 806 validator nodes on the
Avalanche Network, with no single validator node directly controlling more than
1.5% of the aggregate stake (Source: https://avascan.info/staking/validators).
However, the real figure could be higher because some entities may operate
multiple nodes. As of November 25,
2025,
Avalanche community members have built, deployed and operate around 390 custom
layer-1 subnet blockchains of their own (which connect to the Avalanche Network,
but are not themselves the Avalanche mainnet), created almost 47 million smart
contracts, and execute nearly 8.7 billion transactions.
Moreover,
several third-party protocols, including Benqi Finance (sAVAX), Hypha (STAVAX),
and Yield Yak (yyAVAX) offer an application that provides a so-called "liquid
staking" solution which permits holders of AVAX to deposit them with their smart
contract, which stakes the AVAX while issuing the holder a transferable token
which represents an interest in the staked AVAX which the holder can then use to
transact with. At times, a significant portion of staked AVAX on the Avalanche
Network may be concentrated within a single liquid staking provider, which could
pose some centralization concerns.
A
Temporary Or Permanent "Fork" or a "Clone" Of The Avalanche Blockchain Could
Adversely Affect The Value Of The Shares.
The
Avalanche Network operates using open-source protocols, meaning that any user
can download the software, modify it and then propose that the users and
validators of AVAX adopt the modification. When a modification is introduced and
a substantial majority of users and validators' consent to the modification, the
change is implemented and the network remains uninterrupted. However, if less
than a substantial majority of users and validators' 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
Avalanche 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 AVAX running in parallel, yet lacking
interchangeability. For example, in September 2022, the Ethereum Network
transitioned to a proof-of-stake model, in an upgrade referred to as the
"Merge." Following the Merge, a hard fork of the Ethereum Network occurred, as
certain Ethereum miners and network participants planned to maintain the
proof-of-work consensus mechanism that was removed as part of the Merge. This
version of the network was rebranded as "Ethereum Proof-of-Work."
Forks
may also occur as a 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 June 2016, an anonymous hacker
exploited a smart contract running on the Ethereum Network to syphon
approximately $60 million of ETH held by The DAO, a distributed autonomous
organization, into a segregated account. In response to the hack, most
participants in the Ethereum community elected to adopt a "fork" that
effectively reversed the hack. However, a minority of users continued to develop
the original blockchain, referred to as "Ethereum Classic" with the digital
asset on that blockchain now referred to as ETC. ETC now trades on several
Digital Asset Trading 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
and validators abandoning the digital asset with the flawed software. It is
possible, however, that a substantial number of users and validators 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.
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 trading platforms
through at least October 2016. An Ethereum trading platform announced in July
2016 that it had lost 40,000 Ethereum Classic, 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 Satoshi's Vision 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 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 validator or validating pool's
validating power to exceed 50% of the validating power of a digital asset
network that retained or attracted less validating power, thereby making digital
asset networks that rely on proof-of-stake more susceptible to
attack.
Protocols
may also be cloned. Unlike a fork, which modifies an existing blockchain, and
results in two competing 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 AVAX at the time of announcement or
adoption. For example, the announcement of a hard fork could lead to increased
demand for the pre-fork digital asset, in anticipation that ownership of the
pre-fork digital asset would entitle holders to a new digital asset following
the fork. The increased demand for the pre-fork digital asset may cause the
price of the digital 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 Trust would receive to both versions of the digital
asset
running in parallel on each forked blockchain, the Sponsor will, as permitted by
the terms of the Trust Agreement, determine which version of the digital asset
is generally accepted as the Avalanche Network and should therefore be
considered the appropriate network for the Trust's purposes, and there is no
guarantee that the Sponsor will choose the digital asset that is ultimately the
most valuable fork. Either of these events could therefore adversely impact the
value of the Shares.
The
First AVAX Custodian retains the right to decide, in its sole discretion, which
branch of the forked network to support, and disclaims responsibility to support
the other branch if it decides not to, though it may, in the First AVAX
Custodian's discretion, choose (but is not required) to make the unsupported
asset available to the Trust. The Second AVAX Custodian also retains the right
to decide, in its sole discretion, which branch of the forked network to
support, and disclaims responsibility to support the other branch if it decides
not to, though it will use reasonable efforts to provide notice to the Trust in
advance of such a decision to give the Trust a chance to transfer the asset.
Both AVAX Custodians may suspend their operations to make determinations about
which branch of the forked network to support.
Shareholders
May Not Receive The Benefits Of Any Forks Or "Airdrops."
We
refer to the right to receive any benefits arising from a fork, airdrop (defined
below), or similar event as an "Incidental Right" and any such virtual currency
acquired through an Incidental Right as "IR Virtual Currency." The only crypto
asset to be held by the Trust will be AVAX. The Trust has adopted the following
procedures to address situations involving any fork, airdrop or similar event
that results in the issuance of Incidental Rights or IR Virtual Currency that
the Trust may receive. The Trust Agreement stipulates that if a fork occurs, the
Sponsor shall determine which asset constitutes AVAX and which network
constitutes the Avalanche Network, and the Sponsor will as soon as possible
cause the Trust to irrevocably abandon the Incidental Rights or IR Virtual
Currency. Because the Trust will abandon any Incidental Rights and IR Virtual
Currency, the Trust would not receive any direct or indirect consideration for
the Incidental Rights or IR Virtual Currency and thus the value of the Shares
will not reflect the value of the Incidental Rights or IR Virtual Currency. Such
Incidental Rights or IR Virtual Currency will not be taken into account for
purposes of determining NAV. In the event the Trust seeks to change this
position, an application would need to be filed with the SEC by the Exchange
seeking approval to amend its listing rules to permit the Trust to distribute
the Incidental Rights or IR Virtual Currency that is not AVAX in-kind to the
Sponsor, as agent for the Shareholders, and the Sponsor would arrange to sell or
otherwise dispose of the Incidental Rights or IR Virtual Currency and for the
proceeds (if any) to be distributed to the Shareholders. There can be no
assurance as to whether or when the Sponsor would make such a decision, or when
the Exchange will seek or obtain this approval, if at all.
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. Neither the Trust nor the Sponsor shall
be under any obligation to claim or attempt to secure or realize any economic
benefit from "airdropped" assets, and the Sponsor will cause the Trust to
irrevocably and permanently abandon, for no consideration, such Incidental
Rights or IR Virtual Currency. In the event the Trust seeks to change this
position, an application would need to be filed with the SEC by the Exchange
seeking approval to amend its listing rules to permit the Trust to distribute
the Incidental Rights or IR Virtual Currency associated with the airdropped
assets in-kind to the Sponsor, as agent for the Shareholders, and the Sponsor
would arrange to sell or otherwise dispose of the Incidental Rights or IR
Virtual Currency and for the proceeds (if any) to be distributed to the
Shareholders.
In
The Event Of A Hard Fork Of The Avalanche 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 the Avalanche Network, the Sponsor will, if
permitted by the terms of the Trust Agreement, use its discretion to determine,
in good faith, which peer-to-peer network, among a group of incompatible forks
of the Avalanche Network, is generally accepted as the Avalanche Network and
should therefore be considered the appropriate network for the Trust's purposes.
The Sponsor will base its determination on a variety
of
then relevant factors, including, but not limited to, the Sponsor's beliefs
regarding expectations of the core developers of Avalanche, users, service
providers, businesses, validators and other constituencies, as well as the
actual continued acceptance of, staking power, and community engagement with,
the Avalanche Network. There is no guarantee that the Sponsor will choose the
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, security vendors and MarketVector on what
is generally accepted as Avalanche and should therefore be considered "AVAX" for
the Trust's purposes, which may also adversely affect the value of the Shares as
a result.
In
The Event Of A Hard Fork Of The Avalanche Blockchain, The AVAX Custodians’
Operations May Be Interrupted Or Subject To Additional Security Risks That Could
Disrupt The Trust's Ability To Process Creations And Redemptions Of Shares Or
Otherwise Threaten The Security Of The Trust's AVAX Holdings.
In
the event of a hard fork of the Avalanche Blockchain, the AVAX Custodians may
temporarily halt the ability of customers (including the Trust) to deposit,
withdraw or transfer AVAX on the AVAX Custodians’ platform. Such a delay may be
intended to permit the applicable AVAX Custodian to assess the resulting
versions of the Blockchain, to determine how best to securely "split" the AVAX
from the forked asset, and to prevent malicious users from conducting "replay
attacks" (i.e., broadcasting transactions on both versions of the forked
networks to put the applicable AVAX Custodian’s custodied assets at risk). As a
result, the Trust is likely to suspend creations and redemptions during a period
in which such AVAX Custodian's operations are halted.
In
addition, any losses experienced by the AVAX Custodians due to a hard fork,
including due to replay attacks or technological errors in assessing the fork,
could have a materially adverse impact on an investment in the
Shares.
Any
Name Change And Any Associated Rebranding Initiative By The Core Developers Of
AVAX May Not Be Favorably Received By The Digital Asset Community, Which Could
Negatively Impact The Value Of AVAX And The Value Of The Shares.
From
time to time, digital 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 any 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." We cannot predict
the impact of any name change and any associated rebranding initiative on AVAX.
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 a digital asset may result in such digital asset not realizing some or all of
the anticipated benefits contemplated by the name change and associated
rebranding initiative, and could negatively impact the value of AVAX and the
value of the Shares.
The
Avalanche Blockchain Could Be Vulnerable To Attacks on Transaction Finality and
Consensus Processes, Which Could Adversely Affect An Investment In The Trust Or
The Ability Of The Trust To Operate.
When
conflicts exist, honest validators are expected to quickly cluster around
conflicting transactions, and are anticipated to enter a positive feedback loop
until all correct validators prefer that transaction, provided the number of
honest validators exceeds certain thresholds compared to the number of malicious
validators. This leads to the acceptance of non-conflicting transactions and the
rejection of conflicting transactions, provided the thresholds are not exceeded.
The thresholds are believed to be, if a single well-resourced, sophisticated
malicious actor were able to control more than 20% of the total staked AVAX,
they may be able to bring the network to a halt, and potentially cause a fork in
the chain, as different validators elect to finalize different
blocks.
Other
blockchains illustrate the risk of attacks on transaction finality and consensus
processes. For example, in August 2020, the Ethereum Classic 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. Any similar attacks on the Avalanche
Network could negatively impact the value of AVAX and the value of the
Shares.
In
addition, in May 2019, the Bitcoin Cash network experienced a 51% 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. Although the two attacks described above took place on
proof-of-work-based networks, it is possible that a similar attack may occur on
the Avalanche Network, which could negatively impact the value of AVAX and the
value of the Shares.
Although
there are no known reports of malicious control of the Avalanche Network, if
groups of coordinating or connected AVAX holders that together have more than
50% of outstanding AVAX, were to stake that AVAX and run validators, they could
exert authority over the validation of AVAX transactions (in terms of having the
ability to cause consensus to fail, although it is believed they would not have
the ability to double-spend). This risk is heightened if over 50% of the
validating power on the network falls within the jurisdiction of a single
governmental authority. If network participants, including the core developers
and the administrators of validating pools, do not act to ensure greater
decentralization of AVAX, the feasibility of a malicious actor obtaining control
of the validating power on the Avalanche Network will increase, which may
adversely affect the value AVAX and the value of the Shares.
A
malicious actor may also obtain control over the Avalanche Network through its
influence over core developers by gaining direct control over a core developer
or an otherwise influential programmer. See discussion of hacking incident
affecting Raj Gokal in "—The Open-Source Structure Of The Avalanche Network
Protocol Means That The Core Developers And Other Contributors Are Generally Not
Directly Compensated For Their Contributions In Maintaining And Developing The
Avalanche Network Protocol. A Failure To Properly Monitor And Upgrade The
Avalanche Network Protocol Could Damage The Avalanche Network And An Investment
In The Trust." To the extent that users and validators 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 the Avalanche Network, the risk that a malicious actor may be
able to obtain control of the Avalanche Network in this manner exists. Moreover,
it is possible that a group of AVAX holders that together control more than 50%
of outstanding AVAX are in fact part of the initial or core developer group, or
are otherwise influential members of the Avalanche community. To the extent that
the initial or existing core developer groups also control more than the
relevant thresholds of outstanding AVAX, as some believe, the risk of and
arising from this particular group of users obtaining control of the validating
power on the Avalanche Network will be even greater, and should this
materialize, it may adversely affect the value of the Shares.
If
Validators Exit The Avalanche Network, It Could Increase The Likelihood Of A
Malicious Actor Obtaining Control.
Validators
exiting the network could make the Avalanche Network more vulnerable to a
malicious actor obtaining control of a large percentage of staked AVAX, which
might enable them to manipulate the Avalanche Blockchain by censoring or
manipulating specific transactions, as discussed previously. If the Avalanche
Blockchain suffers such an attack, the price of AVAX could be negatively
affected, and a loss of confidence in the Avalanche Network could result. Any
reduction in confidence in the transaction confirmation process or staking power
of the Avalanche Network may adversely affect an investment in the
Trust.
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 Avalanche Blockchain and
other distributed ledger protocols. If either of these events were to happen,
markets that rely on blockchain technologies, such as the Avalanche Network,
could quickly collapse, and an investment in the Trust may be adversely
affected.
The
Price Of AVAX On The AVAX Market Has Exhibited Periods Of Extreme Volatility,
Which Could Have A Negative Impact On The Performance Of The Trust.
The
price of AVAX as determined by the AVAX market has experienced periods of
extreme volatility and may be influenced by a wide variety of factors.
Speculators and investors who seek to profit from trading and holding AVAX
generate a significant portion of AVAX demand. Such speculation regarding the
potential future appreciation in the value of AVAX may cause the price of AVAX
to increase. Conversely, a decrease in demand for or speculative interest
regarding AVAX may cause the price to decline. The volatility of the price of
AVAX, particularly arising from speculative activity, may have a negative impact
on the performance of the Trust.
MarketVector
Has Analyzed AVAX Trading Platform Data And Developed Insights That Have
Informed Marketvector's Understanding Of The AVAX Market And The Design Of The
Trust. If Such Data Or Insights Are Inaccurate Or Incorrect, The Value Of An
Investment In The Trust May Be Adversely Affected.
MarketVector
has relied upon AVAX market data in developing its analysis of the AVAX market.
This analysis has informed MarketVector's understanding of the AVAX market, the
design of the Trust and the design of the MarketVectorTM
Avalanche Benchmark Rate. The continued viability of the Trust relies upon
access to accurate data, and MarketVector's continued ability to effectively
analyze such data. If data is inaccurate or becomes unavailable, or if
MarketVector's analysis of such data is incorrect, the value of an investment in
the Trust may be adversely affected.
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 AVAX Or Cause A Wider Loss Of Confidence In The Avalanche
Network, Either Of Which Could Have An Adverse Impact On The Value Of
AVAX.
Smart
contracts are programs that run on the Avalanche Blockchain 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, a distributed autonomous organization for venture
capital funding on the Ethereum network, allowed an attack by a hacker to syphon
approximately $60 million worth of ETH 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 ETH 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 ETH, and in November 2017, a new vulnerability in Parity's
wallet software reportedly led to roughly $160 million worth of ETH 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
allows 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. In another example, in February 2022, a
vulnerability in a smart contract for Wormhole, a bridge between the Ethereum
and Solana Networks led to a $320 million theft of Ethereum. 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 Solana validators coordinated to upgrade and restart
the network. Other smart contracts, such as bridges between blockchain networks
and decentralized finance ("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 AVAX,
just as they have for other digital assets like Ethereum.
In
some cases, smart contracts can be controlled by one or more "admin keys" or
users with special privileges, or "super users". These 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, 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; 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 Avalanche Network, and smart
contracts relating to DeFi applications currently represent a significant source
of demand for AVAX. DeFi applications may achieve their investment purposes
through self-executing smart contracts that may allow users 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 to 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 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 make adverse changes to a smart contract, the
design, functionality, features and value of the smart contract, its related
digital assets may be harmed. In addition, assets held by the smart contract in
reserves may be stolen, misused, burnt, 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
may 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. Because DeFi applications may be built on the
Avalanche Network and represent a significant source of demand for AVAX, public
confidence in the Avalanche Network itself could be negatively affected, such
sources of demand could diminish and the value of AVAX could decrease. Similar
risks apply to any smart contract or decentralized application, not just DeFi
applications, and subnets.
Popular
Decentralized Applications Running On Avalanche May Cease To Operate Or May
Migrate To Competing Blockchains, Which May Negatively Impact The Price Of AVAX
And Make The Avalanche Network Less Attractive.
Certain
decentralized applications and subnets currently running on the Avalanche
Blockchain may cease operations due to regulatory concerns, lawsuits, or a
decline in demand. Additionally, such decentralized applications or subnets may
also migrate away from Avalanche to an alternative competing blockchain.
Avalanche currently hosts hundreds of dApps, including platforms like Trader
Joe, Benqi, and Yield Yak. If a high-volume or widely used dApp or subnet were
to exit the Avalanche ecosystem, it could negatively impact the price of AVAX,
Avalanche's transaction volume and could make the Avalanche Network less
attractive.
Validation
On the Avalanche Network Is Subject to Risks, including Staking Liquidity and
Operational Uncertainty on the Avalanche Network.
Validation
on the Avalanche Network requires AVAX to be transferred into smart contracts on
the underlying blockchain networks not under the Trust's or anyone else's
control. If the Avalanche Network source code or protocol fail to behave as
expected, suffer cybersecurity attacks or hacks, experience security issues, or
encounter other problems, such assets may be irretrievably lost. In addition,
the Avalanche Networks dictate requirements for participation in validation
activity, and may impose penalties, if the relevant activities are not performed
correctly. As part of the "lock-up" process of staking, staked AVAX are locked
for a fixed period chosen by the staker — ranging from a minimum of 2 weeks to a
maximum of 1 year. During this time, the staked AVAX is inaccessible and cannot
be withdrawn or reallocated. "Activation" is the funding of a validator to be
included in the active set,
thereby
allowing the validator to participate in the Avalanche Network's proof-of-stake
consensus protocol. As a result, the Trust may not be able to promptly access or
liquidate staked AVAX to meet redemption requests in amounts that are greater
than the portion of the Trust's AVAX that remains un-staked or respond to
adverse market conditions. This delay could adversely affect the Trust's
liquidity and its ability to fulfil investor redemptions in a timely manner,
particularly during periods of heightened market volatility or significant
redemption activity.
The
Sponsor is responsible for assessing, managing, and periodically reviewing the
Trust's liquidity risk annually. In conducting the liquidity risk assessment,
the Sponsor considers all relevant risks, including the Trust's investment
strategy and liquidity during normal and stressed conditions, the Trust's
holdings of cash and cash equivalents and the "activating" period involved in
the staking process, and determines whether any adjustments to the management of
the Trust's liquidity risk are necessary. Potential adjustments may include
reducing the proportion of AVAX allocated to staking or increasing the amount of
AVAX kept readily available to meet redemption requests. There can be no
assurance that the Sponsor's management of liquidity risk will prove to be
successful.
The
Avalanche Network requires the payment of base fees and the practice of paying
prioritization fees is common, and such fees can become significant as the
amount and complexity of the transaction grows, depending on the degree of
network congestion and the price of AVAX. Any cybersecurity attacks, security
issues, hacks, penalties, or other problems could damage validators' willingness
to participate in validation, discourage existing and future validators from
serving as such, and adversely impact the Avalanche Network's adoption or the
price of AVAX. Any disruption of validation on the Avalanche Network could
interfere with network operations and cause the Avalanche Network to be less
attractive to users and application developers than competing blockchain
networks, which could cause the price of AVAX to decrease. The limited liquidity
during the "activation" process could dissuade potential validators from
participating, which could interfere with network operations or security and
cause the Avalanche Network to be less attractive to users and application
developers than competing blockchain networks, which could cause the price of
AVAX to decrease.
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, 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, including the Avalanche Network, and
their associated digital assets – including the AVAX held by the Trust – have
not been tested at scale over as long of a period of time or 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, lead to outright failure to
function entirely causing a total outage or disruption of network activity, or
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 the Trust's assets rely will achieve
widespread scale or adoption or perform successfully; any failure to do so could
negatively impact the value of the Trust's assets. Since its launch in 2020,
Avalanche has experienced occasional incidents of prolonged outages and degraded
performance. For example, the most recent significant outage reported on
Avalanche's website occurred on February 23, 2024, and lasted 4 hours due to a
bug in Avalanche's AvalancheGo client. Continued performance issues could
negatively impact adoption of Avalanche and the price of AVAX.
Operational
Cost May Exceed The Award For Validating Transaction, And Increased Transaction
Fees May Adversely Affect The Usage Of The Avalanche Network.
If
transaction confirmation fees become too high, the marketplace may be reluctant
to use the Avalanche Network. This may result in decreased usage and limit
expansion of the Avalanche Network in the retail, commercial and payments space,
adversely impacting investment in the Trust. Conversely, if the reward for
validators or the value of the transaction fees is insufficient to motivate
validators, they may cease to validate transactions.
Ultimately,
if the awards of new AVAX costs of validating transactions grow
disproportionately, validators may operate at a loss, transition to other
networks, or cease operations altogether. Each of these outcomes could, in turn,
slow transaction validation and usage, which could have a negative impact on the
Avalanche Network and could adversely affect the value of the AVAX held by the
Trust.
As
a result of AVAX's fee burning mechanism, the incentives for validators to
validate transactions with higher gas fees are reduced, since those validators
would not receive those gas fees.
An
acute cessation of validator operations would reduce the collective processing
power on the Avalanche Network, which would adversely affect the transaction
verification process by temporarily decreasing the speed at which blocks are
added to the blockchain and make the blockchain more vulnerable to a malicious
actor obtaining control in excess of the relevant threshold of the processing
power on the blockchain. Reductions in processing power could result in
material, though temporary, delays in transaction confirmation time. Any
reduction in confidence in the transaction verification process or may adversely
impact the value of Shares of the Trust or the ability of the Sponsor to
operate.
Risks
Associated with the Digital Asset Markets
Recent
Developments In The Digital Asset Economy Have Led To Extreme Volatility And
Disruption In Digital Asset Markets, A Loss Of Confidence In Participants Of The
Digital Asset Ecosystem, Significant Negative Publicity Surrounding Digital
Assets Broadly And Market-Wide Declines In Liquidity.
Since
the fourth quarter of 2021 and to date, digital asset prices have fluctuated
widely. This has led to volatility and disruption in the digital asset markets
and financial difficulties for several prominent industry participants,
including Digital Asset Trading Platforms, hedge funds and lending platforms.
For example, in the first half of 2022, digital asset lenders Celsius Network
LLC and Voyager Digital Ltd. and digital asset hedge fund Three Arrows Capital
each entered into insolvency proceedings. This resulted in a loss of confidence
in participants in the digital asset ecosystem, negative publicity surrounding
digital assets more broadly and market-wide declines in digital asset trading
prices and liquidity.
Thereafter,
in November 2022, FTX, the third largest Digital Asset Trading Platform by
volume at the time, halted customer withdrawals amid rumors of the company's
liquidity issues and likely insolvency. Shortly thereafter, FTX's CEO resigned
and FTX and several affiliates of FTX filed for bankruptcy. The U.S. Department
of Justice subsequently brought criminal charges, including charges of fraud,
violations of federal securities laws, money laundering, and campaign finance
offenses, against FTX's former CEO and others. In November 2023, FTX's former
CEO was convicted of fraud and money laundering. Similar charges related to
violations of anti-money laundering laws were brought in November 2023 against
Binance and its former CEO. FTX was also under investigation by the SEC, the
Justice Department, and the Commodity Futures Trading Commission, as well as by
various regulatory authorities in the Bahamas, Europe and other jurisdictions.
In response to these events, the digital asset markets have experienced extreme
price volatility and declines in liquidity. In addition, several other entities
in the digital asset industry filed for bankruptcy following FTX's bankruptcy
filing, such as BlockFi Inc. and Genesis Global Capital, LLC ("Genesis
Capital"), a subsidiary of Genesis Global Holdco, LLC ("Genesis Holdco"). The
SEC also brought charges against Genesis Capital and Gemini Trust Company, LLC
("Gemini") in January 2023 for their alleged unregistered offer and sale of
securities to retail investors. In October 2023, the New York Attorney General
("NYAG") brought charges against Gemini, Genesis Capital, Genesis Asia Pacific
PTE. LTD. ("Genesis Asia Pacific"), Genesis Holdco, (together with Genesis
Capital and Genesis Asia Pacific, the "Genesis Entities"), Genesis Capital's
former CEO, DCG, and DCG's CEO alleging violations of the New York Penal Law,
the New York
General
Business Law and the New York Executive Law. In February 2024, the NYAG amended
its complaint to expand the charges against Gemini, the Genesis Entities,
Genesis Capital's former CEO, DCG, and DCG's CEO to include harm to additional
investors. Also in February 2024, the Genesis Entities entered into a settlement
agreement with the NYAG to resolve the NYAG's allegations against the Genesis
Entities, which settlement was subsequently approved by the Bankruptcy Court of
the Southern District of New York. In September 2025, Gemini and the SEC reached
a preliminary settlement to resolve the lawsuit over the Gemini Earn program,
with the SEC closing its investigation without pursuing enforcement action,
though formal approval of the settlement is still pending.
Furthermore,
Genesis Holdco, together with certain of its subsidiaries, filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in
January 2023. While Genesis Holdco is not a service provider to the Trust, it is
a wholly owned subsidiary of DCG, and is an affiliate of the Trust and the
Sponsor.
These
events led to a substantial increase in regulatory and enforcement scrutiny of
the industry as a whole and of Digital Asset Trading Platforms in particular,
including from the Department of Justice, the SEC, the CFTC, the White House and
Congress. For example, in June 2023, the SEC brought charges against Binance
(the "Binance Complaint") and Coinbase (the "Coinbase Complaint"), two of the
largest Digital Asset Trading Platforms, alleging that they solicited U.S.
investors to buy, sell, and trade "crypto asset securities" through their
unregistered trading platforms and operated unregistered securities exchanges,
brokerages and clearing agencies. Binance subsequently announced that it would
be suspending USD deposits and withdrawals on Binance.US and that it plans to
delist its USD trading pairs. In addition, in November 2023, the SEC brought
similar charges against Kraken (the "Kraken Complaint"), alleging that it
operated as an unregistered securities exchange, brokerage and clearing agency.
The Binance Complaint, the Coinbase Complaint and the Kraken Complaint have led,
and may in the future lead, to further volatility in digital asset prices. 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 law framework for digital assets may resolve the case. In February
2025, Coinbase and the SEC entered into a joint stipulation to dismiss the SEC's
lawsuit with prejudice, subject to the court's approval. Kraken has also
announced that it reached an agreement in principle with the SEC to dismiss the
SEC's lawsuit, subject to formal approval by the SEC's Commissioners. Several
other digital asset 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
reputational impact on industry participants, remain uncertain.
In
January 2025, the SEC launched a Crypto Task Force dedicated to developing a
comprehensive and clear regulatory framework for digital assets led by
Commissioner Hester Peirce. Subsequently, Commissioner Peirce announced a list
of specific priorities to further that initiative, which included pursuing final
rules related to a digital asset's security status, a revised path to registered
offerings and listings for digital asset-based investment vehicles, and clarity
regarding digital asset custody, lending and staking.
These
events have also led to significant negative publicity around digital asset
market participants including DCG, Genesis and DCG's other affiliated entities.
This publicity could negatively impact the reputation of the Sponsor and have an
adverse effect on the trading price and/or the value of the Shares. Moreover,
sales of a significant number of Shares of the Trust as a result of these events
could have a negative impact on the trading price of the Shares.
Digital
asset markets have also been negatively impacted by the failure of entities
perceived to be integral to the digital asset ecosystem. For example, in March
2023, state banking regulators placed Silicon Valley Bank and Signature Bank
into FDIC receiverships. Also, in March 2023, Silvergate Bank announced plans to
wind down and liquidate its operations. Because these banks were perceived to be
the banks most open to providing services for the digital asset ecosystem in the
United States, their failures may impact the willingness of banks (based on
regulatory pressure or otherwise) to provide banking services to digital asset
market participants. In addition, because these banks were perceived to be the
banks most open to providing services for the digital asset ecosystem, their
failure has caused a number of companies that provide digital asset-related
services to be unable to find banks that are willing to provide them with such
banking services. The inability to access banking services could negatively
impact
digital
asset market participants and therefore the value of digital assets, including
AVAX, and thus the Shares. In addition, although these events did not have an
impact directly on the Trust or the Sponsor when these bank failures occurred,
it is possible that a future closing of a bank with which the Trust or the
Sponsor has a financial relationship could subject the Trust or the Sponsor to
adverse conditions and pose challenges in finding an alternative suitable bank
to provide the Trust or the Sponsor with bank accounts and banking services.
Events such as these that impact the wider digital asset ecosystem are
continuing to develop and change at a rapid pace and it is not possible to
predict at this time all of the risks that they may pose to the Sponsor, the
Trust, their affiliates and/or the Trust's third-party service providers, or on
the digital asset industry as a whole.
Continued
disruption and instability in the digital asset markets as these events develop,
including declines in the trading prices and liquidity of AVAX, or the failure
of service providers to the Trust, could have a material adverse effect on the
value of the Shares and the Shares could lose all or substantially all of their
value.
The
Value Of The Shares Relates Directly To The Value Of AVAX, The Value Of 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 AVAX held by the Trust
and fluctuations in the price of AVAX could adversely affect the value of the
Shares. The market price of AVAX may be highly volatile, and subject to a number
of factors, including:
•an
increase in the global AVAX supply or a decrease in global AVAX
demand;
•market
conditions of, and overall sentiment towards, the digital assets and blockchain
technology industry;
•trading
activity on digital asset trading platforms, which, in many cases, are largely
unregulated or may be subject to manipulation;
•the
adoption of AVAX 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 Avalanche Network, and their ability to meet user demands;
•manipulative
trading activity on digital asset exchanges, which, in many cases, are largely
unregulated;
•the
needs of decentralized applications, smart contracts, subnets, their users, and
users of the Avalanche Network generally for AVAX to pay gas fees to execute
transactions;
•forks
in the Avalanche Network, particularly where changes to the Avalanche Network
source code are either not well-received by key constituencies within the
Avalanche community or are not successfully executed or implemented and fail to
achieve the functionality such changes were intended to bring
about;
•governmental
or regulatory actions by, or investigations or litigation in, countries around
the world targeting well-known decentralized applications or smart contracts
that are built on the Avalanche Network, or other developments or problems, and
associated publicity, involving or affecting such decentralized applications or
smart contracts;
•Increased
competition from other forms of digital assets or payment services, including
digital currencies constituting legal tender that may be issued in the future by
central banks, or digital assets meant to serve as a medium of exchange by major
private companies or other institutions;
•increased
competition from other blockchain networks combining smart contracts,
programmable scripting languages, and an associated runtime environment, with
blockchain-based recordkeeping, particularly where such other blockchain
networks are able to offer users access to a larger consumer user base, greater
efficiency, reliability, or processing speed, or more economical transaction
processing fees than the Avalanche Network;
•investors'
expectations with respect to interest rates, the rates of inflation of fiat
currencies or AVAX, and digital asset exchange rates;
•consumer
preferences and perceptions of AVAX specifically and digital assets generally,
the Avalanche Network relative to competing blockchain protocols, and AVAX
relative to competing digital assets;
•negative
events, publicity, and social media coverage relating to the digital assets and
blockchain technology industry;
•fiat
currency withdrawal and deposit policies on digital asset trading
platforms;
•the
liquidity of digital asset markets and any increase or decrease in trading
volume or market making on digital asset markets;
•business
failures, bankruptcies, hacking, fraud, crime, government investigations, or
other negative developments affecting digital asset businesses, including
digital asset trading platforms, or banks or other financial institutions and
service providers which provide services to the digital assets
industry;
•the
use of leverage in digital asset markets, including the unwinding of positions,
"margin calls", collateral liquidations and similar events;
•investment
and trading activities of large or active consumer and institutional users,
speculators, miners, and investors in AVAX;
•a
"short squeeze" resulting from speculation on the price of AVAX, if aggregate
short exposure exceeds the number of shares available for purchase;
•an
active derivatives market for AVAX or for digital assets generally;
•monetary
policies of governments, legislation or regulation, tariffs, trade restrictions,
currency devaluations and revaluations and regulatory measures or enforcement
actions, if any, that restrict the use of AVAX as a form of payment or the
purchase of AVAX on the digital asset markets;
•global
or regional political, economic or financial conditions, events, crises and
situations, such as the novel coronavirus outbreak;
•fees
associated with processing an AVAX transaction and the speed at which AVAX
transactions are settled;
•the
maintenance, troubleshooting, and development of (or lack thereof) the Avalanche
Network including by validators and developers worldwide;
•the
ability for the Avalanche Network to attract and retain validators to secure and
confirm transactions accurately and efficiently;
•ongoing
technological viability and security of the Avalanche Network and AVAX
transactions, including vulnerabilities against hacks and
scalability;
•financial
strength of market participants;
•the
availability and cost of funding and capital;
•the
liquidity and credit risk of digital asset trading platforms;
•interruptions
in service from or closures or failures of major digital asset trading platforms
or their banking partners, or outages or system failures affecting the Avalanche
Network;
•decreased
confidence in digital assets and digital assets trading platforms;
•poor
risk management or fraud by entities in the digital assets
ecosystem;
•increased
competition from other forms of digital assets or payment services;
and
•the
Trust's own acquisitions or dispositions of AVAX, since there is no limit on the
number of AVAX that the Trust may acquire.
Although
returns from investing in AVAX 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 AVAX will maintain its value
in the long, intermediate, short, or any other term. In the event that the price
of AVAX declines, the Sponsor expects the value of the Shares to decline
proportionately.
The
value of the Shares of the Trust are represented by the MarketVectorTM
Avalanche Benchmark Rate that may also be subject to momentum pricing due to
speculation regarding future appreciation in value of AVAX, 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 AVAX has resulted, and may
continue to result, in speculation regarding future appreciation in the value of
AVAX, inflating and making the MarketVectorTM
Avalanche Benchmark Rate more volatile. As a result, AVAX may be more likely to
fluctuate in value due to changing investor confidence, which could impact
future appreciation or depreciation in the MarketVectorTM
Avalanche Benchmark Rate and could adversely affect the value of the
Trust.
The
Trust is not actively managed and does not and will not have any strategy
relating to the development of the Avalanche Network, nor will the Trust seek to
avoid or mitigate losses from declines in the AVAX price. Furthermore, the
impact of the expansion of the Trust's AVAX holdings on the digital asset
industry and the Avalanche Network is uncertain. A decline in the popularity or
acceptance of the Avalanche Network, or the value of AVAX, would harm the value
of the Trust.
Digital
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 Avalanche Network, face significant
scaling challenges due to the fact that public blockchains generally face a
tradeoff between security and scalability. One means through which public
blockchains achieve security is decentralization, meaning that no intermediary
is responsible for securing and maintaining these systems. For example, a
greater degree of decentralization generally means a given digital asset network
is less susceptible to manipulation or capture. Achieving decentralization may
mean that every single node on a given digital asset network is responsible for
securing the system by processing every transaction and every single full node
is responsible for maintaining a copy of the entire state of the network.
However, this may involve tradeoffs from an efficiency perspective, and impose
constraints on throughput. A digital asset network may be limited in the number
of transactions it can process by the fact that all validators participate in
validating in each block and the capabilities of each single fully participating
node. Many developers are actively researching and testing scalability solutions
for public blockchains that do not necessarily result in lower levels of
security or decentralization, such as off-chain payment channels. Off-chain
payment channels would allow parties to transact without requiring the full
processing power of a blockchain.
As
of November 25, 2025, the Avalanche Chain handled approximately 52 transactions
per second. 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.
As
corresponding increases in throughput lag behind growth in the use of digital
asset networks, average fees and settlement times may increase considerably.
Increased fees and decreased settlement speeds could preclude certain uses for
AVAX (e.g., micropayments) and could reduce demand for, and the price of, AVAX,
which could adversely impact 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 of Avalanche Network transactions will be
effective, or how long these mechanisms will take to become effective, which
could adversely impact the value of the Shares.
Many
developers are actively researching and testing scalability solutions for public
blockchains. However, there is no guarantee that any of the mechanisms in place
or being explored for increasing speed and throughput of settlement of the
Avalanche Network transactions will be effective, which could cause the
Avalanche Network to not adequately resolve scaling challenges and adversely
impact the adoption of AVAX and the Avalanche Network and the value of the
Shares. There is no guarantee that any potential scaling solution, whether a
change to the Layer 1 Avalanche Network like sharding or the introduction of a
Layer 2 solution like rollups, state channels or side chains, will achieve
widespread adoption. Alternatively, in theory, the widespread adoption of Layer
2 solutions could succeed in reducing congestion on the Layer 1 Avalanche
Network by moving transactions and computational work to the Layer 2 level and
thereby reduce direct transactions on the Layer 1 Avalanche Network, but by
reducing transactions on the Layer 1 Avalanche Network, could reduce demand for
AVAX on the Layer 1 Avalanche Network, which could in theory negatively impact
the price of AVAX. It is possible that proposed changes to the Layer 1 Avalanche
Network could divide the community, potentially even causing a hard fork, or
that the decentralized governance of the Avalanche Network causes network
participants to fail to coalesce overwhelmingly around any particular solution,
causing the Avalanche Network to suffer reduced adoption or causing nodes, users
or validators to migrate to other blockchain networks. It is possible that
proposed changes to the Layer 1 Avalanche Network could divide the community,
potentially even causing a hard fork, or that the decentralized governance of
the Avalanche Network causes network participants to fail to coalesce
overwhelmingly around any particular solution, causing the Avalanche Network to
suffer reduced adoption or causing users or validators to migrate to other
blockchain networks. It is also possible that scaling solutions could fail to
work as intended, could suffer from centralization concerns, or could introduce
bugs, coding defects or flaws, security risks, or other problems that could
cause them to suffer operational disruptions. Alternatively, if a widely-used
Layer 2 network were to fail, it could reduce demand for AVAX because it would
eliminate a source of demand for using AVAX to record transactions from the
Layer 2 onto the Layer 1 Avalanche Network. Any of the foregoing could adversely
affect the price of AVAX or the value of the Shares of the Trust.
If
The Digital Asset Award Or Transaction Fees For Recording Transactions On The
Avalanche Network Are Not Sufficiently High To Incentivize Validators, Or If
Certain Jurisdictions Continue To Limit Or Otherwise Regulate Validating
Activities, Validators May Cease Expanding Validating Power Or Demand High
Transaction Fees, Which Could Negatively Impact The Value Of AVAX And The Value
Of The Shares.
If
the digital asset awards for validating blocks on the Avalanche Network are not
sufficiently high to incentivize validators, or if certain jurisdictions
continue to limit or otherwise regulate validating activities, validators may
cease expending validating power to validate blocks and confirmations of
transactions on the Avalanche Blockchain could be slowed. For example, the
realization of one or more of the following risks could materially adversely
affect the value of the Shares:
•A
reduction in the processing power expended by validators on the Avalanche
Network 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. See "—The
Avalanche Blockchain could be vulnerable to attacks on transaction finality and
consensus processes, which could adversely affect an investment in the trust or
the ability of the trust to operate."
•Any
widespread delays or disruptions in the recording of transactions could result
in a loss of confidence in the Avalanche Network and could prevent the Trust
from completing transactions associated with the day-to-day operations of the
Trust, including creations and redemptions of the Shares in exchange for AVAX or
cash with Authorized Participants.
•During
the course of ordering transactions and validating blocks, validators may be
able to prioritize certain transactions in return for increased transaction
fees, an incentive system known as "Maximal Extractable Value" or MEV. For
example, in blockchain networks that facilitate DeFi protocols in particular,
such as the Avalanche Network, users may attempt to gain an advantage over other
users by increasing offered transaction fees. Certain software solutions have
been developed which facilitate validators in capturing MEV produced by these
increased fees. The MEV incentive system may lead to an increase in transaction
fees on the Avalanche Network, which may diminish its use. Users or other
stakeholders on the Avalanche Network could also view the existence of MEV as
unfair manipulation of decentralized digital asset
networks,
and refrain from using DeFi protocols or the Avalanche Network generally. In
addition, it's possible regulators or legislators could enact rules which
restrict the use of MEV, which could diminish the popularity of the Avalanche
Network among users and validators. Any of these or other outcomes related to
MEV may adversely affect the value of AVAX and the value of the
Shares.
Due
To The Unregulated Nature And Lack Of Transparency Surrounding The Operations Of
AVAX Trading Platforms, Which May Be Subject To Regulation In a Relevant
Jurisdiction But May Not Be Complying, They May Experience Fraud, Manipulation,
Security Failures Or Operational Problems, Which May Adversely Affect The Value
Of AVAX And, Consequently, The Value Of The Shares.
Digital
asset trading platforms are relatively new and, in some cases, unregulated. Many
operate outside the United States. Furthermore, while many prominent digital
asset trading platforms provide the public with significant information
regarding their ownership structure, management teams, corporate practices and
regulatory compliance, many digital asset trading platforms do not provide this
information. Digital asset trading platforms may not be subject to, or may not
comply with, regulation in a similar manner as other regulated trading
platforms, such as national securities exchanges or designated contract markets.
As a result, the marketplace may lose confidence in digital asset trading
platforms, including prominent trading platforms that handle a significant
volume of AVAX trading.
Many
digital asset trading platforms are unlicensed, unregulated, may be subject to
regulation in a relevant jurisdiction but may not be complying, may operate
without extensive supervision by governmental authorities, and do not provide
the public with significant information regarding their ownership structure,
management team, corporate practices, cybersecurity, and regulatory compliance.
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 trading 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 2019 there were reports claiming that 80.95% of bitcoin trading
volume on digital asset trading platforms was false or noneconomic in nature,
with specific focus on unregulated trading platforms located outside of the
United States. Such reports alleged that certain overseas trading 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 non- economic "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 trading platforms on which to
list their coins. Although these reports concerned bitcoin, it is possible that
similar concerns are present for AVAX markets as well.
Other
academics and market observers have put forth evidence to support claims that
manipulative trading activity has occurred on certain digital asset trading
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. Although bitcoin and AVAX are
different assets, AVAX prices may be subject to similar activity. 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 exchange
market, and any other fraudulent or manipulative acts and practices, could
adversely affect the value of digital assets and/or negatively affect the market
perception of digital assets.
The
AVAX market globally and in the United States is not subject to comparable
regulatory guardrails as exist in regulated securities markets. Furthermore,
many AVAX 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 AVAX on trading venues may be subject to larger and/or 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 trading platforms, or may not exist at
all.
AVAX
Trading Platforms May Be Exposed To Fraud And Manipulation
The
SEC has identified possible sources of fraud and manipulation in the AVAX market
generally, including, among others (1) "wash trading"; (2) persons with a
dominant position in AVAX manipulating AVAX pricing; (3) hacking of the AVAX
network and trading platforms; (4) malicious control of the Avalanche Network;
(5) trading based on material, non-public information (for example, plans of
market participants to significantly increase or decrease their holdings in
AVAX, new sources of demand for AVAX) or based on the dissemination of false and
misleading information; (6) manipulative activity involving purported
"stablecoins," including Tether (for more information, see "Risk Factors—Risk
Factors Related to Digital Assets—Prices of AVAX may be affected due to
stablecoins (including Tether and US Dollar Coin ("USDC")), the activities of
stablecoin issuers and their regulatory treatment"); and (7) fraud and
manipulation at AVAX 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 market
and/or cause distortions in price, which could adversely affect the Trust or
cause losses to Shareholders.
Over
the past several years, some digital asset trading 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 trading
platforms were not compensated or made whole for the partial or complete losses
of their account balances in such digital asset trading platforms. While,
generally speaking, smaller digital asset trading platforms are less likely to
have the infrastructure and capitalization that make larger digital asset
trading platforms more stable, larger digital asset trading 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 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 trading platforms could be subject to abrupt failure with
consequences for both users of digital asset exchanges 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 trading platforms from around $795 on February 6, 2014 to $578 on
February 20, 2014. Additionally, in January 2015, Bitstamp 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 bitcoins
worth around $78 million were stolen from Bitfinex. The value of bitcoin and
other digital assets immediately decreased over 10% following reports of the
theft at Bitfinex. In July 2017, FinCEN assessed a $110 million fine against
BTC-E, a now defunct digital asset trading platform, for facilitating crimes
such as drug sales and ransomware attacks. In addition, in December 2017,
Yapian, the operator of Seoul-based cryptocurrency trading 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
platform accounts, with any potential further distributions to be made following
Yapian's pending bankruptcy proceedings. In addition, in January 2018, the
Japanese digital asset trading platform, Coincheck, was hacked, resulting in
losses of approximately $535 million, and in February 2018, the Italian digital
asset trading platform, Bitgrail, was hacked, resulting in approximately $170
million in losses. In May 2019, one of the world's largest digital asset trading
platform, Binance, was hacked, resulting in losses of approximately $40 million.
In November 2022, FTX Trading Ltd. ("FTX"), one of the largest digital asset
trading platform by volume at the time, 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. The U.S.
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. On February 21, 2025, Bybit, a centralized platform for
exchanging digital assets, announced that more than $1.4 billion in ether had
been stolen from its platform. Hackers were able to manipulate Bybit's transfer
process to authorize and complete the illicit transaction. On September 8, 2025,
SwissBorg, a digital asset platform, experienced a security breach resulting in
the unauthorized withdrawal of approximately 193,000 SOL (valued at
approximately $41 million). The incident was attributed to a compromise in the
API of Kiln, SwissBorg’s staking infrastructure provider. The breach enabled
attackers to manipulate staking-related API requests, leading to the loss of
funds from SwissBorg’s Solana Earn program. Kiln, a SOC 2 Type II certified
staking provider, responded by pausing SOL staking operations and initiating a
full incident response.These incidents have resulted in renewed concerns over
the security of digital asset platforms.
The
potential consequences of a digital asset trading platform failure or failure to
prevent market manipulation could adversely affect the value of the Shares.
Manipulative trading or market abuse could create artificial or distorted
prices, cause a loss of investor confidence in AVAX, adversely impact pricing
trends in AVAX markets broadly, and cause losses from an investment in Shares of
the Trust.
In
addition, negative perception, a lack of stability and standardized regulation
in the digital asset markets and the closure or temporary shutdown of digital
asset trading platforms due to fraud, business failure, security breaches or
government mandated regulation, and associated losses by customers, may reduce
confidence in the Avalanche Network and result in greater volatility or
decreases in the prices of AVAX. Furthermore, the closure or temporary shutdown
of a digital asset exchange used in calculating the Index may result in a loss
of confidence in the Trust's ability to determine its NAV on a daily basis. The
potential consequences of a digital asset exchange's failure could adversely
affect the value of the Shares.
AVAX
Trading Platforms May Be Exposed To Front-Running
AVAX
trading platforms on which AVAX trades may be susceptible to "front-running,"
which refers to the process when someone uses access to confidential
information, or technology or market advantage to get prior knowledge of
upcoming transactions. Front-running is a frequent activity on centralized as
well as decentralized exchanges. By using bots functioning on a
millisecond-scale timeframe, bad actors are able to take advantage of the
forthcoming price movement and make economic gains at the cost of those who had
introduced these transactions. The objective of a front runner is to buy a chunk
of tokens at a low price and later sell them at a higher price while
simultaneously exiting the position. Front-running can occur via manipulation of
transaction validation and mining processes, or the theft or misappropriation of
confidential information by insiders. To extent that front-running occurs in
AVAX markets, it may result in concerns as to the price integrity of digital
asset exchanges and digital assets more generally.
AVAX
Trading Platforms May Be Exposed To Wash Trading
AVAX
trading platforms on which AVAX trades may be susceptible to wash trading. Wash
trading occurs when offsetting trades are entered into for other than bona fide
reasons, such as the desire to inflate reported trading volumes. Wash trading
may be motivated by non-economic reasons, such as a desire for increased
visibility on popular websites that monitor markets for digital assets so as to
improve their attractiveness to investors who look for maximum liquidity, or it
may be motivated by the ability to attract listing fees from token issuers who
seek the most liquid and high-volume exchanges on which to list their coins.
Results of wash trading may include unexpected obstacles to trade and erroneous
investment decisions based on false information.
Even
in the United States, there have been allegations of wash trading even on
regulated venues. Any actual or perceived false trading in the global digital
asset trading market, and any other fraudulent or manipulative acts and
practices, could adversely affect the value of AVAX and/or negatively affect the
market perception of AVAX. If
they
were to affect trading at a trading platform which is used to calculate the
MarketVectorTM
Avalanche Benchmark Rate, they could cause the Trust's NAV to be calculated
incorrectly and cause Shareholders to suffer losses. See "—The
MarketVectorTM
Avalanche Benchmark Rate may be affected by manipulative or fraudulent practices
in the global AVAX market or at constituent platforms."
To
the extent that wash trading either occurs or appears to occur in AVAX trading
platforms on which AVAX trades, investors may develop negative perceptions about
AVAX and the digital assets industry more broadly, which could adversely impact
the price of AVAX and, therefore, the price of Shares. Wash trading also may
place more legitimate digital asset trading platforms at a relative competitive
disadvantage.
Competition
From Central Bank Digital Currencies And Emerging Payments Initiatives Involving
Financial Institutions Could Adversely Affect The Value Of AVAX And Other
Digital Assets.
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, AVAX 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, AVAX. As a result of any of the
foregoing factors, the value of AVAX could decrease, which could adversely
affect an investment in the Trust.
Prices
Of AVAX May Be Affected Due To Stablecoins (Including Tether And US Dollar Coin
("USDC")), The Activities Of Stablecoin Issuers And Their Regulatory
Treatment.
While
the Trust does not invest in and will not hold stablecoins, it may nonetheless
be exposed to risks that stablecoins pose for the AVAX market 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 a fiat currency, such as the U.S. dollar, at a
certain value. Although the prices of stablecoins are intended to be stable,
their market value may fluctuate. This volatility has in the past apparently
impacted the price of AVAX. Stablecoins are a relatively new phenomenon, and it
is impossible to know all of the risks that they could pose to participants in
the AVAX market. In addition, some have argued that some stablecoins,
particularly Tether, are improperly issued without sufficient backing in a way
that, when the stablecoin is used to pay for AVAX, could cause artificial rather
than genuine demand for AVAX, artificially inflating the price of AVAX, and also
argue that those associated with certain stablecoins may be involved in
laundering money. On February 17, 2021 the New York Attorney General entered
into an agreement with Tether's operators, including Bitfinex, 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 (the "NYAG Settlement Order"). The NYAG Settlement Order states
that Bitfinex and Tether are under common ownership and management. Among other
things, the NYAG Settlement Order asserts that Tether's operators made a series
of loans of some of the fiat currency reserves backing Tether stablecoins to
Bitfinex, which Bitfinex used in its business, including to bridge liquidity
difficulties it faced after Bitfinex lost a substantial amount of customer cash
due to the actions of a payment processor it employed. In return, Bitfinex gave
Tether a receivable promising to pay the funds back. The NYAG Settlement Order
finds, among other things, that representations Tether's operators made that
each Tether stablecoin was backed 1:1 by fiat currency reserves were fraudulent
under New York's Martin Act, because some of the fiat currency reserves were
replaced by a receivable issued by an affiliate (Bitfinex) without disclosure to
the market. On October 15, 2021, the CFTC announced a settlement with Tether's
operators, Tether Holdings Limited, Tether Operations Limited, Tether Limited,
and Tether International Limited, 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. Bitfinex also agreed to pay the CFTC a $1.5 million fine to settle
charges that Bitfinex offered off-exchange leveraged, margined, or financed
transactions involving cryptocurrencies, including AVAX, with U.S. customers who
were not eligible contract participants and accepted funds (including in the
form of Tether stablecoins) and orders in connection with
such
illegal off-exchange transactions, triggering an obligation to register with the
CFTC, which the CFTC order asserts it violated. The CFTC previously fined
Bitfinex in 2016 on similar charges.
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
AVAX market. While USDC is designed to maintain a stable value at 1 U.S. dollar
at all times, on March 10, 2023, the value of USDC fell below $1.00 for multiple
days after Circle Internet Financial disclosed that US$3.3 billion of the USDC
reserves were held at Silicon Valley Bank, which had entered Federal Deposit
Insurance Corporation ("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 market for AVAX. 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 AVAX), or regulatory
concerns about stablecoin issuers or intermediaries, such as exchanges, that
support stablecoins, or new legislation, such as the Guiding and Establishing
National Innovation for U.S. Stablecoins Act which prohibits the use of payment
stablecoins unless the issuers obtain certain licenses and comply with various
regulatory and other requirements, or the removal or migration of prominent
stablecoins away from the Avalanche Network, could impact individuals'
willingness to trade on trading venues that rely on stablecoins, reduce
liquidity in the AVAX market, and affect the value of AVAX, and in turn impact
an investment in the Shares. Given Bitfinex has in the past been, and is
currently, a component of the MarketVectorTM
Avalanche Benchmark Rate and Bitfinex and Tether are understood to be under
common ownership and management, problems with Tether specifically could
potentially affect pricing of transactions on Bitfinex or otherwise disrupt
Bitfinex's operations.
Competition
From The Emergence Or Growth Of Other Digital Assets Or Methods Of Investing In
AVAX Could Have A Negative Impact On The Price Of AVAX And Adversely Affect The
Value Of The Shares.
As
of November 25, 2025, AVAX was the 21st
largest digital asset by market capitalization, as tracked by CoinMarketCap.com.
As of November 25, 2025, the alternative digital assets tracked by
CoinMarketCap.com had a total market capitalization of approximately $2.99
trillion (including the approximately $6 billion market cap of AVAX), as
calculated using market prices and total available supply of each digital asset,
excluding tokens pegged to other assets. AVAX faces competition from a wide
range of digital assets, including Bitcoin and Ethereum. AVAX is also supported
by fewer regulated trading platforms than more established digital assets, such
as Bitcoin and Ethereum, which could impact its liquidity. In addition, AVAX is
in direct competition to other smart contract platforms, such as Ethereum,
Polkadot, Solana and Cardano. Competition from the emergence or growth of
alternative digital assets and smart contracts platforms, such as EOS, Tezos,
Tron, and numerous others, could have a negative impact on the demand for, and
price of, AVAX and thereby adversely affect the value of the Shares. If other
blockchain networks with smart contracts or similar capabilities better meet the
needs of users, application developers, and/or validators, whether due to higher
performance or otherwise, or prove to be more popular than AVAX for any reason,
it could lead to less activity on the Avalanche blockchain and lower demand for
AVAX, causing the price of AVAX and the value of the Shares to
decline.
In
addition, some digital asset networks, including the Avalanche Network, 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 Avalanche Network. If Avalanche experiences a similar
fork, users of the new digital asset network resulting from a fork may attempt
to negatively impact the use or adoption of the Avalanche Network.
Investors
may invest in AVAX through means other than the Shares, including through direct
investments in AVAX and other potential financial vehicles, possibly including
securities backed by or linked to AVAX and digital asset financial vehicles
similar to the Trust, or other 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 AVAX 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 AVAX are formed and represent a significant proportion of
the demand for AVAX, large purchases or redemptions of the securities of these
digital asset financial vehicles, or private funds holding AVAX, could
negatively affect the Index, the Trust's AVAX holdings, the price of the Shares,
the net asset value of the Trust and the NAV.
The
Digital Asset Markets Follow Trends, Certain Trends May Favor Certain
Blockchains Over Others, A Trend Change Could Affect The Popularity Of The
Avalanche Blockchain.
There
are periods in which certain activities or products in the digital asset markets
experience heightened popularity. For example in 2021 there was an increased
interest around Non-fungible tokens and high-ticket sales, such as the $69
million dollar sale of digital artist Beeple's work at Christies helped to bring
attention to the Ethereum blockchain.
Similarly,
meme coins have experienced exponential growth with the market capitalization of
meme coins increasing from $20 billion in January 2024 to $120 billion by early
December 2024. Meme coin launches on Solana associated with celebrities,
Internet memes, and even politicians such as President Trump and First Lady
Melania Trump, as well as Joe Biden, Kamala Harris, Peanut the Squirrel and the
$Libra memecoin associated with Argentine president Javier Milei, have brought
attention to meme coins and the Solana blockchain on which many prominent
memecoin applications are built. During the same time, in 2024, Solana's total
value locked (TVL) increased from around $1.4 billion to more than $9 billion.
Many meme coins have surged in price upon launch only to quickly fall and never
recover, which could create a negative sentiment around meme coins and
potentially Solana by association. Meme coins associated with political themes
could be subject to unpredictable political winds, or suffer political
opposition, which could conceivably affect the Avalanche Network indirectly by
association. Although the Sponsor is not aware of any affiliation between the
Avalanche Network itself and memecoins that are issued by third party
applications built on the Avalanche Network, memecoin applications, like any
other application built on the Avalanche Network, create demand for AVAX to pay
transaction fees to record changes of state within the application on the
Avalanche Network. Accordingly, if the memecoin trend were to slow or stop for
any reason, it could negatively impact the demand for AVAX and thus the AVAX
price.
