Grayscale Chainlink Trust ETF (GLNK) risk factors, FY2025 10-K

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1. 01Risk Factors Related to Digital Assets
2. 02Digital assets such as LINK were only introduced within the past two decades, 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
3. 03Digital asset networks and related protocols are dependent upon the internet. A disruption of the internet or a digital asset network or related protocol, such as the Chainlink Network, would affect the ability to transfer digital assets, including LINK, and, consequently, their value
4. 04Many digital asset networks face significant scaling challenges and are being upgraded with various features to increase the speed and throughput of digital asset transactions. These attempts to increase the volume of transactions may not be effective
5. 05Digital assets represent a relatively new and rapidly evolving industry, and the value of the Shares depends on the acceptance of LINK
6. 06The Chainlink Network only launched in 2019 and decentralized data retrieval, sometimes referred to as “oracles”, is a new technology that could fail to attract users, which could have an adverse impact on the value of LINK and an investment in the Shares
7. 07ERC-677 tokens rely on the ERC-677 standard and the Ethereum Network to function, any adverse impact on the ERC-677 and/or the Ethereum Network could have an adverse impact on the value of LINK and an investment in the Shares
8. 08Smart contracts are a new technology and ongoing development may magnify initial problems, cause volatility on the networks that use smart contracts and reduce interest in them, which could have an adverse impact on the value of LINK
9. 09Changes in the governance of a digital asset network or protocol may not receive sufficient support from users and validators, which may negatively affect that digital asset network’s or protocol’s ability to grow and respond to challenges
10. 10Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful
11. 11Digital 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
12. 12Digital 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
13. 13Any widespread delays in the recording of transactions could result in a loss of confidence in the digital asset network
14. 14Oracle control may be concentrated in a way where some or all data feeds present misleading information to the blockchain, which could negatively impact the value of LINK and the value of the Shares
15. 15misrepresenting a data feed is larger than the penalty for malicious behavior, oracles may choose to manipulate the data feed and cause false information to be presented to the Chainlink Network. These types of outcomes may directly damage, or otherwise harm the reputation of, the Chainlink Network
16. 16A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares
17. 17In 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
18. 18In the event of a hard fork of the Ethereum Network, the Custodian’s 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 LINK holdings
19. 19Any name change and any associated rebranding initiative by the core developers of LINK may not be favorably received by the digital asset community, which could negatively impact the value of LINK and the value of the Shares
20. 20Digital asset networks have in the past been, and may continue to be, used to facilitate illicit activities. If oracle
21. 21In accordance with its regulatory obligations, the Authorized Participant, or the Liquidity Provider, conducts customer due diligence and enhanced due diligence on its counterparties, which enables it to determine each counterparty’s AML and other risks and assign an appropriate risk rating
22. 22Node operators may suffer losses due to Staking, or Staking may prove unattractive to node operators, which could adversely affect the Chainlink Network
23. 23Validators on the blockchain networks that the Chainlink Network is available on may suffer losses due to staking, or staking may prove unattractive to validators, which could adversely affect such blockchain network and therefore the Chainlink Network
24. 24Liquid staking applications pose centralization concerns, and a single liquid staking application has reportedly controlled around or in excess of 33% of the total staked Ether on the Ethereum Network
25. 25Proof-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
26. 26Recent 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
27. 27The value of the Shares relates directly to the value of LINK, the value of which may be highly volatile and subject to fluctuations due to a number of factors
28. 28In addition, there is no assurance that LINK will maintain its value in the long or intermediate term. In the event that the price of LINK declines, the Sponsor expects the value of the Shares to decline proportionately
29. 29perceived false trading in the Digital Asset Trading Platform Market, and any other fraudulent or manipulative acts and practices, could adversely affect the value of LINK and/or negatively affect the market perception of LINK, which could in turn adversely impact the value of the Shares
30. 30Digital Asset Trading Platforms may be exposed to front-running
31. 31Digital Asset Trading Platforms may be exposed to wash-trading
32. 32Possible illiquid markets may exacerbate losses or increase the variability between the Trust’s NAV and its market price
33. 33The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares
