VanEck Ethereum ETF (ETHV) risk factors, FY2024 10-K

Other

1. 01Risks Associated with ETH and the Ethereum Network
2. 02Due to the nature of private keys, ethereum transactions are irrevocable and stolen or incorrectly transferred Ethereum may be irretrievable. As a result, any incorrectly executed ethereum transactions could adversely affect an investment in the Trust
3. 03A disruption of the internet may affect ethereum operations, which may adversely affect the ethereum industry and an investment in the Trust
4. 04The Ethereum network’s decentralized governance structure may negatively affect its ability to grow and respond to challenges
5. 05The scheduled creation of newly minted ETH and their subsequent sale may cause the price of ETH to decline, which could negatively affect an investment in the Trust
6. 06The rate at which new ETH are issued and put into circulation is expected to vary. The Ethereum network has no formal cap on the total supply of ETH and the supply could theoretically be unlimited, which could put downward pressure on the price of ETH
7. 07A temporary or permanent “fork” of the ethereum blockchain could adversely affect an investment in the Trust. Shareholders will not receive the benefits of any forks or airdrops
8. 08an investment in the Trust or the ability of the Trust to operate and the Trust’s procedures may be inadequate to address the effects of a fork
9. 09Shareholders may not receive the benefits of any forks or “airdrops.”
10. 10In the event of a hard fork of the Ethereum 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
11. 11The Ethereum Blockchain could be vulnerable to a “51% attack,” which could adversely affect an investment in the Trust or the ability of the Trust to operate
12. 12proof-of-work-based networks, it is possible that a similar attack may occur on the Ethereum network, which could negatively impact the value of ethereum and the value of the Shares
13. 13Liquid staking applications pose centralization concerns
14. 14If validators exit the ethereum network, it could increase the likelihood of a malicious actor obtaining control
15. 15Blockchain 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
16. 16The price of ETH on the ETH market has exhibited periods of extreme volatility, which could have a negative impact on the performance of the Trust
17. 17MarketVector has analyzed ETH trading platform data and developed insights that have informed MarketVector’s understanding of the ETH 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
18. 18Smart 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 ETH or cause a wider loss of confidence in the Ethereum network, either of which could have an adverse impact on the value of ETH
19. 19Validators may suffer losses due to staking, or staking may prove unattractive to validators, which could make the Ethereum network less attractive
20. 20Proof-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
21. 21Operational cost may exceed the award for validating transaction, and increased transaction fees may adversely affect the usage of the Ethereum network
22. 22As a result of ETH’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
23. 23The value of the Shares relates directly to the value of ETH, the value of which may be highly volatile and subject to fluctuations due to a number of factors
24. 24Digital asset networks face significant scaling challenges and efforts to increase the volume of transactions may not be successful
25. 25ETH trading platforms may be exposed to fraud and manipulation
26. 26ETH trading platforms may be exposed to front-running
27. 27ETH trading platforms may be exposed to wash trading
28. 28it 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
29. 29Competition from central bank digital currencies and emerging payments initiatives involving financial institutions could adversely affect the value of ETH and other digital assets
30. 30Prices of ETH may be affected due to stablecoins (including Tether and US Dollar Coin (“USDC”)), the activities of stablecoin issuers and their regulatory treatment
31. 31Competition from the emergence or growth of other digital assets or methods of investing in ETH could have a negative impact on the price of ETH and adversely affect the value of the Shares
32. 32Failure of funds that hold digital assets to receive SEC approval to list their shares on exchanges could adversely affect the value of the Shares
33. 33The MarketVectorTM Ethereum Benchmark Rate has a limited history
34. 34The MarketvectorTM Ethereum Benchmark Rate could fail to track the global ETH price, and a failure of the MarketvectorTM Ethereum Benchmark Rate could adversely affect the value of the Shares
35. 35The MarketvectorTM Ethereum Benchmark Rate used to calculate the value of the Trust’s ETH may be volatile, adversely affecting the value of the Shares
36. 36The MarketvectorTM Ethereum Benchmark Rate may be affected by manipulative or fraudulent practices in the global ETH market or at constituent trading platforms
37. 37The Index Administrator could experience system failures or errors
38. 38The Sponsor can remove the MarketvectorTM Ethereum Benchmark Rate and use a different pricing or valuation methodology instead
39. 39Intellectual property rights claims may adversely affect the Trust and the value of the Shares
40. 40The value of the Shares may be influenced by a variety of factors unrelated to the value of ETH
41. 41The Trust is subject to market risk
42. 42An investment in Shares of the Trust is different from directly owning ETH
43. 43The NAV may not always correspond to the market price of ETH and, as a result, Baskets may be created or redeemed at a value that is different from the market price of the Shares
44. 44Authorized Participants’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares of the Trust
45. 45Selling activity associated with sales of ETH by Liquidity Providers in connection with redemption orders may decrease the ETH prices, which will result in lower prices for the Shares. Decreases in ETH prices may also occur as a result of selling activity by other market participants
46. 46The inability of Liquidity Providers to hedge their ETH exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares
47. 47The lack of ability to facilitate in-kind creations and redemptions of Shares could have adverse consequences for the Trust
48. 48The 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
49. 49The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants or Liquidity Providers
50. 50The Trust is subject to risks due to its concentration of investments in a single asset class
51. 51The 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
52. 52Possible 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
53. 53The 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
54. 54Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
55. 55The amount of ETH represented by the Shares will decline over time
56. 56The Trust is a passive investment vehicle. The Trust is not actively managed and will be affected by a general decline in the price of ETH
57. 57The development and commercialization of the Trust is subject to competitive pressures
58. 58Security threats to the Trust’s account with the ETH Custodian or the Additional ETH Custodian could result in the halting of Trust operations and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the price of the Shares
59. 59The Clearing Account permits hot storage which is less secure than cold storage
60. 60its subsidiaries provide to the Trust, or its financial condition is negatively affected, it could negatively affect the Trust’s ability to operate
61. 61The lack of full insurance and Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Administrator, Cash Custodian, ETH Custodian and Additional ETH Custodian expose the Trust and its Shareholders to the risk of loss of the Trust’s ethereum for which no person or entity is liable
62. 62may be insufficient to cover its liabilities to the Trust. Both the Trust and the ETH Custodian are required to indemnify each other under certain circumstances
63. 63limitations on the ETH Custodian’s liability may allow it to avoid liability for potential losses, even if the ETH Custodian directly caused such losses
64. 64Loss 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
65. 65The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders
66. 66The Sponsor is solely responsible for determining the value of the ETH holdings and ethereum holdings per Share, and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares
67. 67Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the shares
68. 68The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Transfer Agent, the ETH Custodian, the Additional ETH Custodian or the Cash Custodian under the Trust documents
69. 69Coinbase serves as the ETH Custodian for several competing exchange-traded ethereum products, which could adversely affect the trust’s operations and ultimately the value of the Shares
70. 70The Trust is not permitted to engage in Staking Activities, which could negatively affect the value of the Shares