Congestion
Or Delay On The Avalanche Network May Delay Purchases Or Sales Of AVAX By The
Trust.
Increased
transaction volume could result in delays in the recording of transactions due
to congestion on the Avalanche Blockchain. Moreover, unforeseen system failures,
disruptions in operations, or poor connectivity may also result in delays in the
recording of transactions on the Avalanche Blockchain. Any delay in the
Avalanche Blockchain could affect an Authorized Participant's ability to buy or
sell AVAX at an advantageous price resulting in decreased confidence in the
Avalanche Blockchain. Over the longer term, delays in confirming transactions
could reduce the attractiveness to merchants and other commercial parties as a
means of payment. As a result, the Avalanche Network and the value of the Trust
would be adversely affected.
The
SEC may approve applications under Rule 19b-4 of the Exchange Act to list
competing digital assets as exchange-traded products, which could reduce demand
for, and the price of, AVAX and adversely impact the value of the
Shares.
To
date, the SEC has only approved applications under Rule 19b-4 of the Exchange
Act to list spot digital asset exchange-traded products which hold Bitcoin and
Ether. However, applications for competing digital assets have been filed and
are currently pending, and there can be no guarantee the SEC will not one day
approve any such application. If applications to list spot digital asset
exchange-traded products, other than those which hold AVAX, 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, AVAX could be reduced. Such reduced demand could in turn
negatively affect the Index Price, the NAV, the NAV per Share, the value of the
Shares,
the Principal Market NAV and the Principal Market NAV per Share. Accordingly,
there can be no assurance that the Trust will be able to maintain its scale and
achieve its intended competitive positioning relative to competitors, which
could adversely affect the performance of the Trust and the value of the
Shares.
Failure
Of Funds That Hold Digital Assets To Receive SEC Approval To List Their Shares
On Exchanges Could Adversely Affect The Value Of The Shares.
There
have been a growing a number of attempts to list on national securities
exchanges the shares of funds that hold digital assets. These investment
vehicles attempt to provide institutional and retail investors exposure to
markets for digital assets and related products. The exchange listing of shares
of digital asset funds would create more opportunities for institutional and
retail investors to invest in the digital asset market. However, the SEC has
repeatedly denied such requests. If exchange-listing requests continue to be
denied by the SEC, increased investment interest by institutional or retail
investors could fail to materialize, which could reduce the demand for digital
assets generally and therefore adversely affect the value of the
Shares.
Digital
asset treasury companies risk.
In
recent times, a number of companies engaged in businesses outside the digital
assets industry have begun to hold their corporate treasuries in digital assets
instead of in fiat currency ("digital asset treasury companies"). In some cases
these companies have raised funds through financing or securities offerings and
applied the proceeds to purchase digital assets, including AVAX.
Digital
asset treasury companies are a relatively new phenomenon and it is impossible to
predict all of the risks they could pose to the Trust. On the one hand, digital
asset treasury companies may increase procyclical dynamics in the market because
they may purchase digital assets, such as AVAX, when prices are rising and they
may sell such assets when prices are decreasing, potentially making AVAX more
expensive in a rising market and then causing downward pressure on AVAX prices
in a falling market (causing prices to fall faster than they otherwise would).
Digital asset treasury companies could cause greater volatility in digital asset
markets, including markets for AVAX. Negative events or sentiment surrounding
digital asset treasury companies could affect the market for AVAX. On the other
hand, digital asset treasury companies may compete with the Trust in the
marketplace as a perceived alternative means of achieving exposure to the price
of AVAX (to a greater or lesser extent) through investing in securities. The
foregoing or similar events involving digital asset treasury companies could
adversely affect holders of Shares in the Trust.
Risks
Associated with the MarketVectorTM
Avalanche Benchmark Rate
The
MarketVectorTM
Avalanche Benchmark Rate Has A Limited History.
The
MarketVectorTM
Avalanche Benchmark Rate was developed by MarketVector and has a limited
history. MarketVector has substantial discretion at any time to change the
methodology used to calculate the MarketVectorTM
Avalanche Benchmark Rate, including the constituent trading platforms that
contribute prices to the Trust's NAV. MarketVector does not have any obligation
to take the needs of the Trust, the Trust's Shareholders, or anyone else into
consideration in connection with such changes. There is no guarantee that the
methodology currently used in calculating the MarketVectorTM
Avalanche Benchmark Rate will appropriately track the price of AVAX in the
future.
The
MarketVectorTM
Avalanche Benchmark Rate is based on various inputs which may include price data
from various third-party trading platforms and markets. MarketVector does not
guarantee the validity of any of these inputs, which may be subject to
technological error, manipulative activity, or fraudulent reporting from their
initial source. The MarketVectorTM
Avalanche Benchmark Rate could be calculated now or in the future in a way that
adversely affects an investment in the Trust.
The
MarketVectorTM
Avalanche Benchmark Rate Could Fail To Track The Global AVAX Price, And A
Failure Of The MarketVectorTM
Avalanche Benchmark Rate Could Adversely Affect The Value Of The
Shares.
Although
the MarketVectorTM
Avalanche Benchmark Rate is intended to accurately capture the market price of
AVAX, third parties may be able to purchase and sell AVAX on public or private
markets not included among the AVAX trading platforms used in calculating the
MarketVectorTM
Avalanche Benchmark Rate, and such transactions may take place at prices
materially higher or lower than the MarketVectorTM
Avalanche Benchmark Rate. Moreover, there may be variances in the prices of AVAX
on the various AVAX trading platforms used in calculating the
MarketVectorTM
Avalanche Benchmark Rate, including as a result of differences in fee structures
or administrative procedures on different trading platforms. While the
MarketVectorTM
Avalanche Benchmark Rate provides a U.S. dollar-denominated composite index for
the price of AVAX based on, at any given time, the prices on each such
constituent trading Platform or pricing source may not be equal to the value of
an AVAX as represented by the Index. It is possible that the price of AVAX on
the AVAX trading platforms could be materially higher or lower than the
MarketVectorTM
Avalanche Benchmark Rate price. To the extent the MarketVectorTM
Avalanche Benchmark Rate price differs materially from the actual prices
available on an AVAX trading platforms used to calculate it, or the global
market price of AVAX, the price of the Shares may no longer track, whether
temporarily or over time, the global market price of AVAX, which could adversely
affect an investment in the Trust by reducing investors' confidence in the
Shares' ability to track the market price of AVAX. To the extent such prices
differ materially from the MarketVectorTM
Avalanche Benchmark Rate, investors may lose confidence in the Shares' ability
to track the market price of AVAX, which could adversely affect the value of the
Shares.
If
the MarketVectorTM
Avalanche Benchmark Rate is not available, the Trust's holdings may be fair
valued 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 AVAX, the price of the Shares
may no longer track, whether temporarily or over time, the global market price
of AVAX, which could adversely affect an investment in the Trust by reducing
investors' confidence in the Shares' ability to track the global market price of
AVAX. To the extent such prices differ materially from the market price for
AVAX, investors may lose confidence in the Shares' ability to track the market
price of AVAX, which could adversely affect the value of the
Shares.
MarketVector
Has Analyzed AVAX Trading Platform Data And Developed Insights That Have
Informed MarketVector's Understanding Of The AVAX Market And The Design Of The
Trust. If Such Data Or Insights Are Inaccurate Or Incorrect, The Value Of An
Investment In The Trust May Be Adversely Affected.
MarketVector
has relied upon AVAX market data in developing its analysis of the AVAX market.
This analysis has informed MarketVector's understanding of the AVAX market, the
design of the Trust and the design of the MarketVectorTM
Avalanche Benchmark Rate. The continued viability of the Trust relies upon
access to accurate data, and MarketVector's continued ability to effectively
analyze such data. If data is inaccurate or becomes unavailable, or if
MarketVector's analysis of such data is incorrect, the value of an investment in
the Trust may be adversely affected.
The
MarketVectorTM
Avalanche Benchmark Rate Used To Calculate The Value Of The Trust's AVAX May Be
Volatile, Adversely Affecting The Value Of The Shares.
The
price of AVAX on public digital asset trading platforms has a limited history,
and during this history, AVAX prices on the digital asset markets more
generally, and on digital asset exchanges individually, have been volatile and
subject to influence by many factors, including operational interruptions. While
the MarketVectorTM
Avalanche Benchmark Rate is designed to limit exposure to the interruption of
individual digital asset trading platforms, the MarketVectorTM
Avalanche Benchmark Rate, and the price of AVAX generally, remains subject to
volatility experienced by digital asset trading platforms, and such volatility
could adversely affect the value of the Shares.
Furthermore,
because the number of liquid and credible AVAX trading platforms is limited, the
MarketVectorTM
Avalanche Benchmark Rate will necessarily be composed of a limited number of
AVAX trading platforms. If an AVAX trading platform were subjected to
regulatory, volatility or other pricing issues, in the case of
the
MarketVectorTM
Avalanche Benchmark Rate, the calculation agent would have limited ability to
remove such AVAX trading platform from the MarketVectorTM
Avalanche Benchmark Rate, which could skew the price of AVAX as represented by
the MarketVectorTM
Avalanche Benchmark Rate. Trading on a limited number of AVAX trading platform
may result in less favorable prices and decreased liquidity of AVAX and,
therefore, could have an adverse effect on the value of the Shares.
Purchasing
activity associated with acquiring AVAX required for the creation of Baskets may
increase the market price of AVAX on the digital asset markets, which will
result in higher prices for the Shares. Increases in the market price of AVAX
may also occur as a result of the purchasing activity of other market
participants. Other market participants may attempt to benefit from an increase
in the market price of AVAX that may result from increased purchasing activity
of AVAX connected with the issuance of Baskets. Consequently, the market price
of AVAX may decline immediately after Baskets are created. Decreases in the
market price of AVAX may also occur as a result of sales in secondary markets by
other market participants. If the Index price declines, the value of the Shares
will generally also decline.
The
MarketVectorTM
Avalanche
Benchmark Rate May Be Affected By Manipulative Or Fraudulent Practices In The
Global AVAX Market Or At Constituent Trading Platforms.
The
global AVAX market may be subject to fraud and manipulation, see "—Due to the
unregulated nature and lack of transparency surrounding the operations of AVAX
trading platforms, which may be subject to regulation in a relevant
jurisdiction, but may not be complying, they may experience fraud, manipulation,
security failures or operational problems, which may adversely affect the value
of AVAX and, consequently, the value of the Shares," and the
MarketVectorTM
Avalanche Benchmark Rate may be affected to the extent they cause global prices
of AVAX to be subject to factors other than bona fide market
forces.
Fraud
or manipulation may also affect the constituent trading platforms used to
calculate the MarketVectorTM
Avalanche Benchmark Rate. For example, Coinbase paid $6.5 million in 2021 to
settle a CFTC enforcement action for reckless false, misleading, or inaccurate
reporting as well as wash trading by a former employee on Coinbase's GDAX
platform. According to the CFTC's order, during the relevant period prior to the
enforcement action, Coinbase operated at least two trading programs which
generated orders that, at times, matched with one another. Coinbase included the
transactional information for these transactions, such as price and volume data,
on its website and provided that information to reporting services, either
directly or through access to its website, resulting in a perceived volume and
level of liquidity of digital assets, on GDAX that was false, misleading or
inaccurate. Additionally, between August and September 2016, the CFTC order
finds that a former Coinbase employee intentionally placed buy and sell orders
in the Litecoin/Bitcoin trading pair on GDAX, which he intended to match with
one another and result in no loss or gain while creating the appearance of
liquidity and trading interest in Litecoin. Ultimately, the transactions
resulted in wash transactions that depicted a misleading picture of the
Litecoin/Bitcoin market. It is possible that similar phenomena could affect
trading platforms facilitating trading in AVAX.
Fraudulent
and manipulative trading practices remain a risk at many cryptocurrency trading
platforms. To the extent they occur at constituent trading platforms used to
calculate the MarketVectorTM
Avalanche Benchmark Rate, they could cause the MarketVectorTM
Avalanche Benchmark Rate to report inaccurate prices of AVAX, causing the NAV of
the Trust to be calculated incorrectly and thereby causing Shareholders to
suffer losses.
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 AVAX platforms malfunction for any reason,
calculation and dissemination of the MarketVectorTM
Avalanche Benchmark Rate may be delayed. Errors in the MarketVectorTM
Avalanche Benchmark Rate data, the MarketVectorTM
Avalanche Benchmark Rate 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 the errors in the MarketVectorTM
Avalanche Benchmark Rate, 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
MarketVectorTM
Avalanche Benchmark Rate Price Being Used To Determine The Net Asset Value Of
The Trust 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 Net Asset Value Reported In The Trust's Periodic
Financial Statements May Differ, In Some Cases Significantly, From The Trust's
Net Asset Value Determined Using The MarketVectorTM
Avalanche Benchmark Rate Pricing.
The
Trust will determine the net asset value of the Trust on each Business Day based
on the value of AVAX as reflected by the MarketVectorTM
Avalanche Benchmark Rate. The methodology used to calculate the
MarketVectorTM
Avalanche Benchmark Rate to value AVAX in determining the net asset value of the
Trust may not be deemed consistent with GAAP. To the extent the methodology used
to calculate the MarketVectorTM
Avalanche Benchmark Rate is deemed inconsistent with GAAP, the Trust will
utilize a GAAP-consistent pricing source for purposes of the Trust's periodic
financial statements. Creation and redemption of Baskets, the Sponsor's
management fee and other expenses borne by the Trust will be determined using
the Trust's net asset value determined daily based on the
MarketVectorTM
Avalanche Benchmark Rate. Such net asset value of the Trust determined using the
MarketVectorTM
Avalanche Benchmark Rate may differ, in some cases significantly, from the net
asset value reported in the Trust's periodic financial statements.
The
Sponsor Can Remove The MarketVectorTM
Avalanche Benchmark Rate And Use A Different Pricing Or Valuation Methodology
Instead.
Under
the Trust Agreement, the Sponsor has the exclusive authority to select, remove,
change, or replace the pricing or valuation methodology or policies used to
value the Trust's assets and determine NAV and NAV per Share, in its sole
discretion. The Sponsor has the right to change the pricing source used to
determine NAV and NAV per Share from the MarketVectorTM
Avalanche Benchmark Rate to a different source or index. To the extent that
there are material changes to the pricing or valuation methodology or policies
or the pricing source described within this paragraph, notification will be made
to Shareholders via a prospectus supplement and/or a current report filed with
the SEC.
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 AVAX. 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 AVAX.
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 AVAX. Additionally, a meritorious intellectual property rights
claim could prevent the Trust from operating and force the Sponsor to terminate
the Trust and liquidate its AVAX. As a result, an intellectual property rights
claim against the Trust could adversely affect the value of the
Shares.
Risks
Associated with Investing in the Trust
The
Value Of The Shares May Be Influenced By A Variety Of Factors Unrelated To The
Value Of AVAX.
The
value of the Shares may be influenced by a variety of factors unrelated to the
price of AVAX and the AVAX trading platforms included in the
MarketVectorTM
Avalanche Benchmark Rate that may have an adverse effect on the price of the
Shares. These factors include the following factors:
•Unanticipated
problems or issues with respect to the mechanics of the Trust's operations and
the trading of the Shares may arise, including due to the fact that the
mechanisms and procedures governing the creation and redemption of the Shares
and storage of AVAX 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;
•The
Trust could experience unforeseen issues relating to the performance and
effectiveness of the security procedures used to protect the Trust's accounts
with the AVAX Custodians, 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
•if
the Avalanche Network 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 the Avalanche
Network may increase the potential for AVAX 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
Trust Is Subject To Market Risk.
Market
risk refers to the risk that the market price of AVAX held by the Trust will
rise or fall, sometimes rapidly or unpredictably. An investment in the Shares is
subject to market risk, including the possible loss of the entire principal of
the investment.
An
Investment In Shares Of The Trust Is Different From Directly Owning
AVAX.
The
market value of Shares of the Trust may not have a direct relationship with the
prevailing price of AVAX, and changes in the prevailing price of AVAX similarly
will not necessarily result in a comparable change in the market value of Shares
of the Trust. The performance of the Trust will not reflect the specific return
an investor would realize if the investor actually held or purchased AVAX
directly. The differences in performance may be due to factors such as fees,
transaction costs, operating hours of the Exchange and index tracking risk.
Investors will also forgo certain rights conferred by owning AVAX directly, such
as the right to claim airdrops.
Redemption
Liquidity Risk
The
Trust may be unable to satisfy redemption requests in a timely manner if the
volume of such requests exceeds the portion of its AVAX holdings that remains
un-staked and readily available. Since a significant proportion of Trust's AVAX
may be allocated to staking, which is subject to lock-up periods, the Trust may
not be able to immediately access or liquidate the staked AVAX to meet large or
unexpected redemption demands. In such circumstances, investors seeking to
redeem their shares may experience delays, particularly during periods of
heightened market volatility, Exchange disruption or substantial redemption
activity. This could adversely affect the liquidity of the Trust and may result
in a material impact on the value of investors' holdings.
Although
the Sponsor monitors and manages liquidity risk pursuant to the Staking Policy,
there remains a possibility that redemption requests could exceed the un-staked
AVAX available for immediate withdrawal. In such cases, the Authorized
Participant will have the option to cancel the redemption order or the Sponsor
may delay settlement (i.e.,
long settle the redemption request) or use an alternative execution method for
the Trust to deliver cash in lieu of AVAX. Monitoring and risk management
procedures, while designed to mitigate such risks, cannot eliminate them
entirely—particularly in the event of extreme or unforeseen market conditions,
sudden spikes in redemption activity, or operational disruptions. There is no
assurance that the Sponsor's liquidity risk management will prove successful.
While under the terms of the Authorized Participant agreements the Trust may
have the ability to defer settlement for a certain time if there are
insufficient un-staked assets to meet redemptions (long settlement), there can
be no assurance that this will be sufficient to meet all redemption requests or
that the Trust contractual long settlement right will be adequate to meet the
Trust’s settlement obligation to Authorized Participants; if not, the Trust
could be in default to such Authorized Participants. As a result, investors may
still face delays or restrictions on redemptions if the volume of requests
surpasses the Trust's available un-staked AVAX, or the Trust could face
penalties, costs, damages, or other losses in connection with its settlement
obligations to Authorized Participants,
which
could adversely affect the value or liquidity of, or cause losses in connection
with an investment in the Shares.
The
NAV May Not Always Correspond To The Market Price Of AVAX And, As A Result,
Baskets May Be Created Or Redeemed At A Value That Is Different From The Market
Price Of The Shares.
The
NAV of the Trust will change as fluctuations occur in the market price of the
Trust's AVAX holdings. Shareholders should be aware that the public trading
price per Share may be different from the NAV for a number of reasons, including
price volatility, trading activity, the closing of AVAX trading platforms due to
fraud, failure, security breaches or otherwise, and the fact that supply and
demand forces at work in the secondary trading market for Shares are related,
but not identical, to the supply and demand forces influencing the market price
of AVAX.
An
Authorized Participant may be able to create or redeem a Basket at a discount or
a premium to the public trading price per Share, and the Trust will therefore
maintain its intended fractional exposure to a specific amount of AVAX per
Share.
Shareholders
also should note that the size of the Trust in terms of total AVAX held may
change substantially over time and as Baskets are created and
redeemed.
Authorized
Participants' Buying And Selling Activity Associated With The Creation And
Redemption Of Baskets May Adversely Affect An Investment In The Shares Of The
Trust.
Liquidity
Provider's purchases and Authorized Participants' and their designees' transfers
of AVAX in connection with Basket creation orders may cause the price of AVAX to
increase, which will result in higher prices for the Shares. Increases in the
AVAX prices may also occur as a result of AVAX purchases by other market
participants who attempt to benefit from an increase in the market price of AVAX
when Baskets are created. The market price of AVAX may therefore decline
immediately after Baskets are created.
Selling
activity associated with sales of AVAX by Liquidity Providers or Authorized
Participants and their designees in connection with redemption orders may
decrease the AVAX prices, which will result in lower prices for the Shares.
Decreases in AVAX prices may also occur as a result of selling activity by other
market participants.
In
addition to the effect that purchases and sales of AVAX by Liquidity Providers
and Authorized Participants' and their designees' transfers may have on the
price of AVAX, sales and purchases of AVAX by similar investment vehicles,
including competing exchange-traded products in the U.S. and other global
markets that do or seek to hold AVAX, could impact the price of AVAX. If the
price of AVAX declines, the trading price of the Shares will generally also
decline.
The
Inability Of Liquidity Providers, And Authorized Participants Or Their Designees
To Hedge Their AVAX Exposure May Adversely Affect The Liquidity Of Shares And
The Value Of An Investment In The Shares.
Liquidity
Providers and Authorized Participants or their designees will generally want to
hedge their AVAX exposure in connection with Basket creation and redemption
orders, while Authorized Participants would generally want to hedge their
exposure to the Trust's Shares to the extent possible. To the extent Authorized
Participants, their designees, and/or Liquidity Providers are unable to hedge
their exposure to the Trust's Shares or AVAX respectively due to market
conditions (e.g., insufficient AVAX liquidity in the market, inability to locate
an appropriate hedge counterparty, etc.), such conditions may make it difficult
to create or redeem Baskets or cause them to not participate in creating or
redeeming Baskets. In addition, the hedging mechanisms employed by Authorized
Participants, their designees, and/or Liquidity Providers and Authorized
Participants or their designees to hedge their exposure to the Trust's Shares or
AVAX, as applicable, may not function as intended, which may make it more
difficult for them to enter into such transactions. Such events could negatively
impact the market price of the Trust and the spread at which the Trust trades on
the open market. To the extent Liquidity Providers and Authorized Participants
or their designees turn to the market for exchange-traded futures contracts for
AVAX ("AVAX Futures") as well as the non-exchange traded AVAX derivatives
markets for their hedging needs in connection with their AVAX sales or transfers
to and purchases or transfers from the Trust, both the exchange-traded AVAX
Futures market and the non-exchange traded AVAX derivatives markets have limited
trading history and operational experience and may be less
liquid,
more volatile and more vulnerable to economic, market and industry changes than
more established futures and derivatives markets. The liquidity of the market
will depend on, among other things, the adoption of AVAX and the commercial and
speculative interest in the market for the ability to hedge against the price of
AVAX with exchange-traded AVAX Futures and non-exchange traded AVAX derivatives.
There can be no assurance that such markets will be able to meet the hedging
needs of Liquidity Providers and Authorized Participants or their designees,
which could cause such Liquidity Providers and Authorized Participants or their
designees to refrain from participation in the Trust's creation and redemption
processes, which could have adverse effects on Shareholders such as wider
spreads, a breakdown of the arbitrage mechanism used to keep the Trust's Shares
trading in line with NAV of the Trust's AVAX holdings, and potentially a
disruption of the creation or redemption processes altogether, as described in
the following Risk Factors.
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
Price Of AVAX May Not Exist And, As A Result, The Price Of The Shares May Fall
Or Otherwise Diverge From NAV.
The
processes of creation and redemption of Shares (which depend on timely transfers
of AVAX to and by the AVAX Custodians) could be disrupted or encounter
challenges due to, for example, the price volatility of AVAX, the insolvency,
business failure or interruption, default, failure to perform, security breach,
or other problems affecting the AVAX Custodians, in their capacity as AVAX
Custodians under the Custody Agreements. Authorized Participants and Liquidity
Providers, who would otherwise be willing to purchase or redeem Baskets or AVAX,
as applicable, to take advantage of any arbitrage opportunity arising from
discrepancies between the price of the Shares and the price of the underlying
AVAX, may decide not to take the risk that, as a result of those difficulties,
they may not be able to realize the profit they expect, and reduce their
transactions with or even refrain entirely from transacting with the Trust,
which could disrupt the processes of creation and redemption of Shares. If such
events rise to the level of an emergency or cause creations and redemptions of
Shares to be impracticable, the Sponsor may suspend the process of creation and
redemption of Baskets. Any disruptions to the process of creating and redeeming
Shares could cause trading spreads, and the resulting premium or discount, on
Shares compared to NAV to widen. Alternatively, in the case of an Avalanche
Network outage or other problems affecting the Avalanche Network, the processing
of transactions on the Avalanche Network may be disrupted, which in turn may
prevent Liquidity Providers, or Authorized Participants or their designees from
depositing or withdrawing AVAX from their accounts at the AVAX Custodians 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 price of AVAX and may fall or otherwise diverge
from NAV. Furthermore, in the event that the market for AVAX should become
relatively illiquid and thereby materially restrict opportunities for
arbitraging, the price of the Shares may diverge from the value of
AVAX.
Creation
Baskets may be created or redeemed in exchange for AVAX or cash. At present,
only certain Authorized Participants have the ability to support in-kind
creation and redemption activity. The use of cash creations and redemptions, as
opposed to in-kind creations and redemptions, creates transaction costs of
buying and selling AVAX that are not present in an in-kind model. These costs
include the bid-ask spread along with the operational costs from the labor and
overhead involved in calculating, executing, monitoring, and accounting for
transactions in the AVAX markets and related cash movements. Furthermore, there
are timing costs involved in the risk that the AVAX price moves between the time
when the NAV is established for a creation/ redemption and the time when the
AVAX is traded ("slippage"). In addition, Liquidity Providers must settle AVAX
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 an alternate AVAX Trading Counterparty to execute the AVAX transaction.
However, the pricing or terms of the ultimate AVAX transaction conducted through
the alternate Liquidity Provider, if one is available, after the failure of the
original 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 original Liquidity Provider. Transaction costs
and slippage would be reduced if the Trust were able to use an in-kind creation
and redemption model. The Trust's Authorized Participant Agreement provides that
transaction costs and slippage related to Basket creation and redemption are the
responsibility of the Authorized Participant. Whether Authorized Participants
who are unable to
support
in-kind creation and redemption activity and Liquidity Providers as market
participants will find it economically viable or commercially attractive to
participate in a cash creation and redemption model for an AVAX exchange-traded
product like the Trust, including a cash creation and redemption model where the
Trust selects the Liquidity Provider with whom it executes transactions to buy
or sell AVAX and the Authorized Participant is not permitted to designate the
Liquidity Provider from whom AVAX is purchased or sold in connection with the
Authorized Participant's Basket subscription or redemption, is not known;
however, there is a risk they will not. If the Trust is unable to attract
sufficient Authorized Participants and Liquidity Providers, it will be unable to
maintain an efficient arbitrage mechanism for keeping the trading price of the
Shares in line with NAV and the value of the underlying AVAX held by the Trust,
which could negatively affect Shareholders and cause them to purchase or sell
Shares at a premium or discount to the value of the underlying AVAX, causing
losses; alternatively, it could be unable to operate, as there would no parties
who would be able to create new Shares or redeem existing Shares, leading to the
Trust being unsuccessful commercially and the Sponsor deciding to terminate and
wind up the Trust's operations. In addition, a failure to settle AVAX
transactions with Liquidity Providers 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.
The
Lack Of Ability To Facilitate In-Kind Creations And Redemptions Of Shares Could
Have Adverse Consequences For The Trust.
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. On May 15, 2025, the SEC’s
Division of Trading and Markets and FINRA’s Office of General Counsel of FINRA
stated that broker-dealers are permitted to facilitate in-kind creations and
redemptions in connection with spot crypto exchange-traded products; however,
there has yet to be definitive regulatory guidance on the specific details of
how registered broker-dealers can comply with SEC rules with regard to
transacting in or holding spot AVAX. Until further regulatory clarity emerges
regarding whether registered broker-dealers can hold and deal in AVAX under such
rules, there is a risk that registered broker-dealers participating in the
in-kind creation or redemption of Shares for AVAX may be unable to demonstrate
compliance with such requirements. While compliance with rules such as the
customer protection rule, the net capital rule and recordkeeping requirements
would be the broker-dealer's responsibility, a national securities exchange is
required to enforce compliance by its member broker-dealers with applicable
federal securities law and rules. Only certain Authorized Participants, at
present, have the ability to also, through their affiliates, support in-kind
creation and redemption activity.
Even
with the SEC staff's recent statement that in-kind creations and redemptions are
not prohibited by SEC regulations, the Trust's limited ability 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, and such premiums or discounts could be substantial. Furthermore, if cash
creations or redemptions are unavailable, either due to the Sponsor's decision
to reject or suspend such orders, the unavailability of Liquidity Provider or
otherwise, Authorized Participants will be limited in their ability to redeem or
create Shares, in which case the arbitrage mechanism may not function as
efficiently. 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 limited
ability to facilitate in-kind creations and redemptions, and resulting relative
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.
Further,
there can be no assurance 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.
The
Liquidity Of The Shares May Also Be Affected By The Withdrawal From
Participation Of Authorized Participants Or Liquidity Providers.
In
the event that one or more Authorized Participants or Liquidity Providers
withdraw from or cease participation in creation and redemption activity or AVAX
transactions with the Trust for any reason, the liquidity of the Shares will
likely decrease, which could adversely affect the market price of the Shares and
result in your incurring a loss on your investment in Shares.
The
Trust Is Subject To Risks Due To Its Concentration Of Investments In A Single
Asset Class.
Unlike
other funds that may invest in diversified assets, the Trust's investment
strategy is concentrated in a single asset class: AVAX. This concentration
maximizes the degree of the Trust's exposure to a variety of market risks
associated with AVAX. By concentrating its investment strategy solely in AVAX,
any losses suffered as a result of a decrease in the value of AVAX can be
expected to reduce the value of an interest in the Trust and will not be offset
by other gains if the Trust were to invest in underlying assets that were
diversified.
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.
The
Lack Of Active Trading Markets For The Shares Of The Trust May Result In Losses
On Shareholders' Investments At The Time Of Disposition Of Shares.
Although
Shares of the Trust are expected to be publicly listed and traded on an
exchange, there can be no guarantee that an active trading market for the Trust
will develop or be maintained. If Shareholders need to sell their Shares at a
time when no active market for them exists, the price Shareholders receive for
their Shares, assuming that Shareholders are able to sell them, likely will be
lower than the price that Shareholders would receive if an active market did
exist and, accordingly, a Shareholder may suffer losses.
Any
of these factors could adversely affect the performance of the Trust and the
value of the Shares.
Possible
Illiquid Markets May Exacerbate Losses, Increase The Variability Between The
Trust's NAV And Its Market Price Or Affect the Trust's Ability to Meet Cash
Creation Orders and Redemption Orders.
AVAX
is a relatively new asset with a limited trading history. Therefore, the markets
for AVAX may be less liquid and more volatile than other markets for more
established products. It may be difficult to execute an AVAX trade at a specific
price when there is a relatively small volume of buy and sell orders in the AVAX
market. A market disruption can also make it more difficult to liquidate a
position or find a suitable counterparty at a reasonable cost.
Market
illiquidity may cause losses for the Trust. The large size of the positions that
the Trust may acquire will increase the risk of illiquidity by both making the
positions more difficult to liquidate and increasing the losses incurred while
trying to do so should the Trust need to liquidate its AVAX, or making it more
difficult for Authorized Participants to acquire or liquidate AVAX as part of
the creation and/or redemption of Shares of the Trust. To the extent that the
Trust conducts creation and redemption transactions for cash, such illiquidity
may affect the Trust's ability to meet such cash creation and redemption orders.
Any type of disruption or illiquidity will potentially be exacerbated due to the
fact that the Trust will typically invest in AVAX, which is highly
concentrated.
The
Shares May Trade At A Price That Is At, Above Or Below The Trust's NAV Per Share
As A Result Of The Non-Current Trading Hours Between The Exchange And The
Digital Asset Market.
The
Trust's NAV per Share will fluctuate with changes in the market value of AVAX,
and the Sponsor expects the trading price of the Shares to fluctuate in
accordance with changes in the Trust's NAV per Share, as well as market supply
and demand. However, the Shares may trade on the Exchange at a price that is at,
above or below the Trust's NAV per Share for a variety of reasons. For example,
the Exchange is open for trading in the Shares for a
limited
period each day, but the digital asset market is a 24-hour marketplace. During
periods when the Exchange is closed but constituent trading platforms are open,
significant changes in the price of AVAX on the digital asset market could
result in a difference in performance between the value of AVAX as measured by
the Index and the most recent NAV per Share or closing trading price. For
example, if the price of AVAX on the digital asset market, and the value of AVAX
as measured by the Index, move significantly in a negative direction after the
close of the Exchange, the trading price of the Shares may "gap" down to the
full extent of such negative price shift when the Exchange reopens. If the price
of AVAX on the digital asset market drops significantly during hours the
Exchange is closed, shareholders may not be able to sell their Shares until
after the "gap" down has been fully realized, resulting in an inability to
mitigate losses in a negative market. Even during periods when the Exchange is
open, large constituent trading platforms (or a substantial number of smaller
constituent trading platforms) may be lightly traded or closed for any number of
reasons, which could increase trading spreads and widen any premium or discount
on the Shares.
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:
•exemption
from the auditor attestation requirements under Section 404(b) of the
Sarbanes-Oxley Act;
•reduced
disclosure obligations regarding executive compensation in the Trust's periodic
reports and audited financial statements in this Prospectus; exemptions from the
requirements of holding advisory "say-on-pay" votes on executive compensation
and shareholder advisory votes on "golden parachute" compensation;
and
•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 its initial public 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. However, the Trust has
chosen to opt out of this extended transition period for complying with new or
revised accounting standards. Section 107 of the JOBS Act provides that the
decision to opt out of the extended transition period for complying with new or
revised accounting standards is irrevocable.
The
Trust cannot predict if investors will find an investment in the Trust less
attractive if it relies on these exemptions.
Several
Factors May Affect The Trust's Ability To Achieve Its Investment Objective On A
Consistent Basis.
There
is no guarantee that the Trust will meet its investment objective. Factors that
may affect the Trust's ability to meet its investment objective include, without
limitation: (1) Liquidity Providers' or Authorized Participants' or their
designees' ability and willingness to purchase and sell or transfer or receive
AVAX in an efficient manner to effectuate creation and redemption orders; (2)
transaction fees associated with the Avalanche Network, or the Staking Service
Provider; (3) the AVAX market becoming illiquid or disrupted; (4) the Trust's
Share
prices being rounded to the nearest cent and/or valuation methodologies; (5) the
need to conform the Trust's portfolio holdings to comply with investment
restrictions or policies or regulatory or tax law requirements; (6) early or
unanticipated closings of the markets on which AVAX trades, resulting in the
inability of Liquidity Providers or Authorized Participants' or their designees'
to execute intended portfolio transactions; (7) accounting standards; (8)
Authorized Participants refraining from participating in creation and redemption
of Baskets; (9) the MarketVectorTM
Avalanche Benchmark Rate becoming disrupted or unavailable; and (10) the Staking
Services Providers' willingness to provide staking services to the Trust and to
do so on the terms of its agreement with the Trust.
The
Amount Of AVAX Represented By Each Share Will Decline Over Time As The Trust
pays the Sponsor Fee And Extraordinary Trust Expenses, And As A Result, The
Value Of The Shares May Decrease Over Time.
The
amount of AVAX represented by the Shares will continue to be reduced during the
life of the Trust due to the transfer of the Trust's AVAX to pay for the Sponsor
Fee and extraordinary Trust expenses. This dynamic will occur irrespective of
whether the trading price of the Shares rises or falls in response to changes in
the price of AVAX.
Although
the Sponsor has agreed to assume all fees and other expenses incurred by the
Trust in the ordinary course of its affairs 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.
Each
outstanding Share represents a fractional, undivided interest in the AVAX held
by the Trust. The Trust does not generate any income and transfers AVAX to pay
for the Sponsor Fee, and to pay for litigation expenses or other extraordinary
expenses. Therefore, the amount of AVAX represented by each Share will gradually
decline over time. This is also true with respect to Shares that are issued in
exchange for additional deposits of AVAX over time, as the amount of AVAX
required to create Shares proportionally reflects the amount of AVAX represented
by the Shares outstanding at the time of such creation unit being created.
Assuming a constant AVAX price, the trading price of the Shares is expected to
gradually decline relative to the price of AVAX as the amount of AVAX
represented by the Shares gradually declines.
Shareholders
should be aware that the gradual decline in the amount of AVAX represented by
the Shares will occur regardless of whether the trading price of the Shares
rises or falls in response to changes in the price of AVAX.
The
Trust Is A Passive Investment Vehicle. The Trust Is Not Actively Managed And
Will Be Affected By A General Decline In The Price Of AVAX.
The
Sponsor does not actively manage the AVAX held by the Trust. This means that the
Sponsor does not sell AVAX at times when its price is high, or acquire AVAX at
low prices in the expectation of future price increases. It also means that the
Sponsor does not make use of any of the hedging techniques available to
professional AVAX investors to attempt to reduce the risks of losses resulting
from price decreases. Any losses sustained by the Trust will adversely affect
the value of your Shares.
The
Development And Commercialization Of The Trust Is Subject To Competitive
Pressures.
The
Trust and the Sponsor face competition with respect to the creation of competing
products, including with respect to the potential creation of competing
exchange-traded AVAX products. If the SEC were to approve many or all of the
currently pending applications for such exchange-traded AVAX products, many or
all of such products, including the Trust, could fail to acquire substantial
assets, initially or at all. Such competing products may become available for
public exchange trading before the Trust and/or have a lower expense ratio than
the Trust, which could have a detrimental effect on the scale and sustainability
of the Trust. The Sponsor's competitors may have greater financial, technical
and human resources than the Sponsor. These competitors may also charge a
substantially lower fee than the Sponsor Fee in order to achieve initial market
acceptance and scale and compete with the Sponsor in recruiting and retaining
qualified personnel. Smaller or early stage companies may also prove to be
effective competitors, particularly through collaborative arrangements with
large and established companies. Accordingly, the Sponsor's competitors may
commercialize a product involving AVAX more rapidly or effectively than the
Sponsor
is
able to, which could adversely affect the Sponsor's competitive position, the
likelihood that the Trust will achieve initial market acceptance and the
Sponsor's ability to generate meaningful revenues from 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 and 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. In addition, the Trust may also fail to attract
adequate liquidity in the secondary market due to such competition, resulting in
a sub-standard 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 AVAX.
Security
Threats To The Trust's Accounts With The AVAX Custodians 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 Price
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
AVAX held in the Trust's AVAX Accounts with the AVAX Custodians will be an
appealing target to hackers or malware distributors seeking to destroy, damage
or steal the Trust's AVAX and will only become more appealing as the Trust's
assets grow. To the extent that the Trust, the Sponsor and the AVAX Custodians
are unable to identify and mitigate or stop new security threats or otherwise
adapt to technological changes in the digital asset industry, the Trust's AVAX
may be subject to theft, loss, destruction or other attack.
The
Sponsor has evaluated the security procedures in place for safeguarding the
Trust's AVAX. Nevertheless, the security procedures cannot guarantee the
prevention of any loss due to a security breach, hack, 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 AVAX Custodians’ operations or
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.
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 AVAX Custodians or otherwise, and, as a result, an unauthorized party may
obtain access to the Trust's accounts with the AVAX Custodians, the private keys
(and therefore AVAX) or other data of the Trust. Additionally, outside parties
may attempt to fraudulently induce employees of the Sponsor, the AVAX Custodians
or the Trust's other service providers 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 AVAX Custodians may be unable to anticipate these techniques or
implement adequate preventative measures. The AVAX Custodians are also dependent
on key service providers, including, without limitation, their data centers, and
if these were to cease operation or be the subject of operational problems or
security threats, it could affect the Trust's AVAX Accounts with the AVAX
Custodians.
An
actual or perceived breach of the Trust's AVAX Accounts with the AVAX Custodians
could harm the Trust's operations, result in partial or total loss of the
Trust's assets, damage the Trust's reputation and negatively affect the market
perception of the effectiveness of the Trust, all of which could in turn reduce
demand for the Shares, resulting in a reduction in the price of the Shares. The
Trust may also cease operations, the occurrence of which could similarly result
in a reduction in the price of the Shares.
If
A Liquidity Provider Agreement, The Custody Agreements, An Authorized
Participant Agreement, A Staking Services Agreement Is Terminated Or A Liquidity
Provider, an Authorized Participant, The AVAX Custodians Or The Staking Services
Provider Fails To Participate In The Creation Or Redemption Processes Of The
Trust Or Fails To Provide Services As Required, The Sponsor May Need To Find And
Appoint A Replacement Liquidity Provider, Authorized Participant, AVAX
Custodians Or Staking Services Provider Quickly, Which Could Pose A Challenge To
The Trust's Ability To Create And Redeem Shares Or The Safekeeping Of The
Trust's AVAX, And The Trust's Ability To Continue To Operate May Be Adversely
Affected.
The
Trust is dependent on the AVAX Custodians to operate, pursuant to the Custody
Agreements. The AVAX Custodians perform essential functions in terms of
safekeeping the Trust's AVAX and facilitate the transfer of AVAX to the Trust by
Liquidity Providers and Authorized Participants and their designees and from the
Trust in connection with creations and redemptions and to pay the Sponsor Fee
and extraordinary Trust expenses, and in extraordinary circumstances, to
liquidate the Trust. If the AVAX Custodians fail to perform the functions it
performs 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.
The
Sponsor could decide to replace the First AVAX Custodian as the custodian of the
Trust's AVAX, pursuant to the First AVAX Custody Agreement. Similarly, the First
AVAX Custodian under the First AVAX Custody Agreement may terminate the First
AVAX Custody Agreement upon providing notice to the Trust for any reason and
without Cause (as defined below), or upon the occurrence of an event that
constitutes Cause (as defined below). "Cause" is defined in the First AVAX
Custody Agreement as a material breach of any provision of the First AVAX
Custody Agreement and such breach remains uncured for a period of thirty (30)
calendar days after notice of such breach is provided by the First AVAX
Custodian; or (ii) a Bankruptcy Event (as defined in the First AVAX Custody
Agreement) occurs and is continuing with respect to the Trust. Transferring
maintenance responsibilities of the Trust's accounts at the First AVAX Custodian
to another custodian may be complex and could subject the Trust's AVAX to the
risk of loss during the transfer, which could have a negative impact on the
performance of the Shares or result in loss of the Trust's assets. Also, if the
First AVAX Custodian becomes insolvent, suffer business failure, cease business
operations, defaults on or fails to perform its obligations under the First AVAX
Custody Agreement with the Trust, or abruptly discontinues the services it
provides to the Trust for any reason, the Trust's operations would be adversely
affected.
The
Second AVAX Custodian performs essential functions in terms of safekeeping the
Trust's AVAX in the AVAX Vault Balance. If the Second AVAX Custodian 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.
On
March 22, 2023, Coinbase, Inc., which is an affiliate of the Second AVAX
Custodian, and its parent (such parent, "Coinbase Global" and together with
Coinbase Inc., the "Relevant Coinbase Entities") received a "Wells Notice" from
the SEC staff stating that the SEC staff made a "preliminary determination" to
recommend that the SEC file an enforcement action against the Relevant Coinbase
Entities alleging violations of the federal securities laws, including the
Exchange Act and the Securities Act. According to Coinbase Global's public
reporting company disclosure, based on discussions with the SEC staff, the
Relevant Coinbase Entities believe these potential enforcement actions would
relate to aspects of the Relevant Coinbase Entities' Coinbase Prime service,
spot market, staking service Coinbase Earn, and Coinbase Wallet, and the
potential civil action may seek injunctive relief, disgorgement, and civil
penalties. On June 6, 2023, the SEC filed a complaint against the Relevant
Coinbase Entities in federal district court in the Southern District of New
York, alleging, inter alia: (i) that Coinbase Inc. has violated the Exchange Act
by failing to register with the SEC as a national securities exchange,
broker-dealer, and clearing agency, in connection with activities involving
certain identified digital assets that the SEC's complaint alleges are
securities, (ii) that Coinbase Inc. has violated the Securities Act by failing
to register with the SEC the offer and sale of its staking program, and (iii)
that Coinbase Global is jointly and severally liable as a control person under
the Exchange Act for Coinbase Inc.'s violations of the Exchange Act to the same
extent as Coinbase Inc. The SEC's complaint against the Relevant Coinbase
Entities does not allege that AVAX is a security nor does it allege that
Coinbase Inc's activities involving AVAX caused the alleged registration
violations, and the Second AVAX Custodian was not named as a defendant. The
SEC's complaint sought a permanent injunction against the Relevant Coinbase
Entities to prevent them from violations of the Exchange Act or Securities Act,
disgorgement, civil
monetary
penalties, and such other relief as the court deems appropriate or necessary. In
March 2025, the SEC moved to dismiss the complaint, which the court granted.
Alternatively,
the Sponsor could decide to replace the Second AVAX Custodian as a custodian of
the Trust's AVAX, pursuant to the Second AVAX Custody Agreement (the "Second
AVAX Custody Agreement"). Similarly, the Second AVAX Custodian could terminate
services under the Second AVAX Custody Agreement for any reason and without
Cause upon providing the applicable notice to the Trust for any reason, or
immediately for Cause ("Cause" is defined in the Second AVAX Custody Agreement
as (i) the Trust breaches any provision of the Second AVAX Custody Agreement and
such breach is not cured within three (3) business days after notice of such
breach is given to the Trust in the case of a payment-related breach or is not
cured within ten (10) business days after notice of such breach is given to the
Trust; (ii) the Trust takes any action to dissolve or liquidate (iii) the Trust
becomes insolvent, makes an assignment for the benefit of creditors, becomes
subject to direct control of a trustee, receiver or similar authority; (iv) the
Trust becomes subject to any bankruptcy or insolvency proceeding; (v) the Second
AVAX Custodian becomes aware of any facts or circumstances with respect to the
Trust's financial, legal, regulatory or reputational position which reasonably
would materially adversely affect The Trust's ability to comply with its
obligations under the Second AVAX Custody Agreement, and such facts and
circumstances cannot be cured within five (5) business days; (vi) termination is
required pursuant to a facially valid subpoena, court order or binding order of
a government authority; (vii) the Trust's Second AVAX Account is subject to any
pending litigation, investigation or government proceeding; or (viii) the Second
AVAX Custodian reasonably suspects the Trust of attempting to circumvent the
Second AVAX Custodian's controls in a manner the Second AVAX Custodian otherwise
deems inappropriate or potentially harmful to itself or third parties.)
Transferring maintenance responsibilities of the Trust's account at the Second
AVAX Custodian to another custodian may be complex and could subject the Trust's
AVAX to the risk of loss during the transfer, which could have a negative impact
on the performance of the Shares or result in loss of the Trust's assets. Also,
if the Second AVAX Custodian becomes insolvent, suffers business failure, ceases
business operations, default on or fail to perform their obligations under its
contractual agreement with the Trust, or abruptly discontinue the services it
provides to the Trust for any reason, the Trust's operations including its
creation and redemption processes would be adversely affected.
The
Sponsor may not be able to find a party willing to serve as the custodian under
the same terms as the current Custody Agreements. To the extent that Sponsor is
not able to find a suitable party willing to serve as the custodian, the Sponsor
may be required to terminate the Trust and liquidate the Trust's AVAX. In
addition, to the extent that the Sponsor finds a suitable party but must enter
into a modified First AVAX Custody Agreement or Second AVAX Custody Agreement
that is less favorable for the Trust or Sponsor, the value of the Shares could
be adversely affected.
Additionally,
the Trust depends on Staking Services Provider(s) to execute staking. Staking
rewards proceeds will depend on the success of the Staking Services Provider(s),
including the technology used by such parties. If the AVAX Custodians or a
Staking Services Provider experiences technical difficulties or service outages,
or is otherwise unable to optimally execute the staking program, the Trust's
receipt of staking rewards and the value of the Shares may be adversely
affected.
If
an Authorized Participant or a Liquidity Provider suffers insolvency, business
failure or interruption, default, failure to perform, security breach, or if an
Authorized Participant or a Liquidity Provider chooses not to participate in the
creation and redemption processes of the Trust due to the risks described in
"--The Inability Of Liquidity Providers To Hedge Their AVAX Exposure May
Adversely Affect The Liquidity Of Shares And The Value Of An Investment In The
Shares" And "-- 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 Price Of AVAX May Not Exist And, As A Result, The Price Of The Shares May
Fall Or Otherwise Diverge From NAV," or for any other reason, and the Trust is
unable to engage replacement Authorized Participants or Liquidity Providers on
commercially acceptable terms or at all, then the creation and redemption
processes of the Trust or the arbitrage mechanism used to keep the Trust's
Shares trading in line with NAV could be negatively affected.
Staking
May Subject The Trust To Risks, Which In The Future May Include Loss Of Rewards
And Operational Uncertainties.
The
Trust will stake a portion of its AVAX from an AVAX Account maintained at the
AVAX Custodian. When seeking to stake the Trust’s AVAX, the Sponsor will
instruct the AVAX Custodian to delegate such AVAX to a validator operated by a
Staking Services Provider for staking. The staked AVAX remains in the custody of
the AVAX Custodian, but is locked during the staking process. AVAX staked on the
Avalanche Network is staked for a defined staking period (between two weeks and
one year, depending on the staking period selected), resulting in certain
liquidity risks that the Sponsor will seek to manage pursuant to the liquidity
policies. Staked Avalanche ceases earning rewards once the staking period
concludes, and it cannot be unstaked early prior to the conclusion of the chosen
staking period.
Staking
on the Avalanche Network occurs through a validator-based staking model pursuant
to which AVAX is staked to validator nodes that participate in the network’s
proof-of-stake consensus process. The Trust’s AVAX will remain in the custody of
the AVAX Custodian at all times. The Staking Service Provider will have no
ability to withdraw, rehypothecate or otherwise use the Trust’s AVAX. When AVAX
is staked, it is subject to a staking period that must be specified in advance
and ranges from a minimum of two weeks to a maximum of one year. During the
staking period, the staked AVAX cannot be unstaked and the Trust will not have
access to such AVAX until the end of the staking period.
While
staking AVAX offers the potential to derive additional AVAX, it also exposes the
Trust to several risks. The Avalanche protocol does not impose slashing
penalties like other proof-of-stake networks. However, if the validators to
which the Trust’s AVAX has been staked fail to satisfy uptime and performance
requirements, the Trust may fail to earn some or all of the Avalanche that would
have otherwise been available as a result of its staking.
Additionally,
staking involves operational reliance on the AVAX Custodians and Staking Service
Providers. The Trust relies on the Avalanche Custodians to safeguard the Trust’s
AVAX and to facilitate staking. The Trust is subject to the risk that the AVAX
Custodian may fail to properly perform its obligations, whether due to
operational error, systems failure, cybersecurity incident, insolvency,
regulatory restriction, or any other factors. In addition, the AVAX Custodian’s
role in transmitting staking instructions and managing validator credentials
creates dependency risk as the Trust cannot independently stake its AVAX without
the AVAX Custodian’s cooperation. Any disruption in the AVAX Custodian’s
services, including a suspension of staking operations, or mismanagement of
validator credentials, could have a material adverse effect on the value of the
Trust’s AVAX, the Trust’s ability to meet its investment objective, and the
value of the Shares.
The
Trust also relies on the Staking Service Providers to operate validator nodes
and perform validation activities on the Avalanche Network on behalf of the
Trust. The performance and reliability of the validator nodes operated by the
Staking Service Providers directly affects the rewards earned by the Trust’s
staking activities. The Trust is dependent on the competence, integrity, and
continued service of the Staking Service Providers, and has limited ability to
independently monitor or control their validator operations. Any disruption,
negligence, or misconduct by a Staking Service Provider could materially and
adversely affect the value of the Trust’s staked AVAX, the Trust’s ability to
achieve its investment objective, and the value of the Shares.
Replacing
a Staking Service Provider or addressing other issues with vendors and service
providers could entail significant delay, expense and disruption for the Trust.
As a result, if these vendors and service providers experience difficulties, are
subject to cybersecurity breaches, terminate their services, dispute the terms
of intellectual property agreements or raise their prices, and the Sponsor is
unable to replace them with other vendors and service providers, particularly on
a timely basis, the Trust’s staking could be interrupted or disrupted, or the
Trust could suffer a loss. The AVAX Custodian’s and a Staking Service Provider's
liability for their performance or misconduct is limited pursuant to the terms
of the AVAX Custodian Agreements, including the Coinbase Staking Addendum, and
Approved Validator Schedule, as applicable, which substantially limit the
Trust’s recourse and give the Trust potentially little to no remedy or ability
to recover in the event of a failure to appropriately perform the staking
services leading to loss.
Further,
the Trust’s assets (including any amounts created or earned through staking) are
not insured by the FDIC, SIPC or any other governmental or private agency. In
the event of a service disruption, or other failure, there can be no guarantee
that the Trust will recover any of its staked AVAX, or the corresponding value
of such assets.
Staking
rewards are also subject to fluctuation and may vary depending on network
participation rates, protocol-level parameters, validator performance, and other
on-chain dynamics beyond the control of the Trust, the Sponsor, the AVAX
Custodian or the Staking Service Provider.
Loss
Of A Critical Banking Relationship For, Or The Failure Of A Bank Used By, The
Trust Could Adversely Impact The Trust's Ability To Create Or Redeem Baskets, Or
Could Cause Losses To The Trust.
The
Cash Custodian and AVAX Custodians, facilitate the creation and redemption of
Baskets (in exchange for cash subscriptions by Authorized Participants, or in
exchange for redemptions of Shares by Authorized Participants), and other cash
movements, including in connection with the purchase of AVAX by the Trust to
effectuate subscriptions for cash and the selling of AVAX by the Trust to effect
redemptions for cash or pay the Sponsor Fee and, to the extent applicable, other
Trust expenses, and in extraordinary circumstances, to effect the liquidation of
the Trust's AVAX. The Trust relies on the Cash Custodian and AVAX Custodians, in
connection with the Trust's Fiat Accounts, to hold any cash related to the
purchase or sale of AVAX. To the extent that the Trust faces difficulty
establishing or maintaining banking relationships, the loss of the Trust's
banking partners, including the Cash Custodian or the banks at which the AVAX
Custodians, in connection with the Trust's Fiat Accounts, maintain customer cash
balances (including the cash balance of the Trust held in the Fiat Accounts), or
the imposition of operational restrictions by these banking partners and the
inability for the Trust 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 Trust could be unable to establish accounts at new banking
partners or establish new banking relationships, or that the banks with which
the Trust 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 or money market fund in
which the Trust holds cash, including the cash associated with the Trust's
account at the Cash Custodian or the Trust's Fiat Accounts with the AVAX
Custodians (which is held at the AVAX Custodians' Banks (as defined below) for
the benefit of their customers, including the Trust), 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 ("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 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 California Department of
Financial Protection and Innovation, 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.
If
the Cash Custodian, the AVAX Custodians or the Banks at which the AVAX
Custodians hold customer cash balances, including those associated with the
Trust's Fiat Accounts, were to experience financial distress or its financial
condition is otherwise affected, the Cash Custodian's, or AVAX Custodians'
ability to provide services to the Trust could be affected. Moreover, the future
failure of a bank or money market fund at which the Trust (including through the
Fiat Accounts) maintains cash, 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 Cash Custodian is subject or other
potential protections. In addition, the Trust may maintain cash balances with
the Cash Custodian in the Fiat Accounts with the AVAX Custodians that are not
insured or are in excess of the FDIC's insurance limits, or which are maintained
by the Cash Custodian or AVAX Custodians at money market funds (in the case of
the Fiat Accounts) and subject to the attendant risks (e.g., "breaking the
buck"). As a result, the Trust could suffer losses.
The
lack of full insurance and Shareholders' limited rights of legal recourse
against the Trust, Trustee, Sponsor, Administrator, Cash Custodian and AVAX
Custodians expose the Trust and its Shareholders to the risk of loss of the
Trust's AVAX for which no person or entity is liable.
Neither
the Trust not the Sponsor insure the Trust's AVAX. 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 subject to the protections enjoyed by depositors with FDIC or SIPC
member institutions. Such insurance is shared with all other customers and
clients of the First AVAX Custodian and is not specific to the Trust.
Shareholders cannot be assured that either the First AVAX Custodian or the
Second AVAX Custodian will maintain adequate insurance in respect of the AVAX
they hold for the Trust, that such coverage will cover losses with respect to
the Trust's AVAX, or that sufficient insurance proceeds will be available to
cover the Trust's losses in full. The First AVAX Custodian's and the Second AVAX
Custodian’s insurance may not cover the type of losses experienced by the Trust.
Alternatively,
the Trust may be forced to share such insurance proceeds with other clients or
customers of the AVAX Custodians, which could reduce the amount of such proceeds
that are available to the Trust. The Trust is not a named insured under the
First AVAX Custodian's insurance policies, and may recover nothing. In addition,
the AVAX insurance market is limited, and the level of insurance maintained by
the First AVAX Custodian may be substantially lower than the assets of the
Trust, or the amount of claims against the First AVAX Custodian of all of the
customers whose losses are covered by the First AVAX Custodian's insurance
coverage.