34. 34The Sponsor will not have any strategy relating to the development of LINK and the Chainlink Network. However, a lack of expansion in usage of LINK and the Chainlink Network could adversely affect an investment in Shares
35. 35The Chainlink Network is a prominent, but not unique, part of this industry. The growth of this industry is subject to a high degree of uncertainty, as new assets and technological innovations continue to develop and evolve
36. 36The Index Price used to calculate the value of the Trust’s LINK may be volatile, and purchasing and selling activity in the Digital Asset Markets associated with Basket creations and redemptions may affect the Index Price and Share trading prices, adversely affecting the value of the Shares
37. 37Competition from the emergence or growth of other digital assets could have a negative impact on the price of LINK and adversely affect the value of the Shares
38. 38Investors may also invest in LINK through means other than the Shares, including through direct investments in LINK and other financial vehicles, including securities backed by or linked to LINK and digital asset financial vehicles similar to the Trust
39. 39Congestion or delay on the Chainlink Network may delay purchases or sales of LINK by the Trust
40. 40The SEC has approved generic listing standards for commodity-based trust shares and may approve other 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, LINK and adversely impact the value of the Shares
41. 41Prices of LINK may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment
42. 42The price of LINK may become closely correlated with other asset classes
43. 43The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trust’s LINK and to the operations of the Trust
44. 44of the Trust, then the Trust would be treated as a general unsecured creditor in such insolvency proceedings and the Trust would be subject to the loss of all or a significant portion of its assets
45. 45The liquidity of the Shares may be affected if Authorized Participants cease to perform their obligations under the Participant Agreements or the Liquidity Engager is unable to engage Liquidity Providers
46. 46The Shares may trade at a price that is at, above or below the Trust’s NAV per Share as a result of the non-concurrent trading hours between NYSE Arca and the Digital Asset Trading Platform Market
47. 47Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share
48. 48Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust’s NAV per Share
49. 49The amount of the Trust’s assets represented by each Share will decline over time as the Trust pays the Sponsor’s Fee and Additional Trust Expenses, and as a result, the value of the Shares may decrease over time
50. 50The value of the Shares may be influenced by a variety of factors unrelated to the value of LINK
51. 51Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act or the protections afforded by the CEA
52. 52The Trust is not a registered investment company under the Investment Company Act, and the Sponsor believes that the Trust is not required to register under such act. Consequently, shareholders do not have the regulatory protections provided to investors in investment companies
53. 53There is no guarantee that an active trading market for the Shares will continue to develop
54. 54As 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
55. 55Security threats to the Trust’s Vault Balance or Settlement Balance could result in the halting of Trust operations, including the creation and redemption of Baskets, and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the value of the Shares
56. 56LINK transactions are irreversible and stolen or incorrectly transferred LINK may be irretrievable. As a result, any incorrectly executed LINK transactions could adversely affect the value of the Shares
57. 57The lack of full insurance and shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Transfer Agent and Custodial Entities expose the Trust and its shareholders to the risk of loss of the Trust’s LINK for which no person or entity is liable
58. 58The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders
59. 59The Trust Agreement includes provisions that limit shareholders’ voting rights and restrict shareholders’ right to bring a derivative action
60. 60The Sponsor is solely responsible for determining the value of the NAV and NAV per Share and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares
61. 61Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares
62. 62The Trust’s delivery or sale of LINK to pay expenses or other operations of the Trust could result in shareholders’ incurring tax liability without an associated distribution from the Trust
63. 63The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Transfer Agent or the Custodian under the Trust Documents
64. 64Intellectual property rights claims may adversely affect the Trust and the value of the Shares
65. 65Pandemics, epidemics and other natural and man-made disasters could negatively impact the value of the Trust’s holdings and/or significantly disrupt its affairs
66. 66The limited ability to facilitate in-kind creations and redemptions of Shares could have adverse consequences for the Trust
67. 67engage additional Authorized Participants who are unaffiliated with the Trust in the future, and such Authorized Participants may be able to conduct creations and redemptions in-kind, in cash, or both