Regulatory Risk

1. 71Cash Custodian – to reduce support for or cease offering services for ETH or to the Trust, which could impair the utility of ETH, the value of the Shares and the Trust’s ability to operate in compliance with new laws and regulations
2. 72A determination that ETH or any other digital asset is a “security” may adversely affect the value of ETH and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
3. 73Competing 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
4. 74Shareholders 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
5. 75The 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
6. 76Future legal or regulatory developments may negatively affect the value of ETH or require the Trust or the Sponsor to become registered with the SEC or CFTC, which may cause the Trust to liquidate
7. 77Further, the proposed amendments could have a severe negative impact on the price of ETH and therefore the value of the Shares if enacted, by, among other things, making it more difficult for investors to gain access to ETH, or causing certain holders of ethereum to sell their holdings
8. 78Anonymity, sanctions, and illicit financing risk
9. 79on the Ethereum 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
10. 80Regulatory changes or actions in foreign jurisdictions may affect the value of the Shares or restrict the use of ETH, mining activity or the operation of their networks or the global ETH markets in a manner that adversely affects the value of the Shares

Tax Risk

1. 81The treatment of the Trust for U.S. federal income tax purposes is uncertain
2. 82The treatment of digital assets for U.S. federal income tax purposes is uncertain
3. 83Future developments regarding the treatment of digital assets for U.S. federal income tax purposes could adversely affect the value of the Shares
4. 84Future developments in the treatment of digital assets for tax purposes other than U.S. federal income tax purposes could adversely affect the value of the Shares
5. 85A U.S. Tax-Exempt Shareholder may recognize “unrelated business taxable income” as a consequence of an investment in Shares
6. 86Shareholders could incur a tax liability without an associated distribution of the Trust
7. 87A hard “fork” of the Ethereum Blockchain could result in Shareholders incurring a tax liability

Other Risks

1. 88Shareholders cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Trust
2. 89Shareholders 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 ETH
3. 90Although the ETH Custodian and the Additional ETH Custodian 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
4. 91Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust
5. 92Shareholders and Authorized Participants lack the right under the Custody Agreement to assert claims directly against the ETH Custodian, which significantly limits their options for recourse
6. 93The 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
7. 94The 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
8. 95The market infrastructure of the ETH spot market could result in the absence of active Authorized Participants able to support the trading activity of the Trust
9. 96ETH 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
10. 97Shareholders 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
11. 98As 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
12. 99The Sponsor is leanly staffed and relies heavily on key personnel
13. 100The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
14. 101Shareholders 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
15. 102The Trust Agreement includes provisions that limit Shareholders’ voting rights and restrict Shareholders’ right to bring a derivative action
16. 103An investment in the Trust may be adversely affected by competition from other investment vehicles focused on ETH or other cryptocurrencies
17. 104Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
18. 105Shareholders 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
19. 106The 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
20. 107Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks
21. 108The Trust and its service providers are subject to certain operational risks
22. 109Risk Factors Related to ERISA