Furthermore,
under the First AVAX Custody Agreement, the First AVAX Custodian's liability is
limited in various ways. The First AVAX Custodian is not liable to the Trust
(whether under contract, tort (including negligence) or otherwise) for any
indirect, incidental, special, punitive or consequential losses suffered or
incurred by the Trust for any amount in excess of fees paid by the Trust less
the aggregate amount of any losses for which the First AVAX Custodian is or was
liable during such period. In addition, the First AVAX Custodian is not liable
for any losses which arise as a result of the non-return of digital assets that
the Trust has delegated to the First AVAX Custodian or a third party for
on-chain services accessed through the First AVAX Custodian, such as staking,
unless such losses occur as a result of the First AVAX Custodian's fraud or
intentional misconduct. The First AVAX Custody Agreement's "Force Majeure"
provision provides that the First AVAX Custodian is not liable for delays,
suspension of operations, failure in performance, or interruption of service to
the extent it is directly due to a cause or condition beyond the reasonable
control of the First AVAX Custodian including, but not limited to, any act of
God, embargo; natural disaster; act of civil or military authorities; act of
terrorists; cybersecurity incident or hacking (excluding events caused by the
First AVAX Custodian’s breach of the First AVAX Custody Agreement or failure to
use reasonable and industry-standard security measures); government
prohibitions; civil disturbance; war; strike or other labor dispute; fire;
severe weather; interruption in telecommunications, Internet services, or
network provider services; unavailability of Fedwire, SWIFT or banks’ payment
processes; outbreaks of infectious disease or any other public health crises,
including quarantine or other required employee restrictions; material
disruption to blockchain networks or protocols (including hard forks, chain
reorganizations, material network congestion, validator outages, materially
elevated transaction fees, or consensus failures) not caused by the First AVAX
Custodian; critical vendor or subprocessor outages; or any other catastrophe or
material event which is beyond the reasonable control of the First AVAX
Custodian.
In
the event of potential losses incurred by the Trust as a result of the First
AVAX Custodian losing control of the Trust's AVAX or failing to properly execute
instructions on behalf of the Trust, the First AVAX Custodian's liability with
respect to the Trust will be subject to certain limitations which may allow it
to avoid liability for potential losses or may be insufficient to cover the
value of such potential losses. Furthermore, the insurance maintained by the
First AVAX Custodian may be insufficient to cover its liabilities to the Trust.
Both the Trust and the First AVAX Custodian are required to indemnify each other
under certain circumstances.
The
Trust does not control the First AVAX Custodian and cannot guarantee that the
First AVAX Custodian will perform its obligations to the Trust under the First
AVAX Custody Agreement, in a timely manner or at all. The First AVAX Custody
Agreement provides that (i) the First AVAX Custodian does not own or control the
underlying software protocols of networks which govern the operation of digital
assets (including the Avalanche Network), (ii) the First AVAX Custodian makes no
guarantees regarding their security, functionality, or availability, and (iii)
in no
event
shall the First AVAX Custodian be liable for or in connection with any acts,
decisions, or omissions made by developers or promoters of digital assets,
including AVAX.
The
First AVAX Custodian may terminate, in whole or in part, the First AVAX Custody
Agreement, and/or suspend, restrict or terminate services to the Trust, in the
event of a material breach not cured in 30 days or if the Trust suffers a
bankruptcy event.
The
Second AVAX Custodian's parent, Coinbase Global maintains a commercial crime
insurance policy of up to $320 million, which is intended to cover the loss of
client assets held by Coinbase Global and all of its subsidiaries, including the
Second AVAX Custodian (collectively, Coinbase Global and its subsidiaries are
referred to as the "Coinbase Insureds"), 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 Coinbase Global is
shared among all of Coinbase's customers, is not specific to the Trust or to
customers of the Second AVAX Custodian and may not be available or sufficient to
protect the Trust from all possible losses or sources of losses. Coinbase
Global's insurance may not cover the type of losses experienced by the Trust.
Alternatively, the Trust may be forced to share such insurance proceeds with
other clients or customers of the Coinbase Insureds, which could reduce the
amount of such proceeds that are available to the Trust. In addition, the AVAX
insurance market is limited, and the level of insurance maintained by Coinbase
Global may be substantially lower than the assets of the Trust. While the Second
AVAX Custodian maintains certain capital reserve requirements depending on the
assets under custody, and such capital reserves may provide additional means to
cover Trust asset losses, the Trust cannot be assured that the Second AVAX
Custodian will maintain capital reserves sufficient to cover actual or potential
losses with respect to the Trust's digital assets.
Additionally,
under the Second AVAX Custody Agreement, the Second AVAX Custodian's liability
is limited as follows, among others: (i) in respect of any incidental, indirect,
special, punitive, consequential or similar losses, the Second AVAX Custodian is
not liable, even if the Second AVAX Custodian has been advised of or knew or
should have known of the possibility thereof; (ii) the Second AVAX Custodian,
its affiliates or its respective officers, directors, agents, employees and
representatives shall in no event have any liability with respect to any breach
of its obligations under the Second AVAX Custody Agreement which does not result
from its negligence, fault, fraud or willful misconduct; and (iii) except for
the: (i) Excluded Liabilities; (ii) fraud; or (iii) willful misconduct, in no
event shall any Coinbase entity's aggregate liability with respect to any breach
of its obligations under the Second AVAX Custody Agreement exceed the greater of
(a) the value of the AVAX involved in the transaction giving rise to such
liability and (b) the aggregate amount of fees paid by the Trust to such
Coinbase entity in respect of services relating to custody, trade execution,
lending or post-trade credit (if applicable) and other services in the 12-month
period prior to the event giving rise to such liability, and solely in respect
of custodial services provided pursuant to the Second AVAX Custody Agreement,
the liability of the Second AVAX Custodian shall not exceed the greater of (i)
the aggregate amount of fees paid by the Trust to the Second AVAX Custodian in
respect of the custodial services in the 12-month period prior to the event
giving rise to such liability; or (ii) the value of the AVAX on deposit in
Trust's Second AVAX Account(s) involved in the event giving rise to such
liability; provided, that in no event shall the Second AVAX Custodian's
aggregate liability in respect of each cold storage address exceed one hundred
million US dollars ($100,000,000.00 USD).
"Excluded
Liabilities" means (x) with respect to the Trust, (1) the Trust's defense and
indemnity obligations under the Second AVAX Custody Agreement; (2) any
outstanding commissions or fees owed by the Trust under the Second AVAX Custody
Agreement and (3) the Trust's breach of representations and warranties under the
Second AVAX Custody Agreement; and (y) with respect to the Second AVAX
Custodian, its defense and indemnity obligations under the Second AVAX Custody
Agreement. With respect to the Excluded Liabilities, the Second AVAX Custodian's
liability to the Trust for any losses arising out of or in connection with the
Second AVAX Custodian's defense and indemnity obligations under the Second AVAX
Custody Agreement will be limited, in the aggregate, to an amount equal to five
million U.S. dollars ($5,000,000.00 USD).
In
general, the Second AVAX Custodian is not liable under the Second AVAX Custody
Agreement unless in the event of its negligence, fraud, material violation of
applicable law or willful misconduct. The Second AVAX Custodian is not liable
for delays, suspension of operations, failure in performance, or interruption of
service to the extent it is directly due to a cause or condition beyond the
reasonable control of the Second AVAX Custodian.
Furthermore,
the insurance maintained by the Second AVAX Custodian may be insufficient to
cover its liabilities to the Trust.
The
Second AVAX Custodian requires up to twenty-four (24) hours between any request
to withdraw AVAX from the Trust's Second AVAX Account and submission of the
Trust's withdrawal to the Avalanche Network. It may be necessary to retrieve
certain information from offline storage in order to facilitate a withdrawal in
accordance with the Trust's instructions, which may delay the initiation or
crediting of such withdrawal from the Trust's Second AVAX Account. AVAX shall
not be deposited or withdrawn upon less than twenty-four (24) hours' notice
initiated from the Trust's Second AVAX Account. The time of such request shall
be the time such notice is transmitted from the Trust's Second AVAX Account. In
the context of the foregoing and during such twenty-four (24) hours' notice
period, the Second AVAX Custodian makes no representations or warranties with
respect to the availability and/or accessibility of (1) the AVAX, (2) a Custody
Transaction (as defined in the Second AVAX Custody Agreement, which includes a
deposit or withdrawal), (3) the Second AVAX Account, or (4) the Custodial
Services (as defined in the Second AVAX Custody Agreement). While the Second
AVAX Custodian will make reasonable efforts to process client initiated deposits
in a timely manner, the Second AVAX Custodian makes no representations or
warranties regarding the amount of time needed to complete processing of
deposits as such processing is dependent upon many factors outside of the Second
AVAX Custodian's control.
Moreover,
in the event of an insolvency or bankruptcy of the First AVAX Custodian or the
Second AVAX Custodian 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
First AVAX Custodian and the Second AVAX Custodian in the virtual currency
industry, there is a risk that customers' assets – including the Trust's assets
– may be considered the property of the bankruptcy estate of the First AVAX
Custodian or the Second AVAX Custodian, 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.
Each
of the First AVAX Custody Agreement and the Second AVAX Custody Agreement
contain an agreement by the parties to treat the AVAX credited to the Trust's
Custody Account (as defined in the First AVAX Custody Agreement) and the Trust's
Custodial Account (as defined in the Second AVAX Custody Agreement) as financial
assets under Article 8 of the New York Uniform Commercial Code ("Article 8"), in
addition to stating that the First AVAX Custodian and the Second AVAX Custodian
will serve as fiduciary and custodian on the Trust's behalf. It is possible that
a court would not treat custodied digital assets as part of the First AVAX
Custodian's or the Second AVAX Custodian's general estate in the event the First
AVAX Custodian or the Second AVAX Custodian were to experience insolvency.
However, due to the novelty of digital asset custodial arrangements courts have
not yet considered this type of treatment for custodied digital assets and it is
not possible to predict with certainty how they would rule in such a scenario.
If the First AVAX Custodian or the Second AVAX Custodian became subject to
insolvency proceedings and a court were to rule that the custodied AVAX were
part of the First AVAX Custodian's or the Second AVAX Custodian's general estate
and not the property of the Trust, then the Trust would be treated as a general
unsecured creditor in the First AVAX Custodian's or the Second AVAX Custodian's
insolvency proceedings and the Trust could be subject to the loss of all or a
significant portion of its assets. Moreover, in the event of the bankruptcy of
the First AVAX Custodian or the Second AVAX Custodian, an automatic stay could
go into effect and protracted litigation could be required in order to recover
the assets held with the First AVAX Custodian or the Second AVAX Custodian, all
of which could significantly and negatively impact the Trust's operations and
the value of the Shares.
Under
the Trust Agreement, the Trustee and the Sponsor will not be liable for any
liability or expense incurred, including, without limitation, as a result of any
loss of AVAX by the AVAX Custodians, absent gross negligence or bad faith on the
part of the Trustee or 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 Trustee or the Sponsor, including in the event of a loss of
AVAX by the AVAX Custodians, is limited.
The
Shareholders' recourse against the Sponsor, the Trustee, and the Trust's other
service providers for the services they provide to the Trust, including, without
limitation, those relating to the holding of AVAX or the provision of
instructions relating to the movement of AVAX, is limited. For the avoidance of
doubt, neither the
Sponsor,
the Trustee, nor any of their affiliates, 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 AVAX Custodians. Consequently, a loss may be suffered
with respect to the Trust's AVAX that is not covered by the AVAX Custodians’
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.
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,
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 AVAX is lower than the Index was at the time when Shareholders
purchased their Shares. In such a case, when the Trust's AVAX is 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
Sponsor Is Solely Responsible For Determining The Value Of The AVAX Holdings And
AVAX Holdings 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 Trust's NAV and the Trust's
NAV per share, which it has delegated to the Administrator. The Administrator
will determine the Trust's AVAX holdings and AVAX holdings per Share on a daily
basis as soon as practicable after 4:00 p.m. Eastern time on each business day.
The Administrator's determination is made utilizing data from the operations of
the Trust and the MarketVectorTM
Avalanche Benchmark Rate, calculated at 4:00 p.m. Eastern time on such day. To
the extent that the AVAX holdings or AVAX holdings per Share are incorrectly
calculated, the Sponsor will not be liable (absent gross negligence or willful
misconduct) for any error and such misreporting of valuation data could
adversely affect the value of the Shares.
If
the Sponsor determines in good faith that the MarketVectorTM
Avalanche Benchmark Rate does not reflect an accurate AVAX price, then the
Sponsor will instruct the 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
Administrator may calculate the NAV in a manner that ultimately inaccurately
reflects the price of AVAX. To the extent that the Trust's NAV and the Trust's
NAV per share, the MarketVectorTM
Avalanche Benchmark Rate, or the Administrator's or the Sponsor's other
valuation methodology are incorrectly calculated, neither the Sponsor, the
Administrator nor the Trustee 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 index
used to calculate NAV or other valuation method used to calculate the net asset
value of the Trust. Any such change in the index or other valuation method 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 MarketVectorTM
Avalanche Benchmark Rate is deemed not to be consistent with GAAP, the Trust's
periodic financial statements may not utilize the Trust's NAV or the Trust's 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 net asset value 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
partial consideration for the Sponsor Fee, the Sponsor shall assume and pay all
fees and other expenses incurred by the Trust in the ordinary course of its
affairs, with the exception of those described in "Additional Information About
The Trust — The Trust's Fees and 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 (including, for example, in connection
with any fork of the Avalanche Blockchain, any Incidental Rights and any IR
Virtual Currency); or extraordinary legal fees and expenses are not assumed by
the Sponsor and are borne by the Trust. The Sponsor may sell AVAX to pay certain
expenses not assumed by the Sponsor. Accordingly, the Sponsor may be required to
sell or otherwise dispose of AVAX 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 price of AVAX. Consequently, if the
Trust incurs expenses in U.S. dollars, the Trust's AVAX may be sold at a time
when the values of the disposed assets are low, resulting in a negative impact
on the value of the Shares.
•Because
the Trust does not generate any income, every time that the Trust pays expenses,
it will deliver AVAX to the Sponsor or sell AVAX. 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 by 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 Transfer Agent, The AVAX Custodians Or
The Cash Custodian Under The Trust Documents.
Under
the Trust Documents, each of the Sponsor, the Trustee, the Transfer Agent, the
AVAX Custodians and the Cash Custodian has a right to be indemnified by the
Trust for certain liabilities or expenses that it incurs without gross
negligence, bad faith or wilful misconduct on its part. Therefore, the Sponsor,
Trustee, Transfer Agent, the AVAX Custodians or the Cash Custodian may require
that the assets of the Trust be used for indemnification in order to cover
losses or liability suffered by them. This would reduce the AVAX holdings of the
Trust and the value of the Shares.
Anchorage
Serves As The Custodian For Several Competing Exchange-Traded Products, And The
Trust's Cash Custodian And Liquidity Providers May Also Transact With Competing
Exchange-Traded AVAX Products Or With Other Companies In The Digital Assets
Industry, Which Could Heighten Interconnectedness And Contagion Risks And
Adversely Affect Creation And Redemption Processes Of The Trust.
By
virtue of its prominent market position and capabilities, and the relatively
limited number of institutionally-capable providers of cryptoasset brokerage and
custody services, Anchorage serves as the custodian for several competing
exchange-traded products. Therefore, Anchorage's size and market share creates
the risk that Anchorage may fail to properly resource its operations to support
all such products that use its services, and the broader risk that its
concentrated focus on the industry could adversely affect its financial
condition or disrupt its operations if its customers in the digital assets
industry experience problems or issues, which could harm the Trust, the
Shareholders and the value of the Shares. If Anchorage 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. Similarly, although the Sponsor
presently
has no knowledge of the Cash Custodian's customer base, if and to the extent the
Cash Custodian serves other competing exchange-traded cryptocurrency products or
other similar investment vehicles, it could conceivably divert the Cash
Custodian's focus and resources away from serving the Trust, leading to harm to
the Trust and its Shareholders.
The
First AVAX Custodian is, and Liquidity Providers in many cases are, prominent
companies with active operations in the digital assets industry. As illustrated
by the 2022 Events, many of the players in the digital assets markets are
interconnected – for example, certain market participants may be active in both
borrowing and lending, or engage in a wide variety of trading relationships and
transactions, with respect to many of the same counterparties, or with respect
to the same digital assets or blockchain networks – which can heighten the
contagion risks if one of them defaults on its obligations to others or a given
digital blockchain network or digital asset were to stop functioning properly or
lose substantial value, as applicable, leading to correlated failures in a wider
market downturn or a disruption or market dislocation affecting that particular
blockchain network or that particular digital asset. It is possible that, in
circumstances similar to the 2022 Events, this interconnectedness risk affecting
the First AVAX Custodian and the Liquidity Providers to the Trust and Authorized
Participants and their designees could adversely affect the Trust or its
Shareholders, for instance by disrupting creation and redemption
processes.
Coinbase
Serves As The AVAX Custodian For Several Competing Exchange-Traded Products, And
The Trust’s Cash Custodian And Liquidity Providers May Also Transact With
Competing Exchange-Traded AVAX Products Or With Other Companies In The Digital
Assets Industry, Which Could Heighten Interconnectedness And Contagion Risks And
Adversely Affect Creation And Redemption Processes Of The Trust.
The
Second AVAX Custodian is an affiliate of Coinbase Global. As of the date hereof,
Coinbase Global is the largest publicly traded cryptoasset company in the world
by market capitalization and is also the largest cryptoasset custodian in the
world by assets under custody. By virtue of its leading market position and
capabilities, and the relatively limited number of institutionally-capable
providers of cryptoasset brokerage and custody services, Coinbase serves as the
custodian for several competing exchange-traded products. Therefore, Coinbase
has a critical role in supporting the U.S. spot exchange-traded product
ecosystem, and its size and market share creates the risk that Coinbase may fail
to properly resource its operations to adequately support all such products that
use its services that could harm the Trust, the Shareholders and the value of
the Shares. If Coinbase 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.
The
Second AVAX Custodian is, and Liquidity Providers in many cases are, prominent
companies with active operations in the digital assets industry. As illustrated
by the 2022 Events, many of the players in the digital assets markets are
interconnected – for example, certain market participants may be active in both
borrowing and lending, or engage in a wide variety of trading relationships and
transactions, with respect to many of the same counterparties, or with respect
to the same digital assets or blockchain networks – which can heighten the
contagion risks if one of them defaults on its obligations to others or a given
digital blockchain network or digital asset were to stop functioning properly or
lose substantial value, as applicable, leading to correlated failures in a wider
market downturn or a disruption or market dislocation affecting that particular
blockchain network or that particular digital asset. It is possible that, in
circumstances similar to the 2022 Events, this interconnectedness risk affecting
the Second AVAX Custodian and the Liquidity Providers to the Trust and
Authorized Participants and their designees could adversely affect the Trust or
its Shareholders, for instance by disrupting creation and redemption
processes.
The
Trust's Authorized Participants Act in Similar or Identical Capacities for
Several Competing Exchange-Traded 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, now or in the future, act or may act in
the same capacity for several competing exchange- traded products. Due to
balance sheet capacity or other concerns or constraints, Authorized
Participants, none of which are obligated to engage in creation and/or
redemption transactions, may not be able or willing to submit creation or
redemption orders with the Trust or may do so in limited capacities,
particularly during times of heightened market trading activity or market
volatility or turmoil. 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.
Furthermore,
if creations or redemptions are unavailable due 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.
Staking
Risk.
Under
a proof-of-stake protocol, token holders who voluntarily commit to staking are
given the exclusive right to validate transactions and participate in consensus.
Token holders can elect to stake their Avalanche in order to earn staked
Avalanche rewards. Token holders can actively participate in the staking of
their Avalanche by operating a validator node. Alternatively, token holders can
participate in staking by delegating their Avalanche to a validator node
operated by another party.
Validator
nodes earn staked Avalanche rewards for completing such validation.
Approximately every 400-600 milliseconds, a new block is added to the Avalanche
blockchain with the latest transactions processed by the network, and the
validator that generated this block is awarded Avalanche. As such, there is not
a competitive race to solve a mathematical puzzle that prevails in a
proof-of-work consensus mechanism.
The
Avalanche trading market may be impacted by the supply of Avalanche that
voluntarily elects to commit to staking. The Avalanche Network issues a fixed
amount of rewards for voting on blocks, which are divided among the
participating validators. The less validators and the less users staking their
AVAX, the more rewards, and vice versa.
If
the Staking Services Provider experiences operational or other difficulties,
terminates their services, fails to comply with regulations, raises their prices
or disputes key intellectual property rights sold or licensed to, the Trust, the
Trust could suffer losses. The Fund may also suffer the consequences of such
Staking Services Provider's mistakes. For example, if the Trust's AVAX
Custodians or Staking Services Provider selected to act as validators fail to
behave as expected, default, fail to perform, suffer cybersecurity attacks,
experience security issues or encounter other problems, the assets of the Trust
may be irretrievably lost. The failure or capacity restraints of vendors and
services, a cybersecurity breach involving any service providers or the
termination or change in terms or price of a vendor, third-party software
license or service agreement on which the Trust relies, could disrupt the
Trust's staking activities or cause losses. Replacing the Staking Services
Providers or addressing other issues with vendors and service providers could
entail significant delay, expense and disruption for the Trust. As a result, if
these vendors and service providers experience difficulties, are subject to
cybersecurity breaches, terminate their services, dispute the terms of
intellectual property agreements or raise their prices, and the Sponsor is
unable to replace them with other vendors and service providers, particularly on
a timely basis, the Trust's staking activities could be interrupted or
disrupted, or the Trust could suffer a loss.
Validator
downtime would cause the Trust to be prevented from obtaining rewards in respect
of periods during which the validator is inactive on the Avalanche
Network.
There
is no guarantee that the Trust will receive any rewards in respect of staked
AVAX. Past rewards are not indicative of future returns. The staking rewards
that the Trust may receive from staking AVAX, if any, may be affected by, among
other factors:
•the
total amount of Avalanche staked by users of the Avalanche Network;
•the
total amount of Avalanche staked by the Trust;
•changes
to the Avalanche Network as a result of protocol governance
decisions;
•changes
to validator fees set by the validators, including the commission charged by the
Staking Services Provider (if any);
•anticipated
or unanticipated downtime by Staking Services Provider;
•halts,
outages or other anticipated or unanticipated interruptions affecting the
Avalanche Network or third-party service providers involved in Trust's
staking;
•validators
ceasing to be eligible to participate in the Avalanche Network's proof-of-stake
mechanism and earn rewards;
•lock-up
periods specified by the Avalanche Network;
•whether
staking rewards are re-staked as part of the operational processes of the Trust;
and
•delays
or other operational factors related to or otherwise impacting the Trust's
staking activities.
Ramp-Up
Staking Period Risk
The
Trust is newly organized and has limited operating history. As a result, the
Trust may not be fully staked up to its target staking percentage during its
initial period of operations (the “Ramp-Up Staking Period”). During the Ramp-Up
Staking Period, which may last for several months, the Trust may hold a
significant portion of unstaked AVAX while the Sponsor seeks to stake the
Trust’s AVAX up to its target staking percentage.
Holding
unstaked AVAX may cause the Trust to underperform its investment objective and
may result in lower returns than if the Trust were fully staked. The Sponsor
expects that the Trust will become substantially fully staked up to its target
staking percentage over time; however, there can be no assurance that the Trust
will achieve its target portfolio composition within any particular
timeframe.
Regulatory
Risk
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 AVAX Or The Shares, Such As By Banning, Restricting Or Imposing Onerous
Conditions Or Prohibitions On The Use Of AVAX, Mining Activity, Digital Wallets,
The Provision Of Services Related To Trading And Custodying AVAX, The Operation
Of The Avalanche Network, Or The Digital Asset Markets Generally.
There
is a lack of consensus regarding the regulation of digital assets, including
AVAX, 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, SEC, Office of the Comptroller of
the Currency (the "OCC"), U.S. Commodity Futures Trading Commission (the
"CFTC"), FINRA, the Consumer Financial Protection Bureau ("CFPB"), the
Department of Justice, the Department of Homeland Security, the Federal Bureau
of Investigation, 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. Congress is currently considering several
bills relating to the regulation of digital assets and stablecoins, which may
not pass and be enacted in their present form or at all. In July 2025, U.S.
Congress passed the Guiding and Establishing National Innovation for U.S.
Stablecoins Act (GENIUS Act), which creates a federal framework for payment
stablecoins, including reserve requirements, issuer licensing, and anti-money
laundering compliance. On the same day, the U.S. House of Representatives also
passed the Digital Asset Market Clarity Act (CLARITY Act), which seeks to
delineate regulatory jurisdiction between the SEC and CFTC over digital asset
securities and commodities, respectively. These bills reflect growing bipartisan
support for comprehensive digital asset regulation, although final Senate action
remains pending.
In
May 2025 the SEC issued a "Statement on Protocol Staking Activities," which
clarified that certain staking activities, including certain liquid staking
activities, do not involve the offer and sale of securities within the meaning
of the Securities Act and the Exchange Act.
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 AVAX 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
exchanges, platforms, and custodians. Federal and state legislatures and
regulatory agencies may introduce and enact new laws and regulations to regulate
crypto asset intermediaries, such as digital asset exchanges 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. On January 3, 2023, the federal banking
agencies issued a joint statement on crypto-asset risks to banking organizations
following events which exposed vulnerabilities in the crypto-asset sector,
including the risk of fraud and scams, legal uncertainties, significant
volatility, and contagion risk. Although banking organizations are not
prohibited from crypto- asset related activities, the agencies have expressed
significant safety and soundness concerns with business models that are
concentrated in crypto- asset related activities or have concentrated exposures
to the crypto-asset sector.
US
federal and state regulators, as well as the White House, have issued reports
and releases concerning crypto assets, including AVAX and crypto 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 crypto 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
it may not be ascertainable in the near future. A divided Congress makes any
prediction difficult. We cannot predict how these and other related events will
affect us or the crypto asset business.
In
August 2021, the chair of the SEC stated that he believed investors using
digital asset trading platforms are not adequately protected, and that
activities on the platforms can implicate the securities laws, commodities laws
and banking laws, raising a number of issues related to protecting investors and
consumers, guarding against illicit activity, and ensuring financial stability.
The chair expressed a need for the SEC to have additional authorities to prevent
transactions, products, and platforms from "falling between regulatory cracks,"
as well as for more resources to protect investors in "this growing and volatile
sector." The chair called for federal legislation centering on digital asset
trading, lending, and decentralized finance platforms, seeking "additional
plenary authority" to write rules for digital asset trading and lending.
Moreover, President Biden's March 9, 2022 Executive Order, asserting that
technological advances and the rapid growth of the digital asset markets
"necessitate an evaluation and alignment of the United States Government
approach to digital assets," signals an ongoing focus on digital asset policy
and regulation in the United States. A number of reports issued pursuant to the
Executive Order have focused on various risks related to the digital asset
ecosystem, and have recommended additional legislation and regulatory oversight.
There have also been several bills introduced in Congress that propose to
establish additional regulation and oversight of the digital asset
markets.
It
is not possible to predict whether Congress will grant additional authorities to
the SEC or other regulators, what the nature of such additional authorities
might be, how they might impact the ability of digital asset markets to function
or how any new regulations that may flow from such authorities might impact the
value of digital assets generally and AVAX held by the Trust specifically. The
consequences of increased federal regulation of digital assets and digital asset
activities could have a material adverse effect on the Trust and 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 U.S. Bank Secrecy Act (as amended) ("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
exchange, for similar violations. The requirement that exchangers that do
business in the U.S. register with FinCEN and comply with anti-money laundering
regulations may increase the cost of buying and selling AVAX and therefore may
adversely affect the price of AVAX and an investment in the Shares.
The
Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury
(the "U.S. Treasury Department") has added digital currency addresses, including
on the Avalanche Blockchain, to the list of Specially Designated Nationals whose
assets are blocked, and with whom U.S. persons are generally prohibited from
dealing. Such actions by OFAC, or by similar organizations in other
jurisdictions, may introduce uncertainty in the market as to whether AVAX that
has been associated with such addresses in the past can be easily sold. This
"tainted" AVAX may trade at a substantial discount to untainted AVAX. Reduced
fungibility in the AVAX markets may reduce the liquidity of AVAX and therefore
adversely affect their price.
In
February 2020, then-U.S. Treasury Secretary Steven Mnuchin stated that digital
assets were a "crucial area" on which the U.S. Treasury Department has spent
significant time. Secretary Mnuchin announced that the U.S. Treasury Department
is preparing significant new regulations governing digital asset activities to
address concerns regarding the potential use for facilitating money laundering
and other illicit activities. In December 2020, FinCEN, a bureau within the U.S.
Treasury Department, proposed a rule that would require financial institutions
to submit reports, keep records, and verify the identity of customers for
certain transactions to or from so-called "unhosted" wallets, also commonly
referred to as self- hosted wallets. In January 2021, U.S. Treasury Secretary
nominee Janet Yellen stated her belief that regulators should "look closely at
how to encourage the use of digital assets for legitimate activities while
curtailing their use for malign and illegal activities."
Under
regulations from the New York State Department of Financial Services ("NYDFS"),
businesses involved in digital asset business activity for third parties in or
involving New York, excluding merchants and consumers, must apply for a license,
commonly known as a BitLicense, from the NYDFS and must comply with anti-money
laundering, cyber security, 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 AVAX and its price. 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.
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.
If the Avalanche Network were to adopt any of these features, these features may
provide law enforcement agencies with less visibility into transaction-level
data. For example, "privacy pools," zero knowledge proofs, and other
technologies that could enhance privacy have been discussed by participants in
the Avalanche Network. 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. In
August 2022, OFAC banned all U.S. citizens from using Tornado Cash, a digital
asset protocol designed to obfuscate blockchain transactions, by adding certain
Avalanche wallet addresses associated with the protocol to its Specially
Designated Nationals list. On October 19, 2023, FinCEN published a proposed
rulemaking to apply the authorities in Section 311 of the USA PATRIOT Act to
impose requirements on financial institutions that engage in convertible virtual
currency ("CVC") transactions with CVC mixers. The proposed rule, if adopted,
would require covered financial institutions to report to FinCEN any CVC
transactions they process that involves CVC mixing within or involving a
jurisdiction outside the United States. The term "CVC mixing" covers more than
just
transactions
that involve CVC mixers like Tornado Cash, and seemingly could cover a broader
range of conduct involving technologies, services, or methods that have the
effect of obfuscating the source, destination, or amount of a CVC transaction,
whether or not the obfuscation was intentional. If the rule were to be adopted
as proposed and if the Avalanche Network were to be deemed to or were to adopt
features which come within the rule's ambit, it could cause covered financial
institutions – such as many virtual currency exchanges, or the Trust's service
providers, such as the Cash Custodian – to reduce support for or cease offering
services for AVAX or to the Trust, which could impair the utility of AVAX, the
value of the Shares and the Trust's ability to operate in compliance with new
laws and regulations.
AVAX's
initial manner of sale may resemble that of certain digital assets found to be
securities, and a determination that AVAX is a "security" may adversely affect
the value of AVAX and an investment in the Shares, and result in potentially
extraordinary, nonrecurring expenses to, or termination of, the Trust.
If
AVAX is determined to be offered and sold a "security" or transactions in AVAX
are determined to be securities transactions under federal or state securities
laws by the SEC or a state regulatory agency, or in a proceeding in a court of
law or otherwise, it will have material adverse consequences for AVAX and an
investment in the Shares. If AVAX or transactions in AVAX are determined to be
offered and sold as a security or a securities transaction, it is likely to
become difficult or impossible for AVAX to be traded, cleared or custodied in
the United States through the same channels used by non-security digital assets,
which could in turn materially and adversely affect the trading value,
liquidity, market participants' ability to convert AVAX into U.S. dollars and
general acceptance of AVAX and cause users to migrate to other digital assets.
As such, any determination that AVAX or transactions in that digital asset are a
security under federal or state securities laws may adversely affect the value
of AVAX and, as a result, an investment in the Shares.
A
Determination That AVAX Or Any Other Digital Asset Is A "Security" May Adversely
Affect The Value Of AVAX 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 may be considered a "security" under the
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.
Whether
a digital asset is a security under the 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 as such 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.
As
part of determining whether AVAX is a security for purposes of the federal
securities laws, the Sponsor takes into account a number of factors, including
the various definitions of "security" under the federal securities laws and
federal court decisions interpreting elements of these definitions, such as the
U.S. Supreme Court's decisions in the Howey
and
Reves
cases,
as well as reports, orders, press releases, public statements and speeches by
the SEC and its staff providing guidance on when a digital asset may be a
security for purposes of the federal securities laws, and other materials
relevant to the status of AVAX as a security (or not). Finally, the Sponsor
discusses the security status of AVAX with its external securities lawyers.
Through this process the Sponsor believes that it is applying the proper legal
standards in making a good faith determination that it believes AVAX is not
presently a security under federal law in light of the uncertainties inherent in
the Howey
and
Reves
tests.
In light of these uncertainties and the fact-based nature of the analysis, the
Sponsor acknowledges that AVAX may currently be a security, based on the facts
as they exist today, or may in the future be found by the SEC or a federal court
to be a security under the federal securities laws notwithstanding the Sponsor's
prior conclusion; and the Sponsor's prior
conclusion,
even if reasonable under the circumstances and made in good faith, would not
preclude legal or regulatory action based on the presence of a
security.
The
Sponsor may dissolve the Trust if the Sponsor determines AVAX is a security
under the federal securities laws, whether that determination is initially made
by the Sponsor itself, or because the SEC or a federal court subsequently makes
that determination. Because the legal tests for determining whether a digital
asset is or is not a security often leave room for interpretation, for so long
as the Sponsor believes there to be good faith grounds to conclude that the
Trust's AVAX is not a security, the Sponsor does not intend to dissolve the
Trust on the basis that AVAX could at some future point be determined to be
offered and sold as a security. As part of determining whether AVAX is offered
and sold as a security or is a securities transaction, for purposes of the
federal securities laws, the Sponsor takes into account a number of factors,
including the various definitions of “security” under the federal securities
laws and federal court decisions interpreting elements of these definitions,
such as the U.S. Supreme Court’s decisions in the Howey and Reves cases and
their progeny, as well as reports, orders, press releases, public statements and
speeches by the SEC, its commissioners and its staff providing guidance on when
a digital asset may be a security or when an offer and sale of a digital asset
may be a securities transaction for purposes of the federal securities laws.
Finally, the Sponsor discusses the security status of AVAX and the Sponsor’s
transactions in AVAX with external counsel, and has received a memorandum
regarding the status of AVAX under the federal securities laws from external
counsel. Through this process the Sponsor believes that it is applying the
proper legal standards in determining that AVAX is not a security in light of
the uncertainties inherent in the Howey and Reves tests. However, such policies
and procedures are risk-based judgments made by the Sponsor and not a legal
standard or determination binding on any regulatory body or court. In light of
the uncertainties and the fact based nature of the analysis, the Sponsor's
conclusion, even if reasonable under the circumstances, would not preclude legal
or regulatory action based on the presence of a security.
In
June 2023, the SEC brought charges against Binance and Coinbase, and in November
2023, the SEC brought charges against Kraken, alleging that they operated
unregistered securities exchanges, brokerages and clearing agencies. In its
complaints, the SEC asserted that several digital assets are securities under
the federal securities laws. The outcomes of these proceedings, as well as
ongoing and future regulatory actions, have had a material adverse effect on the
digital asset industry as a whole and on the price of AVAX, and may alter,
perhaps to a materially adverse extent, the nature of an investment in the
Shares and/or the ability of the Trust to continue to operate.
Any
enforcement action by the SEC or a state securities regulator finding that AVAX
is a security, or a court decision to that effect would be expected to have an
immediate material adverse impact on the trading value of AVAX, 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 offered and sold as 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. For example, in 2020 the SEC filed a complaint against the issuer
of XRP, Ripple Labs, Inc., and two of its executives, alleging that they raised
more than $1.3 billion through XRP sales that should have been registered under
the federal securities laws, but were not. In the years prior to the SEC's
action, XRP's market capitalization at times reached over $140 billion. However,
in the weeks following the SEC's 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. The SEC's action against XRP's issuer
underscores the continuing uncertainty around which digital assets are
securities, and demonstrates 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 usefulness in commercial transactions, ultimately may
have no bearing on whether the SEC or a court will find it to be a
security.
In
addition, if AVAX is determined to be offered and sold a security, the Trust
could be considered an unregistered "investment company" under SEC rules, which
could necessitate the Trust's liquidation. In this case, the Trust and the
Sponsor may be deemed to have participated in an illegal offering of securities
and there is no guarantee that the Sponsor will be able to register the Trust
under the Investment Company Act at such time or take
such
other actions as may be necessary to ensure the Trust's activities comply with
applicable law, which could force the Sponsor to liquidate the
Trust.
Moreover,
whether or not the Sponsor or the Trust were subject to additional regulatory
requirements as a result of any SEC or federal court 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. The sponsor of the Grayscale XRP Trust
subsequently dissolved this trust and liquidated its assets. If the SEC or a
federal court were to determine that AVAX is a security, it is likely that the
value of the Shares of the Trust would decline significantly, and that the Trust
itself may be terminated and, if practical, its assets liquidated.
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 it does not have the same access to
policymakers and lobbying organizations in many jurisdictions compared to
industries with which digital assets may be 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 AVAX and therefore the
value of the Shares.
Shareholders
Do Not Have The Protections Associated With Ownership Of Shares In An Investment
Company Registered Under The 1940 Act Or The Protections Afforded By The
CEA.
The
1940 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 from engaging in excessive leveraging. To
accomplish these ends, the 1940 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 registered as an investment company under the 1940 Act, and the
Sponsor believes that the Trust is not required to register under such act.
Consequently, 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 neither the Sponsor nor
the Trustee is subject to regulation by the CFTC as a commodity pool operator or
a commodity trading advisor 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.
Future
Legal Or Regulatory Developments May Negatively Affect The Value Of AVAX Or
Require The Trust Or The Sponsor To Become Registered With The SEC Or CFTC,
Which May Cause The Trust To Liquidate.
Current
and future legislation, SEC and CFTC rulemaking, and other regulatory
developments may impact the manner in which AVAX are treated for classification
and clearing purposes. In particular, AVAX itself in the future might be
classified by the CFTC as a "commodity interest" under the CEA, subjecting all
transactions in AVAX to full CFTC regulatory jurisdiction. Alternatively, in the
future AVAX might be classified by a court as a "security" under U.S. federal
securities laws. The Sponsor and the Trust cannot be certain as to how future
regulatory developments will impact the treatment of AVAX 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.
The
SEC has stated that certain digital assets may be considered "securities" under
the federal securities laws. The test for determining whether a particular
digital asset is a "security" is complex and the outcome is difficult to
predict. If AVAX is in the future determined to be a "security" under federal or
state securities laws by the SEC or any other agency, or in a proceeding in a
court of law or otherwise, it would likely have material adverse consequences
for the value of AVAX. For example, it may become more difficult or impossible
for AVAX to be traded, cleared and custodied in the United States as compared to
other digital assets that are not considered to be securities, which could in
turn negatively affect the liquidity and general acceptance of AVAX and cause
users to migrate to other digital assets.
To
the extent that AVAX is determined to be a security, the Trust and the Sponsor
may also be subject to additional regulatory requirements, including under the
1940 Act, and the Sponsor may be required to register as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). 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 AVAX at a time that
is disadvantageous to Shareholders.
To
the extent that AVAX 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. 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 and/or the
Trust determines not to comply with such additional regulatory and registration
requirements, the Sponsor may terminate the Trust. Any such termination could
result in the liquidation of the Trust's AVAX at a time that is disadvantageous
to Shareholders.
If
Regulatory Changes Or Interpretations Of An Authorized Participant's, Liquidity
Provider's, The Trust's Or The Sponsor's Activities Require The Regulation Of An
Authorized Participant, Liquidity Provider, The Trust Or The Sponsor As A Money
Service Business Under The Regulations Promulgated By FinCEN Under The Authority
Of The U.S. Bank Secrecy Act Or As A Money Transmitter Or Digital Asset Business
Under State Regimes For The Licensing Of Such Businesses, An Authorized
Participant, Liquidity Provide, The Trust Or The Sponsor May Be Required To
Register And Comply With Such Regulations, Which Could Result In Extraordinary,
Recurring And/Or Nonrecurring Expenses To The Authorized Participant, Trust Or
Sponsor Or Increased Commissions For The Authorized Participant's Clients,
Thereby Reducing The Liquidity Of The Shares.
To
the extent that the activities of any Authorized Participant (or their
designee), Liquidity Provider, the Trust or the Sponsor cause it to be deemed a
"money services business" under the regulations promulgated by FinCEN under the
authority of the BSA, such Authorized Participant (or their designee), Liquidity
Provider, the Trust or the Sponsor may be required to comply with FinCEN
regulations, including those that would mandate the Authorized Participant (or
their designee), Liquidity Provider, Trust or the Sponsor to implement
anti-money laundering programs, make certain reports to FinCEN and maintain
certain records. Similarly, the activities of an Authorized Participant (or
their designee), Liquidity Provider, the Trust or the Sponsor may require it to
be licensed as a money transmitter or as a digital asset business, such as under
NYDFS' BitLicense regulation.
Such
additional regulatory obligations may cause the Authorized Participant (or their
designee), Liquidity Provider, the Trust or the Sponsor to incur extraordinary
expenses. If the Authorized Participant (or their designee), Liquidity Provider,
the Trust or the Sponsor decide to seek the required licenses, there is no
guarantee that they will timely receive them. The Authorized Participant (or
their designee) or Liquidity Provider may also instead decide to terminate its
role as Authorized Participant (or their designee) or Liquidity Provider of the
Trust, or the Sponsor may decide to terminate the Trust. Termination by the
Authorized Participant (or their designee)may decrease the liquidity of the
Shares, which may adversely affect the value of the Shares, and any termination
of the Trust in response to the changed regulatory circumstances may be at a
time that is disadvantageous to the Shareholders.
Additionally,
to the extent the Authorized Participant (or their designee), Liquidity
Provider, the Trust or the Sponsor is found to have operated without appropriate
state or federal licenses by any regulator or court, it may be subject to
investigation, administrative or court proceedings, operating restrictions, and
civil or criminal monetary fines and penalties, all of which would harm the
reputation of the Authorized Participant (or their designee), Liquidity
Provider, the Trust or the Sponsor, disrupt their operations, and have a
material adverse effect on the price of the Shares. Although Liquidity Providers
represent to the Trust that they have obtained all necessary governmental
licenses, in the Liquidity Provider agreements, if such representations prove
inaccurate, such Liquidity Providers may suffer adverse consequences and be
unable to perform their obligations or engage in AVAX transactions with the
Trust, or the Trust's operations could be adversely affected and decreased
liquidity for the Shares or losses for Shareholders could result.
Anonymity,
Sanctions, And Illicit Financing Risk.
Although
transaction details of peer-to-peer transactions are recorded on the Avalanche
Blockchain, a buyer or seller of digital assets on a peer-to-peer basis directly
on the Avalanche 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, such as tumbling or mixing services, may obscure the origin or
chain of custody of digital assets. In August 2022, OFAC banned all U.S.
citizens from using Tornado Cash, a digital asset protocol designed to obfuscate
blockchain transactions, by adding certain Avalanche wallet addresses associated
with the protocol to its Specially Designated Nationals list. 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 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 the Avalanche Network is global and anyone
can validate transactions or program DApps or smart contracts that will operate
and record transactions on the Avalanche Blockchain, 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. If a digital asset was used to facilitate illicit
activities, or a digital asset, or prominent DApp or smart contract or network
participant, such as validators or users, were associated with bad actors or
illicit activity, businesses that facilitate transactions in such digital assets
could be at increased risk of potential criminal or civil lawsuits, or of having
banking or other services cut off, and such digital asset could be removed from
digital asset exchanges. 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 or the Trustee were to transact with a sanctioned entity, the
Trust, the Sponsor or the Trustee 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 AVAX. 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 or the Sponsor or their 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 value of the Shares.
The
Sponsor and the Trust have adopted and implemented policies and procedures that
are designed to ensure that they do not violate applicable anti-money laundering
and sanctions laws and regulations and to comply with any applicable KYC laws
and regulations. The Sponsor and the Trust will only interact with known third
party service
providers
with respect to whom it has engaged in a due diligence process to ensure a
thorough KYC process, such as the Authorized Participants, Liquidity Providers,
the AVAX Custodian and the Second AVAX Custodian. Authorized Participants, as
broker-dealers, and the AVAX Custodian and Second AVAX Custodian, as limited
purpose trust companies chartered by the OCC and subject to New York Banking
Law, respectively, are subject to the BSA and U.S. economic sanctions
laws.
In
addition, the Trust will only accept creations and redemption requests from
regulated Authorized Participants who themselves are subject to applicable
sanctions and anti-money laundering laws and have compliance programs that are
designed to ensure compliance with those laws. In addition, the Liquidity
Providers , Authorized Participant or their designee are contractually obligated
to have policies and procedures reasonably designed to comply with the money
laundering and related provisions of the BSA and implementing regulations, and
applicable sanctions laws. The Trust will not hold any AVAX except those that
have been delivered by a Liquidity Provider, Authorized Participant or their
designee in connection with creation requests.
Each
of the First AVAX Custodian and the Second AVAX Custodian have adopted and
implemented an anti-money laundering and sanctions compliance program, which
provides additional protections to ensure that the Sponsor and the Trust do not
transact with a sanctioned party. Notably, the AVAX Custodians perform
Know-Your-Transaction ("KYT") screening using blockchain analytics to identify,
detect, and mitigate the risk of transacting with a sanctioned or other unlawful
actor. Pursuant to the First AVAX Custodian's KYT program, coins delivered to
the Trust's Custody Account will undergo screening to ensure that the origins of
such coins are not illicit. The First AVAX Custodian also represents that it has
anti-money laundering and sanctions programs in place. The Second AVAX
Custodian's KYT program includes robust internal policies, procedures and
controls that combat the attempted use of the Second AVAX Custodian for illegal
or illicit purposes, including a customer identification program, annual
training of all employees and officers in anti-money laundering obligations and
requirements, filing of Suspicious Activity Reports with the U.S. Financial
Crimes Enforcement Network and annual independent audits of the Second AVAX
Custodian's anti-money laundering program.
There
is no guarantee that such procedures will always be effective. If the Authorized
Participants (or their designees) or Liquidity Providers have inadequate
policies, procedures and controls for complying with applicable anti-money
laundering and applicable sanctions laws or the Trust's diligence or procedures
are ineffective, violations of such laws could result, which could result in
regulatory liability for the Trust, the Sponsor, the Trustee or their affiliates
under such laws, including governmental fines, penalties, and other punishments,
as well as potential liability to or cessation of services by the First AVAX
Custodian or the Second AVAX Custodian Liquidity Providers, or the Trust's other
service providers and counterparties. Moreover, AML and related procedures by
the First AVAX Custodian and Second AVAX Custodian could result in the Trust's
AVAX being blocked or frozen, and thus made unavailable to the Trust. Any of the
foregoing could result in losses to the Shareholders or negatively affect the
Trust's ability to operate.
Trading
On AVAX Exchanges Outside The United States Is Not Subject To U.S. Regulation,
And May Be Less Reliable Than U.S. Exchanges.
Barring
cash creations and redemptions, or a liquidation of the Trust, the Trust does
not purchase or sell AVAX. To the extent any of the Trust's trading is conducted
on AVAX trading platforms outside the United States, trading on such exchanges
is not regulated by any U.S. governmental agency and may involve certain risks
not applicable to trading on U.S. exchanges. Certain foreign markets may be more
susceptible to disruption than U.S. exchanges. These factors could adversely
affect the performance of the Trust.
Regulatory
Changes Or Actions In Foreign Jurisdictions May Affect The Value Of The Shares
Or Restrict The Use Of AVAX, Mining Activity Or The Operation Of Their Networks
Or The Global AVAX Markets In A Manner That Adversely Affects The Value Of The
Shares.
Various
foreign jurisdictions have, and may continue to adopt laws, regulations or
directives that affect digital asset networks (including the Avalanche Network),
the digital asset markets (including the AVAX market), and their users,
particularly digital asset exchanges and service providers that fall within such
jurisdictions' regulatory scope. For example, if China or other foreign
jurisdictions were to ban or otherwise restrict validating activity, including
by
regulating
or limiting manufacturers' ability to produce or sell semiconductors or hard
drives in connection with AVAX mining, it would have a material adverse effect
on digital asset networks (including the Avalanche Network), 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 and mining
activities. Regulators in the Inner Mongolia and other regions of China have
proposed regulations that would create penalties for companies engaged in
cryptocurrency mining activities and introduce heightened energy saving
requirements on industrial parks, data centers and power plants providing
electricity to cryptocurrency miners. 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 ("FSMB"), became law in 2023. The
FSMB brings 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. MiCA came into effect in 2024, 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.
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 AVAX. 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 on the Trust or AVAX is
impossible to predict, but such change could be substantial and adverse to the
Trust and the value of the Shares.
Tax
Risk
The
Treatment Of The Trust For U.S. Federal Income Tax Purposes Is
Uncertain.
The
Sponsor intends to take the position that the Trust is properly treated as a
grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a
grantor trust, the Trust will not be subject to U.S. federal income tax. Rather,
if the Trust is a grantor trust, each beneficial owner of Shares will be treated
as directly owning its pro rata share of the Trust's assets and a pro rata
portion of the Trust's income, gain, losses and deductions will "flow through"
to each beneficial owner of Shares.
The
Trust may take certain positions with respect to the tax consequences of Staking
Activities, Incidental Rights and IR Virtual Currency. If the IRS were to
disagree with, and successfully challenge, any of these positions, the Trust
might not qualify as a grantor trust.
In
addition, the Sponsor has committed to cause the Trust to irrevocably abandon
any Incidental Rights and IR Virtual Currency to which the Trust may become
entitled in the future. However, there can be no assurance that these
abandonments would be treated as effective for U.S. federal income tax purposes,
or that the Sponsor will continue to cause the Trust to irrevocably abandon any
Incidental Rights and IR Virtual Currency if there are future regulatory
developments that would make it feasible for the Trust to retain those assets.
If the Trust were treated as
owning
any asset other than AVAX as of any date on which it creates or redeems Shares,
it may likely cease to qualify as a grantor trust for U.S. federal income tax
purposes.
Because
of the evolving nature of digital currencies, it is not possible to predict
potential future developments that may arise with respect to digital currencies,
including forks, airdrops, and other similar occurrences. Assuming that the
Trust is currently a grantor trust for U.S. federal income tax purposes, certain
future developments could render it impossible, or impracticable, for the Trust
to continue to be treated as a grantor trust for such purposes.
If
the Trust is not properly classified as a grantor trust, the Trust might be
classified as a partnership for U.S. federal income tax purposes. If the Trust
were classified as a partnership for U.S. federal income tax purposes, the tax
consequences of owning Shares generally would not be materially different from
the tax consequences described herein, although there might be certain
differences, including with respect to timing of the recognition of taxable
income or loss and (in certain circumstances) withholding taxes. In addition,
tax information reports provided to beneficial owners of Shares would be made in
a different form. If the Trust were not classified as either a grantor trust or
a partnership for U.S. federal income tax purposes, it generally would be
classified as a corporation for such purposes. If it were treated as a
corporation, the Trust would be subject to entity-level U.S. federal income tax
(currently at the rate of 21%), plus possible state and/or local taxes, on its
net taxable income, and certain distributions made by the Trust to Shareholders
would be treated as taxable dividends to the extent of the Trust's current and
accumulated earnings and profits. Any such dividend distributed to a beneficial
owner of Shares that is a non-U.S. person for U.S. federal income tax purposes
generally would be subject to U.S. federal withholding tax at a rate of 30% (or
such lower rate as provided in an applicable tax treaty).
The
Treatment Of Digital Currency and Staking Activities For U.S. Federal Income Tax
Purposes Is Uncertain.
Assuming
that the Trust is properly treated as a grantor trust for U.S. federal income
tax purposes, each beneficial owner of Shares will be treated for U.S. federal
income tax purposes as the owner of an undivided interest in the AVAX (and, if
applicable, any Incidental Rights and IR Virtual Currency) held in the Trust.
Due to the new and evolving nature of digital currencies and the absence of
comprehensive guidance with respect to digital currencies, many significant
aspects of the U.S. federal income tax treatment of digital currency are
uncertain.
In
2014, the IRS released a notice (the "Notice") discussing certain aspects of
"convertible virtual currency" (that is, digital currency that has an equivalent
value in fiat currency or that acts as a substitute for fiat currency) for U.S.
federal income tax purposes and, in particular, stating that such digital
currency (i) is "property" (ii) is not "currency" for purposes of the rules
relating to foreign currency gain or loss and (iii) may be held as a capital
asset. In 2019, the IRS released a revenue ruling and a set of "Frequently Asked
Questions" (the "Ruling & FAQs") that provide some additional guidance,
including guidance to the effect that, under certain circumstances, hard forks
of digital currencies are taxable events giving rise to ordinary income and
guidance with respect to the determination of the tax basis of digital currency.
Moreover, in 2023, the IRS released a revenue ruling that provided guidance on
digital currency staking, including guidance to the effect that staking rewards
will, under certain circumstances, be treated as giving rise to taxable income
(the “2023 Staking Guidance”). In 2025, the IRS released a revenue procedure
(the "2025 Staking Guidance" and, together with the 2023 Staking Guidance, the
"Staking Guidance") pursuant to which, if all the requirements listed in the
2025 Staking Guidance are satisfied, a trust's authorization pursuant to its
trust agreement to stake its digital assets will not prevent the trust from
qualifying as a grantor trust for U.S. federal income tax purposes. The Sponsor
intends to take the position that the Staking Activities meet the requirements
of the 2025 Staking Guidance and are consistent with the Trust's qualification
as a grantor trust. However, there can be no assurance that the Staking
Activities will be conducted in a manner so as to qualify or remain qualified
for the safe harbor of the 2025 Staking Guidance. If the IRS were to
successfully challenge the position that the Staking Activities meet the
requirements of the 2025 Staking Guidance and are otherwise consistent with the
Trust's qualification as a grantor trust, the Trust would not qualify as a
grantor trust for U.S. federal income tax purposes.
The
Notice, the Ruling & FAQs and the Staking Guidance do not address other
significant aspects of the U.S. federal income tax treatment of digital
currencies and staking activities. Moreover, although the Ruling & FAQs
address the treatment of hard forks, there continues to be uncertainty with
respect to the timing and amount of the income inclusions.
Future
developments that may arise with respect to digital currencies may increase the
uncertainty with respect to the treatment of digital currencies for U.S. federal
income tax purposes. For example, the Notice addresses only digital currency
that is "convertible virtual currency," and it is conceivable that, as a result
of a fork, airdrop or similar occurrence, the Trust will hold certain types of
digital currency that are not within the scope of the Notice.
There
can be no assurance that the IRS will not alter its position with respect to
digital currencies in the future or that a court would uphold the treatment set
forth in the Notice, the Ruling & FAQs and the Staking Guidance. It is also
unclear what additional guidance on the treatment of digital currencies or
staking activities for U.S. federal income tax purposes may be issued in the
future. Any future guidance on the treatment of digital currencies or staking
activities for U.S. federal income tax purposes could increase the expenses of
the Trust and could have an adverse effect on the prices of digital currencies,
including on the price of AVAX in the digital asset markets. As a result, any
such future guidance could have an adverse effect on the value of the
Shares.
Shareholders
are urged to consult their tax advisers regarding the tax consequences of owning
and disposing of Shares and digital currencies, as well as staking activities,
in general.
Future
Developments Regarding The Treatment Of Digital Currency and Staking Activities
For U.S. Federal Income Tax Purposes Could Adversely Affect The Value Of The
Shares.
As
discussed above, many significant aspects of the U.S. federal income tax
treatment of digital currency, such as AVAX, are uncertain, and it is unclear
what guidance on the treatment of digital currency for U.S. federal income tax
purposes may be issued in the future. It is possible that any such guidance
would have an adverse effect on the prices of digital currency, including on the
price of AVAX in digital asset exchanges, and therefore may have an adverse
effect on the value of the Shares.
Because
of the evolving nature of digital currencies, it is not possible to predict
potential future developments that may arise with respect to digital currencies,
including forks, airdrops and similar occurrences. Such developments may
increase the uncertainty with respect to the treatment of digital currencies for
U.S. federal income tax purposes. Moreover, certain future developments
(including the potential issuance of IRS guidance that is contrary or otherwise
adverse to the position taken by the Trust regarding the U.S. federal income tax
characterization of staking activities) could render it impossible, or
impracticable, for the Trust to continue to be treated as a grantor trust for
U.S. federal income tax purposes.
Future
Developments In The Treatment Of Digital Currency 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
currencies for state income tax purposes and/or (ii) have issued guidance
exempting the purchase and/or sale of digital currencies for fiat currency from
state sales tax. Other states have not issued any guidance on these points, and
could take different positions (e.g., imposing sales taxes on purchases and
sales of digital currencies for fiat currency), and states that have issued
guidance on their tax treatment of digital currencies could update or change
their tax treatment of digital currencies. It is unclear what further guidance
on the treatment of digital currencies for state or local tax purposes may be
issued in the future. A state or local government authority's treatment of AVAX
may have negative consequences, including the imposition of a greater tax burden
on investors in AVAX or the imposition of a greater cost on the acquisition and
disposition of AVAX generally.