68. 68Shareholders will not receive the benefits of any forks or airdrops
69. 69With respect to any fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Virtual Currency associated with such event. As such, shareholders will not receive the benefits of any forks, and the Trust is not able to participate in any airdrop
70. 70LINK products, which could adversely affect the Trust’s operations and ultimately the value of the Shares
71. 71Certain of the Authorized Participants engaged by the Trust may serve in a similar capacity for competing exchange-traded LINK products, which could adversely affect the arbitrage mechanism, the Trust’s operations, the performance of the Trust and ultimately the value of the Shares
72. 72Shareholders 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 investors’ investment in the Shares
73. 73The Sponsor may implement restatements, amendments or supplements to the Trust Agreement that may not necessarily align with shareholder interests
74. 74The Sponsor may implement restatements, amendments or supplements to the Trust Agreement that may increase risk to the Trust's intended tax treatment
75. 75A determination that LINK or any other digital asset is a “security” may adversely affect the value of LINK and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
76. 76In light of these uncertainties and the fact-based nature of the analysis, the Sponsor acknowledges that the SEC may take a contrary position; and the Sponsor’s conclusion, even if reasonable under the circumstances, would not preclude legal or regulatory action based on the presence of a security
77. 77Competing 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
78. 78Regulatory changes or other events in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, validating activity or the operation of their networks or the Digital Asset Trading Platform Market in a manner that adversely affects the value of the Shares
79. 79If regulators subject an Authorized Participant, the Trust or the Sponsor to regulation as a money service business or money transmitter, this could result in extraordinary expenses to the Authorized Participant, the Trust or the Sponsor and also result in decreased liquidity for the Shares
80. 80Statutory or regulatory changes or interpretations could obligate the Trust or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust
81. 81The treatment of the Trust for U.S. federal income tax purposes is uncertain
82. 82rewards and income derived from forks, airdrops and similar occurrences.” Tax-exempt shareholders may also recognize “unrelated business taxable income (“UBTI”) from the Trust’s Staking activities if the Trust is not treated as a corporation for U.S. federal income tax purposes
83. 83The treatment of digital assets for U.S. federal income tax purposes is uncertain
84. 84Future developments regarding the treatment of digital assets for U.S. federal income tax purposes could adversely affect the value of the Shares
85. 85Future 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
86. 86The tax treatment of LINK and transactions involving LINK for state and local tax purposes is not settled
87. 87A U.S. tax-exempt shareholder may recognize “unrelated business taxable income” as a consequence of an investment in Shares
88. 88Shareholders may be subject to withholding tax on income derived from forks, airdrops and similar occurrences and, if the Staking Condition is satisfied, Staking Consideration received as staking rewards
89. 89Risk Factors Related to Potential Conflicts of Interest
90. 90DCG is a minority interest holder in Kraken, which operates one of the Digital Asset Trading Platforms included in the Index Price
91. 91Shareholders 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 LINK
92. 92Although the Custodian is a fiduciary with respect to the Trust’s assets, if the Custodian resigns or is removed by the Sponsor or otherwise, without replacement, it would trigger early termination of the Trust
93. 93Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust
94. 94The Trust is an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make the Shares less attractive to investors
95. 95Risk Factors Related to Staking
96. 96Even if the Staking Condition is met for the Trust in the future, the Sponsor has sole discretion over whether the Trust will engage in Staking, and there can be no assurance that the Sponsor will cause the Trust to engage in Staking
97. 97Staking introduces a risk of loss of LINK. None of the Trust’s assets, including potentially staked assets, are subject to the protections enjoyed by depositors or customers of institutions with FDIC or Securities Investor Protection Corporation membership
98. 98Staked LINK tokens will be inaccessible for a period of time, which could result in certain liquidity risk to the Trust
99. 99LINK remaining unstaked in order to address the various exceptions and other considerations described herein, including the satisfaction of the Staking Condition, and the percentage of the Trust's LINK that is staked each day will be reported the following day at 4:00 p.m., New York time, on etfs.grayscale.com/glnk
100. 100The Trust will be dependent on third parties to effectively execute the Trust’s Staking Arrangements
101. 101The regulatory landscape surrounding Staking is uncertain
102. 102If the Staking Condition is satisfied, beneficial owners of Shares could incur tax liabilities without receiving corresponding distributions from the Trust