The
treatment of digital currencies for tax purposes by non U.S. jurisdictions may
differ from the treatment of digital currencies 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 currencies
for fiat currency. If a foreign jurisdiction with a significant share of the
market of AVAX users imposes onerous tax burdens on digital currency users, or
imposes sales or value-added tax on purchases and sales of digital currency for
fiat currency, such actions could result in decreased demand for AVAX in such
jurisdiction.
Any
future guidance on the treatment of digital currencies 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 currencies, including on
the
price of AVAX in digital asset exchanges. 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 & FAQs, hard forks, airdrops and similar
occurrences with respect to digital currencies will under certain circumstances
be treated as taxable events giving rise to ordinary income. Moreover, as
separately provided by the IRS in the 2023 Staking Guidance, 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"). Tax-exempt shareholders should consult their tax
advisers regarding whether such Shareholder may recognize UBTI as a consequence
of an investment in Shares.
Shareholders
Could Incur A Tax Liability Without An Associated Distribution Of The
Trust.
In
the normal course of business, the Trust expects to receive certain staking
rewards, and it is possible that the Trust could incur a taxable gain in
connection with the sale of AVAX (such as sales of AVAX to obtain fiat currency
with which to pay the Sponsor Fee or Trust expenses, and including deemed sales
of AVAX as a result of the Trust using AVAX to pay the Sponsor Fee or its
expenses). In each case, such event may not be associated with a distribution to
Shareholders. Accordingly, shareholders may be subject to tax due to the grantor
trust status of the Trust even though there is not a corresponding distribution
from the Trust.
A
Hard "Fork" Of The Avalanche Blockchain Could Result In Shareholders Incurring A
Tax Liability.
If
a hard fork occurs in the Avalanche Blockchain, the Trust could hold both the
original AVAX and the alternative new AVAX. The IRS has held that a hard fork
resulting in the creation of new units of cryptocurrency is a taxable event
giving rise to ordinary income. Moreover, if such an event occurs, the Trust
Agreement provides that the Sponsor shall have the discretion to determine
whether the original or the alternative asset shall constitute AVAX. The Trust
shall treat whichever asset the Sponsor determines is not AVAX as Incidental
Rights or IR Virtual Currency, which it has committed to irrevocably
abandon.
The
Ruling & FAQs do not address whether income recognized by a non-U.S. person
as a result of a fork, airdrop or similar occurrence could be subject to the 30%
withholding tax imposed on U.S.-source "fixed or determinable annual or
periodical" income. Non-U.S. shareholders should assume that, in the absence of
guidance, a withholding agent (including the Sponsor) is likely to withhold 30%
of any such income recognized by a Non-U.S. shareholder in respect of its
Shares, including by deducting such withheld amounts from proceeds that such
Non-U.S. shareholder would otherwise be entitled to receive in connection with a
distribution of Incidental Rights or IR Virtual Currency. The Sponsor has
committed to cause the Trust to irrevocably abandon any Incidental Rights and IR
Virtual Currency to which the Trust may become entitled in the future. However,
there can be no assurance that these abandonments would be treated as effective
for U.S. federal income tax purposes, or that the Sponsor will continue to cause
the Trust to irrevocably abandon any Incidental Rights and IR Virtual Currency
if there are future regulatory developments that would make it feasible for the
Trust to retain those assets.
The
receipt, distribution and/or sale of the alternative AVAX may cause Shareholders
to incur a United States federal, state, and/or local, or non-U.S. tax
liability. Any tax liability could adversely impact an investment in the Shares
and may require Shareholders to prepare and file tax returns they would not
otherwise be required to prepare and file.
Other
Risks
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.
The
Sponsor will manage the affairs of the Trust. Conflicts of interest may arise
among the Sponsor and its affiliates, on the one hand, and the Trust and its
Shareholders, on the other 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:
•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;
•the
Trust has agreed to indemnify the Sponsor, the Trustee and their respective
affiliates pursuant to the Trust Agreement;
•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;
•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;
•MarketVector,
which is the index administrator of the MarketVectorTM
Avalanche Benchmark Rate, is an affiliate of the Sponsor;
•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;
•affiliates
of the Sponsor may start to have substantial direct investments in AVAX, 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 Index price and, in turn, the
value of the Shares;
•the
Sponsor decides whether to retain separate counsel, accountants or others to
perform services for the Trust;
•the
Sponsor may appoint an agent to act on behalf of the Shareholders, which may be
the Sponsor or an affiliate of the Sponsor.
By
purchasing the Shares, Shareholders agree and consent to the provisions set
forth in the Trust Agreement.
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 AVAX.
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.
Although
The AVAX Custodians Are Fiduciaries With Respect To The Trust's Assets, They
Could Resign Or Be Removed By The Sponsor, Which May Trigger Early Dissolution
Of The Trust.
The
AVAX Custodians are fiduciaries and qualified custodians for purposes of Rule
206(4)-2(d)(6) under the Advisers Act and are licensed to custody the Trust's
AVAX in trust on the Trust's behalf. However, the AVAX Custodians may terminate
the First AVAX Custody Agreement or the Second AVAX Custody Agreement, as the
case may be, immediately or upon providing the applicable notice provided under
the First AVAX Custody Agreement or the Second AVAX Custody Agreement. If either
the First AVAX Custodian or the Second AVAX 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 dissolve the Trust in accordance
with the terms of the Trust Agreement.
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 Custody Agreements And
Staking Services Provider Agreement To Assert Claims Directly Against The AVAX
Custodians Or The Staking Services Provider, Which Significantly Limits Their
Options For Recourse.
Neither
the Shareholders nor any Authorized Participant or Liquidity Provider have a
right under the Custody Agreements to assert a claim against the AVAX Custodians
or Staking Services Provider. Claims under the Custody Agreements may only be
asserted by the Sponsor on behalf of the Trust.
Claims
under the Staking Services Provider Agreement can only be asserted by Coinbase,
on behalf of the Trust, and not by the Trust directly.
The
Exchange On Which The Shares Are Listed May Halt Trading In The Trust's Shares,
Which Would Adversely Impact A Shareholder's Ability To Sell
Shares.
The
Trust's Shares are expected to be approved for listing, subject to notice of
issuance, on the Exchange under the ticker symbol VAVX. Trading in Shares may be
halted due to market conditions or, in light of the Exchange rules and
procedures, for reasons that, in the view of the Exchange, make trading in
Shares inadvisable. In addition, trading is subject to trading halts caused by
extraordinary market volatility pursuant to "circuit breaker" rules that require
trading to be halted for a specified period based on a specified market decline.
Additionally, there can be no assurance that the requirements necessary to
maintain the listing of the Trust's Shares will continue to be met or will
remain unchanged.
The
Liquidity Of The Shares May Also Be Affected By The Withdrawal From
Participation Of Authorized Participants, Which Could Adversely Affect The
Market Price Of The Shares.
In
the event that one or more Authorized Participants or market makers that have
substantial interests in the Trust's Shares withdraw or "step away" from
participation in the purchase (creation) or sale (redemption) of the Trust's
Shares, the liquidity of the Shares will likely decrease, which could adversely
affect the market price of the Shares and result in Shareholders incurring a
loss on their investment.
The
Market Infrastructure Of The AVAX Spot Market Could Result In The Absence Of
Active Authorized Participants Able To Support The Trading Activity Of The
Trust.
AVAX
is extremely volatile, and concerns exist about the stability, reliability and
robustness of many trading platforms where AVAX trade. In a highly volatile
market, or if one or more exchanges supporting the AVAX market faces an issue,
it could be extremely challenging for any Authorized Participants to provide
continuous
liquidity
in the Shares. There can be no guarantee that the Sponsor will be able to find
an Authorized Participant to actively and continuously support the
Trust.
AVAX
Spot Exchanges Are Not Subject To Same Regulatory Oversight As Traditional
Equity Exchanges, Which Could Negatively Impact The Ability Of Authorized
Participants To Implement Arbitrage Mechanisms.
The
trading for spot AVAX occurs on multiple trading venues that have various levels
and types of regulation, but are not regulated in the same manner as traditional
stock and bond exchanges. If these exchanges do not operate smoothly or face
technical, security or regulatory issues, that could impact the ability of
Authorized Participants to make markets in the Shares. In such an event, trading
in the Shares could occur at a material premium or discount against the
NAV.
Shareholders
That Are Not Authorized Participants May Only Purchase Or Sell Their Shares In
Secondary Trading Markets, And The Conditions Associated With Trading In
Secondary Markets May Adversely Affect Shareholders' Investment In The
Shares.
Only
Authorized Participants may create or redeem Baskets. All other Shareholders
that desire to purchase or sell Shares must do so through the Exchange or in
other markets, if any, in which the Shares may be traded. Shares may trade at a
premium or discount to the NAV per Share.
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
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. If the experience of the Sponsor and its management is inadequate or
unsuitable to manage an investment vehicle such as the Trust, the operations of
the Trust may be adversely affected.
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 Accounts With The AVAX Custodians 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 Price
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
AVAX held in the Trust's accounts with the AVAX Custodians will be appealing
targets to hackers or malware distributors seeking to destroy, damage or steal
the Trust's AVAX and will only become more appealing as the Trust's assets grow.
To the extent that the Trust, the Sponsor or the AVAX Custodians 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 AVAX may be
subject to theft, loss, destruction or other attack.
The
Sponsor has evaluated the security procedures in place for safeguarding the
Trust's AVAX. 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 AVAX Custodians’ 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 are
held on an omnibus, rather than segregated basis, which creates greater risk of
loss.
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 AVAX Custodians, the Trust's other service providers, or otherwise, and, as
a result, an unauthorized party may obtain access to the Trust's account with
the AVAX Custodians, the private keys (and therefore AVAX) or other data of the
Trust. Additionally, outside parties may attempt to fraudulently induce
employees of the Sponsor, the AVAX Custodians or the Trust's other service
providers 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 or the AVAX Custodians
and the Trust's other service providers may be unable to anticipate these
techniques or implement adequate preventative measures.
An
actual or perceived breach of the Trust's accounts with the AVAX Custodians
could harm the Trust's operations, result in partial or total loss of the
Trust's assets, damage the Trust's reputation and negatively affect the market
perception of the effectiveness of the Trust, all of which could in turn reduce
demand for the Shares, resulting in a reduction in the price of the Shares. The
Trust may also cease operations, the occurrence of which could similarly result
in a reduction in the price of the Shares.
The
Sponsor Is Leanly Staffed And Relies Heavily On Key Personnel.
The
Sponsor is leanly staffed and relies heavily on key personnel to manage its
activities. These key personnel intend to allocate their time managing the Trust
in a manner that they deem appropriate. If such key personnel were to leave or
be unable to carry out their present responsibilities, it may have an adverse
effect on the management of the Sponsor.
The
Trust Is New, And If It Is Not Profitable, The Trust May Terminate And Liquidate
At A Time That Is Disadvantageous To Shareholders.
The
Trust is new. If the Trust does not attract sufficient assets to remain open,
then the Trust could be terminated and liquidated at the direction of the
Sponsor. Termination and liquidation of the Trust could occur at a time that is
disadvantageous to Shareholders. When the Trust's assets are sold as part of the
Trust's liquidation, the resulting proceeds distributed to Shareholders may be
less than those that may be realized in a sale outside of a liquidation context.
Shareholders may be adversely affected by redemption or creation orders that are
subject to postponement, suspension or rejection under certain
circumstances.
Shareholders
Do Not Have The Rights Enjoyed By Investors In Certain Other Vehicles And May Be
Adversely Affected By A Lack Of Statutory Rights And By Limited Voting And
Distribution Rights.
The
Shares have no voting and limited distribution rights. For example, Shareholders
do not have the right to elect directors, the Trust may enact splits or reverse
splits without Shareholder approval and the Trust is not required to pay regular
distributions, although the Trust may pay distributions at the discretion of the
Sponsor.
The
Sponsor and the Trustee may agree to amend the Trust Agreement, including to
increase the Sponsor Fee, without Shareholder consent. If an amendment imposes
new fees and charges or increases existing fees or charges, including the
Sponsor Fee (except for taxes and other governmental charges, registration fees
or other such expenses), or prejudices a substantial existing right of
Shareholders, it will become effective for outstanding Shares 30 days after
notice of such amendment is given to registered owners. Notwithstanding the
foregoing, the Sponsor shall have the right to increase or decrease the amount
of the Sponsor Fee (i) upon three (3) business days' prior notice of the
increase or decrease being posted on the website of the Trust and (ii) upon
three (3) business days' prior written notice of the increase or decrease being
given to the Trustee. 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).
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, 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 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 Delaware 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 Delaware 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 3816(e) of the Delaware
Statutory Trust Act specifically provides that a "beneficial owner's right to
bring a derivative action may be subject to such additional standards and
restrictions, if any, as are set forth in the governing instrument of the
statutory trust, including, without limitation, the requirement that beneficial
owners owning a specified beneficial interest in the statutory trust join in the
bringing of the derivative action." In addition to the requirements of
applicable law and in accordance with Section 3816(e), the Trust Agreement
provides that 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 two or more Shareholders who (i) are not "Affiliates" (as defined in the
Trust Agreement and below) of one another and (ii) collectively hold at least
10% of the outstanding Shares join in the bringing or maintaining of such
action, suit or other proceeding. This provision applies to any derivative
actions brought in the name of the Trust other than claims under the federal
securities laws and the rules and regulations thereunder.
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% 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% 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%
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
Non-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 Delaware and any
federal courts located in Wilmington, Delaware will be the non-exclusive
jurisdiction for any claims, suits, actions or proceedings, provided that suits
brought to enforce a duty or liability created by the 1933 Act, the Exchange Act
or any other claim for which the federal courts have exclusive jurisdiction and
the federal district courts of the United States of America shall be the
exclusive forum for the resolution of any complaint asserting a cause of action
arising under the 1933 Act, the Exchange Act, or the rules and regulations
promulgated thereunder. By purchasing Shares in the Trust, Shareholders waive
certain claims that the courts of the state of Delaware and any federal courts
located in Wilmington, Delaware is an inconvenient venue or is otherwise
inappropriate. As such, Shareholder could be required to litigate a matter
relating to the Trust in a Delaware 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, including any claim under the U.S. federal securities
laws, to the fullest extent permitted by applicable law. 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. No
Shareholder can waive compliance with respect to the U.S. federal securities
laws and the rules and regulations promulgated thereunder.
If
a Shareholder opposed a jury trial demand based on the waiver, the applicable
court would determine whether the waiver was enforceable based on the facts and
circumstances of that case in accordance with applicable federal laws. To our
knowledge, the enforceability of a contractual pre- dispute jury trial waiver in
connection with claims arising under the U.S. federal securities laws has not
been finally adjudicated by the U.S. Supreme Court. However, we believe that a
contractual pre-dispute jury trial waiver provision is generally enforceable,
including under the laws of the State of Delaware, which govern the Trust
Agreement. By purchasing Shares in the Trust, 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.
An
Investment In The Trust May Be Adversely Affected By Competition From Other
Investment Vehicles Focused On AVAX Or Other Cryptocurrencies.
The
Trust will compete with direct investments in AVAX, other cryptocurrencies, and
other potential financial vehicles, possibly including securities backed by or
linked to cryptocurrency and other investment vehicles that focus on other
digital assets. Market and financial conditions, and other conditions beyond the
Trust's control, may make it more attractive to invest in other vehicles, which
could adversely affect the performance of the Trust.
Shareholders
May Be Adversely Affected By Creation Or Redemption Orders That Are Subject To
Postponement, Suspension Or Rejection Under Certain Circumstances.
The
Trust may, in its discretion, suspend the right of creation or redemption or may
postpone the redemption or purchase settlement date, for (1) any period during
which the Exchange is closed other than customary weekend or holiday closings,
or trading on the Exchange is suspended or restricted, (2) any period during
which an emergency exists as a result of which the fulfillment of a purchase
order or the redemption distribution is not reasonably practicable (for example,
as a result of a significant technical failure, power outage, or network error),
or (3) such other period as the Sponsor determines to be necessary for the
protection of the Shareholders of the Trust (for example, where acceptance of
the total deposit required to create each Basket ("Basket Deposit") would have
certain adverse tax consequences to the Trust or its Shareholders). In addition,
the Trust may reject a redemption order if (1) the order is not in proper form
as described in the Authorized Participant Agreement, (2) the fulfillment of the
order counsel advises may be illegal under applicable laws and regulations, or
(3) if circumstances outside the control of the Sponsor, the person authorized
to take redemption orders in the manner provided in the Authorized Participant
Agreement, Cash Custodian or the AVAX Custodians make it for all practical
purposes not feasible for the Shares to be delivered or the redemption
distribution to be made. Any such postponement, suspension or rejection could
adversely affect a redeeming Authorized Participant. Suspension of creation
privileges may adversely impact how the Shares are traded and arbitraged on the
secondary market, which could cause them to trade at levels materially different
(premiums and discounts) from the fair value of their underlying
holdings.
If
such a suspension or postponement occurs at a time when an Authorized
Participant intends to redeem Shares, and the price of AVAX 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 AVAX 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.
Shareholders
May Be Adversely Affected By An Overstatement Or Understatement Of The NAV
Calculation Of The Trust Due To The Valuation Method Employed On The Date Of The
NAV Calculation.
In
certain circumstances, the Trust's AVAX investments may be valued using
techniques other than reliance on the price established by the
MarketVectorTM
Avalanche Benchmark Rate. As described further in "Net Asset Value
Determinations," the Sponsor will monitor for significant events related to
crypto assets that may impact the value of AVAX and will determine in good
faith, and in accordance with its valuation policies and procedures, whether to
fair value the Trust's AVAX on a given day based on whether certain
pre-determined criteria have been met. For example, if the
MarketVectorTM
Avalanche Benchmark Rate deviates by more than a pre-determined amount from an
alternate benchmark available to the Sponsor, then the Sponsor may determine to
utilize the alternate benchmark. The Sponsor evaluates its fair value criteria
and the factors in determining such criteria from time to time and no less than
quarterly. The Sponsor may also fair value the Trust's AVAX using observed
market transactions from one or more exchanges. The Sponsor may also fair value
the Trust's AVAX using a combination of inputs in certain situations (e.g.,
using observed market transactions, OTC quotations from brokers, etc.). The
value of the Shares of the Trust established by using the
MarketVectorTM
Avalanche Benchmark Rate may be different from what would be produced through
the use of another methodology. AVAX or other digital asset investments that are
valued using techniques other than those employed by the
MarketVectorTM
Avalanche Benchmark Rate, including AVAX investments that are "fair valued," may
be subject to greater fluctuation in their value from one day to the next than
would be the case if market-price valuation techniques were used.
The
Liability Of The Sponsor And The Trustee Is Limited, And The Value Of The Shares
Will Be Adversely Affected If The Trust Is Required To Indemnify The Trustee Or
The Sponsor.
Under
the Trust Agreement, the Trustee and the Sponsor are not liable, and have the
right to be indemnified, for any liability or expense incurred absent gross
negligence or willful misconduct on the part of the Trustee or the Sponsor or
breach by the Sponsor of the Trust Agreement, as the case may be. As a result,
the Sponsor may require the assets of the Trust to be sold in order to cover
losses or liability suffered by it or by the Trustee. Any sale of that kind
would reduce the NAV of the Trust and the value of its Shares.
Due
To The Increased Use Of Technologies, Intentional And Unintentional
Cyber-Attacks Pose Operational And Information Security Risks.
With
the increased use of technologies such as the internet and the dependence on
computer systems to perform necessary business functions, the Trust is
susceptible to operational and information security risks. In general, cyber
incidents can result from deliberate attacks or unintentional events.
Cyber-attacks include, but are not limited to, gaining unauthorized access to
digital systems for the purposes of misappropriating assets or sensitive
information, corrupting data, or causing operational disruption. For instance,
the doxxing of Solana's co-founder on May 27, 2025 via Instagram highlights the
vulnerability of personal information associated with online accounts, even
where digital assets are secure.
Cyber-attacks
may also be carried out in a manner that does not require gaining unauthorized
access, such as causing denial-of-service attacks on websites. Cyber security
failures or breaches of one or more of the Trust's service providers (including,
but not limited to, MarketVector, the administrator, transfer agent, and the
AVAX Custodians) have the ability to cause disruptions and impact business
operations, potentially resulting in financial losses, the inability of the
Shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, and/or additional compliance costs. For example, in May
2025, Coinbase experienced a significant breach of sensitive customer data and
the misappropriation of digital assets resulting from the bribery of overseas
insiders. This breach led to substantial financial losses for affected customers
and prompted Coinbase to make certain operational adjustments, including
increasing investment in insider-threat detection and automated response systems
and opening a new support hub in the United States, and adding stronger security
controls and monitoring across all locations.
A
security breach affecting the Trust or its service providers could result in the
unauthorized disclosure of sensitive information, operational disruptions, and
financial losses. Substantial costs may be incurred in order to
prevent
any cyber incidents in the future. The Trust and its Shareholders could be
negatively impacted as a result. While the Trust has established business
continuity plans, there are inherent limitations in such plans.
The
Trust And Its Service Providers Are Subject To Certain Operational
Risks.
The
Trust and its service providers, including the Sponsor, Administrator, Transfer
Agent, AVAX Custodians and Cash Custodian (as well as Authorized Participants
and market makers) may experience disruptions that arise from human error,
processing and communications errors, counterparty or third-party errors, or
technology or systems failures, any of which may have an adverse impact on the
Trust. Although the Trust and its service providers seek to mitigate these
operational risks through their internal controls and operational risk
management processes, these measures may not identify or may be inadequate to
address all such risks. Additionally, the AVAX Custodian, and the Second AVAX
Custodian, which were established in 2015, and 2012 respectively, each have a
limited operating company and experience, which could heighten certain
operational risks.
Risk
Factors Related to ERISA
In
General.
Notwithstanding
the commercially reasonable efforts of the Sponsor, it is possible that the
underlying assets of the Trust will be deemed to include "plan assets" for the
purposes of Title I of ERISA or Section 4975 of the Code. If the assets of the
Trust were deemed to be "plan assets," this could result in, among other things,
(i) the application of the prudence and other fiduciary standards of ERISA to
investments made by the Trust and (ii) the possibility that certain transactions
in which the Trust might otherwise seek to engage in the ordinary course of its
business and operation could constitute non-exempt "prohibited transactions"
under Section 406 of ERISA and/or Section 4975 of the Code, which could restrict
the Trust from entering into an otherwise desirable investment or from entering
into an otherwise favorable transaction. In addition, fiduciaries who decide to
invest in the Trust could, under certain circumstances, be liable for
"prohibited transactions" or other violations as a result of their investment in
the Trust or as co-fiduciaries for actions taken by or on behalf of the Trust or
the Sponsor. There may be other federal, state, local, non-U.S. law or
regulation that contains one or more provisions that are similar to the
foregoing provisions of ERISA and the Code that may also apply to an investment
in the Trust.
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 Plan, and it is the responsibility of the
appropriate fiduciary of each investing Plan to ensure that any investment in
the Trust by such Plan 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 advisors regarding the
considerations discussed above and all other relevant ERISA and other
considerations before purchasing the Shares.
AVAX,
AVAX MARKET, AVAX EXCHANGES AND REGULATION OF AVAX
This
section of the Prospectus provides a more detailed description of AVAX. In this
Prospectus, Avalanche is used to describe the system as a whole that is involved
in maintaining the ledger of AVAX ownership and facilitating the transfer of
AVAX among parties, while "Avalanche Network" refers to the peer-to-peer network
and "Avalanche Blockchain" refers to the blockchain ledger.
AVAX
and the Avalanche Network – Overview
The
AVAX token is the native token of the Avalanche network and serves as the base
currency for transactions, smart contract interactions and deployment. The AVAX
token can be staked to help secure the network and earn staking rewards. AVAX
has a capped supply of 720 million and is used as fee payment, for staking in
Avalanche's consensus process and providing a basic unit of account between
subnets created on the network. AVAX holders may participate in staking on the
Avalanche Network by becoming transaction validators, if they stake a minimum
number of coins, or by delegating their coins to an already existing
validator.
Avalanche
is a Layer 1 blockchain and smart contract platform for decentralized
applications and custom blockchains. The Avalanche network is an open-source
protocol that enables users to deploy smart contracts to support their
blockchain projects. The Avalanche Network was created by Kevin Sekniqi, Maofan
"Ted" Yin and Emin Gün Sirer and was further developed by researchers from
Cornell University prior to its launch by Ava Labs US in September 2020. The
Avalanche network is one of the main competitors of Ethereum and aims to beat
the leading smart contract platform by offering higher transaction throughput
without compromising scalability or security. Avalanche is powered by the
Avalanche consensus protocol, which its proponents believe is a unique
“proof-of-stake” algorithm comprised of three blockchains, X-Chain (Exchange
Chain), C-Chain (Contract) and P-Chain (Platform), which allow the network to
create and trade assets such as AVAX, coordinate transaction validators and
facilitate the creation of smart contracts. Each chain serves a different
purpose and runs different consensus mechanisms based on their use-cases. The
X-Chain is used to create and exchange native AVAX tokens and other assets. The
C-Chain is used to host EVM compatible smart contracts. The P-Chain is used to
coordinate network validators, track active subnets and allow the creation of
new subnets. Ava Labs is the main entity that develops and maintains the
codebase of the Avalanche network and suite of tools and
applications.
AVAX
is a digital asset that is created and transmitted through the operations of the
peer-to-peer Avalanche Network, a decentralized network of computers that
operates on cryptographic protocols. No single entity is known to own or operate
the Avalanche Network, the infrastructure of which is collectively maintained by
what is understood to be a global user base. Participation in the Avalanche
network is permissionless; for instance, anyone with the required number of AVAX
can participate in validation activities that maintain the blockchain and secure
the network, and no permission from any gatekeeping intermediary is required.
although some entities, like Ava Labs and the Avalanche Foundation exert
influence through a variety of means; the presence of client diversity is lower
than on certain other public blockchains; and acting as a validator on the
Avalanche Network is subject to certain minimum requirements, such as hardware
requirements and financial costs, which may result in greater barriers to entry
to be a validator on the Avalanche Network than on certain other public
blockchains where the minimum requirements may be lower. The Avalanche Network
allows people to exchange tokens of value, called AVAX, which are recorded on a
public transaction ledger known as a blockchain. AVAX can be used to pay for
goods and services, including computational power on the Avalanche 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
Avalanche 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
sophisticated 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 AVAX on the Avalanche Network. Smart contract
operations are executed on the Avalanche Blockchain in exchange for payment of
AVAX. The Avalanche Network is one of a number of projects intended to expand
blockchain use beyond just a peer-to-peer money system.
The
Avalanche Network uses a proof-of-stake consensus mechanism called Avalanche
consensus, which utilizes repeated and random sampling to achieve consensus.
Unlike proof-of-work, in which miners expend computational resources to compete
to validate transactions and are rewarded coins in proportion to the
computational resources expended, in proof-of-stake, all validators receive
rewards at constant rates set by the Avalanche Network and the parameters for
which are determined by periodic vote of AVAX holders. The main participants
staking on Avalanche are validators, delegators and staking pools. Validators
operate specialized hardware and use a software called a validator client that
allows the validator to connect to and interact with the Avalanche Network.
Validators stake AVAX directly on the Avalanche Network securing the blockchain
and earning rewards. Delegators hold AVAX, which they can stake to a validator
of their choosing, but do not run validator nodes. Delegators can stake their
AVAX with a validator and earn a portion of the reward. Additionally, delegators
can stake their AVAX in a stake pool, a service run by a provider to enable easy
access to staking with added benefits such as tokens representing staked AVAX
commonly referred to as liquid staked tokens, which can be used in DeFi and
DApps without the delegator having to unlock or wait. Stake pool providers can
allocate the AVAX to be staked across different validators of their choice.
Proof-of-stake is viewed as more energy efficient and scalable than
proof-of-work and is sometimes referred to as "virtual mining".
The
Avalanche protocol was first conceived by Kevin Skniqi, Daniel Laine, Stephen
Buttolph, and Emin Gün Sirer in a 2020 whitepaper. Development of the Avalanche
Network is overseen by the Avalanche Foundation and Ava Labs, Inc. ("Ava Labs"),
a Delaware corporation, which administered the original network launch and token
distribution.
Although
Ava Labs and the Avalanche Foundation continue to exert influence over the
direction of the development of Avalanche, the Avalanche Network, like the
Ethereum network, is understood to be decentralized in that it is open source,
permissionless, and neither owned nor operated by them and does not require
governmental authorities or financial institution intermediaries to create,
transmit or determine the value of AVAX.
In
order to own, transfer or use AVAX directly on the Avalanche Network (as opposed
to through an intermediary, such as a custodian), a person generally must have
internet access to connect to the Avalanche Network. AVAX transactions may be
made directly between end-users without the need for a third-party intermediary.
To prevent the possibility of double-spending AVAX, a user must notify the
Avalanche Network of the transaction by broadcasting the transaction data to its
network peers. The Avalanche Network provides confirmation against
double-spending by memorializing every transaction in the Avalanche Blockchain,
which is publicly accessible and transparent. This memorialization and
verification against double-spending is accomplished through the Avalanche
Network validation process, which adds "blocks" of data, including recent
transaction information, to the Avalanche Blockchain. Unlike other blockchains
that rely solely on sequential production of blocks through PoW or
proof-of-stake mechanisms, however, the Avalanche Network introduces PoH, which
creates a historical record that proves an event has occurred at a specific
moment in time.
Smart
Contracts and Development on the Avalanche 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 Avalanche Network involves building more complex tools on top of smart
contracts, such as decentralized apps ("DApps") and organizations that are
autonomous, known as decentralized autonomous organizations ("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 November 25, 2025, more than 700 DApps are currently built on the
Avalanche Network, including DApps in the collectible non-fungible token,
gaming, music streaming, and decentralized finance categories.
Additionally,
the Avalanche Network has been used for decentralized finance ("DeFi"), or open
finance 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, exchange one digital asset for another and create
derivative digital assets such as stablecoins, which are digital assets pegged
to a reserve asset such as fiat currency. As of November 25, 2025, approximately
$1.2 billion was being used as collateral on DeFi platforms, using the Avalanche
Network. Additionally, the Avalanche Network is being used for decentralized
physical infrastructure ("DePIN"), which seeks to democratize infrastructure
services, such as energy, wireless networks and computing power by allowing
users to contribute physical recourses and in return earn rewards in the form of
tokens.
In
addition, the Avalanche Network and other smart contract platforms have been
used for creating non-fungible tokens, or NFTs. Unlike digital assets native to
smart contract platforms which are fungible and enable the payment of fees for
smart contract execution. NFTs allow for digital ownership of assets that convey
certain rights to other digital or real world assets. This new paradigm allows
users to own rights to other assets through NFTs, which enable users to trade
them with others on the Avalanche Network. 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,
creating an entirely new free-market internet-native economy that can be
monetized in the physical world.
Market
Participants
Validators
Validators
range from Avalanche enthusiasts to professional operations that design and
build dedicated machines and data centers, including "clusters," which are
groups of validators that act cohesively and combine their processing to confirm
transactions. During the course of ordering transactions and validating blocks,
validators may be able to prioritize certain transactions in return for
increased transaction fees, an incentive system known as "Maximal Extractable
Value" or 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 offering greater transaction fees. Validators
less commonly capture MEV in the Avalanche Network because, unlike the Ethereum
Network, it does not publicly expose transactions before they are accepted by a
validator. However, some efforts are underway to help Avalanche Validators
consistently capture MEV. See "—Summary of an AVAX Transaction"
above.
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 AVAX
transactions through the direct sending of AVAX over the Avalanche Network. The
retail sector also includes transactions in which consumers purchase goods and
services from commercial or service businesses through direct transactions or
third-party service providers, although the use of AVAX as a means of payment is
still developing and has not yet been accepted in the same manner as Bitcoin or
Ethereum due to its infancy and because AVAX has a different purpose than
Bitcoin and Ethereum.
Service
Sector
This
sector includes companies that provide a variety of services including the
buying, selling, payment processing and storing of AVAX. As AVAX 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 AVAX.
Avalanche
Protocol Development and Modifications
Historically
the Avalanche Network's development has been overseen by Ava Labs, the Avalanche
Foundation and other core developers. The Avalanche Foundation and core
developers are able to access and alter the Avalanche Network source code and,
as a result, they are responsible for quasi-official releases of updates and
other changes to the Avalanche Network's source code. However, currently, the
Avalanche codebase is publicly available under open source licenses and neither
Ava Labs nor the Avalanche Foundation oversees network development. Ava Labs is
one contributor to the codebase rather than responsible for updates or
overseeing development or maintenance of the codebase.
The
release of updates to the Avalanche Network's source code does not guarantee
that the updates will be automatically adopted. Users and nodes must accept any
changes made to the Avalanche source code by downloading the proposed
modification of the Avalanche Network's source code. A modification of the
Avalanche Network's source code is only effective with respect to the Avalanche
users that download it. If a modification is accepted only by a percentage of
users and validators, a division in the Avalanche 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—Risk Factors Related to Digital Assets—A temporary or permanent fork
could adversely affect an investment in the Shares". Consequently, as a
practical matter, a modification to the source code becomes part of the
Avalanche Network only if accepted by participants collectively having a
majority of the processing power on the Avalanche Network.
Core
development of the Avalanche source code has increasingly focused on
modifications of the Avalanche protocol to increase speed and scalability and
also allow for financial and non-financial next generation uses. The Trust's
activities will not directly relate to such projects, though such projects may
utilize AVAX as tokens for the facilitation of their non-financial uses, thereby
potentially increasing demand for AVAX and the utility of the Avalanche Network
as a whole. Conversely, projects that operate and are built within the Avalanche
Blockchain may increase the data flow on the Avalanche Network and could either
"bloat" the size of the Avalanche Blockchain or slow confirmation
times.
Forms
of Attack Against the Avalanche Network
All
networked systems are vulnerable to various kinds of attacks. As with any
computer network, the Avalanche Network contains certain flaws. For example, the
Avalanche Network is currently vulnerable to a "51% attack" (though the
numerical thresholds vary in proof-of-stake) where, if a party or group were to
gain control of more than the relevant threshold of the staked AVAX, a malicious
actor would be able to gain full control of the network and the ability to
manipulate the Avalanche Blockchain. See "—The Avalanche Blockchain Could Be
Vulnerable To Attacks on Transaction Finality and Consensus Processes, Which
Could Adversely Affect An Investment In The Trust Or The Ability Of The Trust To
Operate." As of November 25, 2025, the top three largest staking pools
controlled approximately 5% of the AVAX staked on the Avalanche
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
and in the transfer of digital assets.
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 Solana validators coordinated to upgrade
and restart the network. Any similar attacks on the Avalanche Network that
impact the ability to transfer AVAX could have a material adverse effect on the
price of AVAX and the value of the Shares.
The
Avalanche Blockchain could also be subject to a “Sybil attack.” A Sybil attack
occurs when an individual user creates multiple fake identities and/or wallets
in an attempt to extract value or gain inordinate influence over a
blockchain.
Sybil attacks are particularly common in digital assets when the blockchain is
airdropping (or distributing) tokens to early adopters.
In
September 2022, hackers used a flash loan attack on the Avalanche Blockchain to
steal $370,000 worth of stablecoins from a smart contract. A flash loan exploit
is an abuse of a smart contracts security whereby a malicious actor borrows
uncollateralized funds from a lending protocol and manipulates the price of a
given asset, driving up its value, or otherwise takes advantage of
vulnerabilities in the lending protocol. The attack affected a lending protocol,
a decentralized exchange and an automated market maker. Again, in October 2023,
a smart contract operating on the Avalanche Network experienced a flash-loan
exploit resulting in a loss of more than $2 million.
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.
Lastly,
if a malicious actor discovers a vulnerability in the Avalanche Blockchain
software, the actor could exploit it to disrupt the consensus process or to gain
control over it.
In
addition, while the Avalanche Network has generally maintained high uptime since
its launch in 2020, it has experienced occasional disruptions due to bugs in its
core client software, AvalancheGo. For example, on February 1, 2024 and February
23, 2024, the Avalanche C-Chain experienced outages lasting several hours due to
issues related to gossip traffic and mempool congestion. These incidents
required coordinated efforts from Ava Labs, the Avalanche Foundation, and the
validator community to deploy patches and restore functionality. Any similar
attacks on the Avalanche Network that impact the ability to transfer AVAX could
have a material adverse effect on the price of AVAX and the value of the
Shares.
Summary
of an AVAX Transaction
Prior
to engaging in AVAX transactions directly on the Avalanche Network, a user
generally must first install on its computer or mobile device a Avalanche
Network software program that will allow the user to generate a private and
public key pair associated with an AVAX address. The Avalanche Network software
program and the AVAX address also enable the user to connect to the Avalanche
Network and transfer AVAX to, and receive AVAX from, other users.
Each
Avalanche Network address, or wallet, is associated with a unique "public key"
and "private key" pair. To receive AVAX, the AVAX 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 AVAX. The
recipient, however, does not make public or provide to the sender its related
private key.
Neither
the recipient nor the sender reveals their 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 AVAX contained in the associated address.
Likewise, AVAX is irretrievably lost if the private key associated with it is
deleted and no backup has been made. When sending AVAX, a user's Avalanche
Network software program must validate the transaction with the associated
private key. In addition, since every computation on the Avalanche 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 Avalanche Network software program to the Avalanche Network
validators for transaction confirmation.
Avalanche
Network validators record and confirm transactions when they validate and add
blocks of information to the Avalanche Blockchain. A validator creates a 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 Avalanche
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 AVAX transactions, the Avalanche Network software
program of both the spending party and the receiving party will show
confirmation of the transaction on the Avalanche Blockchain and reflect an
adjustment to the AVAX balance in each party's Avalanche Network public key,
completing the AVAX transaction. Once a transaction is confirmed on the
Avalanche Blockchain, it is irreversible.
Some
AVAX transactions are conducted "off-blockchain" and are therefore not recorded
in the Avalanche Blockchain. These "off-blockchain transactions" involve the
transfer of control over, or ownership of, a specific digital wallet holding
AVAX or the reallocation of ownership of certain AVAX 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 Avalanche Blockchain, information and data regarding off-blockchain
transactions are generally not publicly available. Therefore, off-blockchain
transactions are not truly AVAX transactions in that they do not involve the
transfer of transaction data on the Avalanche Network and do not reflect a
movement of AVAX between addresses recorded in the Avalanche Blockchain. For
these reasons, off- blockchain transactions are subject to risks as any such
transfer of AVAX ownership is not protected by the protocol behind the Avalanche
Network or recorded in, and validated through, the blockchain
mechanism.
The
Avalanche Network employs a two-tier fee system consisting of base fees and
priority fees. Base fees are dynamic and cover the essential computational costs
of processing transactions. On the other hand, users can opt to pay priority
fees during periods of network congestion to expedite their transactions. All
fees are paid in AVAX, and the transaction fees are burned, consistent with the
Avalanche Network's inflationary policy. This system ensures that transaction
costs remain consistently low and transparent, with a simple transfer costing
around 0.000005 AVAX, and the average transaction fee as of November 2025 being
approximately $0.007. Transaction fees on the Avalanche Network are dramatically
lower than other blockchain networks such as Ethereum. Unlike Ethereum, where
fees fluctuate significantly with network congestion, the Avalanche Network's
fees remain stable and minimal, making it highly attractive for frequent
traders, DeFi users, NFT collectors, developers, and applications involving
microtransactions or gaming. Compared to other low-fee blockchains such as BSC
and Polygon, the Avalanche Network still offers a notable cost advantage, with
average fees ranging from $0.0005 to $0.01, versus $0.10–$0.30 on BSC and
$0.01–$0.10 on Polygon. The Avalanche Network's high throughput (over 4,500
transactions per second) ensures it can sustain these low fees even as network
usage grows, further enhancing its appeal for high-volume and cost-sensitive use
cases.
Creation
of New AVAX
Initial
Creation of AVAX
Unlike
other digital assets such as Bitcoin, which are solely created through a
progressive mining process, 360 million AVAX were created in connection with the
launch of the Avalanche Network in September 2020, with a maximum capped supply
of 720 million AVAX.
At
launch, 16% percent was sold in a series of funding rounds, 9.26% was allocated
to the Avalanche Foundation, 7% was set aside for community initiatives, 10% was
held for the development team, 5% was reserved for strategic partnerships, 2.5%
was allocated to airdrops, and around a third of a percent held for testnet
incentives. The remaining 360 million AVAX are reserved for staking rewards. As
of December 15, 2025, the circulating supply of AVAX is approximately 429.46
million, with a total supply of approximately 461.16 million. A significant
portion of AVAX is staked, either natively or via liquid staking protocols. AVAX
is currently priced between $12 and $13, with a market capitalization of roughly
$5.27 billion, ranking it among the top 25 crypto assets globally
(coinmarketcap.com).
Following
the launch of the Avalanche Network, the AVAX supply increases through a
progressive minting process. New AVAX are minted and distributed as rewards to
network validators and delegators who participate in securing the network
through staking. The rate of issuance is governed by protocol parameters,
including a target annual issuance rate and staking participation levels, and is
designed to decline over time as the network matures. The rewards rate rises
when overall staking participation is low (to encourage more staking, and thus
more security) and falls when staking participation is high (to avoid overpaying
for security). The overall rate of issuance falls as AVAX approaches its maximum
supply. Within this formula, Avalanche’s governance processes allow stakeholders
to
influence the rewards rates that stakers earn for staking their tokens for the
minimum time bound (2 weeks) and maximum time bound (1 year). Longer staking
commitments earn higher rewards. Validators do not compete through computational
mining; rather, AVAX is minted in proportion to staking activity and uptime,
subject to protocol-defined limits. Existing tokens are removed from circulation
through an automatic burn mechanism. All AVAX used to pay for processing
transactions are permanently burned
The
Trust’s Staking Program
The
Trust intends to stake a portion of the Trust's AVAX through one or more Staking
Services Providers. The Staking Services Providers will utilize the available
AVAX for staking by instructing the AVAX Custodians to delegate such AVAX to a
validator address selected in accordance with the Staking Policy. The validator
nodes, operated by the Staking Services Provider, receive the delegated AVAX,
but control of these assets always remains with the applicable AVAX
Custodian.The Staking Services Providers exercise no discretion as to the amount
of the Trust’s AVAX to be staked or the timing of the staking activities (other
than as is incidental in establishing or deactivating validator nodes). The AVAX
Custodians will move the AVAX into a staking account, which is a form of warm
storage from which assets cannot be transferred out, ensuring security. Once the
delegation process is complete, the validator nodes earn rewards based on the
amount of AVAX staked, the length of the staking period (which ranges from two
weeks up to one year) and total network staking participation. With respect to
network staking participation, if more AVAX is staked network-wide, individual
reward rates tend to decrease as the same total reward pool is shared across
more participants. In consideration for any staking activity in which the Trust
may engage, the Trust would receive certain staking rewards of AVAX, which may
be treated for federal income tax purposes as income to the Trust. The amount of
AVAX the Trust may receive as reward for its staking activity can vary
significantly. The staking process is continuously adjusted in scale, in line
with network and market conditions, to ensure the Trust maintains sufficient
liquidity for redemptions on any business day. The Sponsor has adopted a
liquidity risk program (the “Liquidity Program”) that provides a variety of
mechanisms to monitor and manage the liquidity of the Trust’s assets. The
Liquidity Program will be available in full at the Trust’s website at
www.vaneck.com.
Staking
activity comes with a risk of loss of AVAX. Staked AVAX are not subject to the
protections enjoyed by depositors with FDIC or SIPC member
institutions.
The
Staking Services Provider will be entitled to 4.0% of the staking rewards
generated by the Trust's staking program (the "Staking Services Provider
Consideration"). The Staking Services Provider Consideration will be paid by the
applicable AVAX Custodian from the proceeds of the staking program received by
the Trust or, in certain cases, the Trust will receive the proceeds of the
staking program net of the Staking Services Provider Consideration.
The
Sponsor has adopted the Staking Policy whereby the Sponsor is responsible for
administering the staking program. The staking program will be overseen by a
designated staking committee. The Sponsor is responsible for evaluating several
factors—such as the underlying AVAX, the associated protocol, liquidity
(relative to the circulating market cap), and operational risks when determining
the percentage of the Trust's AVAX that will be allocated to staking. The
Sponsor will review historical redemption patterns as a part of its evaluation
to ensure sufficient buffers are in place during extreme market conditions.
Pursuant to the Staking Policy, a base staking percentage is set and adjusted
for unstaking delays, with a 5% buffer in place to prompt rebalancing if the
staked amount deviates significantly. Staking Services Providers will be chosen
based on cost, reputation, financial stability, and operational security. When
the Trust's assets held with the AVAX Custodians are staked with a Staking
Services Provider Consideration payable to Staking Services Providers will be
paid from the Trust's staking proceeds by the AVAX Custodians or deducted (or
“netted”) from the Trust’s staking proceeds before such amounts are received by
the Trust. When the Trust's assets held with the AVAX Custodians are staked with
a Staking Services Provider, the Trust is expected to receive approximately 96%
of the staking proceeds. The Trust may be responsible for fees charged by the
AVAX Custodians for facilitating staking of the Trust’s assets held with such
AVAX Custodian (the “Custodian Staking Facilitation Fee”). To the extent that a
Custodian Staking Facilitation Fee is incurred, such fee shall be paid from the
Trust’s staking proceeds by the applicable custodian, deducted from the Trust’s
staking proceeds before such amounts are received by the Trust or paid by the
Sponsor, and the Sponsor shall be entitled to reimbursement by the Trust of the
amount of such Custodian Staking Facilitation Fee that it has paid on the
Trust's behalf. Other than reimbursement by the Trust of the amount of such
Custodian Staking
Facilitation
Fee that the Sponsor has paid on the Trust's behalf, which is treated as an
extraordinary expense, the Sponsor and its affiliates will not receive any
compensation from the staked assets of the Trust. Ongoing due diligence will be
conducted on validators, including performance monitoring and benchmarking.
Staking rewards, net of fees, will be automatically credited to the Trust (as
earned) and reflected in its daily NAV, with a 4:00 p.m. Eastern time cut-off.
The Trust will generally re-stake the staking rewards it receives, subject to
the target staking percentage. Investors are not required to take any action to
receive rewards, and the Trust does not operate its own validator nodes. Key
staking metrics, such as current percentage of the Trust's AVAX being staked and
gross and net yields of staked assets, are published and updated on the Trust's
website.
Pursuant
to the Liquidity Program (which is a component of the Staking Policy), the
Sponsor is responsible for assessing, managing and reviewing liquidity risk of
the Trust at least annually based on the following five factors: (i) the Trust's
investment strategy and liquidity of the Trust's assets during normal and
stressed conditions, including use of borrowing for investment purposes and
derivatives and whether the investment strategy is appropriate for effective and
efficient arbitrage, (ii) holdings of cash and cash equivalents, as well as
borrowing arrangements and other funding sources, (iii) percentage and
description of the Trust's assets that are segregated, pledged, hypothecated,
encumbered, or otherwise restricted or prevented from being liquidated, sold,
transferred or assigned, (iv) the lock-up period, including the bonding and
unbonding periods (as applicable) and the entry and exit wait times involved in
the staking process and (v) the historical percentages of cumulative drawdowns
in redemptions for US listed crypto-based ETFs and other similar instruments
listed globally. With respect to factor (i) above, the Staking Policy provides
that the Sponsor has the authority to adjust the size of the Baskets if it
determines that such changes would improve the effectiveness and efficiency of
the arbitrage mechanism.
Following
the liquidity risk assessment, the Sponsor will determine whether changes to the
administration of the Trust's staking program are necessary.
The
Trust continues to update its liquidity risk policies and procedures, and any
changes made or recommended will be evaluated during the next liquidity risk
assessment. The Liquidity Program is intended to be and is in line with the
generic listing standards of the Exchange.
To
help manage liquidity and facilitate the Trust’s ability to meet redemption
requests, the Sponsor intends to employ a laddered staking approach. Under this
approach, the Sponsor expects to stagger staking positions across multiple
staking periods with differing maturity dates, rather than staking all the
Trust’s AVAX holdings for a single, uniform duration.
By
maintaining multiple staking positions with rolling expiration dates, the
Sponsor seeks to ensure that a portion of the Trust’s AVAX holdings is
periodically becoming unstaked and available to meet redemption requests, as
needed.
The
Trust’s ability to implement and maintain a laddered staking strategy is
dependent, in part, on the Trust achieving and maintaining sufficient asset
size. In order to stagger staking positions across multiple validators and
multiple staking durations while also maintaining adequate liquidity, the Trust
must hold enough AVAX to allocate across different staking tranches without
concentrating staking exposure.
During
periods when the Trust has limited assets, including during the Trust’s initial
launch period or following periods of significant redemptions, the Sponsor may
be unable to fully implement its intended laddered staking approach and may not
meet its target staking percentage. See “Risk Factors—Ramp-up Staking Period
Risk.”
Under
normal circumstances, the Sponsor will seek to stake all of the Trust’s AVAX
except for AVAX reserved by the Sponsor in its sole discretion to facilitate
foreseeable redemption transactions or otherwise protect the Trust and its
assets in a manner consistent with Rev Proc 2025-31. Currently the Trust intends
to have a target staking percentage of 70% of the Trust’s AVAX holdings (with
30% of the Trust’s AVAX holdings being reserved to facilitate foreseeable
redemption transactions or otherwise protect the Trust and its assets in a
manner consistent with Rev Proc 2025-31), subject to the Staking Policy and
fluctuations during the ramp-up staking period. “Normal circumstances” do not
include periods in which the Trust is required or elects under the Liquidity
Policy (which is a component of the Staking Policy), as determined by the
Sponsor in its sole discretion, to hold unstaked AVAX in connection with (a)
obtaining or disposing of digital assets through a “contingent liquidity
arrangement” described
in
section 6.02(12) of Rev Proc 2025-31, (b) the sale of digital assets for cash in
connection with the Trust’s liquidation, (c) the need to take protective
measures against potential systemic vulnerabilities in the network’s protocol,
the staking smart contracts, or the validator client software, (d) the cessation
of the arrangement between the Trust and a Custodian, but only with respect to
the digital assets affected by the cessation, (e) the cessation of the
arrangement with a Staking Provider, but only with respect to the staked digital
assets affected by the cessation, or (f) a change in applicable law or
regulation. The Liquidity Program will be available in full at the Trust’s
website at www.vaneck.com. See “Risk Factors—Staking May Subject The Trust To
Risks, Which In The Future May Include Loss Of Rewards And Operational
Uncertainties.” And “—Risks Associated with Investing in the Trust--Ramp-Up
Staking Period Risk” for additional information.
Credit
Facility
The
Liquidity Program provides that the Trust may enter into a credit facility
(including a credit facility with the Sponsor or its affiliates acting as
lender) that allows the Trust to borrow cash or AVAX to meet its current
obligations. If the Trust draws cash or AVAX under any such credit facility, the
Trust may incur additional expenses in the form of interest on its indebtedness
or other costs of borrowing. In addition, the lender under any such credit
facility may require the Trust to pledge its assets as collateral for the
amounts borrowed. The Sponsor or its affiliates may also lend cash or AVAX to
the Trust, provided that under any such arrangement the Sponsor or its affiliate
will not be permitted to (1) charge interest on the amounts borrowed, (2) demand
or accept any pledge of the Trust’s assets, or (3) impose terms on the Trust
that are more detrimental to the Trust than those that would be available in an
arms-length commercial transaction. As of the date of the Prospectus, the Trust
has not entered into a credit facility. If the Trust’s enters into a credit
facility, the Trust will notify shareholders through the filing of a Form 8-K
and a supplement to this Prospectus describing the material terms of any such
arrangement.
Temporary
Settlement Extension
Under
the Liquidity Program and the applicable agreements with Authorized
Participants, the Sponsor may temporarily extend the settlement timeline in
connection with the fulfillment of the redemption orders received from
Authorized Participants. The Sponsor will exercise this authority if the Trust
does not expect to have enough liquid assets to satisfy redemption orders and
the Trust’s credit facility, if one is in place, has been exhausted. See
“Creation and Redemption of Shares – Delivery of Redemption
Distribution.”
Open-Market
Activities
As
an additional option, the Trust may exchange its staked AVAX for an amount of
unstaked AVAX. In such transactions, the AVAX trading counterparty facilitating
such trade will generally deliver an amount of unstaked AVAX that is less than
the amount of staked AVAX Trust has delivered in exchange, with such spread
representing the AVAX trading counterparty’s compensation. While such spreads
are generally expected to be de minimis in relation to the Trust’s overall
assets, any such spread charged by an AVAX trading counterparty will reduce the
amount of AVAX represented by a Share and the value of Shares.
In
May 2025 the SEC issued a "Statement on Protocol Staking Activities" (the
"Statement"). The Statement gave the SEC staff's view regarding staking on
networks that use a proof-of-stake consensus mechanism. The staff's view is that
some of these activities do not involve the offer and sale of securities within
the meaning of the Securities Act and the Exchange Act. Accordingly, under such
an interpretation, the participants in such staking activities do not need to
register these transactions with the SEC under the Securities Act. The Sponsor
believes that the Trust's staking activities are of the type described in the
Statement and therefore does not involve the purchase and sale of securities.
However, if the staff or the SEC were to disagree with the Sponsor's position,
or if the SEC or the staff were to take a position counter to the position
stated in the Statement, the Trust or its service providers may be deemed to be
in violation of federal securities laws. The treatment of staking in a grantor
trust for U.S. federal income tax purposes is still developing. As a grantor
trust, the Trust can undertake only certain types of activities. Please see
"Taxation of the Trust" below for more details.
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 "stake" coins 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 loss of a portion of the rewards. Proof-of-stake is believed by
some to be more energy efficient and scalable than proof-of-work.
The
Avalanche Network utilizes a proof-of-stake consensus protocol known as the
Avalanche Consensus Protocol, which is distinct from traditional proof-of-stake.
This protocol is built on a family of algorithms collectively referred to as
Snow (including Snowflake, Snowball, and Snowman), which employ a probabilistic,
repeated random sampling method to achieve consensus across a decentralized
validator set.
Under
the Avalanche Consensus Protocol, AVAX token holders may participate in network
consensus by staking their tokens and operating validator nodes, or by
delegating their stake to other validators. Validators are selected based on
their stake and are responsible for validating transactions and proposing
blocks. Validators repeatedly query a small, randomly selected subset of other
validators to determine network preference for a transaction or block. This
process is repeated until a significant level of agreement is reached, resulting
in probabilistic finality.
Limits
on AVAX Supply
The
rate at which new AVAX supply has been minted and put into circulation has
varied since network launch. Additionally, the Avalanche protocol reduces the
AVAX supply by eliminating 50% of transaction fees paid to the network. As a
result, net changes in AVAX supply are expected to vary in the
future.
At
network launch, the AVAX circulating supply was 360 million AVAX. The
circulating supply refers to the amount of AVAX that is liquid and freely
transferable on the Avalanche Network. This includes AVAX held by retail users,
institutions, custodians, and validators, as well as AVAX that is staked but not
subject to lockups or vesting. Circulating supply excludes AVAX held in
long-term vesting contracts, AVAX allocated to insiders or foundations with
explicit lockup schedules, and any AVAX held in treasury reserves or technical
burn addresses. As of December 15, 2025, the circulating supply of AVAX is
approximately 429.46 million, with a total supply of approximately 461.13
million (coinmarketcap.com).
Since
the Trust can capture staking rewards, the inflationary policy would lead to
increased returns relative to returns from holding non-staked AVAX. As inflation
decreases, the staking yield, and thus the Trust's staking-derived returns, will
also decrease over time, potentially reducing the Trust's outperformance versus
non-staked AVAX. In addition, if inflation outpaces demand, the market price of
AVAX could be pressured, affecting the Trust's overall return.
AVAX
Market and AVAX Exchanges
AVAX
can be transferred in direct peer-to-peer transactions through the direct
sending of AVAX over the Avalanche Blockchain from one AVAX address to another.
Among end-users, AVAX can be used to pay other members of the Avalanche 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 Avalanche Blockchain or through
third-party service providers.
In
addition to using AVAX to engage in transactions, investors may purchase and
sell AVAX to speculate as to the value of AVAX in the AVAX market, or as a
long-term investment to diversify their portfolio. The value of AVAX within the
market is determined, in part, by the supply of and demand for AVAX in the
global AVAX market, market expectations for the adoption of AVAX as a store of
value, the number of merchants that accept AVAX as a form of payment, and the
volume of peer-to-peer transactions, among other factors.
AVAX
spot markets provide investors with a website that permits investors to open
accounts with the spot market and then purchase and sell AVAX. Prices for trades
on AVAX spot markets are typically reported publicly. An investor opening a
trading account must deposit an accepted government-issued currency into their
account with the spot market, or a previously acquired digital asset, before
they can purchase or sell assets on the spot market. The process of establishing
an account with an AVAX spot market and trading AVAX is different from, and
should not be confused with, the process of users sending AVAX from one AVAX
address to another AVAX address on the Avalanche Blockchain. This latter process
is an activity that occurs on the Avalanche Network, while the former is an
activity that occurs entirely on the private website operated by the spot
market. The spot market typically records the investor's ownership of AVAX in
its internal books and records, rather than on the Avalanche Blockchain. The
spot market ordinarily does not transfer AVAX to the investor on the Avalanche
Blockchain unless the investor makes a request to the spot market to withdraw
the AVAX in their exchange account to an off-exchange AVAX wallet.
Outside
of spot markets, AVAX can be traded 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 AVAX, investment managers, proprietary trading
firms, high-net-worth individuals that trade AVAX on a proprietary basis,
entities with sizeable AVAX 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 AVAX. 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
AVAX could initiate the transaction by sending the AVAX to the buyer's AVAX
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 AVAX spot markets.
Authorized
Participants will deliver, or facilitate the delivery of, AVAX or cash to the
Trust's accounts with the AVAX Custodians in exchange for Shares of the Trust,
and the Trust, through the AVAX Custodians, will deliver AVAX or cash when such
Authorized Participants redeem Shares of the Trust. Based on the BITA
Cryptocurrency REal-Time Rates report, MarketVector selects the top five
exchanges by rank for inclusion in the MarketVectorTM
Avalanche Benchmark Rate, which the Trust will then use to price its NAV at the
end of every business day. See "The
Trust and AVAX Prices— Description of the MarketVectorTM
Avalanche Benchmark Rate Construction and Maintenance"
for more information.
In
addition, AVAX futures and options trading occurs on exchanges in the United
States regulated by the CFTC. The market for CFTC-regulated trading of AVAX
derivatives has developed substantially, although the market is still in its
infancy. As of October 31, 2025, regulated AVAX futures represented
approximately $253 million in notional trading volume on Coinbase Derivatives,
LLC ("Coinbase Derivatives"). AVAX futures on Coinbase Derivatives traded around
$7.5 million per day since their launch and represented around $6.2 million in
open interest per day (Source: Bloomberg). Through the common membership of the
Exchange and the Coinbase Derivatives AVAX futures market in the Intermarket
Surveillance Group ("ISG"), the Exchange may obtain information regarding
trading in the Shares and listed AVAX derivatives from the Coinbase Derivatives
AVAX Futures market via the ISG and from other exchanges who are members or
affiliates of the ISG. Such an arrangement with the ISG and the Coinbase
Derivatives AVAX futures market allows for the surveillance of AVAX futures
market conditions and price movements on a real-time and ongoing basis in order
to detect and prevent price distortions, including price distortions caused by
manipulative efforts. The sharing of surveillance information between the
Exchange and the Coinbase Derivatives AVAX futures market regarding market
trading activity, clearing activity and customer identity assists in detecting,
investigating and deterring fraudulent and manipulative misconduct, as well as
violations of the Exchange's rules and the applicable federal securities laws
and rules. The Exchange has also implemented surveillance procedures to monitor
the trading of the Shares on the Exchange during all trading sessions and to
deter and detect violations of Exchange rules and the applicable federal
securities laws.
Regulation
of Avalanche and Government Oversight
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, SEC, CFTC,
FINRA, the Consumer Financial Protection Bureau ("CFPB"), the Department of
Justice, the Department of Homeland Security, the Federal Bureau of
Investigation, the IRS, the
Office
of the Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the Federal Reserve and state financial institution and securities regulators)
have been examining the operations of digital asset networks, digital asset
users and the digital asset exchange markets, with 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 exchanges or other service-providers that hold or custody digital
assets for users.
For
example, in July 2025, U.S. Congress passed the Guiding and Establishing
National Innovation for U.S. Stablecoins Act (GENIUS Act), which creates a
federal framework for payment stablecoins, including reserve requirements,
issuer licensing, and anti-money laundering compliance. On the same day, the
U.S. House of Representatives also passed the Digital Asset Market Clarity Act
(CLARITY Act), which seeks to delineate regulatory jurisdiction between the SEC
and CFTC over digital asset securities and commodities, respectively. These
bills reflect growing bipartisan support for comprehensive digital asset
regulation, although final Senate action remains pending.
In
May 2025 the SEC issued a "Statement on Protocol Staking Activities," which
clarified that certain staking activities, including certain liquid staking
activities, do not involve the offer and sale of securities within the meaning
of the Securities Act and the Exchange Act.
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. President Biden's March 9, 2022 Executive Order, asserting that
technological advances and the rapid growth of the digital asset markets
"necessitate an evaluation and alignment of the United States Government
approach to digital assets," signals an ongoing focus on digital asset policy
and regulation in the United States. A number of reports issued pursuant to the
Executive Order have focused on various risks related to the digital asset
ecosystem, and have recommended additional legislation and regulatory oversight.
In addition, federal and state agencies, and other countries and international
bodies have issued rules or guidance about the treatment of digital asset
transactions or requirements for businesses engaged in digital asset activity.
Moreover, the failure of FTX Trading Ltd. ("FTX") in November 2022 and the
resulting market turmoil substantially increased regulatory scrutiny in the
United States and globally and led to SEC and criminal investigations,
enforcement actions and other regulatory activity across the digital asset
ecosystem.
In
addition, the SEC, U.S. state securities regulators and several foreign
governments have issued warnings and instituted legal proceedings in which they
argue that certain digital assets may be classified as securities and that both
those digital assets and any related initial coin offerings or other primary and
secondary market transactions are subject to securities regulations. For
example, in June 2023, the SEC brought charges against Binance and Coinbase, and
in November 2023, the SEC brought charges against Kraken, alleging that they
operated unregistered securities exchanges, brokerages and clearing agencies. In
its complaints, the SEC asserted that several digital assets are securities
under the federal securities laws, including AVAX. The outcomes of these
proceedings, as well as ongoing and future regulatory actions, have had a
material adverse effect on the digital asset industry as a whole, and may alter,
perhaps to a materially adverse extent, the nature of an investment in the
Shares and/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.
Various
foreign jurisdictions have, and may continue to, in the near future, adopt laws,
regulations or directives that affect a digital asset network, the Digital Asset
Markets, and their users, particularly Digital Asset Trading Platforms and
service providers that fall within such jurisdictions' regulatory scope. For
example:
•China
has made transacting in cryptocurrencies illegal for Chinese citizens in
mainland China, and additional restrictions may follow. China has banned initial
coin offerings and there have been reports that Chinese regulators have taken
action to shut down a number of China-based Digital Asset Trading
Platforms.
•South
Korea determined to amend its Financial Information Act in March 2020 to require
virtual asset service providers to register and comply with its AML and
counter-terrorism funding framework. These measures also provide the government
with the authority to close Digital Asset Trading Platforms that do not comply
with specified processes. South Korea has also banned initial coin
offerings.
•The
Reserve Bank of India in April 2018 banned the entities it regulates from
providing services to any individuals or business entities dealing with or
settling digital assets. In March 2020, this ban was overturned in the Indian
Supreme Court, although the Reserve Bank of India is currently challenging this
ruling.
•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 law, the Financial Services and Markets Act 2023
("FSMA"), received royal assent in June 2023. The FSMA brings digital asset
activities within the scope of existing laws governing financial institutions,
markets and assets.
•The
Parliament of the European Union approved the text of the Markets in
Crypto-Assets Regulation ("MiCA") in April 2023, 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. MiCA was formally
approved by the European Union's member states in 2023 and is expected to come
into effect in 2024.
There
remains significant uncertainty regarding foreign governments' future actions
with respect to the regulation of digital assets and Digital Asset Trading
Platforms. Such laws, regulations or directives may conflict with those of the
United States and may negatively impact the acceptance of AVAX by users,
merchants and service providers outside the United States and may therefore
impede the growth or sustainability of the Avalanche ecosystem in the United
States and globally, or otherwise negatively affect the value of AVAX held by
the Trust. The effect of any future regulatory change on the Trust or the AVAX
held by the Trust is impossible to predict, but such change could be substantial
and adverse to the Trust and the value of the Shares.
For
more information, see "Risk
Factors—Digital asset markets in the U.S. exist in a state of regulatory
uncertainty, and adverse legislative or regulatory developments could
significantly harm the value of AVAX or the Shares, such as by banning,
restricting or imposing onerous conditions or prohibitions on the use of AVAX,
mining activity, digital wallets, the provision of services related to trading
and custodying AVAX, the operation of the Avalanche Network, or the digital
asset markets generally."
THE
TRUST AND AVAX PRICES
Overview
of the Trust
The
Trust is an exchange-traded fund that issues Shares that trade on the Exchange.
The Trust is a passive investment vehicle that does not seek to pursue any
investment strategy beyond reflecting the performance of the price of AVAX and
any rewards from staking a portion of the Trust’s AVAX. As a result, the Trust
will not attempt to avoid losses or hedge exposure arising from the risk of
changes in the price of AVAX. The Trust's investment objective is to reflect the
performance of the price of AVAX less the expenses of the Trust's operations. In
seeking to achieve its investment objective, the Trust will hold AVAX and will
value its Shares daily based on the reported MarketVectorTM
Avalanche Benchmark Rate, which is calculated based on prices contributed by
exchanges that MarketVector believes represent the top five AVAX trading
platforms, based on the industry leading BITA Cryptocurrency Real-Time Rates
report. The Trust will not utilize leverage, derivatives or any similar
arrangements in seeking to meet its investment objective. The Trust is sponsored
by VanEck Digital Assets, LLC, a wholly-owned subsidiary of VanEck. The Trust,
the Sponsor and the service providers will not loan or pledge the Trust's
assets, which include staked assets, nor will the Trust's assets serve as
collateral for any loan or similar arrangement. 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 price of AVAX.
The
Sponsor believes that the Trust will provide a cost-efficient way for
Shareholders to implement strategic and tactical asset allocation strategies
that use AVAX by investing in the Trust's Shares rather than purchasing, holding
and trading AVAX directly. The latter alternative would require selecting an
AVAX trading platform and opening an account or arranging a private transaction,
establishing a personal computer system capable of transacting directly on the
blockchain, and incurring the risks associated with maintaining and protecting a
private key that is irrecoverable if lost, among other
difficulties.
AVAX
Value
The
value of AVAX is determined by the value that various market participants place
on AVAX through their transactions. The most common means of determining the
value of an AVAX is by surveying one or more AVAX trading platforms where AVAX
is traded publicly and transparently. The price of AVAX on the AVAX market has
exhibited periods of extreme volatility, which could have a negative impact on
the performance of the Trust.
On
exchanges, AVAX is traded with publicly disclosed valuations for each executed
trade, measured by one or more fiat currencies such as the U.S. dollar or Euro.
OTC dealers or market makers do not typically disclose their trade
data.
Currently,
there are many exchanges operating worldwide, representing a substantial
percentage of AVAX buying and selling activity, and providing the most data with
respect to prevailing valuations of AVAX. The below table reflects the average
daily trading volume (in thousands of USD) of each of the AVAX trading platforms
included in the MarketVectorTM
Avalanche Benchmark Rate as of December 15, 2025 using data reported by
MarketVector from December 16, 2024 to December 15, 2025:
|
|
|
|
|
|
|
|
|
| Exchanges |
|
Average
Daily Volume |
| OKX |
|
65,265.23 |
|
| Kraken |
|
3,481,003.92 |
|
| Coinbase |
|
16,339,972.41 |
|
| Gemini |
|
284,677.07 |
|
| crypto.com |
|
1,689,720.10 |
|
The
market share for AVAX/USD trading of the five constituent platforms over the
past four calendar quarters is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Period |
|
OKX |
|
Kraken |
|
Coinbase |
|
Gemini |
|
crypto.com |
|
Others |
| 2025
Q1 |
|
0.01 |
% |
|
11.37 |
% |
|
73.06 |
% |
|
0.67 |
% |
|
6.95 |
% |
|
7.94 |
% |
| 2025
Q2 |
|
0.02 |
% |
|
12.81 |
% |
|
65.81 |
% |
|
0.91 |
% |
|
9.77 |
% |
|
10.68 |
% |
| 2025
Q3 |
|
0.33 |
% |
|
15.86 |
% |
|
62.16 |
% |
|
1.21 |
% |
|
6.30 |
% |
|
14.14 |
% |
| 2025
Q4 |
|
0.51 |
% |
|
14.03 |
% |
|
55.60 |
% |
|
1.58 |
% |
|
5.33 |
% |
|
22.95 |
% |
__________________
*Source:
MarketVector
Trust
Structure
The
Sponsor designed the Trust in what it believes is a straight-forward structure
to provide exposure to AVAX. By utilizing the MarketVectorTM
Avalanche Benchmark Rate, the Trust draws prices for its Shares off of what is
in effect a "consolidated tape" for AVAX, similar to the consolidated tapes or
"ticker tapes" used by major stock exchanges to report trades and quotes. The
term "consolidated" refers to the fact that securities, just like AVAX, often
trade on more than one exchange, and a consolidated tape reports not only a
security's trading activity on its primary listing exchange but the trading
activity on all or substantially all exchanges on which it is traded. However,
the global AVAX market is not subject to comparable regulatory guardrails as
regulated securities markets. See "Risk Factors—Due to the unregulated nature
and lack of transparency surrounding the operations of AVAX trading platforms,
which may be subject to regulation in relevant jurisdiction, but may not be
complying, they may experience fraud, manipulation, security failures or
operational problems, which may adversely affect the value of AVAX and,
consequently, the value of the Shares."
The
use of the MarketVectorTM
Avalanche Benchmark Rate is designed to eliminate from the NAV calculation
pursuant to which the Trust prices its Shares those AVAX trading platforms with
indicia of suspicious, fake, or non-economic volume. However, there is no
guarantee that such measures will be effective. See "Risk Factors— The
MarketVectorTM
Avalanche Benchmark Rate may be affected by manipulative or fraudulent practices
in the global AVAX market or at constituent trading platforms." In addition, the
use of five AVAX trading platforms is designed to mitigate the potential for
idiosyncratic exchange risk, as the failure of any individual AVAX trading
platform should not materially impact pricing for the Trust. Moreover, any
attempt to manipulate the NAV would require a substantial amount of capital
distributed across a majority of the five exchanges, and potentially coordinated
activity across those exchanges, making it more difficult to conduct, profit
from, or avoid the detection of market manipulation. The Sponsor believes that
this is especially true in a well-arbitraged and distributed market, as
MarketVector believes the real AVAX market to be.
In
addition to the above safeguards, the MarketVectorTM
Avalanche Benchmark Rate is calculated over twenty three-minute intervals
pursuant to a methodology referred to as an equal-weighted average of the
volume-weighted median price. The use of twenty consecutive three-minute
segments over a sixty-minute period means a malicious actor would need to
sustain efforts to manipulate the market over an extended period of time, or
would need to replicate efforts multiple times, potentially triggering review
from the exchange or regulators, or both. The use of a "median" price by its
nature limits the ability of outlier prices that may have been caused by
attempts to manipulate the price on a particular exchange, to impact the NAV, as
it systematically excludes those prices from the NAV calculation.
Description
of the MarketVectorTM
Avalanche Benchmark Rate Construction and Maintenance
The
Sponsor has entered into a licensing agreement with MarketVector to use the
MarketVectorTM
Avalanche Benchmark Rate. The Trust is entitled to use the
MarketVectorTM
Avalanche Benchmark Rate pursuant to a sub-licensing arrangement with the
Sponsor. The MarketVectorTM
Avalanche Benchmark Rate is a U.S. dollar-denominated composite reference rate
for the price of AVAX. The index administrator is Market Vector, a wholly-owned
subsidiary of VanEck. On each day that the Exchange is open for regular trading,
as promptly as practical after 4:00 p.m. Eastern time, the Administrator
determines the NAV of the Trust, based on the MarketVectorTM
Avalanche
Benchmark Rate. In determining the Trust's NAV, the Administrator values the
AVAX held by the Trust based on the price set by the MarketVectorTM
Avalanche Benchmark Rate as of 4:00 p.m. Eastern time.
The
Index is calculated daily between 00:00 and 24:00 (CET) and the Index values are
disseminated every 15 seconds to data vendors. The Index is disseminated in USD
and the closing and intraday value is calculated over twenty three-minute
intervals pursuant to a methodology referred to as an equal-weighted average of
the volume-weighted median price. The intra-day data available in the
MarketVectorTM
Avalanche Benchmark Rate is published once every 15 seconds throughout each
trading day. The intra-day levels and closing levels of the
MarketVectorTM
Avalanche Benchmark Rate are published by MarketVector. The current exchange
composition of the MarketVectorTM
Avalanche Benchmark Rate is Coinbase, Crypto.com, Gemini, Kraken and OKX. The
MarketVectorTM
Avalanche Benchmark Rate index was launched on May 8, 2025.
The
underlying trading platforms are sourced from the industry leading BITA
Cryptocurrency Real-Time Rates report, which is issued by BITA GmbH. BITA GmbH
(“BITA”) is a Germany-based fintech company that provides enterprise-grade
indexes, data and infrastructure to institutions operating in the passive and
quantitative investment spaces. Active in the digital asset industry since 2018,
BITA provides crypto calculation, index administration and infrastructure
solutions to financial institutions globally. BITA reviews various trading
exchanges and analyzes such exchanges to determine whether the exchanges should
be approved as a data source (approved exchanges are referred to by BITA as
“whitelisted”). BITA’s methodology for evaluating exchanges utilizes a
combination of qualitative and quantitative metrics to analyze a comprehensive
data set, covering five categories of evaluation. The categories of evaluation
include regulatory standing, trading volume and liquidity, data quality,
technology and usability/coverage. BITA evaluates each category of each exchange
with respect to each different digital asset, with different weights assigned to
each category to arrive at a “total score” for each exchange. BITA then ascribes
a rating to each exchange and determines the minimum total score for an exchange
to be included in each pricing index. Each qualifying exchanges is then ranked
by BITA according to their “total score” to determine their BITA ranking, which
determines the weighting of such exchange in the MarketVectorTM
Avalanche Benchmark Rate.
The
BITA Cryptocurrency Real-Time Rates report provides a framework for assessing
risk of each exchange and brings transparency and accountability to a rapidly
evolving market and industry. Based on the BITA Cryptocurrency Real-Time Rates
report, MarketVector initially selects the top five exchanges by rank for
inclusion in the MarketVectorTM
Avalanche Benchmark Rate. If an eligible non-component exchange is in the top
five by rank for two consecutive semi-annual reviews, it replaces the lowest
ranked component exchange. If an eligible exchange is downgraded by two or more
notches in a semi-annual review and is no longer in the top five by rank, it is
replaced by the highest ranked non-component exchange. Adjustments to exchange
coverage are announced four business days prior to the first business day of
each of March and September at 23:00 CET. Once it has actual knowledge of
material changes to the component exchanges used to calculate the Index, the
Trust will notify Shareholders in a prospectus supplement and a current report
on Form 8-K or in its annual or quarterly reports. The MarketVectorTM
Avalanche Benchmark Rate is rebalanced at 16:00:00 GMT/BST on the last business
day of each of February and August.
As
noted above, the MarketVectorTM
Avalanche Benchmark Rate is disseminated in USD and the closing and intraday
value is calculated over twenty three-minute intervals pursuant to a methodology
referred to as an equal-weighted average of the volume-weighted median price. In
other words, MarketVectorTM
Avalanche Benchmark Rate seeks to provide the average price that AVAX has traded
at during the past hour. This is calculated as the average of the
volume-weighted median price on the constituent platforms of each of the twenty
three-minute intervals, as displayed below:
Volume-weighted
median price of AVAX for each three minute period (20 total) / 20 = MarketVector
Avalanche Benchmark Rate price.
When
determining the volume-weighted median price during a three minute period, the
highest and lowest contributed prices from the five constituent trading
platforms are removed and the volume-weight median is derived from the
contributed prices of the other three exchanges. Using twenty consecutive
three-minute segments over a sixty-minute period means malicious actors would
need to sustain efforts to manipulate the market over an extended period of
time, or would need to replicate efforts multiple times across exchanges,
potentially triggering review.
This
extended period also supports Authorized Participant activity by capturing
volume over a longer time period, rather than forcing Authorized Participants to
mark an individual close or auction. The use of a median price reduces the
ability of outlier prices to impact the NAV, as it systematically excludes those
prices from the NAV calculation. The use of a volume-weighted median (as opposed
to a traditional median) serves as an additional protection against attempts to
manipulate the NAV by executing a large number of low-dollar trades, because,
any manipulation attempt would have to involve a majority of global spot AVAX
volume in a three-minute window to have any influence on the NAV. As discussed
herein, removing the highest and lowest prices further protects against attempts
to manipulate the NAV, requiring bad actors to act on multiple exchanges at once
to have any ability to influence the price.
Disclaimers
VanEck
Avalanche ETF (the "Product") is not sponsored, endorsed, sold or promoted by
MarketVector Indexes GmbH ("Licensor") and any of its affiliates. Licensor and
any of its affiliates make no representation or warranty, express or implied, to
the owners of the Product or any member of the public regarding the advisability
of investing in tokens generally or in the Product particularly or the ability
of the MarketVectorTM
Avalanche Benchmark Rate to track the performance of the digital assets market.
Licensor's only relationship to the Licensee is the licensing of certain service
marks and trade names of Licensor and of the Index that is determined, composed
and calculated by Licensor without regard to the Licensee or the Product.
Licensor has no obligation to take the needs of the Licensee or the owners of
the Product into consideration in determining, composing or calculating the
Index. Licensor is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the Product to be
issued or in the determination or calculation of the equation by which the
Product is to be converted into cash. Licensor has no obligation or liability in
connection with the administration, marketing or trading of the
Product.
LICENSOR
DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MARKETVECTOR
AVALANCHE BENCHMARK RATE OR ANY DATA INCLUDED THEREIN AND LICENSOR AND ANY OF
ITS AFFILIATES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. LICENSOR AND ANY OF ITS AFFILIATES MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE
VANECK AVALANCHE ETF, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
MARKETVECTOR AVALANCHE BENCHMARK RATE OR ANY DATA INCLUDED THEREIN. LICENSOR
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE MARKETVECTOR AVALANCHE BENCHMARK RATE OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL LICENSOR AND ANY OF ITS
AFFILIATES HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
The
Product is not sponsored, promoted, sold or supported in any other manner by CC
Data Limited nor does CC Data Limited offer any express or implicit guarantee or
assurance either with regard to the results of using the Index and/or Index
trade mark or the Index price at any time or in any other respect. The Index is
calculated and published by CC Data Limited. CC Data Limited uses its best
efforts to ensure that the Index is calculated correctly. Irrespective of its
obligations towards the Issuer, CC Data Limited has no obligation to point out
errors in the Index to third parties including but not limited to investors
and/or financial intermediaries of the financial instrument. Neither publication
of the Index by CC Data Limited nor the licensing of the Index or Index trade
mark for the purpose of use in connection with the financial instrument
constitutes a recommendation by CC Data Limited to invest capital in said
financial instrument nor does it in any way represent an assurance or opinion of
CC Data Limited with regard to any investment in this financial instrument. CC
Data Limited is not responsible for fulfilling the legal requirements concerning
the accuracy and completeness of the financial instrument's
prospectus.
NET
ASSET VALUE DETERMINATIONS
Calculation
of NAV and NAV per Share
The
Trust's NAV will be calculated based on the Trust's net asset holdings as
reconciled to the AVAX Custodian's accounts on a market approach, determined on
a daily basis in accordance with the MarketVectorTM
Avalanche Benchmark Rate price at 4:00 p.m. Eastern time. The Sponsor believes
that use of the MarketVectorTM
Avalanche Benchmark Rate mitigates against idiosyncratic exchange risk, as the
failure of any individual exchange will not materially impact pricing for the
Trust. It also allows the Administrator to calculate the NAV in a manner that
significantly deters manipulation.
The
Sponsor holds full discretion to change either the index used for calculating
NAV or the index provider subject to proper notification to shareholders (such
notification will be made via a prospectus supplement and/or a current report
filed with the SEC and will occur in advance of any such change). Shareholder
approval is not required.
As
discussed, the fact that there are multiple exchanges contributing prices to the
MarketVectorTM
Avalanche Benchmark Rate used to calculate NAV makes manipulation more difficult
in a well-arbitraged and fractured market, as a malicious actor would need to
manipulate multiple exchanges simultaneously to impact the NAV, or dramatically
skew the historical distribution of volume between the various
exchanges.
In
calculating the MarketVectorTM
Avalanche Benchmark Rate, the methodology captures trade prices and sizes from
exchanges and examines twenty three-minute periods leading up to 4:00 p.m.
Eastern time to produce the closing value. It then calculates an equal-weighted
average of the volume-weighted median price of these twenty three-minute
periods, removing the highest and lowest contributed prices. Using twenty
consecutive three-minute segments over a sixty-minute period means malicious
actors would need to sustain efforts to manipulate the market over an extended
period of time, or would need to replicate efforts multiple times across
exchanges, potentially triggering review. This extended period also supports
Authorized Participant activity by capturing volume over a longer time period,
rather than forcing Authorized Participants to mark an individual close or
auction. The use of a median price eliminates the ability of outlier prices to
impact the NAV, as it systematically excludes those prices from the NAV
calculation. The use of a volume-weighted median (as opposed to a traditional
median) protects against attempts to manipulate the NAV by executing a large
number of low-dollar trades, because, any manipulation attempt would have to
involve a majority of global spot AVAX volume in a three-minute window to have
any influence on the NAV. As discussed, trimming the highest and lowest prices
further protects against attempts to manipulate the NAV, requiring bad actors to
act on multiple exchanges at once to have any ability to influence the price.
Additional information about the MarketVectorTM
Avalanche Benchmark Rate, including its methodology and calculation formula, are
available the MarketVector website, which is accessible at
www.marketvector.com.
The
MarketVector™ Avalanche Benchmark Rate is designed to be a robust price for AVAX
in USD. There is no component other than AVAX in the index.
Review
procedure (for eligible exchanges with USD pair/agreement):
•If
an eligible exchange is in the top 5 by rank based on the BITA Cryptocurrency
Real-Time Rates report for two consecutive semiannual reviews, it replaces the
lowest ranked exchange.
•If
an eligible exchange is downgraded by two or more notches in a semiannual review
and is not in the top 5 by rank anymore, it is replaced by the highest ranked
non-component exchange.
Adjustments
to exchange coverage will be announced four business days prior to the first
business day of June/December at 23:00 CET/CEST; the indexes are rebalanced at
16:00:00 ET on the last business day of May/November.
In
case of a hard fork, the forked coin is not added to the
MarketVectorTM
Avalanche Benchmark Rate. Notwithstanding the foregoing, if MarketVector
determines that a forked asset is significant enough to replace the old line in
terms of market capitalization and acceptance, MarketVector may decide for a
different treatment.
In
the unlikely event a spun-off coin is larger than AVAX (by market
capitalization) and is in general accepted as the successor of the original
chain, the index owner might decide to keep it as the only index
component.
The
index is calculated daily between 00:00 and 24:00 (ET) and the index values are
disseminated to data vendors every 15 seconds. The index is disseminated in USD
and the closing value is calculated at 16:00:00 ET with fixed 16:00 ET exchange
rates.
The
following provides a hypothetical example of the MarketVector™ Avalanche
Benchmark Rate calculation*:
1.On
a given calculation day, the below relevant transactions are observed at 9:02
p.m. Eastern time:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bucket |
|
Time
(NY) |
|
Price
(USD) |
|
Size
(AVAX) |
|
Exchange |
|
| 1 |
|
15/12/2025
15:00:00 |
|
18.27734 |
|
6,500.973479 |
|
OKX |
|
| 1 |
|
15/12/2025
15:00:18 |
|
18.17 |
|
1.817 |
|
coinbase |
|
| 1 |
|
15/12/2025
15:00:36 |
|
18.02 |
|
0.001634414 |
|
kraken |
|
| 1 |
|
15/12/2025
15:00:54 |
|
18.1 |
|
52.42788243 |
|
kraken |
|
| 1 |
|
15/12/2025
15:01:12 |
|
18.32 |
|
0.249863549 |
|
coinbase |
|
| 1 |
|
15/12/2025
15:01:30 |
|
18.23459 |
|
322.3913684 |
|
OKX |
|
| 1 |
|
15/12/2025
15:01:49 |
|
17.994 |
|
39.22692 |
|
cryptodotcom |
|
| 1 |
|
15/12/2025
15:02:07 |
|
18.29 |
|
1997.338517 |
|
coinbase |
|
| 1 |
|
15/12/2025
15:02:25 |
|
18.29081 |
|
86.42407725 |
|
OKX |
|
| 1 |
|
15/12/2025
15:02:43 |
|
18.28 |
|
15.03138954 |
|
coinbase |
|
| 2 |
|
15/12/2025
15:03:01 |
|
18.13 |
|
25.20490108 |
|
coinbase |
|
| 2 |
|
15/12/2025
15:03:19 |
|
18.35 |
|
22.39424091 |
|
coinbase |
|
| 2 |
|
15/12/2025
15:03:37 |
|
17.949 |
|
1.25643 |
|
cryptodotcom |
|
| 2 |
|
15/12/2025
15:03:55 |
|
18.18 |
|
24.5786328 |
|
coinbase |
|
| 2 |
|
15/12/2025
15:04:13 |
|
18.17726 |
|
85.8875535 |
|
OKX |
|
| 2 |
|
15/12/2025
15:04:31 |
|
18.07 |
|
881.8418513 |
|
coinbase |
|
| 2 |
|
15/12/2025
15:04:49 |
|
18.097 |
|
251.91024 |
|
cryptodotcom |
|
| 2 |
|
15/12/2025
15:05:08 |
|
18.161 |
|
10.17016 |
|
cryptodotcom |
|
| 2 |
|
15/12/2025
15:05:26 |
|
18.32 |
|
70.42376361 |
|
coinbase |
|
| 2 |
|
15/12/2025
15:05:44 |
|
18.28133 |
|
86.37928425 |
|
OKX |
|
| 3 |
|
15/12/2025
15:06:02 |
|
17.944 |
|
33.01696 |
|
cryptodotcom |
|
| 3 |
|
15/12/2025
15:06:20 |
|
18.251 |
|
213.5367 |
|
cryptodotcom |
|
| 3 |
|
15/12/2025
15:06:38 |
|
18.246 |
|
32.11296 |
|
cryptodotcom |
|
| 3 |
|
15/12/2025
15:06:56 |
|
17.9 |
|
1.611969464 |
|
coinbase |
|
| 3 |
|
15/12/2025
15:07:14 |
|
18.35 |
|
812.6049905 |
|
coinbase |
|
| 3 |
|
15/12/2025
15:07:32 |
|
18.04 |
|
1.2628 |
|
cryptodotcom |
|
| 3 |
|
15/12/2025
15:07:50 |
|
17.9 |
|
99.99999984 |
|
kraken |
|
| 3 |
|
15/12/2025
15:08:08 |
|
18.084 |
|
34.72128 |
|
cryptodotcom |
|
| 3 |
|
15/12/2025
15:08:27 |
|
18.3 |
|
1441.125 |
|
coinbase |
|
| 3 |
|
15/12/2025
15:08:45 |
|
17.9 |
|
355.0014427 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:09:03 |
|
17.94 |
|
2.09435758 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:09:21 |
|
18.30912 |
|
99.87808051 |
|
OKX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bucket |
|
Time
(NY) |
|
Price
(USD) |
|
Size
(AVAX) |
|
Exchange |
|
| 4 |
|
15/12/2025
15:09:39 |
|
17.89 |
|
6.30008068 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:09:57 |
|
18.07 |
|
2345.548718 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:10:15 |
|
18.29 |
|
4907.243118 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:10:33 |
|
18.262 |
|
76.88302 |
|
cryptodotcom |
|
| 4 |
|
15/12/2025
15:10:51 |
|
18.18 |
|
1410.456377 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:11:09 |
|
18.25 |
|
1.825 |
|
coinbase |
|
| 4 |
|
15/12/2025
15:11:27 |
|
18.285 |
|
213.9345 |
|
cryptodotcom |
|
| 4 |
|
15/12/2025
15:11:46 |
|
18.28 |
|
2000.546748 |
|
coinbase |
|
| 5 |
|
15/12/2025
15:12:04 |
|
18.03084 |
|
306.4600239 |
|
OKX |
|
| 5 |
|
15/12/2025
15:12:22 |
|
17.96088 |
|
6.999354936 |
|
OKX |
|
| 5 |
|
15/12/2025
15:12:40 |
|
18.316 |
|
38.4636 |
|
cryptodotcom |
|
| 5 |
|
15/12/2025
15:12:58 |
|
18.3 |
|
3181.640927 |
|
coinbase |
|
| 5 |
|
15/12/2025
15:13:16 |
|
18.19 |
|
24.5921524 |
|
coinbase |
|
| 5 |
|
15/12/2025
15:13:34 |
|
17.958 |
|
1.25706 |
|
cryptodotcom |
|
| 5 |
|
15/12/2025
15:13:52 |
|
18.09 |
|
5554.016687 |
|
kraken |
|
| 5 |
|
15/12/2025
15:14:10 |
|
17.999 |
|
1.25993 |
|
cryptodotcom |
|
| 5 |
|
15/12/2025
15:14:28 |
|
18.286 |
|
1.28002 |
|
cryptodotcom |
|
| 5 |
|
15/12/2025
15:14:46 |
|
18.05 |
|
10.00829252 |
|
coinbase |
|
| 6 |
|
15/12/2025
15:15:05 |
|
18.30912 |
|
86.510592 |
|
OKX |
|
| 6 |
|
15/12/2025
15:15:23 |
|
18.08284 |
|
604.5511294 |
|
OKX |
|
| 6 |
|
15/12/2025
15:15:41 |
|
17.95303 |
|
589.3872797 |
|
OKX |
|
| 6 |
|
15/12/2025
15:15:59 |
|
18.3 |
|
4653.359876 |
|
kraken |
|
| 6 |
|
15/12/2025
15:16:17 |
|
17.95264 |
|
84.826224 |
|
OKX |
|
| 6 |
|
15/12/2025
15:16:35 |
|
17.996 |
|
151.70628 |
|
cryptodotcom |
|
| 6 |
|
15/12/2025
15:16:53 |
|
18.289 |
|
290.7951 |
|
cryptodotcom |
|
| 6 |
|
15/12/2025
15:17:11 |
|
18.276 |
|
173.43924 |
|
cryptodotcom |
|
| 6 |
|
15/12/2025
15:17:29 |
|
18.298 |
|
159.74154 |
|
cryptodotcom |
|
| 6 |
|
15/12/2025
15:17:47 |
|
18.076 |
|
130.87024 |
|
cryptodotcom |
|
| 7 |
|
15/12/2025
15:18:05 |
|
18.27 |
|
1574.25674 |
|
coinbase |
|
| 7 |
|
15/12/2025
15:18:24 |
|
18.3 |
|
366 |
|
cryptodotcom |
|
| 7 |
|
15/12/2025
15:18:42 |
|
18.266 |
|
38.72392 |
|
cryptodotcom |
|
| 7 |
|
15/12/2025
15:19:00 |
|
18.07 |
|
1531.065702 |
|
coinbase |
|
| 7 |
|
15/12/2025
15:19:18 |
|
18.35 |
|
139.0204067 |
|
coinbase |
|
| 7 |
|
15/12/2025
15:19:36 |
|
18.236 |
|
62.54948 |
|
cryptodotcom |
|
| 7 |
|
15/12/2025
15:19:54 |
|
18.09 |
|
846.612 |
|
coinbase |
|
| 7 |
|
15/12/2025
15:20:12 |
|
18.1 |
|
24.470476 |
|
coinbase |
|
| 7 |
|
15/12/2025
15:20:30 |
|
18.26554 |
|
20.00059113 |
|
OKX |
|
| 7 |
|
15/12/2025
15:20:48 |
|
18.18 |
|
1.2726 |
|
cryptodotcom |
|
| 8 |
|
15/12/2025
15:21:06 |
|
18.25 |
|
499.8630512 |
|
coinbase |
|
| 8 |
|
15/12/2025
15:21:24 |
|
18.11 |
|
128.2839788 |
|
kraken |
|
| 8 |
|
15/12/2025
15:21:43 |
|
17.895 |
|
37.9374 |
|
cryptodotcom |
|
| 8 |
|
15/12/2025
15:22:01 |
|
18.29 |
|
909.9500294 |
|
coinbase |
|
| 8 |
|
15/12/2025
15:22:19 |
|
18.10971 |
|
3503.486385 |
|
OKX |
|
| 8 |
|
15/12/2025
15:22:37 |
|
17.95 |
|
506.0614604 |
|
coinbase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bucket |
|
Time
(NY) |
|
Price
(USD) |
|
Size
(AVAX) |
|
Exchange |
|
| 8 |
|
15/12/2025
15:22:55 |
|
18.09 |
|
1419.63651 |
|
coinbase |
|
| 8 |
|
15/12/2025
15:23:13 |
|
18.178 |
|
1.27246 |
|
cryptodotcom |
|
| 8 |
|
15/12/2025
15:23:31 |
|
18.24 |
|
61.78515529 |
|
kraken |
|
| 8 |
|
15/12/2025
15:23:49 |
|
18.21 |
|
280.5192734 |
|
coinbase |
|
| 9 |
|
15/12/2025
15:24:07 |
|
18.036 |
|
1.26252 |
|
cryptodotcom |
|
| 9 |
|
15/12/2025
15:24:25 |
|
18.25 |
|
5.534994868 |
|
coinbase |
|
| 9 |
|
15/12/2025
15:24:43 |
|
18.183 |
|
34.5477 |
|
cryptodotcom |
|
| 9 |
|
15/12/2025
15:25:02 |
|
18.29616 |
|
172.898712 |
|
OKX |
|
| 9 |
|
15/12/2025
15:25:20 |
|
18.17 |
|
3.700194037 |
|
coinbase |
|
| 9 |
|
15/12/2025
15:25:38 |
|
17.91 |
|
838.188 |
|
coinbase |
|
| 9 |
|
15/12/2025
15:25:56 |
|
18.29 |
|
1.829 |
|
coinbase |
|
| 9 |
|
15/12/2025
15:26:14 |
|
18.09 |
|
719.947786 |
|
kraken |
|
| 9 |
|
15/12/2025
15:26:32 |
|
18.21 |
|
233.4126446 |
|
coinbase |
|
| 9 |
|
15/12/2025
15:26:50 |
|
18.26918 |
|
2501.294694 |
|
OKX |
|
| 10 |
|
15/12/2025
15:27:08 |
|
18.327 |
|
10.07985 |
|
cryptodotcom |
|
| 10 |
|
15/12/2025
15:27:26 |
|
18.29 |
|
85.2798888 |
|
coinbase |
|
| 10 |
|
15/12/2025
15:27:44 |
|
18.07 |
|
772.164912 |
|
coinbase |
|
| 10 |
|
15/12/2025
15:28:02 |
|
18.031 |
|
59.68261 |
|
cryptodotcom |
|
| 10 |
|
15/12/2025
15:28:21 |
|
18.21 |
|
40.31871056 |
|
coinbase |
|
| 10 |
|
15/12/2025
15:28:39 |
|
18.359 |
|
1.28513 |
|
cryptodotcom |
|
| 10 |
|
15/12/2025
15:28:57 |
|
18.168 |
|
1.27176 |
|
cryptodotcom |
|
| 10 |
|
15/12/2025
15:29:15 |
|
18.071 |
|
10.11976 |
|
cryptodotcom |
|
| 10 |
|
15/12/2025
15:29:33 |
|
18.29 |
|
24.7273484 |
|
coinbase |
|
| 10 |
|
15/12/2025
15:29:51 |
|
18.08 |
|
435.17204 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:30:09 |
|
18.08 |
|
509.7265295 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:30:27 |
|
18.037 |
|
10.10072 |
|
cryptodotcom |
|
| 11 |
|
15/12/2025
15:30:45 |
|
18.09 |
|
1.10349 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:31:03 |
|
17.996 |
|
33.65252 |
|
cryptodotcom |
|
| 11 |
|
15/12/2025
15:31:21 |
|
18.3 |
|
1.829806752 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:31:39 |
|
18.3 |
|
823.9912591 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:31:58 |
|
18.21 |
|
13.44631062 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:32:16 |
|
18.17 |
|
225.7811468 |
|
coinbase |
|
| 11 |
|
15/12/2025
15:32:34 |
|
18.168 |
|
1.27176 |
|
cryptodotcom |
|
| 11 |
|
15/12/2025
15:32:52 |
|
18.20003 |
|
85.99514175 |
|
OKX |
|
| 12 |
|
15/12/2025
15:33:10 |
|
18.26 |
|
2.910599993 |
|
coinbase |
|
| 12 |
|
15/12/2025
15:33:28 |
|
18.03 |
|
1.803 |
|
coinbase |
|
| 12 |
|
15/12/2025
15:33:46 |
|
18.2 |
|
51.59953271 |
|
kraken |
|
| 12 |
|
15/12/2025
15:34:04 |
|
18.298 |
|
159.74154 |
|
cryptodotcom |
|
| 12 |
|
15/12/2025
15:34:22 |
|
18.079 |
|
34.6556351 |
|
gemini |
|
| 12 |
|
15/12/2025
15:34:40 |
|
18.28071 |
|
500.0154087 |
|
OKX |
|
| 12 |
|
15/12/2025
15:34:58 |
|
17.94 |
|
69.98999995 |
|
coinbase |
|
| 12 |
|
15/12/2025
15:35:17 |
|
18.02 |
|
1.802 |
|
coinbase |
|
| 12 |
|
15/12/2025
15:35:35 |
|
18.167 |
|
420.92939 |
|
cryptodotcom |
|
| 12 |
|
15/12/2025
15:35:53 |
|
18.044 |
|
32.4792 |
|
cryptodotcom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bucket |
|
Time
(NY) |
|
Price
(USD) |
|
Size
(AVAX) |
|
Exchange |
|
| 13 |
|
15/12/2025
15:36:11 |
|
18.30736 |
|
1026.995448 |
|
OKX |
|
| 13 |
|
15/12/2025
15:36:29 |
|
18.2873 |
|
625.272299 |
|
OKX |
|
| 13 |
|
15/12/2025
15:36:47 |
|
18.288 |
|
1.28016 |
|
cryptodotcom |
|
| 13 |
|
15/12/2025
15:37:05 |
|
18.28 |
|
7.483381946 |
|
coinbase |
|
| 13 |
|
15/12/2025
15:37:23 |
|
18.13 |
|
1081.440112 |
|
kraken |
|
| 13 |
|
15/12/2025
15:37:41 |
|
18.31 |
|
34.9721 |
|
cryptodotcom |
|
| 13 |
|
15/12/2025
15:37:59 |
|
18.317 |
|
10.07435 |
|
cryptodotcom |
|
| 13 |
|
15/12/2025
15:38:17 |
|
18.3 |
|
7.63293 |
|
coinbase |
|
| 13 |
|
15/12/2025
15:38:36 |
|
18.12102 |
|
19.00532578 |
|
OKX |
|
| 13 |
|
15/12/2025
15:38:54 |
|
18.16 |
|
0.001637487 |
|
kraken |
|
| 14 |
|
15/12/2025
15:39:12 |
|
18.176 |
|
90.51648 |
|
cryptodotcom |
|
| 14 |
|
15/12/2025
15:39:30 |
|
18.18 |
|
720.6658637 |
|
coinbase |
|
| 14 |
|
15/12/2025
15:39:48 |
|
18.30305 |
|
279.7271665 |
|
OKX |
|
| 14 |
|
15/12/2025
15:40:06 |
|
18.3 |
|
0.000193248 |
|
coinbase |
|
| 14 |
|
15/12/2025
15:40:24 |
|
18.3 |
|
1.025199672 |
|
coinbase |
|
| 14 |
|
15/12/2025
15:40:42 |
|
18.29 |
|
0.250685301 |
|
coinbase |
|
| 14 |
|
15/12/2025
15:41:00 |
|
18.33 |
|
1.05000014 |
|
coinbase |
|
| 14 |
|
15/12/2025
15:41:18 |
|
18.101 |
|
184.81121 |
|
cryptodotcom |
|
| 14 |
|
15/12/2025
15:41:36 |
|
18.076 |
|
1.26532 |
|
cryptodotcom |
|
| 14 |
|
15/12/2025
15:41:55 |
|
18.36 |
|
441.91143 |
|
coinbase |
|
| 15 |
|
15/12/2025
15:42:13 |
|
18.28283 |
|
86.38637175 |
|
OKX |
|
| 15 |
|
15/12/2025
15:42:31 |
|
18.03 |
|
114.8051437 |
|
coinbase |
|
| 15 |
|
15/12/2025
15:42:49 |
|
18.2 |
|
0.285297922 |
|
coinbase |
|
| 15 |
|
15/12/2025
15:43:07 |
|
18.27 |
|
379.1385873 |
|
coinbase |
|
| 15 |
|
15/12/2025
15:43:25 |
|
18.357 |
|
364.57002 |
|
cryptodotcom |
|
| 15 |
|
15/12/2025
15:43:43 |
|
18.18 |
|
1699.456849 |
|
coinbase |
|
| 15 |
|
15/12/2025
15:44:01 |
|
18.17035 |
|
299.0063569 |
|
OKX |
|
| 15 |
|
15/12/2025
15:44:19 |
|
18.16 |
|
1.115079206 |
|
coinbase |
|
| 15 |
|
15/12/2025
15:44:37 |
|
17.94613 |
|
326.8556359 |
|
OKX |
|
| 15 |
|
15/12/2025
15:44:55 |
|
18.33691 |
|
173.2837995 |
|
OKX |
|
| 16 |
|
15/12/2025
15:45:14 |
|
18.21 |
|
8.390842405 |
|
coinbase |
|
| 16 |
|
15/12/2025
15:45:32 |
|
17.89 |
|
837.252 |
|
coinbase |
|
| 16 |
|
15/12/2025
15:45:50 |
|
18.09 |
|
136.2280258 |
|
kraken |
|
| 16 |
|
15/12/2025
15:46:08 |
|
18.37 |
|
8.644105454 |
|
coinbase |
|
| 16 |
|
15/12/2025
15:46:26 |
|
18.04606 |
|
937.4875322 |
|
OKX |
|
| 16 |
|
15/12/2025
15:46:44 |
|
18.32 |
|
109.0065659 |
|
coinbase |
|
| 16 |
|
15/12/2025
15:47:02 |
|
18.156 |
|
185.37276 |
|
cryptodotcom |
|
| 16 |
|
15/12/2025
15:47:20 |
|
18.27 |
|
1638.906221 |
|
coinbase |
|
| 16 |
|
15/12/2025
15:47:38 |
|
18.00205 |
|
0.001304429 |
|
OKX |
|
| 16 |
|
15/12/2025
15:47:56 |
|
18.26 |
|
111.4810785 |
|
coinbase |
|
| 17 |
|
15/12/2025
15:48:14 |
|
18.28365 |
|
172.7804925 |
|
OKX |
|
| 17 |
|
15/12/2025
15:48:33 |
|
18.276 |
|
82.79028 |
|
cryptodotcom |
|
| 17 |
|
15/12/2025
15:48:51 |
|
18.17 |
|
9.008567532 |
|
coinbase |
|
| 17 |
|
15/12/2025
15:49:09 |
|
18.167 |
|
68.12625 |
|
cryptodotcom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bucket |
|
Time
(NY) |
|
Price
(USD) |
|
Size
(AVAX) |
|
Exchange |
|
| 17 |
|
15/12/2025
15:49:27 |
|
18.26 |
|
1.826 |
|
coinbase |
|
| 17 |
|
15/12/2025
15:49:45 |
|
18.25 |
|
3.37933425 |
|
coinbase |
|
| 17 |
|
15/12/2025
15:50:03 |
|
18.031 |
|
250.99152 |
|
cryptodotcom |
|
| 17 |
|
15/12/2025
15:50:21 |
|
18.28 |
|
4.486166092 |
|
coinbase |
|
| 17 |
|
15/12/2025
15:50:39 |
|
18.27 |
|
1434.644862 |
|
coinbase |
|
| 17 |
|
15/12/2025
15:50:57 |
|
18.1 |
|
828.3723526 |
|
kraken |
|
| 18 |
|
15/12/2025
15:51:15 |
|
18.187 |
|
34.5553 |
|
cryptodotcom |
|
| 18 |
|
15/12/2025
15:51:33 |
|
18.2 |
|
513.1096702 |
|
coinbase |
|
| 18 |
|
15/12/2025
15:51:52 |
|
18.05 |
|
1.805 |
|
coinbase |
|
| 18 |
|
15/12/2025
15:52:10 |
|
18.17726 |
|
85.8875535 |
|
OKX |
|
| 18 |
|
15/12/2025
15:52:28 |
|
18.098 |
|
1.26686 |
|
cryptodotcom |
|
| 18 |
|
15/12/2025
15:52:46 |
|
18.16 |
|
1.816 |
|
coinbase |
|
| 18 |
|
15/12/2025
15:53:04 |
|
18.17001 |
|
85.85329725 |
|
OKX |
|
| 18 |
|
15/12/2025
15:53:22 |
|
18.28 |
|
1.2796 |
|
cryptodotcom |
|
| 18 |
|
15/12/2025
15:53:40 |
|
17.96 |
|
523.853822 |
|
coinbase |
|
| 18 |
|
15/12/2025
15:53:58 |
|
18.278 |
|
1.27946 |
|
cryptodotcom |
|
| 19 |
|
15/12/2025
15:54:16 |
|
18.3 |
|
9.100449273 |
|
coinbase |
|
| 19 |
|
15/12/2025
15:54:34 |
|
18.12 |
|
59.17027237 |
|
coinbase |
|
| 19 |
|
15/12/2025
15:54:52 |
|
18.29 |
|
855.972 |
|
coinbase |
|
| 19 |
|
15/12/2025
15:55:11 |
|
18.265 |
|
33.9729 |
|
cryptodotcom |
|
| 19 |
|
15/12/2025
15:55:29 |
|
18.069 |
|
1.26483 |
|
cryptodotcom |
|
| 19 |
|
15/12/2025
15:55:47 |
|
18.28 |
|
2000.547196 |
|
coinbase |
|
| 19 |
|
15/12/2025
15:56:05 |
|
18.269 |
|
1.27883 |
|
cryptodotcom |
|
| 19 |
|
15/12/2025
15:56:23 |
|
18.1 |
|
1.011576058 |
|
coinbase |
|
| 19 |
|
15/12/2025
15:56:41 |
|
18.04 |
|
4.860900009 |
|
coinbase |
|
| 19 |
|
15/12/2025
15:56:59 |
|
18.3 |
|
1.83 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:57:17 |
|
18 |
|
20.68232976 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:57:35 |
|
18.18 |
|
1611.970075 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:57:53 |
|
18.07 |
|
41.39603283 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:58:11 |
|
18.05 |
|
1.805 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:58:30 |
|
18.279 |
|
35.46126 |
|
cryptodotcom |
|
| 20 |
|
15/12/2025
15:58:48 |
|
18.275 |
|
33.626 |
|
cryptodotcom |
|
| 20 |
|
15/12/2025
15:59:06 |
|
18.29928 |
|
870.553494 |
|
OKX |
|
| 20 |
|
15/12/2025
15:59:24 |
|
17.89 |
|
202.8954992 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:59:42 |
|
18.04 |
|
1.804 |
|
coinbase |
|
| 20 |
|
15/12/2025
15:59:59 |
|
17.95434 |
|
117.4768117 |
|
OKX |
|
2.These
transactions are segmented by their timestamp into 20 buckets of equal 3-minute
length as shown in the first column in the above table.
3.The
volume weighted median price for each bucket is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Buckets |
|
Volume
(AVAX) |
|
Volume
Weighted Median Price ($) |
| 1 |
|
9,015.882132 |
|
18.255965 |
| 2 |
|
1,460.047057 |
|
18.16913 |
| 3 |
|
3024.994102 |
|
18.062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Buckets |
|
Volume
(AVAX) |
|
Volume
Weighted Median Price ($) |
| 4 |
|
11064.71 |
|
18.256 |
| 5 |
|
9125.978047 |
|
18.07 |
| 6 |
|
6925.187501 |
|
18.17942 |
| 7 |
|
4603.971916 |
|
18.25077 |
| 8 |
|
7348.795703 |
|
18.144 |
| 9 |
|
4512.616245 |
|
18.1965 |
| 10 |
|
1440.10201 |
|
18.189 |
| 11 |
|
1706.898685 |
|
18.169 |
| 12 |
|
1275.926306 |
|
18.123 |
| 13 |
|
2814.157744 |
|
18.28765 |
| 14 |
|
1721.223548 |
|
18.295 |
| 15 |
|
3444.903141 |
|
18.19 |
| 16 |
|
3972.770436 |
|
18.183 |
| 17 |
|
2856.405825 |
|
18.255 |
| 18 |
|
1250.706563 |
|
18.173635 |
| 19 |
|
2969.008953 |
|
18.267 |
| 20 |
|
2937.670502 |
|
18.06 |
4.The
average of the 20 volume weighted medians is calculated to be
$18.1888.
The
Trust's NAV per Share is calculated by:
•taking
the current market value of its total assets;
•subtracting
any liabilities; and
•dividing
that total by the total number of outstanding Shares.
The
Administrator calculates the NAV of the Trust once each Exchange trading day.
The NAV for a normal trading day will be released after 4:00 p.m. Eastern time.
Trading during the core trading session on the Exchange typically closes at 4:00
p.m. Eastern time. However, NAVs are not officially struck until later in the
day (often by 5:30 p.m. Eastern time and generally no later than 8:00 p.m.
Eastern time). The pause between 4:00 p.m. Eastern time and 5:30 p.m. Eastern
time (or later) provides an opportunity to detect, flag, investigate, and
correct unusual pricing should it occur. The Sponsor will monitor for
significant events related to crypto assets that may impact the value of AVAX
and will determine in good faith, and in accordance with its valuation policies
and procedures, whether to fair value the Trust's AVAX on a given day based
(e.g.,
if the MarketVectorTM
Avalanche Benchmark Rate is not available the Sponsor). In certain
circumstances, the Sponsor will determine whether to fair value the Trust's AVAX
on a given day on whether certain pre-determined criteria have been met. For
example, if the MarketVectorTM
Avalanche Benchmark Rate deviates by more than a pre-determined amount from an
alternate benchmark available to the Sponsor, then the Sponsor may determine to
utilize the alternate benchmark. The Sponsor may also fair value the Trust's
AVAX using observed market transactions from one or more exchanges. The Sponsor
may also fair value the Trust's AVAX using a combination of inputs in certain
situations (e.g., using observed market transactions, OTC quotations from
brokers, etc.).
Accordingly,
the NAV of the Trust may reflect the fair value of AVAX rather than the AVAX
market prices on certain exchanges at 4:00 p.m. Eastern time. Fair value pricing
involves subjective judgments and it is possible that a fair value determination
for AVAX or other assets is materially different than the value that could be
realized upon the sale of such AVAX or asset. In addition, fair value pricing
could result in a difference between the prices used to calculate the Trust's
NAV and the prices used by the MarketVectorTM
Avalanche Benchmark Rate. The Sponsor, in conjunction with the Administrator,
will work in good faith to determine the fair value and implement the correct of
the Trust's NAV. The NAV for the Trust will be calculated by the 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 ("CTA"). In addition, in order to provide
updated information relating to the Trust for use by Shareholders and market
professionals, ICE Data Indices, LLC will calculate and disseminate throughout
the core trading session on each trading day an updated intraday indicative
value ("IIV"). The IIV will be calculated by taking creation unit holdings and
updating that value throughout the trading day to reflect changes in the price
of AVAX; this value is then divided by the numbers of shares per creation unit
in order to calculate an IIV on a "per share" basis.
The
IIV disseminated during the Exchange core trading session hours should not be
viewed as an actual real time update of the NAV, because NAV per Share is
calculated only once at the end of each trading day based upon the relevant end
of day values of the Trust's investments. The Trust will provide the IIV per
Share updated every 15 seconds, as calculated by the Exchange or a third-party
financial data provider during the Exchange's regular trading hours (9:30 a.m.
to 4:00 p.m. E.T.). The IIV will be disseminated on a per Share basis every 15
seconds during regular Exchange core trading session hours of 9:30 a.m. Eastern
time to 4:00 p.m. Eastern time. ICE Data Indices, LLC will disseminate the IIV
value through the facilities of CTA/CQ High Speed Lines. In addition, the
indicative fund value will be published on the Exchange's website and will be
available through on-line information services such as Bloomberg and Reuters.
The IIV may differ from the NAV due to the differences in the time window of
trades used to calculate each price (the NAV uses a sixty-minute window, whereas
the IIV draws prices from the last trade on each exchange in an effort to
produce a relevant, real-time price). The Sponsor does not believe this will
cause confusion in the marketplace, as Authorized Participants are the only
Shareholders who interact with the NAV and the Sponsor will communicate its NAV
calculation methodology clearly.
There
are many instances in the market today where the IIV and the NAV of an ETF are
subtly different, whether due to the calculation methodology, market hours
overlap or other factors. The Sponsor has seen limited or no negative impact on
trading, liquidity or other factors for exchange-traded funds in this situation.
The Sponsor believes that the IIV will closely track the globally integrated
AVAX price as reflected on the contributing real AVAX trading
platforms.
Dissemination
of the IIV provides additional information that is not otherwise available to
the public and is useful to Shareholders and market professionals in connection
with the trading of the Trust's Shares on the Exchange. Shareholders and market
professionals will be able throughout the trading day to compare the market
price of the Trust and the IIV. If the market price of the Trust's Shares
diverges significantly from the IIV, market professionals will have an incentive
to execute arbitrage trades. For example, if the Trust appears to be trading at
a discount compared to the IIV, a market professional could buy the Trust's
Shares on the Exchange and sell short futures contracts. Such arbitrage trades
can tighten the tracking between the market price of the Trust and the IIV and
thus can be beneficial to all market participants.
The
Trust does not expect that price differentials for AVAX across exchanges would
have a meaningful impact on this arbitrage mechanism. Furthermore, the Trust
does not expect that the closure of any single one exchange would meaningfully
impact the arbitrage mechanism because Liquidity Providers typically source
underlying spot AVAX liquidity from multiple exchanges. The Trust acknowledges,
however, that this arbitrage mechanism could potentially be adversely impacted
if halts in the trading of spot AVAX were to occur across multiple exchanges,
whether due to breaches or otherwise. See "Risk Factors-- AVAX spot exchanges
are not subject to same regulatory oversight as traditional equity exchanges,
which could negatively impact the ability of Authorized Participants and
Liquidity Providers to implement arbitrage mechanism" for additional information
on these risks.
The
Sponsor reserves the right to adjust the Share price of the Trust in the future
to maintain convenient trading ranges for Shareholders. Any adjustments would be
accomplished through stock splits or reverse stock splits. Such splits would
decrease (in the case of a split) or increase (in the case of a reverse split)
the proportionate NAV per Share, but would have no effect on the net assets of
the Trust or the proportionate voting rights of Shareholders or the value of any
Shareholder's investment.
Calculation
of Principal Market NAV and Principal Market NAV per Share
In
addition to calculating NAV and NAV per Share, for purposes of the Trust's
financial statements, the Trust determines the Principal Market NAV and
Principal Market NAV per Share on each valuation date for such financial
statements. The determination of the Principal Market NAV and Principal Market
NAV per Share is identical to the calculation of NAV and NAV per Share,
respectively, except that the value of AVAX is determined using the fair value
of AVAX based on the price in the AVAX market that the Trust considers its
"principal market" as of 11:59 p.m., Eastern time, on the valuation date, rather
than using the Index. A disparity between the fair value of the Trust's AVAX
determined using "principal market" and the fair value of the Trust's AVAX using
the MarketVectorTM
Avalanche Benchmark Rate could be material. In the case of such a material
disparity that is ongoing, the Trust will notify Shareholders in a prospectus
supplement and a current report on Form 8-K or in its annual or quarterly
reports.
The
Trust has adopted a valuation policy, which provides for the procedure for
valuing the Trust's assets. The policy also sets forth the procedures to
determine the principal market (or in the absence of a principal market, the
most advantageous market) for purposes of determining the Principal Market NAV
and Principal Market NAV per Share in accordance with Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 820-10, which
outlines the application of fair value accounting. Under ASC 820-10, fair value
for AVAX is determined to be the price that would be received in a current sale,
assuming an orderly transaction between market participants on the valuation
date in the 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. Under its
valuation policy, the Trust determines its principal market (or in the absence
of a principal market the most advantageous market) annually and conducts an
analysis at least on a quarterly basis to determine whether there have occurred
any changes in AVAX markets and its operations that would require a change in
the Trust's determination of its principal market.
The
Trust identifies and determines the AVAX principal market (or in the absence of
a principal market, the most advantageous market) for GAAP purposes consistent
with the application of fair value measurement framework in FASB ASC
820-10.
ASC
820-10 determines fair value to be the price that would be received for AVAX in
a current sale, which assumes an orderly transaction between market participants
on the measurement date. ASC 820-10 requires the Trust to assume that AVAX 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.
Under
ASC 820-10, a principal market is the market with the greatest volume and
activity level for the asset or liability. The determination of the principal
market will be based on the market with the greatest volume and level of
activity that can be accessed.
The
Trust does not itself transact on any Digital Asset Markets (as defined below).
The Authorized Participants or Liquidity Providers transact in an Exchange
Market, Brokered Market, a Dealer Market, and Principal-to-Principal Markets,
each as defined in ASC 820-10-35-36A (collectively, "Digital Asset
Markets").
In
determining which of the eligible Digital Asset Markets is the Trust's principal
market, the Trust obtains reliable volume and level of activity information and
reviews these criteria in the following order:
First,
the Trust reviews a list of Digital Asset Markets and scopes in the markets that
the Trust reasonably believes are operating in compliance with applicable laws
and regulations and those that are accessible to the Trust and the Authorized
Participant.
Second,
the Trust sorts the remaining Digital Asset Markets from high to low based on
volume and level of activity of AVAX traded on each Digital Asset
Market.
Third,
the Trust then reviews intra-day pricing fluctuations and the degree of
variances in price on Digital Asset Markets to identify any material notable
variances that may impact the volume or price information of a particular
Digital Asset Market.
Fourth,
the Trust then selects a Digital Asset Market as its principal market based on
the highest market-based volume, level of activity, and price stability in
comparison to the other Digital Asset Markets on the list. Based on information
reasonably available to the Trust, Exchange Markets have the greatest volume and
level of activity for the asset. The Trust therefore looks to accessible
Exchange Markets as opposed to the Brokered Market, Dealer Market and
Principal-to-Principal Markets to determine its principal market.
As
a result of the analysis, the Trust will select an Exchange Market as the
Trust's principal market. Based on the Trust's initial assessment, the NAV and
NAV per Share will be calculated using the fair value of AVAX based on the price
provided by this Exchange, as of 4:00 p.m., Eastern time on the measurement date
for GAAP purposes.
The
Trust will update its principal market analysis periodically and as needed to
the extent that events have occurred, or activities have changed in a manner
that could change the Trust's determination of the principal
market.
The
Sponsor on behalf of the Trust will determine in its sole discretion the
valuation sources and policies used to prepare the Trust's financial statements
in accordance with GAAP.
The
cost basis of the investment in AVAX recorded by the Trust for financial
reporting purposes is the fair value of AVAX at the time of transfer. The cost
basis recorded by the Trust may differ from proceeds collected by the Authorized
Participant from the sale of the corresponding Shares to investors.
ADDITIONAL
INFORMATION ABOUT THE TRUST
The
Trust
The
Trust is a Delaware statutory trust, formed on March 10, 2025 pursuant to the
DSTA. The Trust continuously issues common shares representing fractional
undivided beneficial interest in and ownership of the Trust that may be
purchased and sold on the Exchange. The Trust operates pursuant to the Trust
Agreement dated as of March 10, 2025. CSC Delaware Trust Company, a Delaware
trust company, is the Delaware trustee of the Trust. The Trust is managed and
controlled by the Sponsor. The Sponsor is a limited liability company formed in
the state of Delaware on December 8, 2020.
The
Trust is not registered as an investment company under the 1940 Act and
currently is not required to register under the 1940 Act, and the Sponsor is not
registered as an investment adviser and currently is not required to register
under the Advisers Act in connection with its activities on behalf of the Trust.
The Trust will not hold or trade in commodity futures contracts regulated by the
Commodity Exchange Act ("CEA"), as administered by the CFTC. The Trust is not a
commodity pool for purposes of the CEA and neither the Sponsor, nor the Trustee
is subject to regulation as a commodity pool operator or a commodity trading
adviser in connection with their activity on behalf of the Trust.
The
Trust has no operating history. The Trust and the Sponsor face competition with
respect to the creation of competing products, such as exchange-traded products
offering exposure to the spot AVAX market or other digital assets. There can be
no assurance that the Trust will grow to or maintain an economically viable
size. While there are no predetermined criteria for determining whether the
Trust has reached an economically viable size, the Sponsor will monitor the
Trust's assets and liabilities, average daily trading volume of the Shares and
other factors on an ongoing basis. If the Trust is unable to reach or maintain
an economically viable size, trading in Shares may occur at wider spreads than
other competitor products, which could adversely affect the Shareholders.
Additionally, Shareholders may be subject to a higher expense ratio than
expected if the Trust incurred any operating expenses that are not borne by the
Sponsor. There is no guarantee that the Sponsor will obtain or maintain a
commercial advantage relative to competitors offering similar products. Whether
or not the Trust is successful in achieving its intended scale may be impacted
by a range of factors, such as the Trust's timing in entering the market and its
fee structure relative to those of competitive products.
The
number of outstanding Shares is expected to increase and decrease from time to
time as a result of the creation and redemption of Baskets. The creation and
redemption of Baskets requires the delivery to the Trust or the distribution by
the Trust of the amount of AVAX represented by the NAV of the Baskets being
created or redeemed. The total amount of AVAX required for the creation of
Baskets will be based on the combined net assets represented by the number of
Baskets being created or redeemed.
The
Trust has no fixed termination date.
The
Trust's Fees and Expenses
The
Trust will pay the Sponsor the Sponsor Fee, which is a unified fee of 0.20%. The
Sponsor Fee is paid by the Trust to the Sponsor as compensation for services
performed under the Trust Agreement. The Administrator will make its
determination regarding the Sponsor Fee in respect of each day by reference to
the Trust's NAV as of that day. The Sponsor Fee will be accrue in U.S. dollars
daily and be payable monthly in arrears in AVAX on, or by, the tenth business
day of the next month in respect of the prior month. Each month, the
Administrator will calculate the Sponsor Fee for each day of the month,
resulting in a cumulative total in U.S. dollars, which the Administrator will
then calculate the AVAX equivalent of by reference to the Index as of the date
of calculation, and the Sponsor shall then withdraw the corresponding amount of
AVAX from the Trust's AVAX Account in payment of the Sponsor Fee. The Sponsor
has agreed to pay all operating expenses (except for extraordinary expenses,
including but not limited to, non-recurring expenses and costs of services
performed by the Sponsor or a service provider on behalf of the Trust to protect
the Trust or the interests of Shareholders, such as the Custodian Staking
Facilitation Fee, and in connection with any indemnification of agents, service
providers or counterparties of the Trust and extraordinary legal fees and
expenses, including any legal fees and expenses incurred in connection with
litigation, regulatory enforcement or investigation matters) out of the Sponsor
Fee. For extraordinary expenses not covered in the
previous
sentence, the Sponsor shall pay these expenses as they become due and seek
contemporaneous reimbursement from the Trust in the form of AVAX at the time of
payment. For extraordinary expenses denominated in dollars, the Sponsor shall
convert the expense amounts into AVAX at the Index price on the date the Sponsor
seeks such reimbursement from the Trust, and shall withdraw the corresponding
amounts of AVAX from the Trust as reimbursement for paying such extraordinary
expenses of the Trust. For extraordinary expenses denominated in AVAX, if any,
the Sponsor shall withdraw the corresponding amounts of AVAX from the Trust as
reimbursement for paying such extraordinary expenses. Neither the Trust nor the
Shareholders shall be responsible for any fees and expenses, including any
Avalanche Network fees, incurred by the Sponsor to withdraw AVAX from the
Trust's AVAX Account in connection with payment of the Sponsor Fee or Trust
expenses not assumed by the Sponsor, or to convert such AVAX, once withdrawn,
into cash (if applicable). The Sponsor will sell AVAX which may be facilitated
by one or more Liquidity Providers and/or the AVAX Custodians or an affiliate
thereof, in connection with the termination of the Trust and the liquidation of
the Trust's AVAX holdings, which the Sponsor shall do at a price which it is
able to obtain through commercially reasonable efforts, and arrange for the
distribution of the cash proceeds to the Trust's Shareholders and creditors (if
any). Accordingly, the amount of AVAX held by the Trust may vary from time to
time depending on the level of the Trust's expenses and liabilities and the
market price of AVAX. In addition, the Sponsor may, at its sole discretion and
from time to time, waive all or a portion of the Sponsor Fee for stated periods
of time. The Sponsor is under no obligation to waive any portion of its fees and
any such waiver shall create no obligation to waive any such fees during any
period not covered by the waiver. During the period commencing on January 26,
2026 and ending on February 28, 2026, the Sponsor will waive the entire Sponsor
Fee for the first $500 million of the Trust’s assets. If the Trust’s assets
exceed $500 million prior to February 28, 2026, the Sponsor Fee charged on
assets over $500 million will be 0.20%. All investors will incur the same
Sponsor Fee which is the weighted average of those fee rates. After February 28,
2026, the Sponsor Fee will be 0.20%. In the future, if the Sponsor decides to
waive all or a portion of the Sponsor Fee, Shareholders will be notified in a
prospectus supplement, in its periodic Exchange Act reports and/or on the
Trust’s website.
As
partial consideration for receipt of the Sponsor Fee, the Sponsor shall assume
and pay all fees and other expenses incurred by the Trust in the ordinary course
of its affairs, excluding taxes, but including (i) marketing-related expenses,
(ii) fees to the Administrator, if any, (iii) fees to the AVAX Custodian, (iv)
fees to the Transfer Agent, (v) fees to the Trustee, (vi) the fees and expenses
related to any future listing, trading or quotation of the Shares on any listing
exchange or quotation system (including legal, marketing and audit fees and
expenses), (vii) ordinary course legal fees and expenses but not
litigation-related expenses, (viii) audit fees, (ix) regulatory fees, including
if applicable any fees relating to the registration of the Shares under the 1933
Act or Exchange Act, (x) printing and mailing costs; (xi) costs of maintaining
the Trust's website and (xii) applicable license fees (each, a "Sponsor-paid
Expense" and together, the "Sponsor-paid Expenses"), provided that any expense
that qualifies as an Additional Trust Expense will be deemed to be an Additional
Trust Expense and not a Sponsor-paid Expense.
The
Sponsor will not, however, assume certain extraordinary, non-recurring expenses
that are not Sponsor-paid Expenses (each, "Additional Trust Expenses"),
including, but not limited to, 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, any indemnification of the AVAX Custodians, Administrator or
other agents, service providers or counterparties of the Trust, the fees and
expenses related to the listing, and extraordinary legal fees and expenses,
including any legal fees and expenses incurred in connection with litigation,
regulatory enforcement or investigation matters. Certain of the Sponsor-paid
Expenses, such as ordinary course legal fees and expenses, are capped. In the
Sponsor's sole discretion, all or any portion of a Sponsor-paid Expense may be
redesignated as an Additional Trust Expense.
After
the payment of the Sponsor Fee to the Sponsor, or reimbursement of Additional
Trust Expenses the Sponsor may elect to convert some or all of the Sponsor Fee
or reimbursement of Additional Trust Expenses into cash by selling this AVAX at
market prices, in the Sponsor's sole discretion. Due to the variance in market
prices for AVAX, the rate at which the Sponsor converts AVAX to cash may differ
from the rate at which the Sponsor Fee or reimbursement of Additional Trust
Expenses was initially paid in AVAX.
The
transfer fees associated with the transfer of AVAX to the Sponsor with respect
to the Sponsor Fee or Additional Trust Expenses will be assumed by the Sponsor.
The Trust shall not be responsible for any fees and
expenses
incurred by the Sponsor to convert AVAX received in payment of the Sponsor Fee
or as reimbursement of Additional Trust Expenses into cash.
The
Sponsor from time to time will sell AVAX, which may be facilitated by one or
more Liquidity Providers and/or the AVAX Custodians or an affiliate thereof, in
connection with the termination of the Trust and the liquidation of its AVAX
holdings. The Sponsor is authorized to sell AVAX, which may be facilitated by
the AVAX Custodians, at such times and in the smallest amounts required to
permit such payments. Assuming that the Trust is properly treated as a grantor
trust for U.S. federal income tax purposes, each beneficial owner of Shares will
be treated for U.S. federal income tax purposes as the owner of an undivided
interest in the AVAX held in the Trust.
Termination
of the Trust
The
Trust shall be dissolved at any time upon the happening of any of the following
events:
•a
U.S. federal or state regulator requires the Trust to shut down or forces the
Trust to liquidate its AVAX or seizes, impounds or otherwise restricts access to
the property of the Trust;
•any
ongoing event exists that either prevents the Trust from making or makes
impractical the Trust's reasonable efforts to make a fair determination of the
price of AVAX for purposes of determining the net asset value of the
Trust;
•any
ongoing event exists that either prevents the Trust from converting or makes
impractical the Trust's reasonable efforts to convert AVAX to U.S. Dollars;
or
•a
certificate of dissolution or revocation of the Sponsor's charter is filed (and
ninety (90) days have passed after the date of notice to the Sponsor of
revocation without a reinstatement of the Sponsor's charter) or the withdrawal,
removal, adjudication or admission of bankruptcy or insolvency of the Sponsor
(each of the foregoing events an "Event of Withdrawal") has occurred unless (i)
at the time there is at least one remaining Sponsor or (ii) within ninety (90)
days of such Event of Withdrawal, the Trustee agrees in writing to continue the
affairs of the Trust and to select, effective as of the date of such event, one
or more successor Sponsors.
The
Sponsor may, in its sole discretion, dissolve the Trust if any of the following
events occur:
•Shares
are delisted from the Exchange and are not approved for listing on another
national securities exchange within five business days of their
delisting;
•the
SEC determines that AVAX is a security or the Trust is an investment company
under the 1940 Act;
•the
CFTC determines that the Trust is a commodity pool under the Commodity Exchange
Act;
•the
Trust is determined to be a "money service business" under the regulations
promulgated by FinCEN under the authority of the US Bank Secrecy Act and is
required to comply with certain FinCEN regulations thereunder;
•the
Trust is required to obtain a license or make a registration under any state law
regulating money transmitters, money services businesses, providers of prepaid
or stored value or similar entities, or virtual currency
businesses;
•the
Trust becomes insolvent or bankrupt;
•the
AVAX Custodians resign or are removed without replacement;
•all
of the Trust's AVAX are sold;
•the
Sponsor determines that the property of the Trust in relation to the expenses of
the Trust makes it unreasonable or imprudent to continue the affairs of the
Trust;
•the
Sponsor receives notice from the IRS or from counsel for the Trust or the
Sponsor that the Trust fails to qualify for treatment, or will not be treated,
as a grantor trust under the Internal Revenue Code of 1986, as amended (the
"Code");
•60
days have elapsed since DTC or another depository has ceased to act as
depository with respect to the Shares and the Sponsor has not identified another
depository that is willing to act in such capacity; or
•the
Trustee notifies the Sponsor of the Trustee's election to resign and the Sponsor
does not appoint a successor trustee within one hundred and eighty (180)
days.
In
addition, the Trust may be dissolved if the Sponsor determines, in its sole
discretion, that it is desirable or advisable for any reason to discontinue the
affairs of the Trust. In respect of termination events that rely on Sponsor
determinations to terminate the Trust (e.g., if the SEC determines that the
Trust is an investment company under the 1940 Act; the CFTC determines that the
Trust is a commodity pool under the CEA; the Trust is determined to be a money
transmitter under the regulations promulgated by FinCEN; the Trust fails to
qualify for treatment, or ceases to be treated, as a grantor trust for U.S.
federal income tax purposes; or, following a resignation by a trustee or
custodian, the Sponsor determines that no replacement is acceptable to it), the
Sponsor may consider, without limitation, the profitability to the Sponsor and
other service providers of the operation of the Trust, any obstacles or costs
relating to the operation or regulatory compliance of the Trust relating to the
determination's triggering event, and the ability to market the Trust to
investors. To the extent that the Sponsor determines to continue operation of
the Trust following a determination's triggering event, the Trust will be
required to alter its operations to comply with the triggering event. In the
instance of a determination that the Trust is an investment company, the Trust
and Sponsor would have to comply with the regulations and disclosure and
reporting requirements applicable to investment companies and investment
advisers. In the instance of a determination that the Trust is a commodity pool,
the Trust and the Sponsor would have to comply with regulations and disclosure
and reporting requirements applicable to commodity pools and commodity pool
operators or commodity trading advisers. In the event that the Trust is
determined to be a money transmitter, the Trust and the Sponsor will have to
comply with applicable federal and state registration and regulatory
requirements for money transmitters and/or money service businesses. In the
event that the Trust ceases to qualify for treatment as a grantor trust for U.S.
federal income tax purposes, the Trust will be required to alter its disclosure
and tax reporting procedures and may no longer be able to operate or to rely on
pass-through tax treatment. In each such case and in the case of the Sponsor's
determination as to whether a potential successor trustee or custodian is
acceptable to it, the Sponsor will not be liable to anyone for its determination
of whether to continue or to terminate the Trust.
Upon
the dissolution of the Trust, the Sponsor (or in the event there is no Sponsor,
such person (the "Liquidating Trustee") as the majority in interest of the
beneficial owners of the Trust may propose and approve) shall take full charge
of the property of the Trust. Any Liquidating Trustee so appointed shall have
and may exercise, without further authorization or approval of any of the
parties hereto, all of the powers conferred upon the Sponsor under the terms of
the Trust Agreement, subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, and provided that the
Liquidating Trustee shall not have general liability for the acts, omissions,
obligations and expenses of the Trust. Thereafter, in accordance with Section
3808(e) of the Delaware Statutory Trust Act ("DSTA"), the affairs of the Trust
shall be wound up and all assets owned by the Trust shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom shall be applied and distributed in the following order of
priority: (a) to the expenses of liquidation and termination and to creditors,
including registered owners and beneficial owners of the Trust who are
creditors, to the extent otherwise permitted by law, in satisfaction of
liabilities of the Trust (whether by payment or the making of reasonable
provision for payment thereof) other than liabilities for distributions to
registered owners of the Trust, and (b) to the beneficial owners of the Trust
pro rata in accordance with their respective percentage interests of the
property of the Trust. The proceeds of the liquidation of the Trust's assets are
expected to be distributed in cash. Shareholders are not entitled to any of the
Trust's underlying AVAX holdings upon the dissolution of the Trust. The Sponsor
(or in the event there is no Sponsor, the Liquidating Trustee), on behalf of the
Trust, would expect to sell the Trust's AVAX through the same processes and
procedures as creation and redemption transactions or through the AVAX
Custodians or their affiliates. See "Creation and Redemption of Shares" for more
information.
Following
the dissolution and distribution of the assets of the Trust, the Trust shall
terminate and the Sponsor or the Liquidating Trustee, as the case may be, shall
instruct the Trustee in writing to execute and cause such certificate of
cancellation of the Certificate of Trust to be filed in accordance with the
Delaware Statutory Trust Act at the expense of the Sponsor or the Liquidating
Trustee, as the case may be. Notwithstanding anything to the contrary contained
in this Trust Agreement, the existence of the Trust as a separate legal entity
shall continue until the filing of such certificate of
cancellation.
Amendments
The
Trustee and the Sponsor may amend any provision of the Trust Agreement without
the consent of any other person, including any registered owner or beneficial
owner of the Trust, provided that any amendment that imposes or increases any
fees or charges (other than taxes and other governmental charges, registration
fees or other such expenses), or that otherwise prejudices any substantial
existing right of the registered owners or the beneficial owners of the Trust,
will not become effective as to outstanding Shares until 30 days after notice of
such amendment is given to the registered owners of the Trust. Notwithstanding
the foregoing, the Sponsor shall have the right to increase or decrease the
amount of the Sponsor Fee (i) upon three (3) business days' prior notice of the
increase or decrease being posted on the website of the Trust and (ii) upon
three (3) business days' prior written notice of the increase or decrease being
given to the Trustee. Every registered owner or beneficial owner of the Trust,
at the time any amendment so becomes effective, shall be deemed, by continuing
to hold any Shares or an interest therein, to consent and agree to such
amendment and to be bound by the Trust Agreement as amended
thereby.
THE
TRUST'S SERVICE PROVIDERS
The
Sponsor
The
Sponsor arranged for the creation of the Trust and is responsible for the
ongoing registration of the Shares for their public offering in the United
States and the listing of Shares on the Exchange. The Sponsor has developed a
marketing plan for the Trust, will prepare marketing materials regarding the
Shares of the Trust, and will exercise the marketing plan of the Trust on an
ongoing basis. The Sponsor has agreed to pay all operating expenses (except for
litigation expenses and other extraordinary expenses) out of the Sponsor's
unified fee.
The
Sponsor is a wholly-owned subsidiary of VanEck. VanEck acts as adviser or
sub-adviser to exchange-traded funds, mutual funds, other pooled investment
vehicles and separate accounts. VanEck has been wholly owned by members of the
van Eck family since its founding in 1955 and its shares are held by its Chief
Executive Officer, Jan van Eck, and his family. See "Management; Voting by
Shareholders" for a discussion of Mr. van Eck's biography and positions with the
Sponsor.
VanEck
and its subsidiaries have considerable experience issuing and operating
exchange-traded products, including three investment companies registered under
the 1940 Act, that provide exposure to digital assets and digital asset
companies (i.e., the equity securities of companies primarily engaged in the
digital asset industry). As of September 30, 2025, VanEck and its affiliates
oversee approximately $5.2 billion in assets under management across over 29
digital asset-related products across various jurisdiction. Although the Sponsor
is a relatively new entity within the broader structure of VanEck, the Sponsor
utilizes a similar management team that VanEck has used in issuing and operating
these exchange-traded products.
The
principal office of the Sponsor is:
VanEck
Digital Assets, LLC
666
Third Avenue, 9th Floor
New
York, NY 10017
The
Trustee
CSC
Delaware Trust Company, a Delaware trust company, acts as the trustee of the
Trust for the purpose of creating a Delaware statutory trust in accordance with
the DSTA. The Trustee is appointed to serve as the trustee of the Trust in the
State of Delaware for the sole purpose of satisfying the requirement of Section
3807(a) of the DSTA that the Trust have at least one trustee with a principal
place of business in the State of Delaware.
General
Duty of Care of Trustee
The
Trustee is a fiduciary under the Trust Agreement; provided, however, that the
fiduciary duties and responsibilities and liabilities of the Trustee are limited
by, and are only those specifically set forth in, the Trust
Agreement.
Resignation,
Discharge or Removal of Trustee; Successor Trustees
The
Trustee may resign upon at least 60 days' prior written notice to the Sponsor;
provided, however, that such resignation shall not be effective until such time
as a successor Trustee has accepted such appointment. The Sponsor may remove the
Trustee at any time upon 60 days' prior written notice to the Trustee; provided,
however, that such removal shall not be effective until such time as a successor
Trustee has accepted such appointment.
Upon
the resignation or removal of the Trustee, the Sponsor shall appoint a successor
Trustee. If no successor Trustee shall have been appointed and shall have
accepted such appointment within 60 days after the giving of such notice of
resignation or removal, the Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee. Any successor Trustee
appointed pursuant to the Trust Agreement shall be eligible to act in such
capacity in accordance with this Trust Agreement and, following compliance with
the Trust Agreement, shall become fully vested with the rights, powers, duties
and obligations of its predecessor under the Trust Agreement, with like effect
as if originally named as Trustee. Any such successor Trustee shall notify the
Trustee of its
appointment
by providing a written instrument to the Trustee. At such time the Trustee shall
be discharged of its duties herein. Any corporation into which the Trustee may
be merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such Trustee
shall be a party, or any corporation to which substantially all the corporate
trust business of the Trustee may be transferred, shall, subject to the
preceding sentence, be the Trustee under the Trust Agreement without further
act.
The
Administrator
State
Street Bank and Trust Company ("State Street") serves as the Trust's
administrator (the "Administrator"). State Street's principal address is One
Congress Street, Boston, MA 02111. Under the Trust Administration and Accounting
Agreement, the Administrator provides necessary administrative, tax and
accounting services and financial reporting for the maintenance and operations
of the Trust, including valuing the Trust's AVAX and calculating the net asset
value per Share of the Trust and the net asset value of the Trust and supplying
pricing information to the Sponsor for the Trust's website. In addition, the
Administrator makes available the office space, equipment, personnel and
facilities required to provide such services.
The
Staking Services Provider
Coinbase
Crypto Services, LLC, an affiliate of the Second AVAX Custodian, is expected to
serve as the Staking Services Provider for the Trust from the date the Shares
are initially listed on the Exchange. Pursuant to the Staking Services Addendum
to the Custody Agreement (the "Staking Services Agreement"), dated as of
December 10, 2025, between Coinbase, Inc. and the Trust, including the Approved
Validator Schedule with the Staking Services Provider, the Staking Services
Provider will stake and use in validation on the underlying blockchain network
the Trust's AVAX made available to the Staking Services Provider (“Staked
Assets”) and transfer any rewards or distributions in respect of Staked Digital
Assets to Coinbase for the benefit of the Trust, less applicable fees (the
"Staking Services"). The Staking Services Provider will regularly credit staking
rewards on a recurring basis established by Staking Services Provider, after
deducting any (i) applicable payments to the Staking Services Provider as
compensation for its services under the Staking Services Agreement (the "Staking
Provider Consideration"); (ii) the Custodian Staking Facilitation Fee. The
Staking Provider Consideration is currently four percent (4.0%). Custodian
Staking Facilitation Fee is currently zero (0.0%). The Trust will pay the
Staking Services Provider a percentage of staking rewards for the Staking
Services. Staking rewards received by the applicable AVAX Custodian, net of
fees, will be automatically credited to the Trust (as earned) and reflected in
its daily NAV, with a 4:00 p.m. Eastern time cut-off.
Either
party may terminate the Staking Services Agreement upon 180 days’ advance
written notice to the other party, or within such timeframe, upon written
notice, as may be required by applicable law.
Once
the Trust's AVAX is staked and completes its pre-selected “lock-up” period, any
staking rewards will be posted to the staking ledger at the AVAX Custodians. The
date that such rewards are deposited to the AVAX Accounts will be considered the
trade date for the recognition of the staking rewards. The received rewards are
retained by the Trust and may be delegated for staking. The staking rewards will
be recognized as income to the Trust's daily records as earned. In accordance
with GAAP, the Trust will report such income in the financial statements based
upon trade date in the quarterly and annual reports.
The
Cash Custodian
Under
the Cash Custody Agreement between State Street and the Trust, State Street may
act as custodian for the Trust's non-AVAX assets, if any, and as custodian for
the Trust's cash (in such capacity, the "Cash Custodian"). The Cash Custodian
has agreed to, among other things, open and maintain a separate deposit account
or accounts of the Trust, to determine the amount of AVAX and/or cash required
for an issuance or redemption of shares in a Basket and to release and deliver
non-AVAX assets and pay out cash.
The
Cash Custodian shall credit to the deposit account(s) all cash received by the
Cash Custodian from or for the account of the Trust. Upon an instruction to
purchase Shares for the account of the Trust, the Cash Custodian shall pay out
cash of the Trust to purchase Shares. Upon an instruction to redeem Shares for
the account of the Trust,
the
Cash Custodian shall transfer the Shares so as to sell or redeem the Shares and
receive proceeds of such sale or redemption.
The
First AVAX Custodian
Anchorage
Digital Bank N.A. serves as the Trust's First AVAX Custodian and is a National
Trust Bank regulated by the Office of the Comptroller of the Currency. The First
AVAX Custodian is authorized to serve as the Trust's custodian under the Trust
Agreement and pursuant to the terms and provisions of the Custody Agreement. The
First AVAX Custodian has its principal office at 101 S. Reid Street, Suite 307
#329, Sioux Falls, South Dakota 57103.
The
First AVAX Custodian makes available to the Trust the First AVAX Account and
access to an omnibus custodial account held at depository institutions in the
First AVAX Custodian's name for the benefit of its customers at which a cash
balance may be maintained. The First AVAX Custodian's services in respect of the
First AVAX Account (i) allow AVAX to be deposited from a public blockchain
address to the Trust's First AVAX Account and (ii) allow AVAX to be withdrawn
from the First AVAX Account to a public blockchain address as instructed by the
Trust. The Custody Agreement requires the First AVAX Custodian to hold the
Trust's AVAX in cold storage. The First AVAX Custodian will use segregated cold
storage AVAX addresses for the Trust. The addresses on the Avalanche Blockchain
at which the Trust's AVAX in the First AVAX Account are held by the First AVAX
Custodian are separate from the AVAX addresses that the First AVAX Custodian
uses for its other customers and are directly verifiable via the Avalanche
Blockchain. The First AVAX Custodian will safeguard the private keys to the AVAX
associated with the Trust's First AVAX Account. The First AVAX Custodian will at
all times record and identify in its books and records that such AVAXs
constitute the property of the Trust. The First AVAX Custodian will not withdraw
the Trust's AVAX from the Trust's First AVAX Account with the First AVAX
Custodian, or loan, hypothecate, pledge or otherwise encumber the Trust's AVAX,
without the Trust's instruction, nor will the Sponsor or any other entity or
service provider. The Trust will not lease or loan AVAX held in the Trust's
First AVAX Account with the First AVAX Custodian and will not give instructions
to that effect.
In
respect of the Fiat Accounts, the First AVAX Custodian holds the Trust's cash
held in its account at the First AVAX Custodian in one or more Customer Omnibus
Accounts." Customer Omnibus Account" means, with respect to fiat currency held
for customers of the First AVAX Custodian in Fiat Accounts (including the
Trust's cash balance in its Fiat Accounts), omnibus bank accounts (each an
"Omnibus Account") at FDIC-insured, regulated depository institutions selected
by Anchorage (each, a “Fiat Institution”). The First AVAX Custodian makes no
representation about the availability of pass through FDIC deposit insurance in
connection with the Omnibus Account at such Fiat Institutions.
The
First AVAX Custodian agrees to take reasonable care and use commercially
reasonable efforts in executing its responsibilities to the Trust pursuant to
the First AVAX Custody Agreement, which includes exercising the degree of care,
diligence and skill that a prudent and competent professional provider of
services similar to the services contemplated by the Custody Agreement would
exercise in the circumstances, or such higher care where required by law or the
Custody Agreement (collectively, the "Standard of Care"). Notwithstanding any
other provision in the Custody Agreement, for the Trust's First AVAX held in the
First AVAX Account, the First AVAX Custodian represents, warrants, and covenants
that it will maintain the private key or keys in a form accessible to the First
AVAX Custodian and will take reasonable care and use commercially reasonable
efforts to (i) protect and keep the private key or keys secure and (ii) not
disclose them or allow access to them by any other person.
Subject
to the "Force Majeure" provision (defined below) and as limited by the
limitations of liability in the First AVAX Custody Agreement, the First AVAX
Custodian shall be liable to the Trust for the Loss (defined below) of any of
the Trust's AVAX or fiat currency to the extent that such Loss was caused by the
negligence, fraud, willful or reckless misconduct of the First AVAX Custodian or
breach by the First AVAX Custodian of its Standard of Care. The Custody
Agreement provides that "Loss" means liabilities, damages, diminution in value,
payments, obligations, losses, interest, costs and expenses, security or other
remediation costs (including any regulatory investigation or third party
subpoena costs, reasonable attorneys’ fees, court costs, expert witness fees,
and other expenses relating to investigating or defending any Claim); fines,
taxes, fees, restitution, or penalties imposed by any governmental, regulatory
or administrative body, interest on and additions to tax with respect to, or
resulting from
Taxes
imposed on Client’s assets, cash, other property, or any income or gains derived
therefrom; and judgments (at law or in equity) or awards of any nature. The
First AVAX Custodian is responsible for losses resulting from its errors in
executing a direction from the Trust (e.g., if the Trust provides the correct
destination address for executing a withdrawal transaction, but the First AVAX
Custodian erroneously sends the Trust's AVAX to another destination
address).
The
First AVAX Custody Agreement provides that should a Loss of the Trust's AVAX or
fiat currency due to the negligence, fraud, willful or reckless misconduct of
the First AVAX Custodian or a breach by the First AVAX Custodian of its Standard
of Care occur, the First AVAX Custodian will, as soon as practicable, return to
the Trust a quantity of the same digital asset that is equal to the quantity of
digital assets involved in the Loss, or return to the Trust a quantity of the
same fiat currency that is equal to the quantity of fiat currency involved in
the Loss (if the Loss involved the Fiat Accounts). The Custody Agreement
provides that (i) the First AVAX Custodian does not own or control the
underlying software protocols of networks which govern the operation of digital
assets (including the Avalanche Blockchain), (ii) the First AVAX Custodian makes
no guarantees regarding their security, functionality, or availability, and
(iii) in no event shall the First AVAX Custodian be liable for or in connection
with any acts, decisions, or omissions made by developers or promoters of
digital assets, including AVAX.
The
First AVAX Custody Agreement's "Force Majeure" provision provides that in no
event shall the First AVAX Custodian be liable for any delays, failure in
performance or interruption of service which result directly or indirectly from
any cause or condition, whether or not foreseeable, beyond the First AVAX
Custodian's reasonable control, including, but not limited to, any act of God
embargo; natural disaster; act of civil or military authorities; act of
terrorists; cybersecurity incident or hacking (excluding events caused by the
First AVAX Custodian's breach of the First AVAX Custody Agreement or failure to
use reasonable and industry-standard security measures); government
prohibitions; civil disturbance; war; strike or other labor dispute; fire;
severe weather; interruption in telecommunications, Internet services, or
network provider services; unavailability of Fedwire, SWIFT or banks’ payment
processes; outbreaks of infectious disease or any other public health crises,
including quarantine or other required employee restrictions; material
disruption to blockchain networks or protocols (including hard forks, chain
reorganizations, material network congestion, validator outages, materially
elevated transaction fees, or consensus failures) not caused by the First AVAX
Custodian; critical vendor or subprocessor outages; or any other catastrophe or
material event which is beyond the reasonable control of the First AVAX
Custodian; provided, however, that for the avoidance of doubt, the First AVAX
Custody Agreement's Force Majeure provision shall not apply in respect to a
cybersecurity attack, hack or other intrusion by a third party or by someone
associated with the First AVAX Custodian is not a circumstance that is beyond
the First AVAX Custodian's reasonable control, to the extent directly caused by
the First AVAX Custodian's failure to comply with its obligations under the
First AVAX Custody Agreement. The occurrence of an event described in the Force
Majeure provision shall not affect the validity and enforceability of any
remaining provisions of the Custody Agreement.
Under
the First AVAX Custody Agreement, each of the First AVAX Custodian and the Trust
has agreed to indemnify and hold harmless the other party from any third-party
claim or third-party demand (including reasonable attorneys' fees and expenses)
(collectively, "Damages") arising out of or related to the First AVAX
Custodian's or the Trust's, as the case may be, non-performance of its
obligations under or material breach of the First AVAX Custody Agreement,
violation of any law, rule or regulation related to the performance of its
obligations under the First AVAX Custody Agreement or gross negligence, fraud or
willful misconduct. In addition, the First AVAX Custodian agrees to indemnify
the Trust in the event of Losses relating to any breach of the First AVAX
Custodian’s confidentiality, data protection and/or information security
obligations or the Trust's access or use of the services, in accordance with the
terms and conditions of the First AVAX Custody Agreement, violates,
misappropriates, or infringes upon any third party intellectual and/or
industrial property rights.
The
First AVAX Custodian shall not be liable to the Trust (whether under contract,
tort (including negligence) or otherwise) for any indirect, incidental, special,
punitive or consequential losses suffered or incurred by the Trust for any
amount in excess of fees paid by the Trust less the aggregate amount of any
losses for which the First AVAX Custodian is or was liable during such
period.
The
First AVAX Custody Agreement will commence on the date of execution and continue
until terminated in accordance with its provisions. The First AVAX Custody
Agreement may be terminated by the First AVAX
Custodian
upon 180 days written notice to the Trust and the Trust may terminate the First
AVAX Custody Agreement upon 30 days written notice to the First AVAX Custodian;
provided, however, that if the First AVAX Custody Agreement is terminated, the
First AVAX Custodian shall continue to act as First AVAX Custodian pursuant to
the terms of the First AVAX Custody Agreement for a 180-day period commencing on
the date the party is notified of any termination of the First AVAX Custody
Agreement. Either party (the "Terminating Party") may terminate the Custody
Agreement at any time on written notice to the other party (the "Defaulting
Party"), such termination to take effect after giving effect to any notice
requirement and cure period that may apply.
The
First AVAX Custodian has the right to immediately (i) take actions the First
AVAX Custodian determines appropriate to comply with applicable law and
regulations and in accordance with its Bank Secrecy Act and Anti-Money
Laundering compliance program ("BSA/AML Program"), (ii) suspend the Trust's
First AVAX Account or Fiat Accounts, (iii) freeze/lock the funds and assets in
all such accounts, and (iv) suspend the Trust's access to the First AVAX
Custodian's platform or its account there (collectively, an "account
suspension"), if: (A) the First AVAX Custodian is required to do so by a
regulatory authority, court order, facially valid subpoena, or binding order of
a governmental authority, (B) the First AVAX Custodian reasonably and in good
faith believes the Trust has violated applicable laws and regulations in
connection with the Trust's First AVAX Account or Fiat Accounts, or the First
AVAX Custodian is required to do so under the First AVAX Custodian's BSA/AML
Program, (C) the First AVAX Custodian believes someone is attempting to gain
unauthorized access to the account, or (D) the First AVAX Custodian believes
there is unusual activity in the account. Except as set forth above, the First
AVAX Custodian shall not suspend the Trust's access to the First AVAX Account or
the Fiat Accounts, and any suspension of the Trust's access to such accounts
shall constitute a breach of the First AVAX Custody Agreement. In the case of an
account suspension due to (C) or (D) of this paragraph, the First AVAX Custodian
shall restore the Trust's normal access to the First AVAX Account or Fiat
Accounts as promptly as reasonably possible without putting the AVAX and fiat
currency in such accounts at risk.
The
Sponsor may, in its sole discretion, add or terminate other AVAX custodians. The
Sponsor may, in its sole discretion, change the custodian for the Trust's AVAX
holdings, but it will have no obligation to do so or to seek any particular
terms for the Trust from other such custodians. To the extent that the Sponsor
adds or terminates other AVAX custodians, or changes the custodian for the
Trust's AVAX holdings, notification will be made to Shareholders via a
prospectus supplement and/or a current report filed with the SEC.
The
Second AVAX Custodian
The
Second AVAX Custodian for the Trust's AVAX holdings is Coinbase Custody Trust
Company, LLC, and the Trust has entered into the Second AVAX Custody Agreement
with the Second AVAX Custodian. The Sponsor may, in its sole discretion, add or
terminate AVAX custodians. The Sponsor may, in its sole discretion, change the
custodian for the Trust's AVAX holdings, but it will have no obligation
whatsoever to do so or to seek any particular terms for the Trust from other
such custodians.
The
Second AVAX Custodian will keep custody of all of the Trust's AVAX in segregated
accounts in the Second AVAX Vault Balance. Trust assets held in the Second AVAX
Vault Balance are held in segregated wallets and are not commingled with the
assets of the Second AVAX Custodian's other customers.
The
Second AVAX Custodian will keep all of the private keys associated with the
Trust's AVAX held at the Second AVAX Custodian in the Second AVAX Vault Balance
in cold storage. Cold storage is a safeguarding method by which the private
key(s) corresponding to AVAX is (are) generated and stored in an offline manner.
Private keys are generated in offline computers or devices that are not
connected to the internet so that they are more resistant to being hacked. By
contrast, in hot storage, the private keys are held online, where they are more
accessible, leading to more efficient transfers, though they are potentially
more vulnerable to being hacked.
Cold
storage of private keys may involve keeping such keys on a non-networked
computer or electronic device or storing the public key and private keys on a
storage device or printed medium and deleting the keys from all computers. The
Second AVAX Custodian may receive deposits of AVAX but may not send AVAX without
use of the corresponding private keys. Such private keys are stored in cold
storage facilities within the United States and Europe, exact locations of which
are not disclosed for security reasons. A limited number of employees at the
Second
AVAX Custodian are involved in private key management operations, and the Second
AVAX Custodian has represented that no single individual has access to full
private keys. The Second AVAX Custodian's internal audit team performs periodic
internal audits over custody operations, and the Second AVAX Custodian has
represented that Systems and Organizational Control ("SOC") attestations
covering private key management controls are also performed on the Second AVAX
Custodian by an external provider.
Coinbase
Global maintains a commercial crime insurance policy of up to $320 million,
which is intended to cover the loss of client assets held by Coinbase Insureds,
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 Coinbase Global is shared among all of Coinbase's
customers, is not specific to the Trust or to customers holding AVAX with the
Second AVAX Custodian and may not be available or sufficient to protect the
Trust from all possible losses or sources of losses.
In
the event of a fork, the Second AVAX Custody Agreement provides that the Second
AVAX Custodian may temporarily suspend services, and may, in their sole
discretion, determine whether or not to support (or cease supporting) either
branch of the forked protocol entirely, provided that the Second AVAX Custodian
shall use commercially reasonable efforts to avoid ceasing to support both
branches of such forked protocol and will support, at a minimum, the original
digital asset. The Second AVAX Custody Agreement provides that, other than as
set forth therein, and provided that the Second AVAX Custodian shall make
commercially reasonable efforts to assist the Trust to retrieve and/or obtain
any assets related to a fork, airdrop or similar event the Second AVAX Custodian
shall have no liability, obligation or responsibility whatsoever arising out of
or relating to the operation of the underlying software protocols relating to
the Avalanche Network or an unsupported branch of a forked protocol and,
accordingly, The Trust acknowledges and assumes the risk of the same. The Second
AVAX Custody Agreement further provides that, unless specifically communicated
by the Second AVAX Custodian and its affiliates through a written public
statement on the Coinbase website, the Second AVAX Custodian does not support
airdrops, metacoins, colored coins, side chains, or other derivative, enhanced
or forked protocols, tokens or coins, which supplement or interact with AVAX.
The Sponsor has committed to cause the Trust to permanently and irrevocably
abandon any Incidental Rights and IR Virtual Currency to which the Trust may
become entitled in the future. The Trust has no right to receive any Incidental
Right or IR Virtual Currency. Furthermore, the Second AVAX Custodian has no
authority, pursuant to the Second AVAX Custody Agreement or otherwise, to
exercise, obtain or hold, as the case may be, any such abandoned Incidental
Right or IR Virtual Currency on behalf of the Trust or to transfer any such
abandoned Incidental Right or IR Virtual Currency to the Trust if the Trust
terminates its custodial arrangement with the Second AVAX Custodian. For more
information on the Trust's and Sponsor's policies on forked or airdropped
assets, see "Risk Factors— a temporary or permanent "fork" of the Avalanche
Blockchain could adversely affect an investment in the trust." Neither the
Second AVAX Custodian nor any other Coinbase entity is permitted to withdraw the
Trust's AVAX from the Trust's Second AVAX Vault Balance, or loan, hypothecate,
pledge or otherwise encumber the Trust's AVAX, without the consent of the
Trust.
The
Second AVAX Custodian's "Force Majeure Provision" provides that: Neither the
Second AVAX Custodian nor the Client shall be liable to the other for delays,
suspension of operations, whether temporary or permanent, failure in performance
of the Second AVAX Custody Agreement, or interruption of service in each case to
the extent it is directly due to a cause or condition beyond the reasonable
control of the party whose performance is affected by it, including, to the
extent beyond its reasonable control, any act of God; embargo; natural disaster;
act of civil or military authorities; act of terrorists; hacking (provided that
the Second AVAX Custodian has taken reasonable precautions and acts in a manner
consistent with its applicable policies and procedures with respect to hacking
risks and in doing so is not negligent); government prohibitions; civil
disturbance; war; strike or other labor dispute; fire; severe weather;
interruption in telecommunications, Internet services, or network provider
services; unavailability of Fedwire, SWIFT or banks' payment processes;
outbreaks of infectious disease or any other public health crises, including
quarantine or other required employee restrictions; or any other catastrophe or
material event which is beyond the reasonable control of the party affected by
it.
Under
the Second AVAX Custody Agreement, the Second AVAX Custodian's liability is
limited as follows, among others: (i) in respect of any incidental, indirect,
special, punitive, consequential or similar losses, the Second AVAX Custodian is
not liable, even if the Second AVAX Custodian has been advised of or knew or
should have known of the possibility thereof; (ii) the Second AVAX Custodian,
its affiliates or its respective officers, directors,
agents,
employees and representatives shall in no event have any liability with respect
to any breach of its obligations under the Second AVAX Custody Agreement which
does not result from its negligence, fault, fraud or willful misconduct; and
(iii) except for the: (i) Excluded Liabilities; (ii) fraud; or (iii) willful
misconduct, in no event shall any Coinbase entity's aggregate liability with
respect to any breach of its obligations under the Second AVAX Custody Agreement
exceed the greater of (a) the value of the AVAX involved in the transaction
giving rise to such liability and (b) the aggregate amount of fees paid by the
Trust to such Coinbase entity in respect of services relating to custody, trade
execution, lending or post-trade credit (if applicable) and other services in
the 12-month period prior to the event giving rise to such liability, and solely
in respect of custodial services provided pursuant to the Second AVAX Custody
Agreement, the liability of the Second AVAX Custodian shall not exceed the
greater of (i) the aggregate amount of fees paid by the Trust to the Second AVAX
Custodian in respect of the custodial services in the 12-month period prior to
the event giving rise to such liability; or (ii) the value of the AVAX on
deposit in Trust's Second AVAX Account(s) involved in the event giving rise to
such liability; provided, that in no event shall the Second AVAX Custodian's
aggregate liability in respect of each cold storage address exceed one hundred
million US dollars ($100,000,000.00 USD).
"Excluded
Liabilities" means (x) with respect to the Trust, (1) the Trust's defense and
indemnity obligations under the Second AVAX Custody Agreement; (2) any
outstanding commissions or fees owed by the Trust under the Second AVAX Custody
Agreement and (3) the Trust's breach of representations and warranties under the
Second AVAX Custody Agreement; and (y) with respect to the Second AVAX
Custodian, its defense and indemnity obligations under the Second AVAX Custody
Agreement.
With
respect to the Excluded Liabilities, the Second AVAX Custodian's liability to
the Trust for any losses arising out of or in connection with the Second AVAX
Custodian's defense and indemnity obligations under the Second AVAX Custody
Agreement will be limited, in the aggregate, to an amount equal to five million
U.S. dollars ($5,000,000.00 USD).
The
Second AVAX Custodian requires up to twenty-four (24) hours between any request
to withdraw AVAX from the Trust's Second AVAX Account and submission of the
Trust's withdrawal to the Avalanche Network. It may be necessary to retrieve
certain information from offline storage in order to facilitate a withdrawal in
accordance with the Trust's instructions, which may delay the initiation or
crediting of such withdrawal from the Trust's Second AVAX Account. AVAX shall
not be deposited or withdrawn upon less than twenty-four (24) hours' notice
initiated from the Trust's Second AVAX Account. The time of such request shall
be the time such notice is transmitted from the Trust's Second AVAX Account. In
the context of the foregoing and during such twenty-four (24) hours' notice
period, the Second AVAX Custodian makes no representations or warranties with
respect to the availability and/or accessibility of (1) the AVAX, (2) a Custody
Transaction (as defined in the Second AVAX Custody Agreement, which includes a
deposit or withdrawal), (3) the Second AVAX Account, or (4) the Custodial
Services (as defined in the Second AVAX Custody Agreement). While the Second
AVAX Custodian will make reasonable efforts to process client initiated deposits
in a timely manner, the Second AVAX Custodian makes no representations or
warranties regarding the amount of time needed to complete processing of
deposits as such processing is dependent upon many factors outside of the Second
AVAX Custodian's control.
Under
the Second AVAX Custody Agreement, except in the case of its negligence, fraud,
material violation of applicable law or willful misconduct, the Second AVAX
Custodian shall not have any liability, obligation, or responsibility for any
damage or interruptions caused by any computer viruses, spyware, scareware,
Trojan horses, worms or other malware that may affect the Trust's computer or
other equipment, or any phishing, spoofing or other attack.
The
Second AVAX Custodian could terminate services under the Second AVAX Custody
Agreement for any reason and without Cause upon providing the applicable notice
to the Trust for any reason, or immediately for Cause ("Cause" is defined in the
Second AVAX Custody Agreement as (i) the Trust breaches any provision of the
Second AVAX Custody Agreement and such breach is not cured within three (3)
business days after notice of such breach is given to the Trust in the case of a
payment-related breach or is not cured within ten (10) business days after
notice of such breach is given to the Trust; (ii) the Trust takes any action to
dissolve or liquidate (iii) the Trust becomes insolvent, makes an assignment for
the benefit of creditors, becomes subject to direct control of a trustee,
receiver or similar authority; (iv) the Trust becomes subject to any bankruptcy
or insolvency proceeding; (v) the Second AVAX
Custodian
becomes aware of any facts or circumstances with respect to the Trust's
financial, legal, regulatory or reputational position which reasonably would
materially adversely affect The Trust's ability to comply with its obligations
under the Second AVAX Custody Agreement, and such facts and circumstances cannot
be cured within five (5) business days; (vi) termination is required pursuant to
a facially valid subpoena, court order or binding order of a government
authority; (vii) the Trust's Second AVAX Account is subject to any pending
litigation, investigation or government proceeding; or (viii) the Second AVAX
Custodian reasonably suspects the Trust of attempting to circumvent the Second
AVAX Custodian's controls in a manner the Second AVAX Custodian otherwise deems
inappropriate or potentially harmful to itself or third parties).
The
Transfer Agent
The
Transfer Agent: (1) issues and redeems Shares of the Trust; (2) responds to
correspondence by Trust Shareholders and others relating to its duties; (3)
maintains Shareholder accounts; and (4) makes periodic reports to the
Trust.
The
Marketing Agent
The
Marketing Agent is responsible for: (1) working with the Administrator to review
and approve, or reject, purchase and redemption orders of Baskets placed by
Authorized Participants with the Administrator; (2) providing assistance in the
marketing of the Shares; (3) reviewing and approving the marketing materials
prepared by the Sponsor for compliance with applicable SEC and FIRA advertising
laws, rules and regulations; and (4) maintaining a public website on behalf of
the Trust, containing information about the Trust and the Shares. The internet
address of the Trust's website is accessible at www.vaneck.com. This internet
address is only provided here as a convenience, and the information contained on
or connected to the Trust's website is not considered part of this
Prospectus.
MarketVector
Indexes GmbH is an indirectly wholly owned-subsidiary of Van Eck Associates
Corporation.
CUSTODY
OF THE TRUST'S ASSETS
The
Trust’s AVAX Custodians keep custody of the Trust’s AVAX. The Trust’s AVAX are
held in segregated accounts opened in the name of the Trust on the AVAX
Custodians’ books and records. Under the Custody Agreements, the AVAX Custodians
maintain the Trust’s AVAX in segregated wallets separate from the assets of
other customers of the AVAX Custodians.
Key
Generation
Private
keys are generated by the AVAX Custodians in key generation ceremonies at secure
locations using offline devices that have never been connected to a network.
Private keys are generated according to detailed procedures using specialized
offline devices and within these secure facilities to mitigate risk of hacks,
errors, or other unintended external exposure. Key ceremony processes are highly
controlled, require segregation of duties across multiple parties and are
reviewed and witnessed by designated oversight personnel. Thorough validations
and signoffs are performed to verify the integrity and security of key
generation ceremonies.
Key
Storage
The
AVAX Custodians hold all of the Trust’s AVAX in cold storage. Private keys are
stored on secure devices that are not and never have been connected to the
internet so that they are resistant to being hacked.
Security
Procedures
The
AVAX Custodians are the custodians of the Trust’s AVAX in accordance with the
terms and provisions of the Custody Agreements. Transfers from the AVAX Accounts
require certain security procedures, including authorization controls to
validate client requests and private key security procedures for AVAX network
transaction signing as described above. Authorization controls may include
usernames, passwords, two-step verification, and telephone call-backs to ensure
proper authorization of transaction requests from the Sponsor or its authorized
agents.
Transfers
of AVAX to the AVAX Accounts will be available to the Trust once processed on
the Avalanche Network, subject to successful completion of processes required by
the AVAX Custodians.
The
Trust may change the custodial arrangements described in this Prospectus at any
time without notice to Shareholders. To the extent a change in custodial
arrangements is deemed material by the Sponsor, the Trust will notify
Shareholders in a prospectus supplement and/or a current report on Form 8-K or
in its annual or quarterly reports.
Staked
AVAX
The
Trust intends to stake a portion of the Trust's AVAX through one or more Staking
Services Providers. The AVAX Custodians will maintain exclusive possession and
control of the private keys associated with any staked AVAX at all times.
However, as part of the “activating” or “lock-up” processes of AVAX staking, any
staked AVAX will be inaccessible for a period of time determined by a range of
factors.
Allocation
of AVAX
In
determining the amount and percentage of the Trust’s AVAX to allocate to each
such AVAX Custodian, the Sponsor will consider (i) the Sponsor’s assessment of
the safety and security policies and procedures of each AVAX Custodian, (ii) the
ability of each AVAX Custodian to implement the Trust’s staking program, (iii)
the node operator(s) offered through the AVAX Custodian, (iv) each AVAX
Custodian’s reputation and experience in providing AVAX custody and staking
services, (v) the concentration of the Trust’s AVAX at each AVAX Custodian, (vi)
the financial resources of each AVAX Custodian including its insurance policies,
(vii) the fees and expenses associated with the storage and/or staking of the
Trust’s AVAX at each AVAX Custodian, and (viii) any other factor the Sponsor
deems relevant in making the allocation determination. The Sponsor may in the
future engage additional custodians for the Trust’s AVAX.
FORM
OF SHARES
Registered
Form
Shares
are issued in registered form in accordance with the Trust Agreement. The
Transfer Agent has been appointed registrar and transfer agent for the purpose
of transferring Shares in certificated form. The Transfer Agent keeps a record
of all Shareholders and holders of the Shares in certified form in the registry
("Register"). The Sponsor recognizes transfers of Shares in certificated form
only if done in accordance with the Trust Agreement. The beneficial interests in
such Shares are held in book-entry form through participants and/or
accountholders in DTC.
Book
Entry
Individual
certificates are not issued for the Shares. Instead, Shares are represented by
one or more global certificates, which are deposited by the Administrator with
DTC and registered in the name of Cede & Co., as nominee for DTC. The global
certificates evidence all of the Shares outstanding at any time. Shareholders
are limited to (1) participants in DTC such as banks, brokers, dealers and trust
companies ("DTC Participants"), (2) those who maintain, either directly or
indirectly, a custodial relationship with a DTC Participant ("Indirect
Participants"), and (3) those who hold interests in the Shares through DTC
Participants or Indirect Participants, in each case who satisfy the requirements
for transfers of Shares. DTC Participants acting on behalf of Shareholders
holding Shares through such participants' accounts in DTC will follow the
delivery practice applicable to securities eligible for DTC's Same-Day Funds
Settlement System. Shares are credited to DTC Participants' securities accounts
following confirmation of receipt of payment.
DTC
DTC
has advised us as follows: It is a limited purpose trust company organized under
the laws of the State of New York and is a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities for DTC Participants and
facilitates the clearance and settlement of transactions between DTC
Participants through electronic book-entry changes in accounts of DTC
Participants.
TRANSFER
OF SHARES
The
Shares are only transferable through the book-entry system of DTC. Shareholders
who are not DTC Participants may transfer their Shares through DTC by
instructing the DTC Participant holding their Shares (or by instructing the
Indirect Participant or other entity through which their Shares are held) to
transfer the Shares. Transfers are made in accordance with standard securities
industry practice.
Transfers
of interests in Shares with DTC are made in accordance with the usual rules and
operating procedures of DTC and the nature of the transfer. DTC has established
procedures to facilitate transfers among the participants and/or accountholders
of DTC. Because DTC can only act on behalf of DTC Participants, who in turn act
on behalf of Indirect Participants, the ability of a person or entity having an
interest in a global certificate to pledge such interest to persons or entities
that do not participate in DTC, or otherwise take actions in respect of such
interest, may be affected by the lack of a certificate or other definitive
document representing such interest.
DTC
has advised us that it will take any action permitted to be taken by a
Shareholder (including, without limitation, the presentation of a global
certificate for exchange) only at the direction of one or more DTC Participants
in whose account with DTC interests in global certificates are credited and only
in respect of such portion of the aggregate principal amount of the global
certificate as to which such DTC Participant or Participants has or have given
such direction.
PLAN
OF DISTRIBUTION
Buying
and Selling Shares
Most
investors buy and sell Shares of the Trust in secondary market transactions
through brokers. Shares are expected to be approved for listing, subject to
notice of issuance, on the Exchange under the ticker symbol VAVX. Shares are
bought and sold throughout the trading day like other publicly traded
securities. When buying or selling Shares through a broker, most investors incur
customary brokerage commissions and charges. Shareholders are encouraged to
review the terms of their brokerage account for details on applicable
charges.
Authorized
Participants
The
offering of the Trust's Shares is a best efforts offering. The Trust
continuously offers Baskets consisting of 25,000 Shares to Authorized
Participants. Authorized Participants pay a transaction fee for each order they
place to create or redeem one or more Baskets.
The
offering of Baskets is being made in compliance with Rule 2310 of the FINRA
Rules. Accordingly, Authorized Participants will not make any sales to any
account over which they have discretionary authority without the prior written
approval of a purchaser of Shares.
The
per Share price of Shares offered in Baskets on any day will be the total NAV of
the Trust calculated shortly after the close of the Exchange on that day divided
by the number of issued and outstanding Shares of the Trust. An Authorized
Participant is not required to sell any specific number or dollar amount of
Shares.
By
executing an Authorized Participant Agreement, an Authorized Participant becomes
part of the group of parties eligible to purchase Baskets from, and put Baskets
for redemption to, the Trust. An Authorized Participant is under no obligation
to create or redeem Baskets or to offer to the public Shares of any Basket it
does create. Authorized Participants as of the date of this Prospectus are:
Virtu Americas LLC and Jane Street Capital, LLC. Additional Authorized
Participants may be added at any time, subject to the Sponsor's
discretion.
Current
or future Liquidity Providers may be affiliates of, or have material
relationships with, the Trust's current or future Authorized
Participants.
Because
new Shares can be created and issued on an ongoing basis, at any point during
the life of the Trust, a "distribution," as such term is used in the 1933 Act,
will be occurring. Authorized Participants, other broker-dealers and other
persons are cautioned that some of their activities may result in their being
deemed participants in a distribution in a manner that would render them
statutory underwriters and subject them to the prospectus-delivery and liability
provisions of the 1933 Act. Any purchaser who purchases Shares with a view
towards distribution of such Shares may be deemed to be a statutory underwriter.
In addition, an Authorized Participant, other broker-dealer firm or its client
will be deemed a statutory underwriter if it purchases a Basket from the Trust,
breaks the Basket down into the constituent Shares and sells the Shares to its
customers; or if it chooses to couple the creation of a supply of new Shares
with an active selling effort involving solicitation of secondary market demand
for the Shares. In contrast, Authorized Participants may engage in secondary
market or other transactions in Shares that would not be deemed "underwriting."
For example, an Authorized Participant may act in the capacity of a broker or
dealer with respect to Shares that were previously distributed by other
Authorized Participants. A determination of whether a particular market
participant is an underwriter must take into account all the facts and
circumstances pertaining to the activities of the broker-dealer or its client in
the particular case, and the examples mentioned above should not be considered a
complete description of all the activities that would lead to designation as an
underwriter and subject them to the prospectus-delivery and liability provisions
of the 1933 Act.
Dealers
who are neither Authorized Participants nor "underwriters" but are nonetheless
participating in a distribution (as contrasted to ordinary secondary trading
transactions), and thus dealing with Shares that are part of an "unsold
allotment" within the meaning of Section 4(a)(3)(C) of the 1933 Act, would be
unable to take advantage of the prospectus-delivery exemption provided by
Section 4(a)(3) of the 1933 Act.
The
Authorized Participants may be indemnified by the Sponsor for (i) any material
breach by the Sponsor of any provision of the Authorized Participant Agreement
that relates to the Sponsor; (ii) any representations provided by the Sponsor
relating to the Authorized Participant Agreement, the Registration Statement,
the Prospectus or the issuance or distribution of Shares that is false or
misleading in any material respect or omits material information necessary to
make the statement contained therein complete; (iii) any failure on the part of
the Sponsor to perform any obligation of the Sponsor set forth in the Authorized
Participant Agreement; (iv) any failure by the Sponsor to comply with applicable
laws in connection with the Authorized Participant Agreement and the offer,
sale, creation, redemption and marketing of the Shares; (v) actions of the
Authorized Participant taken in reasonable reliance upon any instructions issued
or representations reasonably believed by it to be genuine and to have been
given by or on behalf of the Sponsor; (vi) any (1) representation by the Sponsor
that is not consistent with the Trust's then-current Registration Statement made
in connection with the offer or the solicitation of an offer to buy or sell
Shares or applicable prospectus, and (2) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement as
originally declared effective by the SEC or in any amendment thereof or
applicable prospectus, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (vii) any untrue
statement or alleged untrue statement of a material fact, or omission or alleged
omission of a material fact, made in any marketing materials prepared by or for
the Sponsor or Trust and/or furnished to the Authorized Participant by the
Sponsor or the Trust, or any disclosure provided by the Sponsor to the
Authorized Participant for inclusion in marketing materials prepared by the
Authorized Participant. Notwithstanding the foregoing, the Authorized
Participants will not be entitled to receive a discount or commission from the
Trust or the Sponsor for their purchases of Baskets.
Seed
Capital Investor
On
November 20, 2025, Van Eck Associates Corporation (the "Seed Capital Investor"),
the parent of the Sponsor, subject to certain conditions, purchased the "Seed
Shares," comprising 4,000 Shares at a per-Share price of $25.00. Delivery of the
Seed Shares was made on November 20, 2025. Total proceeds to the Trust from the
sale of the Seed Shares were $100,000. On December 22, 2025, the Seed Shares
were redeemed for cash and the Seed Capital Investor purchased the “Seed
Creation Baskets,” comprising 100,000 Shares a per-Share price equal to 2.060199
AVAX. The price of AVAX was determined using the Index on December 22, 2025. The
Index price on December 22, 2025 was $12.134750. Total proceeds to the Trust
from the sale of the Seed Creation Baskets were 206,019.901522 AVAX. The Seed
Capital Investor has acted as a statutory underwriter in connection with this
purchase.
The
price of the Seed Creation Baskets was determined as described above and such
Shares could be sold at different prices if sold by the Seed Capital Investor at
different times.
CREATION
AND REDEMPTION OF SHARES
The
Trust creates and redeems Shares from time to time, but only in one or more
Baskets. Baskets are only made in exchange for delivery to the Trust of the
amount of AVAX represented by the Baskets being created or an amount of cash
sufficient to purchase such amount of AVAX, the amount of which is equal to the
combined NAV of the number of Shares included in the Baskets being created
determined as of 4:00 p.m. Eastern time on the day the order to create Baskets
is properly received. Baskets are only redeemed in exchange for delivery to the
Trust of the amount of Shares represented by the Basket. The Authorized
Participants will deliver cash or AVAX to create Shares and will receive cash or
AVAX when redeeming Shares. For a redemption in cash, the Sponsor shall arrange
for the AVAX represented by the Basket to be sold to a Liquidity Provider
selected by the Sponsor and the cash proceeds distributed from the Trust's
account at the Cash Custodian to the Authorized Participant. The Liquidity
Providers as of the date of this Prospectus, that have agreed to serve as a
Liquidity Provider and have consented to be named in this Prospectus are
Cumberland New York LLC, JSCT, LLC, Nonco LLC, Virtu Financial Singapore Pte
Ltd., and Wincent Investment Fund PCC Limited. Additional Liquidity Providers
may be added at any time, subject to the Sponsor's sole discretion. For an
"in-kind" subscription, Authorized Participants will deliver, or arrange for the
delivery by the Authorized Participant's designee of, AVAX to the Trust's
accounts with the AVAX Custodians in exchange for Shares when they purchase
Shares. For an "in-kind" redemption transaction with the Trust, when Authorized
Participants redeem Shares, the Trust, through the AVAX Custodians, will deliver
AVAX to such Authorized Participants, or a designee thereof, in exchange for
their Shares.
Authorized
Participants are the only persons that may place orders to create and redeem
Baskets. Authorized Participants must be (1) registered broker-dealers or other
securities market participants, such as banks and other financial institutions,
that are not required to register as broker-dealers to engage in securities
transactions described below, and (2) DTC Participants. 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. On May 15,
2025, the SEC’s Division of Trading and Markets and FINRA’s Office of General
Counsel withdrew their 2019 joint statement regarding broker-dealer custody of
crypto asset securities, which was widely perceived as prohibiting
broker-dealers from offering custodial services for crypto assets that are not
securities. Additionally, on the same day, the SEC released a set of Frequently
Asked Questions (FAQs) clarifying its views on broker-dealers' crypto asset
activities. The FAQs stated that (i) SEC Rule 15c3-3 applies only to crypto
asset securities, and (ii) broker-dealers are permitted to facilitate in-kind
creations and redemptions in connection with spot crypto exchange-traded
products.
To
become an Authorized Participant, a person must enter into an Authorized
Participant Agreement with the Sponsor. The Authorized Participant Agreement
provides the procedures for the creation and redemption of Baskets and for the
delivery, or facilitation of the delivery, of the AVAX required for such
creation and redemptions. The Authorized Participant Agreement and the related
procedures attached thereto may be amended by the Trust or the Sponsor (as the
case may be), without the consent of any Shareholder or Authorized Participant.
Authorized Participants pay the Transfer Agent a fee for each order they place
to create or redeem one or more Baskets. The transaction fee may be reduced,
increased or otherwise changed by the Sponsor. Authorized Participants who make
deposits (directly in the case of cash creations and, indirectly in the case of
AVAX deposits) with the Trust in exchange for Baskets receive no fees,
commissions or other form of compensation or inducement of any kind from either
the Trust or the Sponsor, and no such person will have any obligation or
responsibility to the Sponsor or the Trust to effect any sale or resale of
Shares.
Each
Authorized Participant will be required to be registered as a broker-dealer
under the Exchange Act and a member in good standing with FINRA, or exempt from
being or otherwise not required to be licensed as a broker-dealer or a member of
FINRA, and will be qualified to act as a broker or dealer in the states or other
jurisdictions where the nature of its business so requires. Certain Authorized
Participants may also be regulated under federal and state banking laws and
regulations. Each Authorized Participant has its own set of rules and
procedures, internal controls and information barriers as it determines is
appropriate in light of its own regulatory regime.
The
Trust will engage in AVAX transactions for converting cash into AVAX (in
association with purchase orders) and AVAX into cash (in association with
redemption orders). The Trust will conduct its AVAX purchase and sale
transactions by trading directly with third parties selected by the Sponsor
(each, a "Liquidity Provider"),
who
are not registered broker-dealers, pursuant to written agreements between such
Liquidity Providers and the Trust. Liquidity Providers may be added at any time,
subject to the discretion of the Sponsor. Alternatively, Liquidity Providers may
choose to terminate their participation as Liquidity Providers to the Trust at
any time. The Trust is not aware of any other affiliation or material
relationship between Liquidity Provider and the Authorized Participants or other
service providers of the Trust in executing a transaction in AVAX with the
Trust. Each Liquidity Provider represents to the Trust that it is acting for
itself and not for another person, and is not acting as agent or at the
direction of any Authorized Participant. Upon receipt of an order from an
Authorized Participant to create or redeem Baskets, the Trust may obtain quotes
for a price to purchase or sell AVAX from one or more Liquidity Providers. A
Liquidity Provider may respond to the Trust's request with an offer of a quote
at which it is willing to sell the specified quantity of AVAX, or a portion
thereof, in the case of a creation, or a quote at which it is willing to buy the
specified quantity of AVAX, or a portion thereof, in the case of a redemption,
as indicated in such offer. The Trust then determines, in its sole discretion,
which Liquidity Provider that provided a quote to use. Once an offer is accepted
it becomes a trade that is binding on both the Trust and the Liquidity Provider.
Each Liquidity Provider is required to comply with U.S. federal and/or state
laws including licensing and registration requirements or similar laws in
non-U.S. jurisdictions and maintain practices and policies designed to comply
with AML and KYC regulations. The Liquidity Providers as of the date of this
Prospectus, that have agreed to serve as a Liquidity Provider and have consented
to be named in this Prospectus are Cumberland New York LLC, JSCT, LLC, Nonco
LLC, Virtu Financial Singapore Pte Ltd., and Wincent Investment Fund PCC
Limited. Current or future Liquidity Providers may be affiliates of, or have
material relationships with, the Trust's current or future Authorized
Participants.
The
following description of the procedures for the creation and redemption of
Baskets is only a summary and a Shareholder should refer to the relevant
provisions of the Trust Agreement and the form of Authorized Participant
Agreement for more detail. The Trust Agreement and form of Authorized
Participant Agreement are filed as exhibits to the registration statement of
which this Prospectus is a part.
Authorized
Participants will place orders through the Transfer Agent. The Transfer Agent
will coordinate with the Sponsor, who will in turn coordinate with the Trust's
AVAX Custodians in order to facilitate settlement of the Shares and AVAX as
described in more detail in the Creation Procedures and Redemption Procedures
sections below.
The
trading prices of many digital assets, including AVAX, have experienced extreme
volatility in recent periods and may continue to do so. Extreme volatility may
persist and the value of the Shares may significantly decline in the future
without recovery. The digital asset markets may still be experiencing a bubble
or may experience a bubble again in the future. Extreme volatility in the
future, including further declines in the trading prices of AVAX, could have a
material adverse effect on the value of the Shares and the Shares could lose all
or substantially all of their value. The Trust is not actively managed and will
not take any actions to take advantage, or mitigate the impacts, of volatility
in the price of AVAX.
In
addition, the use of cash creations and redemptions has transaction costs of
buying and selling AVAX. These costs include the bid-ask spread along with the
operational costs from the labor and overhead involved in calculating,
executing, monitoring, and accounting for transactions in the AVAX markets and
related cash movements. The Trust's Authorized Participant Agreement provides
that transaction costs and slippage related to Basket creation and redemption
are the responsibility of the Authorized Participant. Under ordinary
circumstances, the Trust does not anticipate that there would be fees or costs
related to purchases and sales of AVAX. To the extent there are unusual or
unanticipated fees or costs associated with AVAX purchases and sales in
connection with creation and redemption activity, the Sponsor would seek to pass
these costs to the Liquidity Providers or the Authorized Participants. If unable
to do so, the Sponsor would treat these as extraordinary expenses and could
decide to seek reimbursement from the Trust to the extent the fees or expenses
were paid by the Sponsor on the Trust's behalf.
Creation
Procedures
On
any business day, an Authorized Participant may place an order with the Transfer
Agent to create one or more Baskets. Currently, creation orders are only
accepted in cash or in-kind. For purposes of processing creation
and
redemption orders, a "business day" means any day other than a day when the
Exchange is closed for regular trading ("Business Day"). Purchase orders must be
placed by the order cut-off time for a purchase order on a Business Day (the
"Creation Order Cut-Off Time"). The Creation Order Cut-Off Time is 3:59:59 p.m.
Eastern time on a trade date or as otherwise communicated by the Sponsor. The
day on which an order is received by the Transfer Agent is considered the
purchase order date.
Prior
to the delivery of Baskets for a purchase order, the Authorized Participant must
also have wired to the Transfer Agent the nonrefundable transaction fee due for
the creation order to offset the transfer and other transaction costs associated
with the issuance of the Basket. Authorized Participants may not withdraw a
creation request. The manner by which creations are made is dictated by the
terms of the Authorized Participant Agreement. By placing a creation order, an
Authorized Participant agrees to facilitate the deposit of cash with the Cash
Custodian or AVAX, with the AVAX Custodians. If an Authorized Participant fails
to consummate the foregoing, the order will be cancelled.
For
a cash creation, the total deposit of cash required to create each Basket is an
amount of cash that is in the same proportion to the total assets of the Trust,
net of accrued expenses and other liabilities, on the date the order to purchase
is properly received, as the number of Shares to be created under the purchase
order is in proportion to the total number of Shares outstanding on the date the
order is received. On the trade date for a purchase order (the "Creation Trade
Date"), following receipt of the purchase order from the Authorized Participant,
the Trust shall, in its sole discretion, select a Liquidity Provider and execute
a trade to purchase AVAX from that Liquidity Provider in the amount of the
Basket Deposit (the calculation of which is explained below), with the purchased
AVAX to be delivered by the Liquidity Provider on the Creation Settlement Date
in exchange for a cash price to be delivered by the Trust on Creation Settlement
Date. The Liquidity Provider, not the Authorized Participant, shall be
responsible for delivering AVAX to the Trust. The Authorized Participant shall
be responsible for delivering cash to the Trust.
For
an in-kind creation, following an Authorized Participant's placement of a
purchase order, the Trust's AVAX Custodian accounts must be credited with the
required AVAX by 1:00 p.m. Eastern time on the Creation Settlement Date, or in
the case of cash deposits, the Trust's Cash Custodian account must be credited
with the required cash by 1:00 p.m. Eastern time on the Creation Settlement
Date, as applicable. If the Authorized Participant or its designee fails to
consummate the foregoing, the order shall be cancelled. Upon receipt of the AVAX
deposit amount in the Trust's AVAX Custodian accounts, in the case of in-kind
creations, or the cash deposit amount in the Trust's Cash Custodian account, in
the case of cash creations, the Trust will notify the Transfer Agent to release
the shares to the Authorized Participant, by directing DTC to credit the number
of Shares created to the applicable DTC account.
No
Shares will be issued unless and until the AVAX Custodians (in the case of
in-kind deposits) or Cash Custodian (in the case of cash deposits) have informed
the Transfer Agent that the AVAX or cash (as applicable) has been received.
Disruption of services at the AVAX Custodians would have the potential to delay
settlement of the AVAX related to Share creations. To the extent a Liquidity
Provider, is not able to deliver AVAX associated with a cash purchase order as
of a specified time on the settlement date, the Authorized Participant will have
the option to cancel the order, or the Sponsor may select an alternative
execution method for the AVAX purchase. To the extent that AVAX transfers in
connection with a creation order are delayed due to congestion or other issues
with the Avalanche Network, such AVAX will not be held in cold storage in until
such transfers can occur.
AVAX
held in the Trust's AVAX Custodian accounts is the property of the Trust and is
not leased, or loaned under any circumstances.
Determination
of Required Deposits
The
Basket Cash Component changes from day to day. To determine the Basket Cash
Component, the Administrator starts by determining the number of AVAX held by
the Trust as of the opening of business on that trade date, and subtracts the
amount of AVAX constituting estimated accrued but unpaid fees and expenses of
the Trust as of the opening of business on that trade date. For the purposes of
the computation of the Basket Deposit, the AVAX quantity is displayed to the
hundred millionth. Second, this figure, in AVAX, is divided by the quotient of
the number of Shares outstanding at the opening of business on the trade date
divided by 25,000. This produces the Basket Deposit, which is the number of AVAX
attributable to each Basket as of the opening of business on the trade
date.
Third, the resulting AVAX amount is then valued, in cash, at the Index
calculated on the trade date, or in accordance with the other valuation policies
described in the Registration Statement if the Index is not available. This
produces the Basket Cash Component. The Basket Deposit, and the Basket Cash
Component, so determined is communicated via electronic mail message to all
Authorized Participants, and made available on the Sponsor's website for the
Shares. The Exchange also publishes the Basket Deposit determined by the
Administrator as indicated above.
In
the case of a cash creation only, by the end of day Eastern time (or such other
time as the parties may agree) on the trade date for a purchase order, the
Administrator will calculate and transmit the Required Cash Creation Total,
consisting of (1) the Basket Cash Component, (2) Cash Amount, and (3) any
Purchase Slippage, to the Authorized Participant, which the Authorized
Participant shall be responsible for delivering in cash on the settlement date
for a purchase order (which shall be the Business Day immediately following the
trade date unless the Trust, Sponsor, Authorized Participant agree to a
different date) (the "Creation Settlement Date") to the Trust's account at the
Cash Custodian is cleared, immediately available funds by 1:00 p.m. Eastern
time. The Trust acknowledges that, if the actual cash purchase price of AVAX
from the Liquidity Provider is below the Basket Cash Component, the Authorized
Participant shall be entitled to retain the difference and the Required Cash
Creation Total shall be reduced accordingly.
In
the case of an in-kind creation only, by the end of day Eastern Standard Time
(or such other time as the parties may agree) on Creation Trade Date, the
Administrator will calculate and transmit the Creation Basket Deposit, to the
Authorized Participant, which the Authorized Participant shall be responsible
for delivering in AVAX on Creation Settlement Date to the Trust's Custody
Accounts.
Delivery
of Required Deposits
For
a cash creation, on the Creation Settlement Date, the Authorized Participant who
places a purchase order must follow the procedures outlined in the "Creation
Procedures" section of this Prospectus. In the case of a cash creation only, the
Trust shall instruct the Cash Custodian to transfer the cash proceeds to the
Trust's Fiat Accounts. The Liquidity Provider delivers AVAX to the Trust's cold
storage vault account in exchange for the cash purchase price, a delivery
facilitated by the AVAX Custodians under the Custody Agreements. Upon settlement
by the AVAX Custodians of the AVAX purchase from the Liquidity Provider and the
deposit of AVAX in the Trust's cold storage vault account, the Trust shall
instruct the Transfer Agent to release the Shares to the Authorized Participant,
and the Transfer Agent shall direct DTC to credit the number of Shares ordered
to the applicable DTC account, by 1:00 p.m. Eastern time on the Creation
Settlement Date and the Creation Order shall be settled. If the AVAX purchase
transaction between the Trust and the Liquidity Provider fails to settle, the
Authorized Participant shall have the option to cancel the Creation Order, in
which case the Trust will return the Required Cash Creation Total less the Cash
Amount to the Authorized Participant and the Shares will not be issued, or the
Sponsor may use an alternative execution method for the Trust to purchase AVAX,
in which case the Authorized Participant agrees and acknowledges it is
responsible for any Purchase Slippage and Cash Amount relating to such
alternative execution method. The expense and risk of delivery and ownership of
cash until such cash has been received in immediately available, cleared federal
funds by the Cash Custodian on behalf of the Trust will be borne solely by the
Authorized Participant.
For
an in-kind creation, on the Creation Settlement Date, the Authorized Participant
or its designee shall deposit the amount of AVAX specified in the Creation
Basket Deposit in the Trust's accounts at the AVAX Custodians by 1:00 p.m.
Eastern time. Upon settlement by the AVAX Custodians, the Trust shall instruct
the Transfer Agent to release the Shares to the Authorized Participant, and the
Transfer Agent shall direct DTC to credit the number of Shares ordered to the
applicable DTC account, by close of business on the Creation Settlement Date and
the Creation Order shall be settled. If the AVAX deposit transaction between the
Trust and the Authorized Participant or its designee fails to settle, the
Authorized Participant shall have the option to cancel the Creation Order, in
which case the Trust will return the Creation Basket Deposit to the Authorized
Participant and the Shares will not be issued, or the Sponsor may use an
alternative execution method for the Trust to purchase AVAX, in which case the
Authorized Participant agrees and acknowledges it is responsible for providing
any Basket Cash Component, plus any Purchase Slippage and Cash Amount, relating
to such alternative execution method. The expense and risk of
delivery
and ownership of AVAX until such AVAX has been credited to the Trust's Custody
Accounts by the AVAX Custodians on behalf of the Trust will be borne solely by
the Authorized Participant.
Rejection
of Purchase Orders
The
Sponsor or its designee has the absolute right, but does not have any
obligation, to reject any purchase order or Basket Deposit if the Sponsor
determines that:
•the
purchase order or Basket Deposit is not in proper form;
•it
would not be in the best interest of the Shareholders of the Trust;
•the
acceptance of the purchase order or the Basket Deposit would have adverse tax
consequences to the Trust or its Shareholders;
•the
acceptance or receipt of the purchase order or the Basket Deposit would, in the
opinion of counsel to the Sponsor, be unlawful; or
•circumstances
outside the control of the Trust, the Sponsor, the Marketing Agent or the AVAX
Custodians or Cash Custodian make it, for all practical purposes impracticable
or not feasible to process Baskets (including if the Sponsor determines that the
investments available to the Trust at that time will not enable it to meet its
investment objective).
None
of the Sponsor, the Transfer Agent, the AVAX Custodians or the Cash Custodian
will be liable for the rejection of any purchase order or Basket
Deposit.
Redemption
Procedures
The
procedures by which an Authorized Participant can redeem one or more Baskets
mirror the procedures for the creation of Baskets with an additional safeguard
on AVAX or cash being removed from the Trust's AVAX Custodian or Cash Custodian
account. Currently, redemption orders are processed in cash or AVAX. On any
business day, an Authorized Participant may place an order with the Transfer
Agent to redeem one or more Baskets. Redemption orders must be placed by the
order cut-off time for an order on a Business Day (the "Redemption Order Cut-Off
Time"). The Redemption Order Cut-Off Time is 3:59:59 p.m. Eastern time on a
trade date or as otherwise communicated by the Sponsor. A redemption order will
be effective on the date it is received by the Transfer Agent ("Redemption Order
Date").
For
a cash redemption, on the trade date for a Redemption Order (the "Redemption
Trade Date"), following receipt of the Redemption Order from the Authorized
Participant, the Trust shall instruct the AVAX Custodians to move the AVAX in
the amount of the Basket Deposit out of the Trust's accounts at the AVAX
Custodians. On the Redemption Trade Date, the Trust in its sole discretion,
shall select a Liquidity Provider and execute a trade to sell the AVAX in
exchange for cash to be delivered on the settlement date for a Redemption Order
(which shall be the Business Day immediately following the Redemption Trade Date
unless the Trust, Sponsor, and Authorized Participant agree to a different date)
(the "Redemption Settlement Date"). The Liquidity Providers as of the date of
this Prospectus, that have agreed to serve as a Liquidity Provider and have
consented to be named in this Prospectus are Cumberland New York LLC, JSCT, LLC,
Nonco LLC, Virtu Financial Singapore Pte Ltd., and Wincent Investment Fund PCC
Limited. Additional Liquidity Providers may be added at any time, subject to the
Sponsor's sole discretion. The Redemption Settlement Date shall be the
immediately following Business Day after the Redemption Trade Date, unless the
parties otherwise agree in writing. The Liquidity Provider, not the Authorized
Participant, shall be responsible for purchasing AVAX from the Trust. By placing
a Redemption Order, an Authorized Participant agrees to facilitate the delivery
of the Basket of Shares.
For
an in-kind redemption, on the Redemption Trade Date, the Trust shall instruct
the AVAX Custodians to deliver AVAX to the Authorized Participant or its
designee on the Redemption Settlement Date. The Redemption Settlement Date, in
the case of an in-kind redemption order, shall be the immediately following
Business Day after the Redemption Trade Date, unless the parties otherwise agree
in writing. The Authorized Participant, or its designee, shall be responsible
for receiving AVAX from the Trust in the case of an in-kind redemption
order.
Once
the Transfer Agent notifies the AVAX Custodians or Cash Custodian (as
applicable), the Sponsor and the Administrator that the Shares have been
received in the Trust's DTC account, the Administrator shall instruct the AVAX
Custodians or Cash Custodian (as applicable) to transfer the redemption AVAX or
cash amount from the Trust's AVAX Custodian or Cash Custodian account to the
Authorized Participant.
AVAX
held in each of the Trust's AVAX Custodian accounts is the property of the Trust
and is not leased or loaned under any circumstances.
Determination
of Redemption Distribution
By
8:00 p.m. Eastern time (or such other time as the parties may agree) on the
Redemption Trade Date, in the case of a cash Redemption Order, the Administrator
will calculate the Required Cash Redemption Total that the Trust is responsible
for delivering in cash on Redemption Settlement Date to the Authorized
Participant's designated bank account. The Required Cash Redemption Total
consists of (1) Basket Cash Component, minus (2) the Cash Amount, and minus (3)
any Redemption Slippage. The Trust acknowledges that, if the actual cash sale
price realized from selling AVAX to the Liquidity Provider is above the Basket
Cash Component, the Authorized Participant shall be entitled to retain the
difference and the Required Cash Redemption Total shall be increased
accordingly.
By
8:00 p.m. Eastern Standard Time (or such other time as the parties may agree) on
Redemption Trade Date, in the case of an in-kind Redemption Order, the
Administrator will calculate the Creation Basket Deposit that the Trust is
responsible for delivering in AVAX on Redemption Settlement Date to the
Authorized Participant's or its designee's accounts at the AVAX
Custodians.
Delivery
of Redemption Distribution
On
the Redemption Settlement Date, in the case of a cash Redemption Order, the
Liquidity Provider delivers cash to the Trust's Fiat Accounts in exchange for
AVAX, as facilitated by the AVAX Custodians. Upon settlement of the AVAX sale by
the Trust to the Liquidity Provider and the receipt of the Liquidity Provider's
cash in the Trust's Fiat Accounts, the Trust shall instruct the AVAX Custodians
to transfer the cash to the Trust's Cash Custodian account. The Trust shall then
instruct the Transfer Agent to deliver the Authorized Participant's Shares in
the Basket Deposit back to the Trust, in exchange for which the Trust shall
instruct the Cash Custodian to transfer the Required Cash Redemption Total to
the Authorized Participant's designated bank account and the Redemption Order
shall be settled. If the AVAX sale transaction between the Trust and the
Liquidity Provider fails to settle, the Authorized Participant shall have the
option to cancel the Redemption Order, in which case the Trust will retain its
AVAX and the Authorized Participant will retain the associated Shares and will
not receive any cash, or the Sponsor may use an alternative execution method for
the Trust to sell AVAX, in which case the Authorized Participant agrees and
acknowledges it is responsible for any Redemption Slippage and Cash Amount
relating to such alternative execution method. If the Trust's DTC account has
not been credited with all of the Baskets to be redeemed by such time, the
redemption distribution will also be delayed.
On
the Redemption Settlement Date, in the case of an in-kind Redemption Order, the
Trust shall instruct the Transfer Agent to deliver the Authorized Participant's
Shares in the Creation Basket Deposit back to the Trust, in exchange for which
the Trust shall instruct the AVAX Custodians to transfer the AVAX in the
Creation Basket Deposit to the Authorized Participant's or its designee's
accounts at the AVAX Custodians and the Redemption Order shall be settled. The
Trust shall have no obligation to instruct the AVAX Custodians to transfer AVAX
to the Authorized Participant or its designee unless and until the Trust's DTC
account has been credited with all of the Shares relating to the Creation
Baskets to be redeemed. If the AVAX transfer between the Trust's AVAX Custodian
Accounts and the Authorized Participant's or its designee's AVAX Custodian
accounts fails to settle, the Authorized Participant shall have the option to
cancel the Redemption Order, in which case the Trust will retain its AVAX and
the Authorized Participant will retain the associated Shares and will not
receive any AVAX, or the Sponsor may use an alternative execution method for the
Trust to sell AVAX, in which case the Authorized Participant will receive cash,
and the Authorized Participant agrees and acknowledges it is responsible for any
Redemption Slippage and Cash Amount relating to such alternative execution
method. Notwithstanding the forgoing, the Sponsor may extend the period for
delivery of redemption proceeds in connection with stressed liquidity conditions
resulting from the Trust’s staking program.
Suspension
or Rejection of Redemption Orders
The
Sponsor may, in its discretion, suspend the right of redemption, or postpone the
redemption settlement date, (1) for any period during which the Exchange is
closed other than customary weekend or holiday closings, or trading on the
Exchange is suspended or restricted, (2) for any period during which an
emergency exists as a result of which delivery, disposal or evaluation of AVAX
is not reasonably practicable, or (3) for such other period as the Sponsor
determines to be necessary for the protection of the Shareholders. For example,
the Sponsor may determine that it is necessary to suspend redemptions to allow
for the orderly liquidation of the Trust's assets. If the Sponsor has difficulty
liquidating the Trust's positions, e.g., because of a market disruption event,
it may be appropriate to suspend redemptions until such time as such
circumstances are rectified. If any of these events occurs at a time when an
Authorized Participant intends to redeem Shares, and the price of AVAX decreases
before such Authorized Participant is able to complete such redemption order,
such Authorized Participant may sustain a loss with respect to the amount that
it would have been able to obtain in exchange for the AVAX 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.
None of the Sponsor, the person authorized to take redemption orders in the
manner provided in the Authorized Participant Agreement, the Cash Custodian or
the AVAX Custodians will be liable to any person or in any way for any loss or
damages that may result from any such suspension or postponement. To the extent
that the Sponsor suspends the right of redemption, the Trust will notify
Shareholders in a prospectus supplement and a current report on Form 8-K or in
its annual or quarterly reports.
Redemption
orders must be made in whole Baskets. The Sponsor acting by itself or through
the person authorized to take redemption orders in the manner provided in the
Authorized Participant Agreement may, in its sole discretion, reject any
redemption order (1) the Sponsor determines not to be in proper form, (2) the
fulfillment of which its counsel advises may be illegal under applicable laws
and regulations, or (3) if circumstances outside the control of the Sponsor, the
person authorized to take redemption orders in the manner provided in the
Authorized Participant Agreement or the AVAX Custodian make it for all practical
purposes not feasible for the Shares to be delivered under the redemption order.
The Sponsor may also reject a redemption order if the number of Shares being
redeemed would reduce the remaining outstanding Shares to 25,000 Shares (i.e., 1
Basket) or less.
The
Marketing Agent shall notify the Authorized Participant of a rejection or
suspension of any redemption order. The Marketing Agent is under no duty,
however, to give notification of any specific defects or irregularities nor
shall the Marketing Agent or the Trust incur any liability for the failure to
give any such notification. The Trust and the Marketing Agent may not revoke a
previously accepted redemption order.
Creation
and Redemption Transaction Fee
To
compensate the Transfer Agent for expenses incurred in connection with the
creation and redemption of Baskets, an Authorized Participant is required to pay
a transaction fee to the Transfer Agent to create or redeem Baskets, which does
not vary in accordance with number of Baskets in such order. The transaction fee
may be reduced, increased or otherwise changed by the Sponsor. The Sponsor will
notify DTC of any change in the transaction fee and will not implement any
increase in the fee for the redemption of baskets until thirty (30) days after
the date of notice.
Tax
Responsibility
Authorized
Participants are responsible for any transfer tax, sales or use tax, stamp tax,
recording tax, value added tax or similar tax or governmental charge applicable
to the creation or redemption of Baskets, regardless of whether or not such tax
or charge is imposed directly on the Authorized Participant, and agree to
indemnify the Sponsor and the Trust if they are required by law to pay any such
tax, together with any applicable penalties, additions to tax and interest
thereon.
Secondary
Market Transactions
As
noted, the Trust will create and redeem Shares from time to time, but only in
one or more Baskets. The creation and redemption of Baskets are only made in
exchange for delivery to the Trust or the distribution by the Trust of the
amount of AVAX (or corresponding amount of cash) equal to the number of Shares
included in the Baskets being created or redeemed determined on the day the
order to create or redeem Baskets is properly received.
As
discussed above, Authorized Participants are the only persons that may place
orders to create and redeem Baskets. Authorized Participants must be registered
broker-dealers or other securities market participants, such as banks and other
financial institutions that are not required to register as broker-dealers to
engage in securities transactions. An Authorized Participant is under no
obligation to create or redeem Baskets, and an Authorized Participant is under
no obligation to offer to the public Shares of any Baskets it does
create.
Authorized
Participants that do offer to the public Shares from the Baskets they create
will do so at per-Share offering prices that are expected to reflect, among
other factors, the trading price of the Shares on the Exchange, the NAV of the
Trust at the time the Authorized Participant purchased the Baskets, the NAV of
the Shares at the time of the offer of the Shares to the public, the supply of
and demand for Shares at the time of sale, and the liquidity of AVAX or other
portfolio investments. Baskets are generally redeemed when the price per Share
is at a discount to the NAV per Share. Shares initially comprising the same
Basket but offered by Authorized Participants to the public at different times
may have different offering prices. An order for one or more Baskets may be
placed by an Authorized Participant on behalf of multiple clients. Authorized
Participants who make deposits with the Trust in exchange for Baskets receive no
fees, commissions or other forms of compensation or inducement of any kind from
either the Trust or the Sponsor and no such person has any obligation or
responsibility to the Sponsor or the Trust to effect any sale or resale of
Shares. Shares trade in the secondary market on the Exchange.
Shares
are expected to trade in the secondary market on the Exchange. Shares may trade
in the secondary market at prices that are lower or higher relative to their NAV
per Share. The amount of the discount or premium in the trading price relative
to the NAV per Share may be influenced by various factors, including the number
of Shareholders who seek to purchase or sell Shares in the secondary market and
the liquidity of AVAX.
USE
OF PROCEEDS
Proceeds
received by the Trust from the issuance of Baskets consist of AVAX or cash.
Rewards received by the Trust from staking are retained by the Trust and may be
delegated for staking. Deposits of AVAX are held by the First AVAX Custodian or
the Second AVAX Custodian on behalf of the Trust. Deposits of cash are delivered
to the Cash Custodian, following which the Sponsor shall instruct the Cash
Custodian to transfer the cash to the AVAX Custodians to enable the AVAX
Custodians to facilitate the purchase of AVAX from Liquidity Providers, followed
by the transfer of such AVAX to the First AVAX Custodian or the Second AVAX
Custodian, in each case, at the Sponsor's instruction.
OWNERSHIP
OR BENEFICIAL INTEREST IN THE TRUST
The
beneficial interest in the Trust is divided into shares. Each Share of the Trust
represents an equal beneficial interest in the net assets of the Trust, and each
holder of Shares is entitled to receive such holder's pro rata share of
distributions of income and capital gains, if any.
All
Shares are fully paid and non-assessable. No Share will have any priority or
preference over any other Share of the Trust. All distributions, if any, will be
made ratably among all Shareholders from the assets of the Trust according to
the number of Shares held of record by such Shareholders on the record date for
any distribution or on the date of termination of the Trust, as the case may be.
Except as otherwise provided by the Sponsor, Shareholders will have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust. Every Shareholder, by virtue of having purchased
or acquired a Share, shall have expressly consented and agreed to be bound by
the terms of the Trust Agreement.
The
Sponsor will have full power and authority, in its sole discretion, without
seeking the approval of the Trustee or the Shareholders (a) to establish and
designate and to change in any manner and to fix such preferences, voting
powers, rights, duties and privileges of the Trust as the Sponsor may from time
to time determine, (b) to divide the beneficial interest in the Trust into an
unlimited amount of shares, with or without par value, as the Sponsor will
determine, (c) to issue shares without limitation as to number (including
fractional shares), to such persons and for such amount of consideration,
subject to any restriction set forth in the By-Laws, if any, at such time or
times and on such terms as the Sponsor may deem appropriate, (d) to divide or
combine the shares into a greater or lesser number without thereby materially
changing the proportionate beneficial interest of the shares in the assets held,
and (e) to take such other action with respect to the shares as the Sponsor may
deem desirable. The ownership of Shares will be recorded on the books of the
Trust or a transfer or similar agent for the Trust. No certificates certifying
the ownership of Shares will be issued except as the Sponsor may otherwise
determine from time to time. The Sponsor may make such rules as it considers
appropriate for the issuance of share certificates, transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust, or any
transfer or similar agent, as the case may be, will be conclusive as to the
identity of the Shareholders and as to the number of Shares held from time to
time by each.
CONFLICTS
OF INTEREST
There
are present and potential future conflicts of interest in the Trust's structure
and operation you should consider before you purchase Shares. The Sponsor will
use this notice of conflicts as a defense against any claim or other proceeding
made. If the Sponsor is not able to resolve these conflicts of interest
adequately, it may impact the Trust's ability to achieve its investment
objective.
The
officers, directors and employees of the Sponsor do not devote their time
exclusively to the Trust. These persons are directors, officers or employees of
other entities which may compete with the Trust for their services. They could
have a conflict between their responsibilities to the Trust and to those other
entities.
The
Sponsor has the authority to manage the investments and operations of the Trust,
and this may allow it to act in a way that furthers its own interests which may
create a conflict with your best interests. Shareholders have no voting rights,
which will limit their ability to influence matters such as amendment of the
Trust Agreement, change in the Trust's basic investment policy, dissolution of
the Trust, or the sale or distribution of the Trust's assets.
The
Sponsor serves as the sponsor to the Trust. The Sponsor may have a conflict to
the extent that its trading decisions for the Trust may be influenced by the
effect they would have on other funds its affiliates may manage. For example,
affiliates of the Sponsor manage investment vehicles which invest in the
Avalanche ecosystem, and in turn, entities in the Avalanche ecosystem may
participate in such investment vehicles. In addition, the Sponsor may be
required to indemnify its officers, directors and key employees with respect to
their activities on behalf of other funds, if the need for indemnification
arises. This potential indemnification could cause the Sponsor's assets to
decrease. If the Sponsor's other sources of income are not sufficient to
compensate for the indemnification, it could cease operations, which could in
turn result in Trust losses and/or termination of the Trust.
Affiliates
of the Sponsor, including Van Eck Associates Corporation, have and may in the
future issue various exchange traded products and other pooled investment
vehicles that provide exposure to certain digital assets in US and non-US
jurisdictions. In addition, the Sponsor's affiliates may engage in trading of
AVAX across affiliates. The Sponsor has adopted and implemented policies and
procedures that are reasonably designed to ensure compliance with applicable
law, including a Compliance Manual and Code of Ethics, which address conflicts
of interest. Additionally, the Sponsor has adopted policies and procedures
requiring that certain personnel pre-clear trading activity in certain digital
assets, including AVAX. The Sponsor believes that these pre-clearance
requirements, in addition to other controls, are reasonably designed to mitigate
the risk of conflicts of interest and other impermissible activity.
The
Sponsor and affiliates thereof may participate in transactions related to AVAX,
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 AVAX held
by the Trust and, consequently, on the market value of AVAX.
Because
these parties may trade AVAX for their own accounts at the same time as the
Trust, prospective Shareholders should be aware that such persons may take
positions in AVAX which are opposite, or ahead of, the positions taken for the
Trust. There can be no assurance that any of the foregoing will not have an
adverse effect on the performance of the Trust.
If
the Sponsor acquires knowledge of a potential transaction or arrangement that
may be an opportunity for the Trust, it will have no duty to offer such
opportunity to the Trust. The Sponsor will not be liable to the Trust or the
Shareholders for breach of any fiduciary or other duty if Sponsor pursues such
opportunity or directs it to another person or does not communicate such
opportunity to the Trust. Neither the Trust nor any Shareholder has any rights
or obligations by virtue of the Trust Agreement, the trust relationship created
thereby, or this Prospectus in such business ventures or the income or profits
derived from such business ventures. The pursuit of such business ventures, even
if competitive with the activities of the Trust, will not be deemed wrongful or
improper.
MarketVector
is the index sponsor and index administrator for the MarketVectorTM
Avalanche Benchmark Rate and a wholly-owned subsidiary of VanEck, which may
create conflicts of interest as a result of such relationship.
Appropriate
procedures have been implemented to avoid any conflicts of interest adversely
affecting the interests of Shareholders. However, Shareholders should be aware
that MarketVector has not taken the interests of the Shareholders into
consideration when creating the MarketVectorTM
Avalanche Benchmark Rate, and MarketVector will have no obligation to take the
interests of the Shareholders into account when maintaining, modifying,
rebalancing, reconstituting or discontinuing the MarketVectorTM
Avalanche Benchmark Rate. Actions taken by MarketVectorTM
in respect of the MarketVectorTM
Avalanche Benchmark Rate may have an adverse impact on the value or liquidity of
the Shares. The interests of MarketVector and the Shareholders may not be
aligned. MarketVector will have no responsibility or liability to the
Shareholders.
As
of June 10, 2025, VanEck is a minority equity holder in Metatech Holdings, the
parent company of Nonco LLC and holds approximately 6% of its equity. Nonco LLC
is a Liquidity Provider to the Trust, and the Trust conducts its AVAX purchase
and sale transactions by trading directly with Liquidity Providers, including
Nonco LLC.
Resolution
of Conflicts Procedures
The
Trust Agreement provides that whenever a conflict of interest exists between the
Sponsor or any of its affiliates, on the one hand, and the Trust or any
Shareholders or any other person, on the other hand, the Sponsor will resolve
such conflict of interest considering the relative interest of each party
(including its own interest) and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
accepted accounting practices or principles.
DUTIES
OF THE SPONSOR
The
general fiduciary duties which would otherwise be imposed on the Sponsor (which
would make its operation of the Trust as described herein impracticable due to
the strict prohibition imposed by such duties on, for example, conflicts of
interest on behalf of a fiduciary in its dealings with its beneficiaries), are
replaced entirely by the terms of the Trust Agreement (to which terms all
Shareholders, by subscribing to the Shares, are deemed to consent).
Additionally,
under the Trust Agreement, the Sponsor has the following obligations as a
sponsor of the Trust:
•execute,
file, record and/or publish all certificates, statements and other documents and
do any and all other things as may be appropriate for the formation,
qualification and operation of the Trust and for the conduct of its business in
all appropriate jurisdictions;
•retain
independent public accountants to audit the accounts of the Trust;
•employ
attorneys to represent the Trust;
•select
the Trust's Trustee, administrator, transfer agent, custodian(s), AVAX trading
platform counterparties and OTC market participant counterparties, index
provider, marketing agent(s); insurer(s) and any other service provider(s) and
cause the Trust to enter into contracts with such service
provider(s);
•negotiate
and enter into insurance agreements to secure and maintain the insurance
coverage to the extent described in the Prospectus;
•develop
a marketing plan for the Trust on an ongoing basis and prepare marketing
materials regarding the Trust;
•maintain
the Trust's website;
•acquire
and sell AVAX, which may be facilitated by the AVAX Custodian, with a view to
providing Shareholders with exposure to AVAX at a price that reflects the
performance of the price of AVAX less the expenses of the Trust's operations,
valuing the Trust's Shares daily based on the reported MarketVectorTM
Avalanche Benchmark Rate, or any other pricing or valuation methodology adopted
by the Sponsor in its discretion (for the avoidance of doubt, the Sponsor may
select such subsequent pricing or valuation methodology without Shareholder
approval);
•determine
the Trust's NAV and NAV per Share, and select, remove, change, or replace the
pricing or valuation methodology or policies used to value the Trust's assets
and determine NAV and NAV per Share, in its sole discretion;
•enter
into an Authorized Participant Agreement with each Authorized Participant and
discharge the duties and responsibilities of the Trust and the Sponsor
thereunder;
•receive
directly or through its delegates from Authorized Participants and process or
cause its delegates to process properly submitted purchase orders, as described
in the Trust Agreement and in the Authorized Participant Agreement;
•in
connection with purchase orders, receive directly or through its delegates the
number of AVAX and/or cash in an amount equal to the Basket Deposit from
Authorized Participants;
•in
connection with purchase orders, after accepting an Authorized Participant's
purchase order and receiving AVAX in an amount equal to the Basket Deposit, or
the amount of cash needed to purchase the quantity of AVAX corresponding to the
Basket Deposit, the Sponsor or its delegate will direct the Trust's appointed
transfer agent to credit the Baskets to fill the Participant's purchase order
within one Business Day immediately following the receipt of AVAX and/or
cash;
•receive
directly or through its delegates from Authorized Participants and process or
cause its delegates to process properly submitted redemption orders, as
described in the Trust Agreement and in the Authorized Participant
Agreement;
•in
connection with redemption orders, after receiving the redemption order
specifying the number of Baskets that the Authorized Participant wishes to
redeem and after the Trust's DTC account has been credited with the Baskets to
be redeemed, the Sponsor or its delegates will transfer to the redeeming
Authorized Participant: i) in the case of an in- kind redemption, an amount of
AVAX equal to the amount of AVAX represented by the Baskets being redeemed; ii)
in the case of a redemption for cash, the cash proceeds of the sale of such
AVAX;
•the
Sponsor will, if permitted by the terms of the Trust Agreement, use its
discretion to determine, in good faith, which peer-to-peer network, among a
group of incompatible forks of the Avalanche Network, is generally accepted as
the Avalanche Network and should therefore be considered the appropriate network
for the Trust's purposes;
•assist
in the preparation and filing of reports and proxy statements (if any) to the
Shareholders, the periodic updating of the Registration Statement and Prospectus
and other reports and documents for the Trust required to be filed by the Trust
with the SEC and other governmental bodies;
•use
its best efforts to maintain the status of the Trust as a grantor trust for U.S.
federal income tax purposes, including making such elections, filing such tax
returns, and preparing, disseminating and filing such tax reports, as it is
advised by its counsel or accountants are from time to time required by any
statute, rule or regulation of the United States, any State or political
subdivision thereof, or other jurisdiction having taxing authority in respect of
the Trust or its administration;
•monitor
all fees charged to the Trust, and the services rendered by the service
providers to the Trust, to determine whether the fees paid by, and the services
rendered to, the Trust are at competitive rates and are the best price and
services available under the circumstances, and if necessary, renegotiate the
fee structure to obtain such rates and services for the Trust;
•perform
such other services as the Sponsor believes the Trust may from time to time
require; and
•in
general, to carry out any other business in connection with or incidental to any
of the foregoing powers, to do everything necessary, suitable or proper for the
accomplishment of any purpose or the attainment of any object or the furtherance
of any power herein set forth, either alone or in association with others, and
to do every other act or thing incidental or appurtenant or growing out of or
connected with the aforesaid business or purposes, objects or
powers.
To
the extent that a law (common or statutory) or in equity, the Sponsor has duties
(including fiduciary duties) and liabilities relating thereto to the Trust, the
Shareholders or to any other person, the Sponsor will not be liable to the
Trust, the Shareholders or to any other person for its good faith reliance on
the provisions of the Trust Agreement or this Prospectus unless such reliance
constitutes gross negligence, bad faith, or willful misconduct on the part of
the Sponsor.
LIABILITY
AND INDEMNIFICATION
Trustee
The
Trustee will not be liable for the acts or omissions of the Sponsor, the
Transfer Agent or any other person, nor will the Trustee be liable for
supervising or monitoring the performance and the duties and obligations of the
Sponsor, the Transfer Agent, the Trust or any other person under the Trust
Agreement. The Trustee will not be personally liable under any circumstances,
except for its own willful misconduct, bad faith or gross negligence. In
particular, but not by way of limitation:
(a)the
Trustee will not be personally liable for any error of judgment made in good
faith except to the extent such error of judgment constitutes gross negligence
on its part;
(b)no
provision of the Trust Agreement will require the Trustee to expend or risk its
personal funds or otherwise incur any financial liability in the performance of
its rights or powers hereunder, if the Trustee shall have reasonable grounds for
believing that the payment of such funds or adequate indemnity against such risk
or liability is not reasonably assured or provided to it;
(c)under
no circumstances will the Trustee be personally liable for any representation,
warranty, covenant, agreement, or indebtedness of the Trust;
(d)the
Trustee will not be personally responsible for or in respect of the validity or
sufficiency of the Trust Agreement or for the due execution hereof by the
Sponsor;
(e)the
Trustee has not prepared or verified, and shall have no duty, responsibility or
obligation or any liability therefore, for any information, disclosure, or other
statement in any memorandum or other documents issued in connection with the
sale or transfer of any Shares;
(f)the
Trustee will not be liable or any actions taken or omitted to be taken by it in
accordance with the written instructions of the Sponsor;
(g)the
Trustee will be under no obligation to exercise any of the rights or powers
vested in it by the Trust Agreement, or to institute, conduct or defend any
litigation under the Trust Agreement or any other agreements to which the Trust
is a party, at the request, order or direction of the Sponsor unless the Sponsor
has offered CSC Delaware Trust Company (in its individual capacity and in its
capacity as Trustee) security or indemnity satisfactory to it against the costs,
expenses and liabilities that may be incurred by it (including, without
limitation, the reasonable fees and expenses of its counsel) therein or
thereby;
(h)Notwithstanding
anything contained herein to the contrary, the Trustee will not be required to
take any action in any jurisdiction other than in the State of Delaware if the
taking of such action would (i) require the consent, approval, authorization or
order of, giving of notice to, or the registration with or taking any action in
respect of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware, (ii) result in any fee, tax or
other governmental charge becoming payable by the Trustee under the laws of any
jurisdiction or any political subdivision thereof other than the State of
Delaware, or (iii) subject the Trustee to personal jurisdiction, other than in
the State of Delaware, for causes of action arising from personal acts unrelated
to the consummation of the actions of the trustee contemplated by this Trust
Agreement;
(i)the
Trustee will incur no liability to anyone in acting upon any signature,
instrument, notice, resolution, request, consent, order, certificate, report,
opinion, bond or other document or paper reasonably believed by it to be genuine
and reasonably believed by it to be signed by the proper party or parties. The
Trustee may accept a certified copy of a resolution of any governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the manner of ascertainment of which is not specifically
prescribed herein, the Trustee may for all purposes hereof rely on a
certificate, signed by an authorized officer of the Sponsor or any other
corresponding
directing party, as to such fact or matter, and such certificate will constitute
full protection to the Trustee for any action taken or omitted to be taken by it
in good faith in reliance thereon;
(j)in
the exercise or administration of the trust hereunder, the Trustee (i) may act
directly or through agents or attorneys pursuant to agreements entered into with
any of them, and the Trustee will not be liable for the default or misconduct of
such agents or attorneys if such agents or attorneys will have been selected by
the Trustee in good faith and with due care and (ii) may consult with counsel,
accountants and other skilled persons to be selected by it in good faith and
with due care and employed by it, and it will not be liable for anything done,
suffered or omitted in good faith by it in accordance with the advice or opinion
of any such counsel, accountants or other skilled persons;
(k)except
as expressly provided in Article 3 of the Trust Agreement, the Trustee acts
solely as a trustee under the Trust Agreement and not in its individual
capacity, and all persons having any claim against the Trustee by reason of the
transactions contemplated by the Trust Agreement will look only to the Trust's
property for payment or satisfaction thereof; and
(l)the
Trustee will not be liable for punitive, exemplary, consequential, special or
other similar damages under any circumstances.
The
Trustee, in its individual capacity and in its capacity as Trustee, or any
officer, affiliate, director, employee, or agent of the Trustee (each, an
"Indemnified Person") will be entitled to indemnification from the Sponsor or
the Trust, to the fullest extent permitted by law, from and against any and all
losses, claims, taxes, damages, reasonable expenses, and liabilities (including
liabilities under State or federal securities laws) of any kind and nature
whatsoever (collectively, "Expenses"), to the extent that such Expenses arise
out of or are imposed upon or asserted against such Indemnified Persons with
respect to the creation, operation or termination of the Trust, the execution,
delivery or performance of the Trust Agreement or the transactions contemplated
in the Trust Agreement; provided, however, that the Sponsor and the Trust will
not be required to indemnify any Indemnified Person for any Expenses that are a
result of the willful misconduct, bad faith or gross negligence of such
Indemnified Person. The obligations of the Sponsor and the Trust to indemnify
the Indemnified Persons will survive the termination of the Trust
Agreement.
Sponsor
The
Sponsor will not be under any liability to the Trust, the Trustee or any
Shareholder for any action taken or for refraining from the taking of any action
in good faith pursuant to the Trust Agreement, or for errors in judgment or for
depreciation or loss incurred by reason of the sale of any AVAX or other assets
held in trust hereunder; provided, however, that this provision will not protect
the Sponsor against any liability to which it would otherwise be subject by
reason of its own gross negligence, bad faith, or willful misconduct. The
Sponsor may rely in good faith on any paper, order, notice, list, affidavit,
receipt, evaluation, opinion, endorsement, assignment, draft or any other
document of any kind prima facie properly executed and submitted to it by the
Trustee, the Trustee's counsel or by any other Person for any matters arising
hereunder. The Sponsor will in no event be deemed to have assumed or incurred
any liability, duty, or obligation to any Shareholder or to the Trustee other
than as expressly provided for herein. The Trust will not incur the cost of that
portion of any insurance which insures any party against any liability, the
indemnification of which is herein prohibited.
In
addition, as described in the Trust Agreement, (i) whenever a conflict of
interest exists or arises between the Sponsor or any of its Affiliates, on the
one hand, and the Trust, on the other hand; or (ii) whenever the Trust Agreement
or any other agreement contemplated herein or therein provides that the Sponsor
will act in a manner that is, or provides terms that are, fair and reasonable to
the Trust, the Sponsor will resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, and any
applicable generally accepted accounting practices or principles. In the absence
of bad faith by the Sponsor, the resolution, action or terms so made, taken or
provided by the Sponsor will not constitute a breach of the Trust Agreement or
any other agreement contemplated herein or of any duty or obligation of the
Sponsor at law or in equity or otherwise.
The
Sponsor and its shareholders, members, directors, officers, employees,
Affiliates and subsidiaries (each a "Sponsor Indemnified Party") will be
indemnified by the Trust and held harmless against any loss, liability or
expense incurred hereunder without gross negligence, bad faith, or willful
misconduct on the part of such Sponsor Indemnified Party arising out of or in
connection with the performance of its obligations under the Trust Agreement or
any actions taken in accordance with the provisions of the Trust Agreement. Any
amounts payable to a Sponsor Indemnified Party under Section 4.06 of the Trust
Agreement may be payable in advance or will be secured by a lien on the Trust.
The Sponsor will not be under any obligation to appear in, prosecute or defend
any legal action that in its opinion may involve it in any expense or liability;
provided, however, that the Sponsor may, in its discretion, undertake any action
that it may deem necessary or desirable in respect of the Trust Agreement and
the rights and duties of the parties hereto and the interests of the
Shareholders and, in such event, the legal expenses and costs of any such action
will be expenses and costs of the Trust and the Sponsor will be entitled to be
reimbursed therefor by the Trust. The obligations of the Trust to indemnify the
Sponsor Indemnified Parties will survive the termination of the Trust
Agreement.
PROVISIONS
OF LAW
According
to applicable law, indemnification of the Sponsor is payable only if the Sponsor
determined, in good faith, that the act, omission or conduct that gave rise to
the claim for indemnification was in the best interest of the Trust and the act,
omission or activity that was the basis for such loss, liability, damage, cost
or expense was not the result of negligence or misconduct and such liability or
loss was not the result of negligence or misconduct by the Sponsor, and such
indemnification or agreement to hold harmless is recoverable only out of the
assets of the Trust.
Provisions
of Federal and State Securities Laws
This
offering is made pursuant to federal and state securities laws. The SEC and
state securities agencies take the position that indemnification of the Sponsor
that arises out of an alleged violation of such laws is prohibited unless
certain conditions are met.
These
conditions require that no indemnification of the Sponsor or any underwriter for
the Trust may be made in respect of any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws unless:
(i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the party seeking
indemnification and the court approves the indemnification; (ii) such claim has
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the party seeking indemnification; or (iii) a court of competent
jurisdiction approves a settlement of the claims against the party seeking
indemnification and finds that indemnification of the settlement and related
costs should be made, provided that, before seeking such approval, the Sponsor
or other indemnitee must apprise the court of the position held by regulatory
agencies against such indemnification. These agencies are the SEC and the
securities administrator of the State or States in which the plaintiffs claim
they were offered or sold interests.
MANAGEMENT;
VOTING BY SHAREHOLDERS
The
Shareholders of the Trust take no part in the management or control, and have no
voice in, the Trust's operations or business. Except in limited circumstances,
Shareholders have no voting rights under the Trust Agreement.
The
Sponsor generally has the right to amend the Trust Agreement as it applies to
the Trust provided that the Shareholders have the right to vote only if
expressly required under Delaware or federal law or rules or regulations of the
Exchange, or if submitted to the Shareholders by the Sponsor in its sole
discretion. No amendment affecting the Trustee will be binding upon or effective
against the Trustee unless consented to by the Trustee in the form of an
instruction letter.
The
Trust does not have any directors, officers or employees. The creation and
operation of the Trust has been arranged by the Sponsor. The Sponsor is not
governed by a board of directors. The following persons, in their respective
capacities as directors or executive officers of the Sponsor perform certain
functions with respect to the Trust that, if the Trust had directors or
executive officers, would typically be performed by them. The principals and
executive officers of the Sponsor are as follows:
Jan
F. van Eck
Mr.
van Eck, (born 1963), serves as the Chief Executive Officer and President of the
Sponsor and VanEck. Mr. van Eck joined VanEck in 1992 and its Executive
Management Team in 1998. Additionally, he is the President and CEO of Van Eck
Securities Corporation. Furthermore, Mr. van Eck is a Trustee, the President and
Chief Executive Officer of VanEck Vectors ETF Trust, VanEck Funds and VanEck VIP
Trust. Furthering VanEck's mission to anticipate asset classes and trends, Mr.
van Eck has created strategic beta, tactical allocation, emerging markets, and
commodity- related investment strategies in mutual fund, ETF, and institutional
formats. Mr. van Eck founded the VanEck's ETF business in 2006. One of the
world's largest ETF sponsors, the Van Eck offers ETFs, branded VanEck Vectors®,
globally across equity and fixed income asset classes. Mr. van Eck holds a JD
from Stanford University and graduated Phi Beta Kappa from Williams College with
a major in Economics. He has registrations with the National Futures Association
and the Financial Industry Regulatory Authority. Mr. van Eck is a Director of
the National Committee on United States- China Relations. He routinely appears
on CNBC and Bloomberg Television, and was a 2013 Finalist for Institutional
Investor's Fund Leader of the Year and a 2019 finalist for ETF.com's Lifetime
Achievement Award.
John
J. Crimmins
Mr.
Crimmins (born 1957) serves as Vice President, Treasurer and Chief Financial
Officer of the Sponsor. Mr. Crimmins joined VanEck in 2009 as Vice President of
Portfolio Administration. He is primarily responsible for overseeing portfolio
accounting and administration. He also serves as Chief Financial Officer and
Treasurer to the VanEck Funds, VanEck VIP Trust and VanEck ETF Trust. Prior to
joining VanEck, Mr. Crimmins was the Chief Financial, Operating and Compliance
Officer for Kern Capital Management LLC from 1997 to 2009 and the Vice President
and Director of Mutual Fund Administration for Evergreen Investment Services
from 1987 to 1997. Previously, Mr. Crimmins acted as Vice President and
Controller for Pilgrim Group for three years and was in public accounting for
six years. Mr. Crimmins is a Certified Public Accountant and received a BS in
Accounting from St. John's University.
BOOKS
AND RECORDS
The
Trust keeps its books of record and account at the office of the Sponsor located
at 666 Third Avenue, 9th Floor, New York, NY 10017, or at the offices of the
Administrator, or such office, including of an administrative agent, as it may
subsequently designate upon notice. The books and records are open to inspection
by any person who establishes to the Trust's satisfaction that such person is a
Shareholder upon reasonable advance notice at all reasonable times during usual
business hours of the Trust.
The
Trust keeps a copy of the Trust Agreement on file in the Sponsor's office which
will be available for inspection by any Shareholder at all times during its
usual business hours upon reasonable advance notice.
STATEMENTS,
FILINGS, AND REPORTS TO SHAREHOLDERS
After
the end of each fiscal year, the Sponsor will cause to be prepared an annual
report for the Trust containing audited financial statements. The annual report
will be in such form and contain such information as will be required by
applicable laws, rules and regulations and may contain such additional
information which the Sponsor determines shall be included. The annual report
will be filed with the SEC and the Exchange and will be distributed to such
persons and in such manner, as is required by applicable laws, rules and
regulations.
The
Sponsor is responsible for the registration and qualification of the Shares
under the federal securities laws. The Sponsor will also prepare, or cause to be
prepared, and file any periodic reports or updates required under the Exchange
Act. The Administrator will assist and support the Sponsor in the preparation of
such reports.
The
Administrator will make such elections, file such tax returns, and prepare,
disseminate and file such tax reports, as it is advised to by its counsel or
accountants or as required from time to time by any applicable statute, rule or
regulation.
FISCAL
YEAR
The
fiscal year of the Trust is the calendar year. The Sponsor may select an
alternate fiscal year.
GOVERNING
LAW; CONSENT TO DELAWARE JURISDICTION
The
rights of the Sponsor, the Trust, DTC (as registered owner of the Trust's global
certificate for Shares) and the Shareholders are governed by the laws of the
State of Delaware. The Sponsor, the Trust and DTC and, by accepting Shares, each
DTC Participant and each Shareholder, consent to the non-exclusive jurisdiction
of the courts of the State of Delaware and any federal courts located in
Delaware, provided that (i) the forum selection provisions do not apply to suits
brought to enforce a duty or liability created by the 1933 Act, the Exchange Act
or any other claim for which the federal courts have exclusive jurisdiction and
(ii) the federal district courts of the United States of America shall be the
exclusive forum for the resolution of any complaint asserting a cause of action
arising under the 1933 Act, the Exchange Act, or the rules and regulations
promulgated thereunder. Such consent is not required for any person to assert a
claim of Delaware jurisdiction over the Sponsor and the Trust.
Section
22 of the 1933 Act creates concurrent jurisdiction for federal and state courts
over all suits brought to enforce any duty or liability created by the 1933 Act
or the rules and regulations thereunder. Investors cannot waive compliance with
the federal securities laws and the rules and regulations
thereunder.
LEGAL
MATTERS
Litigation
and Claims
Within
the past five years of the date of this Prospectus, there have been no material
administrative, civil or criminal actions against the Sponsor, the Trust or any
principal or affiliate of any of them. This includes any actions pending, on
appeal, concluded, threatened, or otherwise known to them.
Legal
Opinion
Clifford
Chance US LLP has advised the Sponsor in connection with the Shares being
offered and has also rendered an opinion regarding the material federal income
tax consequences relating to the shares. Clifford Chance US LLP also advises the
Sponsor with respect to its responsibilities as sponsor of, and with respect to
matters relating to, the Trust. Certain opinions of counsel will be filed with
the SEC as exhibits to the Registration Statement of which this Prospectus is a
part.
EXPERTS
The
financial statement of VanEck Avalanche ETF are included herein in reliance on
the report of Cohen & Company, Ltd., an independent registered public
accounting firm, given on the authority of said firm as experts in auditing and
accounting.
MATERIAL
CONTRACTS
Administration
and Accounting Agreement
For
more information, see the description of the Administration and Accounting
Agreement provided in "THE TRUST'S SERVICE PROVIDERS—The Administrator"
above.
Cash
Custody Agreement
For
more information, see the description of The Cash Custody Agreement provided in
"THE TRUST'S SERVICE PROVIDERS—The Cash Custodian".
Custodial
Services Agreement
For
more information, see the description of the Custodial Services Agreement
provided in "THE TRUST'S SERVICE PROVIDERS—The AVAX Custodian"
above.
Second
AVAX Custodial Services Agreement
For
more information, see the description of the Second AVAX Custodial Services
Agreement provided in "THE TRUST'S SERVICE PROVIDERS—The Second AVAX Custodian"
above.
Transfer
Agency Agreement
On
June 23, 2025, the Trust entered into a transfer agency and service agreement
(the "Transfer Agency Agreement") with the Transfer Agent.
Pursuant
to the Transfer Agency Agreement, the Transfer Agent is generally responsible
for the day-to-day administration of the Trust. The responsibilities of the
Transfer Agent include: (i) establishing and maintaining each Authorized
Participant's account in the Trust; (ii) receiving and processing orders for the
purchase of creation units from the Sponsor or Trust and deliver any cash
payment to the custodian; (iii) receiving and processing redemption requests and
directions from the Sponsor or Trust; and (iv) recording the issuance of Shares
of the Trust and maintaining a record of the total number of Shares of the Trust
which are issued and outstanding, based upon data provided to it by the
Trust.
The
Transfer Agreement will have a one-year initial term and will automatically be
renewed for successive one year periods, unless terminated pursuant to the terms
of the agreement.
Marketing
Agreement
On
June 10, 2025, the Sponsor entered into a marketing agent agreement (the
"Marketing Agreement") with the Marketing Agent.
Under
the Marketing Agreement, the Sponsor has agreed to develop and prepare, subject
to the review and written approval of the Marketing Agent, marketing materials
for the Trust, which will comply with all applicable laws, rules and regulations
in all material respects. The Sponsor shall prepare and make all regulatory
filings for all marketing materials prepared by either party on a timely
basis.
The
Marketing Agreement also provides that the Marketing Agent shall develop and
prepare, subject to the review and written approval of the Sponsor, marketing
materials for the Trust, which will comply with all applicable laws, rules and
regulations in all material respects. If the Marketing Agent becomes the sponsor
of the trust, it shall prepare and make all regulatory filings for all marketing
materials prepared by either party on a timely basis.
The
Marketing Agent will use its best efforts to market the Shares in accordance
with the terms of the Marketing Agreement. In addition, the Marketing Agent will
develop a "landing page" for the Trust, which can be
part
of an existing non-exclusive website. The website may include, among other
things, sales material, prospectuses, and closing prices.
License
Agreement
On
November 28, 2023, the Sponsor entered into an index license agreement with
MarketVector (as amended, the "License Agreement"), whereby MarketVector has
granted the Sponsor a transferable, non-exclusive limited license for the
territory of the United States to use (i) the MarketVector™ Avalanche Benchmark
Rate and (ii) the trade name and service mark rights to “Market Vector™”. The
License Agreement is effective for a period of one year from the effective date
of the agreement and automatically renew for successive one-year terms unless
the Sponsor terminates the agreement in accordance with the terms of the License
Agreement or provides notice of its intent to not renew the License Agreement.
Sublicense
Agreement
On
June 11, 2025, the Trust entered into an index sublicense agreement (the
"Sublicense Agreement") with the Sponsor, pursuant to which the Sponsor has
granted the Trust a transferable, worldwide license to use (i) the MarketVector™
Avalanche Benchmark Rate and (ii) the trade name and service mark rights to
"Market Vector". The Sublicense Agreement is effective for three years and shall
automatically renew for successive one-year terms unless the Trust terminates
the agreement in accordance with the terms of the Sublicense Agreement or
provides notice of its intent to not renew the Sublicense
Agreement.
UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES
The
following discussion of the material U.S. federal income tax consequences that
generally will apply to the purchase, ownership and disposition of Shares by a
U.S. Shareholder (as defined below) represents, insofar as it describes
conclusions as to U.S. federal income tax law and subject to the limitations and
qualifications described therein, the opinion of Clifford Chance US LLP, special
U.S. federal income tax counsel to the Sponsor. The discussion below is based on
the Code, Treasury Regulations promulgated thereunder and judicial and
administrative interpretations of the Code, all as in effect on the date of this
Prospectus and all of which are subject to change either prospectively or
retroactively. The tax treatment of Shareholders may vary depending upon their
own particular circumstances. Certain Shareholders (including but not limited to
banks, financial institutions, insurance companies, regulated investment
companies, real estate investment trusts, tax-exempt organizations, tax-exempt
or tax- advantaged retirement plans or accounts, brokers or dealers, traders,
partnerships for U.S. federal income tax purposes, persons holding Shares as a
position in a "hedging," "straddle," "conversion," "constructive sale" or other
integrated transaction for U.S. federal income tax purposes, persons whose
"functional currency" is not the U.S. dollar, persons required for U.S. federal
income tax purposes to accelerate the recognition of any item of gross income
with respect to the Shares as a result of such income being recognized on an
applicable financial statement, or other investors with special circumstances)
may be subject to special rules not discussed below. In addition, the following
discussion applies only to investors who will hold Shares as "capital assets"
(generally, property held for investment). Moreover, the discussion below does
not address the effect of any state, local or foreign tax law consequences (or
any consequences under any U.S. federal tax law other than U.S. federal income
tax law) that may apply to an investment in Shares. Purchasers of Shares are
urged to consult their own tax advisers with respect to all U.S. federal, state,
local and foreign tax law considerations potentially applicable to their
investment in Shares.
For
purposes of this discussion, a "U.S. Shareholder" is a Shareholder that is for
U.S. federal income tax purposes:
•an
individual who is a citizen or resident of the United States;
•a
corporation (or entity treated as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the United States, any
state thereof or the District of Columbia;
•an
estate, the income of which is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
•a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the
trust.
If
a partnership or other entity or arrangement treated as a partnership for U.S.
federal income tax purposes holds Shares, the tax treatment of a partner
generally depends upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding Shares, the
discussion below may not be applicable and we urge you to consult your own tax
adviser for the U.S. federal income tax implications of the purchase, ownership
and disposition of such Shares.
Taxation
of the Trust
The
Sponsor and the Trustee will treat the Trust as a"grantor trust" for U.S.
federal income tax purposes. In the opinion of Clifford Chance US LLP, although
not free from doubt due to the lack of directly governing authority, the Trust
should be classified as a "grantor trust" for U.S. federal income tax purposes.
If the Trust is properly treated as a grantor trust for U.S. federal income tax
purposes, the Trust itself should not be subject to U.S. federal income tax.
Instead, the Trust's income and expenses should "flow through" to the
Shareholders, and the Trustee will report the Trust's income, gains, losses and
deductions to the IRS on that basis. The opinion of Clifford Chance US LLP is
not binding on the IRS or any court. Accordingly, there can be no assurance that
the IRS will agree with the conclusions of counsel's opinion and it is possible
that the IRS or another tax authority could assert a position contrary to one or
all of those conclusions and that a court could sustain that contrary position.
Neither the Sponsor
nor
the Trustee will request a ruling from the IRS with respect to the
classification of the Trust for U.S. federal income tax purposes or with respect
to any other matter.
If
the IRS were to assert successfully that the Trust is not classified as a
"grantor trust," the Trust might be classified as a partnership for U.S. federal
income tax purposes. If the Trust were classified as a partnership for U.S.
federal income tax purposes, the tax consequences of owning Shares generally
would not be materially different from the tax consequences described herein,
although there might be certain differences, including with respect to timing of
the recognition of taxable income or loss. In addition, tax information reports
provided to beneficial owners of Shares would be made in a different form. If
the Trust were not classified as either a grantor trust or a partnership for
U.S. federal income tax purposes, it generally would be classified as a
corporation for such purposes. If it were treated as a corporation, the Trust
would be subject to entity-level U.S. federal income tax (currently at the rate
of 21%), plus possible state and/or local taxes on its net taxable income, and
certain distributions made by the Trust to Shareholders would be treated as
taxable dividends to the extent of the Trust’s current and accumulated earnings
and profits. Except as otherwise indicated, the remainder of this discussion
assumes the correctness of the opinion of Clifford Chance US LLP, and that the
Trust is classified as a grantor trust for U.S. federal income tax
purposes.
Taxation
of U.S. Shareholders
Shareholders
will be treated, for U.S. federal income tax purposes, as if they directly owned
a pro rata share of the underlying assets held in the Trust. Shareholders also
will be treated as if they directly received their respective pro rata shares of
the Trust's income, if any, and as if they directly incurred their respective
pro rata shares of the Trust's expenses. In the case of a Shareholder that
acquires its Shares as part of the creation of a Basket, the delivery of AVAX to
the Trust in exchange for a pro rata share of the underlying AVAX represented by
the Shares will not be a taxable event to the Shareholder, and the Shareholder’s
tax basis and holding period for the Shareholder’s pro rata share of the AVAX
held in the Trust will be the same as its tax basis and holding period for the
AVAX delivered in exchange therefor. For purposes of this discussion, and unless
stated otherwise, it is assumed that all of a Shareholder's Shares are acquired
on the same date and at the same price per Share. Shareholders that hold
multiple lots of Shares, or that are contemplating acquiring multiple lots of
Shares, should consult their own tax advisers as to the determination of the tax
basis and holding period for the underlying AVAX related to such
Shares.
Any
AVAX acquired by the Trust as staking rewards would be treated as giving rise to
taxable income under the Staking Guidance. Additionally, such AVAX will have a
separate tax basis and holding period. It is likely that a Shareholder will have
a tax basis for its share of any AVAX acquired by the Trust as staking rewards
equal to the amount of income that it recognizes and the Shareholder’s holding
period for such AVAX will begin as of the time it recognizes such
income.
Current
IRS guidance on the treatment of convertible virtual currencies classifies AVAX
as "property" that is not currency for U.S. federal income tax purposes and
clarifies that AVAX could be held as a capital asset, but it does not address
several other aspects of the U.S. federal income tax treatment of AVAX. Because
AVAX is a new technological innovation, the U.S. federal income tax treatment of
AVAX or transactions relating to investments in AVAX may evolve and change from
those discussed below, possibly with retroactive effect. In this regard, the IRS
indicated that it has made it a priority to issue additional guidance related to
the taxation of virtual currency transactions, such as transactions involving
AVAX. While it has started to issue such additional guidance, whether any future
guidance will adversely affect the U.S. federal income tax treatment of an
investment in AVAX or in transactions relating to investments in AVAX is
unknown. Moreover, future developments that may arise with respect to digital
currencies may increase the uncertainty with respect to the treatment of digital
currencies for U.S. federal income tax purposes. This discussion assumes that
any AVAX the Trust may hold is properly treated for U.S. federal income tax
purposes as property that may be held as a capital asset and is not currency for
purposes of the provisions of the Code relating to foreign currency gain and
loss.
The
Trust may use AVAX to pay certain expenses of the Trust, which under current IRS
guidance will be treated as a sale of such AVAX, and/or it may periodically sell
AVAX in an amount sufficient to pay those expenses using fiat currency. If the
Trust sells AVAX (for example to generate cash to pay fees or expenses) or is
treated as selling AVAX (for example by using AVAX to pay fees or expenses), a
Shareholder will recognize gain or loss in
an
amount equal to the difference between (a) the Shareholder's pro rata share of
the amount realized by the Trust upon the sale and (b) the Shareholder's tax
basis for its pro rata share of the AVAX that was sold. A Shareholder's tax
basis for its share of any AVAX sold by the Trust should generally be determined
by multiplying the Shareholder's total basis for its share of all of the AVAX
held in the Trust immediately prior to the sale, by a fraction the numerator of
which is the amount of AVAX sold, and the denominator of which is the total
amount of the AVAX held in the Trust immediately prior to the sale. After any
such sale, a Shareholder's tax basis for its pro rata share of the AVAX
remaining in the Trust should be equal to its tax basis for its share of the
total amount of the AVAX held in the Trust immediately prior to the sale, less
the portion of such basis allocable to its share of the AVAX that was
sold.
Upon
a Shareholder's sale of some or all of its Shares (other than a redemption), the
Shareholder will be treated as having sold the portion or all, respectively, of
its pro rata share of the AVAX held in the Trust at the time of the sale that is
attributable to the Shares sold. Accordingly, the Shareholder generally will
recognize gain or loss on the sale in an amount equal to the difference between
(a) the amount realized pursuant to the sale of the Shares, and (b) the
Shareholder's tax basis for the portion of its pro rata share of the AVAX held
in the Trust at the time of sale that is attributable to the Shares sold, as
determined in the manner described in the preceding paragraph. Based on current
IRS guidance, such gain or loss (as well as any gain or loss realized by a
Shareholder on account of the Trust selling AVAX) will generally be long-term or
short-term capital gain or loss, depending upon whether the Shareholder has a
holding period of greater than one year in its pro rata share of the AVAX that
was sold. The Trust plans to treat a redemption of a some or all of a
Shareholder's Shares, in exchange for cash, in the same manner as a sale of some
or all of a Shareholder's Shares (as described above) for that amount of cash,
though no assurance can be provided that the IRS will not take a different
position.
Gains
or losses from the sale of AVAX to fund cash redemptions are expected to be
treated as incurred by the Shareholder that is being redeemed, and the amount of
such gain or loss generally will equal the difference between (a) the amount
realized pursuant to the sale of the AVAX, and (b) the Shareholder's tax basis
for the portion of its pro rata share of the AVAX held in the Trust that is sold
to fund the redemption, as determined in the manner described in the paragraph
that is two paragraphs above this one. A redemption of some or all of a
Shareholder's Shares in exchange for the cash received from such sale is not
expected to be treated as a separate taxable event to the
Shareholder.
An
in-kind redemption of some or all of a Shareholder's Shares in exchange for the
underlying AVAX represented by the Shares redeemed generally will not be a
taxable event to the Shareholder. The Shareholder's tax basis for the AVAX
received in the in-kind redemption generally will be the same as the
Shareholder's tax basis for the portion of its pro rata share of the AVAX held
in the Trust immediately prior to the in-kind redemption that is attributable to
the Shares redeemed. The Shareholder's holding period with respect to the AVAX
received should include the period during which the Shareholder held the Shares
redeemed in-kind. A subsequent sale of the AVAX received by the Shareholder will
be a taxable event, unless a nonrecognition provision of the Code applies to
such sale.
After
any sale or redemption of less than all of a Shareholder's Shares, the
Shareholder's tax basis for its pro rata share of the AVAX held in the Trust
immediately after such sale or redemption generally will be equal to its tax
basis for its share of the total amount of the AVAX held in the Trust
immediately prior to the sale or redemption, less the portion of such basis
which is taken into account in determining the amount of gain or loss recognized
by the Shareholder upon such sale or, in the case of a redemption, that is
treated as the basis of the AVAX received by the Shareholder in the
redemption.
If
a hard fork occurs in the Avalanche Blockchain, the Trust could hold both the
original AVAX and the alternative new asset. The IRS has held that a hard fork
resulting in the creation of new units of cryptocurrency is a taxable event
giving rise to ordinary income. Moreover, the Trust Agreement requires that, if
such a transaction occurs, the Trust will as soon as possible, and subject to
the Custody Agreement, direct the AVAX Custodian to distribute the alternative
new asset in-kind to the Sponsor, as agent for the Shareholders, and the Sponsor
will arrange to sell the new alternative asset and for the proceeds to be
distributed to the Shareholders. The receipt, distribution and/or sale of the
new alternative asset may cause Shareholders to incur a U.S. federal income tax
liability. While the IRS has not addressed all situations in which airdrops
occur, it is clear from the reasoning of the
IRS's
current guidance that it generally would treat an airdrop as a taxable event
giving rise to ordinary income and it is anticipated that any gain or loss from
disposition of any assets received in the airdrop would generally be treated as
giving rise to capital gain or loss that generally would be short-term capital
gain or loss, unless the holding period of those assets were treated as being
greater than one year as of the time they are sold. However, the Sponsor has
committed to cause the Trust to irrevocably abandon any Incidental Rights and IR
Virtual Currency to which the Trust may become entitled in the future. There can
be no assurance that these abandonments would be treated as effective for U.S.
federal income tax purposes, or that the Sponsor will continue to cause the
Trust to irrevocably abandon any Incidental Rights and IR Virtual Currency if
there are future regulatory developments that would make it feasible for the
Trust to retain those assets.
3.8%
Tax on Net Investment Income
Certain
U.S. Shareholders who are individuals are required to pay a 3.8% tax on the
lesser of the excess of their modified adjusted gross income over a threshold
amount ($250,000 for married persons filing jointly and $200,000 for single
taxpayers) or their "net investment income," which generally includes capital
gains from the disposition of property and may include income from staking
rewards. This tax is in addition to any capital gains taxes due on such
investment income. A similar tax applies to estates and trusts. U.S.
Shareholders should consult their own tax advisers regarding the effect, if any,
this tax may have on their investment in the Shares.
Brokerage
Fees and Trust Expenses
Any
brokerage or other transaction fee incurred by a Shareholder in purchasing
Shares will be treated as part of the Shareholder's tax basis in the underlying
assets of the Trust. Similarly, any brokerage fee incurred by a Shareholder in
selling Shares will reduce the amount realized by the Shareholder with respect
to the sale.
Shareholders
will be required to recognize the full amount of gain or loss upon a sale or
deemed sale of AVAX by the Trust (as discussed above), even though some or all
of the proceeds of such sale are used by the Trustee to pay Trust expenses.
Shareholders may deduct their respective pro rata shares of each expense
incurred by the Trust to the same extent as if they directly incurred the
expense. Shareholders who are individuals, estates or trusts, however, may be
required to treat some or all of the expenses of the Trust as miscellaneous
itemized deductions, which are nondeductible.
Similar
rules apply to certain miscellaneous itemized deductions of estates and trusts.
In addition, deductions may be subject to phase outs and other limitations under
applicable provisions of the Code.
Investment
by Certain Retirement Plans
Individual
retirement accounts ("IRAs") and participant-directed accounts under
tax-qualified retirement plans are limited in the types of investments they may
make under the Code. Potential purchasers of Shares that are IRAs or
participant-directed accounts under a Code section 401(a) plan should consult
with their own tax advisors as to the tax consequences of a purchase of
Shares.
United
States Information Reporting and Backup Withholding
The
Trustee will file certain information returns with the IRS, and provide certain
tax-related information to Shareholders, in connection with the Trust. To the
extent required by applicable regulations, each Shareholder will be provided
with information regarding its allocable portion of the Trust's annual income,
expenses, gains and losses (if any). A U.S. Shareholder may be subject to United
States backup withholding tax in certain circumstances unless it provides its
taxpayer identification number and complies with certain certification
procedures. Shareholders may be required to meet certain information reporting
or certification requirements imposed by the Foreign Account Tax Compliance Act,
in order to avoid certain information reporting and withholding tax
requirements.
The
amount of any backup withholding will be allowed as a credit against a
Shareholder's U.S. federal income tax liability and may entitle the Shareholder
to a refund, provided that the required information is furnished to the IRS in a
timely manner.
Individual
U.S. Shareholders will generally be required to report on their federal income
tax return the receipt, acquisition, sale, or exchange of any financial interest
in virtual currency, which includes a Shareholder’s interest in AVAX held by the
Trust.
Taxation
in Jurisdictions Other Than the United States
Prospective
purchasers of Shares that are based in or acting out of a jurisdiction other
than the United States are advised to consult their own tax advisers as to the
tax consequences under the laws of such jurisdiction (or any other jurisdiction
other than the United States to which they are subject) of their purchase,
holding, sale and redemption of or any other dealing in Shares and, in
particular, as to whether any value added tax, other consumption tax or transfer
tax is payable in relation to such purchase, holding, sale, redemption or other
dealing.
PROSPECTIVE
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE DECIDING WHETHER TO
INVEST IN THE SHARES OF THE TRUST.
PURCHASES
BY EMPLOYEE BENEFIT PLANS
The
Employee Retirement Income Security Act of 1974 ("ERISA") and/or Section 4975 of
the Code impose certain requirements on: (i) employee benefit plans and certain
other plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and certain collective investment funds or insurance
company general or separate accounts in which such plans or arrangements are
invested, that are subject to Title I of ERISA and/or Section 4975 of the Code
(collectively, "Plans"); and (ii) persons who are fiduciaries with respect to
the investment of assets treated as "plan assets" within the meaning of U.S.
Department of Labor (the "DOL") regulation 29 C.F.R. § 2510.3-101, as modified
by Section 3(42) of ERISA (the "Plan Assets Regulation"), of a Plan. Investments
by Plans are subject to the fiduciary requirements and the applicability of
prohibited transaction restrictions under ERISA and the Code.
"Governmental
plans" within the meaning of Section 3(32) of ERISA, certain "church plans"
within the meaning of Section 3(33) of ERISA and "non-U.S. plans" described in
Section 4(b)(4) of ERISA, while not subject to the fiduciary responsibility and
prohibited transaction provisions of Title I of ERISA or Section 4975 of the
Code, may be subject to any federal, state, local, non-U.S. or other law or
regulation that is substantially similar to the foregoing provisions of ERISA
and the Code. Fiduciaries of any such plans are advised to consult with their
counsel prior to an investment in the Shares.
In
contemplating an investment of a portion of Plan assets in the Shares, the Plan
fiduciary responsible for making such investment should carefully consider,
taking into account the facts and circumstances of the Plan, the "Risk Factors"
discussed above and whether such investment is consistent with its fiduciary
responsibilities. The Plan fiduciary should consider, among other issues,
whether: (1) the fiduciary has the authority to make the investment under the
appropriate governing plan instrument; (2) the investment would constitute a
direct or indirect non-exempt prohibited transaction with a "party in interest"
or "disqualified person" within the meaning of ERISA and Section 4975 of the
Code respectively; (3) the investment is in accordance with the Plan's funding
objectives; and (4) such investment is appropriate for the Plan under the
general fiduciary standards of investment prudence and diversification, taking
into account the overall investment policy of the Plan, the composition of the
Plan's investment portfolio and the Plan's need for sufficient liquidity to pay
benefits when due. When evaluating the prudence of an investment in the Shares,
the Plan fiduciary should consider the DOL's regulation on investment duties,
which can be found at 29 C.F.R. § 2550.404a-1.
It
is intended that: (a) none of the Sponsor, the Trustee, the First AVAX
Custodian, the Second AVAX Custodian, the Cash Custodian or any of their
respective affiliates (the "Transaction Parties") has through this report and
related materials provided any investment advice within the meaning of Section
3(21) of ERISA to the Plan in connection with the decision to purchase or
acquire such Shares; and (b) the information provided in this report and related
materials will not make a Transaction Party a fiduciary to the
Plan.
INFORMATION
YOU SHOULD KNOW
This
Prospectus contains information you should consider when making an investment
decision about the Shares. You should rely only on the information contained in
this Prospectus or any applicable prospectus supplement. None of the Trust or
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. This Prospectus is not an offer to sell the Shares in any
jurisdiction where the offer or sale of the Shares is not
permitted.
The
information contained in this Prospectus was obtained from us and other sources
we believe to be reliable.
You
should disregard anything we said in an earlier document that is inconsistent
with what is included in this Prospectus or any applicable prospectus
supplement. Where the context requires, when we refer to this "Prospectus," we
are referring to this Prospectus and (if applicable) the relevant prospectus
supplement.
You
should not assume that the information in this Prospectus or any applicable
prospectus supplement is current as of any date other than the date on the front
page of this Prospectus or the date on the front page of any applicable
prospectus supplement.
We
include cross references in this Prospectus to captions in these materials where
you can find further related discussions. The table of contents tells you where
to find these captions.
SUMMARY
OF PROMOTIONAL AND SALES MATERIAL
The
Trust expects to use the following sales material it has prepared:
•the
Trust's website, which is accessible at www.vaneck.com; and
•the
Trust Fact Sheet found on the Trust's website.
The
materials described above are not a part of this Prospectus or the registration
statement of which this Prospectus is a part.
INTELLECTUAL
PROPERTY
The
Sponsor owns trademark registrations for the Trust. The Sponsor relies upon
these trademarks through which it markets its services and strives to build and
maintain brand recognition in the market and among current and potential
investors. So long as the Sponsor continues to use these trademarks to identify
its services, without challenge from any third party, and properly maintains and
renews the trademark registrations under applicable laws, rules and regulations,
it will continue to have indefinite protection for these trademarks under
current laws, rules and regulations.
The
Sponsor also owns trademark registrations for the Sponsor. The Sponsor relies
upon these trademarks through which it markets its services and strives to build
and maintain brand recognition in the market and among current and potential
investors. So long as the Sponsor continues to use these trademarks to identify
its services, without challenge from any third party, and properly maintains and
renews the trademark registrations under applicable laws, rules and regulations;
it will continue to have indefinite protection for these trademarks under
current laws, rules and regulations.
WHERE
YOU CAN FIND MORE INFORMATION
The
Trust has filed a registration statement on Form S-1 with the SEC under the 1933
Act. This Prospectus does not contain all of the information set forth in the
registration statement (including the exhibits to the registration statement),
parts of which have been omitted in accordance with the rules and regulations of
the SEC. For further information about the Trust or the Shares, please refer to
the registration statement, which is available online at
www.sec.gov.
Information
about the Trust and the Shares can also be obtained from the Trust's website,
which is accessible at www.vaneck.com. The Trust's website address is only
provided here as a convenience to you and the information contained on or
connected to the website is not part of this Prospectus or the registration
statement of which this Prospectus is part. The Trust is subject to the
informational requirements of the Exchange Act and will file certain reports and
other information with the SEC under the Exchange Act.
The
reports and other information is available online at www.sec.gov.
PRIVACY
POLICY
The
Trust and the Sponsor may collect or have access to certain nonpublic personal
information about current and former Shareholders. Nonpublic personal
information may include information received from Shareholders, such as a
Shareholder's name, social security number and address, as well as information
received from brokerage firms about Shareholder holdings and transactions in
Shares of the Trust.
The
Trust and the Sponsor do not disclose nonpublic personal information except as
required by law or as described in their Privacy Policy. In general, the Trust
and the Sponsor restrict access to the nonpublic personal information they
collect about Shareholders to those of their and their affiliates' employees and
service providers who need access to such information to provide products and
services to Shareholders.
The
Trust and the Sponsor maintain safeguards that comply with federal law to
protect Shareholders' nonpublic personal information. These safeguards are
reasonably designed to (1) ensure the security and confidentiality of
Shareholders' records and information, (2) protect against any anticipated
threats or hazards to the security or integrity of Shareholders' records and
information, and (3) protect against unauthorized access to or use of
Shareholders' records or information that could result in substantial harm or
inconvenience to any Shareholder.
Third-party
service providers with whom the Trust and the Sponsor share nonpublic personal
information about Shareholders must agree to follow appropriate standards of
security and confidentiality, which includes safeguarding such nonpublic
personal information physically, electronically and procedurally.
A
copy of the Sponsor's current Privacy Policy, which is applicable to the Trust,
is provided to Shareholders annually and is also available at
www.vaneck.com.
APPENDIX
A
GLOSSARY
OF DEFINED TERMS
In
this Prospectus, each of the following terms have the meanings set forth after
such term:
"1933
Act": The Securities Act of 1933.
"1940
Act": Investment Company Act of 1940.
"Administrator":
State Street Bank and Trust Company.
"Advisers
Act": Investment Advisers Act of 1940.
"Avalanche
Network": The decentralized, open source protocol, peer-to-peer electronic
network that comprises the infrastructure of Avalanche.
"Second
AVAX Account": The special account opened by the Second AVAX Custodian for the
purpose of holding the Trust's AVAX.
"Second
AVAX Custodian": Coinbase Custody Trust Company, LLC.
"Second
AVAX Custody Agreement": The agreement which establishes the rights and
responsibilities of the Second AVAX Custodian, the Sponsor and the Trust with
respect to the custody of the Trust's AVAX.
"Authorized
Participant": One that purchases or redeems Baskets from or to the
Trust.
"Authorized
Participant Agreement": An agreement entered into by an Authorized Participant,
the Sponsor and the Trustee that provides the procedures for the creation and
redemption of Baskets.
"Basket":
A block of 25,000 Shares used by the Trust to issue or redeem Shares. "Basket
Deposit": The total deposit required to create each basket.
"Business
Day": Any day other than a day when the Exchange or the New York Stock Exchange
is closed for regular trading.
"Cash
Custodian": State Street Bank and Trust Company.
"Cash
Custody Agreement": The agreement pursuant to which the Cash Custodian acts as
custodian for the Trust's cash and non-AVAX assets, if any.
“First
AVAX Account": The special account opened by the AVAX Custodian for the purpose
of holding the Trust's AVAX and facilitating the transfer of AVAX required for
the operation of the Trust.
"First
AVAX Custodian": Anchorage Digital Bank N.A.
"First
AVAX Custody Agreement": The agreement which establishes the rights and
responsibilities the First AVAX Custodian, the Sponsor and the Trust with
respect to the custody of the Trust's AVAX.
"CBDC":
Central Bank Digital Currencies.
"CEA":
Commodity Exchange Act of 1936.
"CFPB":
The U.S. Consumer Financial Protection Bureau.
"CFTC":
The U.S. Commodity Futures Trading Commission.
"Code":
Internal Revenue Code of 1986, as amended.
"DOL":
The U.S. Department of Labor, responsible for promulgating and enforcing rules
under ERISA.
"DSTA":
The Delaware Statutory Trust Act.
"DTC":
The Depository Trust Company. DTC will act as the securities depository for the
Shares.
"DTC
Participant": An entity that has an account with DTC.
"ERISA":
The Employment Retirement Income Security Act of 1974.
"Exchange
Act": The Securities Exchange Act of 1934.
"Expenses":
Any and all losses, claims, taxes, damages, reasonable expenses, and liabilities
(including those under State or federal securities laws) of any kind of nature
whatsoever for which an Indemnified Person will be entitled to Indemnification,
to the fullest extent permitted by law, from the Sponsor or the
Trust.
"FinCEN":
The U.S. Department of Treasury Financial Crimes Enforcement
Network.
"FINRA":
Financial Industry Regulatory Authority, formerly the National Association of
Securities Dealers.
"IIV":
Intraday indicative value.
"Incidental
Rights": Rights to acquire, or otherwise establish dominion and control over,
any virtual currency or other asset or right, other than AVAX, which rights are
incident to the Trust's ownership of AVAX and arise without any action of the
Trust, or of the Sponsor or Trustee on behalf of the Trust. The Sponsor shall
cause the Trust to irrevocably abandon Incidental Rights.
"Indemnified
Person": The Trustee or any officer, affiliate, director, employee, or agent of
the Trustee who is entitled to indemnification from the Sponsor or the
Trust.
"Indirect
Participants": Banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or
indirectly.
"IR
Virtual Currency": Any virtual currency tokens, or other asset or right, that is
not AVAX, and is acquired by the Trust through the exercise (subject to the
applicable provisions of the Trust Agreement) of any Incidental
Right.
"IRA":
Individual retirement account.
"IRS":
U.S. Internal Revenue Service.
"Marketing
Agent": Van Eck Securities Corporation.
"MarketVector":
MarketVector Indexes GmbH, the sponsor of MarketVectorTM
Avalanche Benchmark Rate.
"NAV":
Net asset value of the Trust.
"NFA":
National Futures Association.
"OTC":
Over-the-counter market.
"Plans":
Employee benefit plans and/or certain other plans and arrangements subject to
Title I of ERISA and/or Section 4975 of the Code.
"Plan
Assets Regulation": U.S. Department of Labor (DOL) Regulation 29 C.F.R.
§2510.3-101, as modified by Section 3(42) of ERISA, which defines plan
assets.
"Redemption
Order Date": The date a redemption order is received in satisfactory form and
approved by the Marketing Agent. "Register": The record of all shareholders and
holders of the Shares in certificated form kept by the
Administrator.
"SEC":
The U.S. Securities and Exchange Commission.
"Shares":
Common shares representing fractional undivided beneficial interests in the
Trust.
"Shareholders":
Holders of Shares.
"Sponsor
Indemnified Party": The Sponsor and its shareholders, members, directors,
officers, employees, Affiliates and subsidiaries who are indemnified by the
Trust and held harmless against any loss, liability, or expense incurred arising
out of or in connection with the performance of its obligations under or actions
taken according to the Trust Agreement, except for those incurred as a result of
gross negligence, bad faith, or willful misconduct.
"The
Sponsor": VanEck Digital Assets, LLC, a Delaware limited liability
company.
"The
Sponsor Fee": The unified fee of 30 bps to be paid to the Sponsor by the Trust
as compensation for services performed under the Trust Agreement.
"The
Trust": VanEck Avalanche ETF.
"Transfer
Agent": State Street Bank and Trust Company.
"Trust
Agreement": The Amended and Restated Declaration of Trust and Trust Agreement of
VanEck Avalanche ETF, dated as of November 26, 2025.
"Trustee":
CSC Delaware Trust Company, a Delaware trust company.
"VanEck":
Van Eck Associates Corporation.
"You":
The owner or holder of Shares.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Sponsor and Shareholder of
VanEck
Avalanche ETF
Opinion
on the Financial Statement
We
have audited the accompanying statement of assets and liabilities of VanEck
Avalanche ETF (the “Trust”), as of November 20, 2025, and the related notes
(collectively referred to as the “financial statement”). In our opinion, the
financial statement presents fairly, in all material respects, the financial
position of VanEck Avalanche ETF as of November 20, 2025, in conformity with
accounting principles generally accepted in the United States of
America.
Basis
for Opinion
This
financial statement is the responsibility of the Trust’s management. Our
responsibility is to express an opinion on the Trust’s financial statement based
on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Trust in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement, whether due to error or fraud. The Trust is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Trust’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our
audit includes performing procedures to assess the risks of material
misstatement of the financial statement, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statement and confirmation of cash owned as of November 20, 2025,
by correspondence with the custodian. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statement. We believe
that our audit provides a reasonable basis for our opinion.
We
have served as the Trust’s auditor since 2025.
COHEN
& COMPANY, LTD.
Towson,
Maryland
November
26, 2025
VanEck
Avalanche ETF
STATEMENT
OF ASSETS AND LIABILITIES
At November
20, 2025
|
|
|
|
|
|
| ASSETS: |
|
|
Cash |
$ |
100,000 |
|
|
Total
Assets |
100,000 |
|
|
LIABILITIES:
|
|
|
Total
Liabilities |
- |
|
|
Commitments
and contingent liabilities (Note 6) |
- |
|
|
NET
ASSETS
|
$ |
100,000 |
|
|
|
|
Shares
issued and outstanding
(a) |
4,000 |
|
|
Net
Asset Value per Share (Note 2) |
$ |
25.00 |
|
________________
(a)No
par value, unlimited amount authorized
See
Notes to Financial Statement
NOTES
TO FINANCIAL STATEMENT (Unaudited)
November
20, 2025
Note
1. Organization:
The
VanEck Avalanche ETF (the “Trust”), a Delaware statutory trust, is an
exchange-traded fund that issues common shares of beneficial interest in an
ownership of the Trust. The shares are traded on The Nasdaq Stock Market LLC
(the “Exchange”). The Trust’s investment objective is to reflect the performance
of Avalanche (“AVAX”) less the operating expenses of the Trust. The Trust is
managed and controlled by VanEck Digital Assets, LLC (the “Sponsor”), a
wholly-owned subsidiary of Van Eck Associates Corporation (“VanEck”). The
Delaware Trust Company, is the “Trustee” of the Trust. The Trust had no
operations other than the initial seed transaction.
Note
2. Significant Accounting Policies:
A. Basis
of Preparation and Use Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The
Trust qualifies as an investment company solely for accounting purposes and not
for any other purpose and follows accounting and reporting requirements of
Accounting Standards Codification (“ASC”) 946 Financial Services—Investment
Companies, but is not registered, and is not required to be registered, as an
investment company under the Investment Company Act of 1940, as
amended.
B.
Cash
Cash
represents cash deposits held at a major financial institution and is subject to
credit risk to the extent its balance exceeds the federally insured limits. As
of November 20, 2025, the Trust’s cash balance did not exceed the federal
insured limits.
C. Investment
Valuation
The
Trust values its investments in AVAX and other assets and liabilities at fair
value daily. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants on the measurement date.
The
Trust identifies and determines the AVAX principal market (or in the absence of
a principal market, the most advantageous market) for GAAP financial statement
purposes consistent with the application of fair value measurement framework in
Financial Accounting Standards Board (“FASB”) ASC 820 at 11:59 p.m. EST. Under
ASC 820, a principal market is the market with the greatest volume and activity
level for the asset or liability. The Sponsor on behalf of the Trust will
determine in its sole discretion the valuation sources and policies used to
prepare the Trust’s financial statements in accordance with GAAP.
Various
inputs are used in determining the fair value of assets and liabilities. Inputs
may be based on independent market data (observable inputs) or they may be
internally developed (unobservable inputs). These inputs are categorized into a
disclosure hierarchy consisting of three broad levels for financial reporting
purposes. The three levels of the fair value hierarchy are as
follows:
Level
1 – Unadjusted quoted prices in active markets for identical assets or
liabilities;
Level
2 – Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability either directly or indirectly, including quoted
prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not considered to
be active, inputs other than quoted prices that are observable for the asset or
liability, and inputs that are derived principally from or corroborated by
observable market data by correlation or other means; and
Level
3 – Unobservable inputs where there are little or no market activity for the
asset or liability, including the Trust’s assumptions used in determining the
fair value of investments.
D. AVAX
AVAX
transactions are accounted for on trade date. Realized gains and losses on the
sale of AVAX are determined based on the average cost method. Under ASC Topic
946, the average cost method is an accepted method to determine realized gains
and losses on the sale of AVAX. Proceeds received by the Trust from the issuance
of baskets consist of AVAX. Deposits of AVAX will be held by Anchorage Digital
Bank N.A. and will also be held at Coinbase Custody Trust Company, LLC
(collectively the “AVAX Custodians”), on behalf of the Trust until (i) delivered
out in connection with redemptions of baskets or cash or (ii) sold by the
Sponsor, which may be facilitated by the AVAX Custodians to pay fees due to the
Sponsor and Trust expenses and liabilities not assumed by the
Sponsor.
There
was no AVAX, held as of November 20, 2025.
E. Calculation
of Net Asset Value
The
Trust’s net asset value (“NAV”) is calculated based on the Trust’s net asset
holdings as reconciled to the AVAX Custodians’ accounts on a market approach,
determined on a daily basis in accordance with the MarketVector™ Avalanche
Benchmark Rate price at 4:00 pm EST. The Trust’s NAV per Share is calculated by
taking the current market value of its total assets, subtracting any
liabilities, and then dividing that total by the total number of outstanding
Shares. The Trust Agreement gives the Sponsor the exclusive authority to
determine the Trust’s NAV and the Trust’s NAV per Share, which it has delegated
to the Administrator.
F. Federal
Income Taxes
The
Trust is treated as a grantor trust for federal income tax purposes and,
therefore, no provision for federal income taxes is required. Any interest,
expenses, gains and losses are passed through to the holders of Shares of the
Trust. The Sponsor has reviewed the tax positions as of November 20, 2025, and
has determined that no provision for income tax is required in the Trust’s
financial statements.
G. Segment
Reporting
The
Chief Financial Officer and Treasurer of the Sponsor acts as the Trust’s chief
operating decision maker (“CODM”), assessing performance and making decisions
about resource allocation. The CODM has determined that the Trust has a single
operating segment based on the fact that the Trust’s long-term strategic asset
allocation is pre-determined in accordance with the terms of its prospectus,
with a defined investment strategy which is executed by the Sponsor. The
financial information provided to and reviewed by the CODM is presented within
the Trust's financial statements.
Note
3. Trust Expenses and Other Agreements
The
Trust will pay to the Sponsor a unified fee (the “Sponsor Fee”) that will accrue
daily. The Sponsor has agreed to pay all operating expenses (except for
litigation expenses and other extraordinary expenses) out of the Sponsor Fee.
The Sponsor from time to time will sell AVAX, which may be facilitated by the
custodian, in such quantity as is necessary to permit payment of the Sponsor Fee
and Trust expenses and liabilities not assumed by the Sponsor.
The
Trustee’s fee is paid by the Sponsor and is not an expense of the
Trust.
The
Trust will hold its AVAX at the AVAX Custodians, which are regulated third-party
custodians that carry insurance and is responsible for safekeeping of AVAX owned
by the Trust and holding private keys that provide access to the AVAX in the
Trust’s AVAX account.
State
Street Bank and Trust Company serves as the Trust’s administrator, transfer
agent and cash custodian.
Note
4. Related Parties
The
Sponsor is considered to be a related party to the Trust.
MarketVector
Indexes GmbH is the index sponsor and index administrator for the MarketVector™
Avalanche Benchmark Rate, which is used by the Trust to determine its net asset
value. MarketVector Indexes GmbH is an indirectly wholly-owned subsidiary of Van
Eck Associates Corporation.
Van
Eck Securities Corporation, a marketing agent to the Trust, is a wholly
owned-subsidiary of VanEck.
Van
Eck Associates Corporation is the initial seed investor on November 20,
2025.
Note
5. Capital Share Transactions
Investors
can buy and sell Shares of the Trust in secondary market transactions through
brokers. Shares trade on the Exchange under the ticker symbol VAVX. Shares are
bought and sold throughout the trading day like other publicly traded
securities.
The
Trust continuously offers the Trust Shares in creation baskets consisting of
25,000 Shares to authorized participants. Authorized participants pay a
transaction fee for each order they place to create or redeem one or more
creation baskets. The Administrator calculates the cost to purchase (or sell in
the case of a redemption order) the amount of AVAX represented by the baskets
being created (or redeemed); the amount of AVAX represented is equal to the
combined NAV of the number of Shares included in the baskets being created (or
redeemed).
The
Trust creates and redeems Shares, but only in one or more creation baskets.
Creation baskets are only made in exchange for delivery to the Trust or the
distribution by the Trust of the amount of AVAX represented by the baskets being
created or redeemed, the amount of which is equal to the combined NAV of the
number of Shares included in the baskets being created or redeemed determined as
of 4:00 p.m. EST on the day the order to create or redeem baskets is properly
received. Only authorized participants may place orders to create and redeem
baskets through the transfer agent. The transfer agent will coordinate with the
Trust’s custodian in order to facilitate settlement of the Shares and
AVAX.
Share
activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Amount |
|
Shares
issued |
4,000 |
|
(a) |
|
$ |
100,000 |
|
|
Shares
redeemed |
— |
|
|
|
— |
|
|
Net
increase |
4,000 |
|
|
|
$ |
100,000 |
|
________________
(a)Van
Eck Associates Corporation is the sole shareholder as of November 20,
2025.
Note
6. Commitments and Contingent Liabilities
In
the normal course of business, the Trust enters into contracts that contain a
variety of general indemnifications. The Trust’s maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred. However, the Sponsor believes the
risk of loss under these arrangements to be remote.
Note
7. Concentration Risk
Substantially
all of the Trust’s assets are holdings of AVAX, which creates a concentration
risk associated with fluctuations in the value of AVAX due to number of factors.
Accordingly, a decline in the value of AVAX will have an adverse effect on the
value of the Shares of the Trust. Factors that may have the effect of causing a
decline in the value of AVAX include high volatility, which could have a
negative impact on the performance of the Trust. AVAX exchanges are relatively
new and, in some cases, unregulated, and, therefore, may be more exposed to
fraud and security breaches than established, regulated exchanges for other
financial assets or instruments, which could have a negative impact on the
performance of the Trust. The value of the Shares depends on the development and
acceptance
of the AVAX Network. The slowing or stopping of the development or acceptance of
the AVAX Network may adversely affect an investment in the Trust. The price of
AVAX on the AVAX market has exhibited periods of extreme volatility. The Trust
is subject to risks due to its concentration of investments in a single asset
class. Possible illiquid markets may exacerbate losses or increase the
variability between the Trust’s NAV and its market price. The amount of AVAX
represented by the Shares may decline over time.
Future
and current regulations by a United States or foreign government or
quasi-governmental agency could have an adverse effect on an investment in the
Trust. Shareholders do not have the protections associated with ownership of
Shares in an investment company registered under the 1940 Act or the protections
afforded by the Commodity Exchange Act. Future legal or regulatory developments
may negatively affect the value of AVAX or require the Trust or the Sponsor to
become registered with the SEC or CFTC, which may cause the Trust to
liquidate.
The
Exchange on which the Shares are listed may halt trading in the Trust’s Shares,
which would adversely impact a Shareholder’s ability to sell Shares. The market
infrastructure of the AVAX spot market could result in the absence of active
authorized participants able to support the trading activity of the
Trust.
Shareholders
that are not authorized participants may only purchase or sell their Shares in
secondary trading markets, and the conditions associated with trading in
secondary markets may adversely affect Shareholders’ investment in the
Shares.
Note
8. Subsequent Event Review
The
Trust has evaluated subsequent events and transactions for potential recognition
or disclosure through the date the financial statements were issued and has
determined that there are no material events that would require
disclosure.
VANECK
AVALANCHE ETF
PROSPECTUS
January
23, 2026
Until
25 calendar days after the date of this Prospectus, all dealers that effect
transactions in these securities, whether or not participating in this offering,
may be required to deliver a Prospectus. This is in addition to the dealers'
obligation to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.