Grayscale Solana Staking ETF (GSOL) risk factors, FY2025 10-K

Other

1. 01Risk Factors Related to Digital Assets
2. 02Digital assets such as SOL 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 Solana Network, would affect the ability to transfer digital assets, including SOL, 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 SOL
6. 06The Solana protocol was only conceived in 2017 and the Solana protocol or its Proof-of-History timestamping mechanism may not function as intended, which could have an adverse impact on the value of SOL and an investment in the Shares
7. 07Smart 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 SOL
8. 08Changes 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
9. 09Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful
10. 10Digital 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
11. 11Digital 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
12. 12Validators may suffer losses due to Staking, or Staking may prove unattractive to validators, which could adversely affect the Solana Network
13. 13Proof-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
14. 14“33% attack” where, if a validator or group of validators were to gain control of more than 33% of the total staked SOL on the Solana Network, a malicious actor could temporarily impede or delay block confirmation or even cause a temporary fork in the blockchain
15. 15If validators exit the Solana Network, it could increase the likelihood of a malicious actor obtaining control
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 Solana 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. 18Any name change and any associated rebranding initiative by the core developers of SOL may not be favorably received by the digital asset community, which could negatively impact the value of SOL and the value of the Shares
19. 19If the Solana Network is used to facilitate illicit activities, businesses that facilitate transactions in SOL could be at increased risk of criminal or civil lawsuits, or of having services cut off, which could negatively affect the price of SOL and the value of the Shares
20. 20In 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
21. 21Liquid staking applications pose centralization concerns, and a single liquid staking application has reportedly controlled a significant percentage of the total staked SOL on the Solana Network
22. 22Recent 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
23. 23The value of the Shares relates directly to the value of SOL, the value of which may be highly volatile and subject to fluctuations due to a number of factors
24. 24In addition, there is no assurance that SOL will maintain its value in the long or intermediate term. In the event that the price of SOL declines, the Sponsor expects the value of the Shares to decline proportionately
25. 25Digital Asset Trading Platforms may be exposed to front-running
26. 26Digital Asset Trading Platforms may be exposed to wash-trading
27. 27The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares
28. 28The Index Price used to calculate the value of the Trust’s SOL 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
29. 29Competition from the emergence or growth of other digital assets could have a negative impact on the price of SOL and adversely affect the value of the Shares
30. 30Investors may also invest in SOL through means other than the Shares, including through direct investments in SOL and other financial vehicles, including securities backed by or linked to SOL and digital asset financial vehicles similar to the Trust
31. 31Congestion or delay on the Solana Network may delay purchases or sales of SOL by the Trust
32. 32The 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, SOL and adversely impact the value of the Shares
33. 33Competition from central bank digital currencies (“CBDCs”) and emerging payments initiatives involving financial institutions could adversely affect the price of SOL and other digital assets
34. 34Prices of SOL may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment
35. 35The 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 SOL and to the operations of the Trust
36. 36the operations of the Trust and require the Sponsor or the Liquidity Engager, as the case may be, to replace such service provider. Moreover, the Sponsor could decide to replace a service provider to the Trust, or the Liquidity Engager may decide to replace a Liquidity Provider, for other reasons
37. 37The 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
38. 38The 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
39. 39Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share
40. 40Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust’s NAV per Share
41. 41The 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
42. 42The value of the Shares may be influenced by a variety of factors unrelated to the value of SOL
43. 43Shareholders 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
44. 44The 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
45. 45There is no guarantee that an active trading market for the Shares will continue to develop
46. 46As 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
47. 47Security 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
48. 48SOL transactions are irrevocable and stolen or incorrectly transferred SOL may be irretrievable. As a result, any incorrectly executed SOL transactions could adversely affect the value of the Shares
49. 49The 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 SOL for which no person or entity is liable
50. 50The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders
51. 51The Trust Agreement includes provisions that limit shareholders’ voting rights and restrict shareholders’ right to bring a derivative action
52. 52The 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
53. 53Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares
54. 54The Trust’s delivery or sale of SOL to pay expenses or other operations of the Trust could result in shareholders’ incurring tax liability without an associated distribution from the Trust
55. 55The 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
56. 56Intellectual property rights claims may adversely affect the Trust and the value of the Shares
57. 57Pandemics, epidemics and other natural and man-made disasters could negatively impact the value of the Trust’s holdings and/or significantly disrupt its affairs
58. 58The Trust is currently only able to accept Cash Orders, which means that an Authorized Participant will deposit cash into, or
59. 59via in-kind transactions with Authorized Participants in exchange for SOL because Authorized Participants have not entered into or amended Participant Agreements to provide for in-kind creations and redemptions
60. 60Shareholders will not receive the benefits of any forks or airdrops
61. 61With 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
62. 62Coinbase Global serves as the SOL custodian and prime execution agent for several competing exchange-traded SOL products, which could adversely affect the Trust’s operations and ultimately the value of the Shares
63. 63Certain of the Authorized Participants engaged by the Trust may serve in a similar capacity for competing exchange-traded SOL products, which could adversely affect the arbitrage mechanism, the Trust’s operations, the performance of the Trust and ultimately the value of the Shares
64. 64Shareholders 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
65. 65A determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
66. 66In 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
67. 67The SEC has previously taken the view that SOL is a “security,” and a final determination that SOL or any other digital asset is a “security” may adversely affect the value of SOL and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
68. 68Competing 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
69. 69Regulatory 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
70. 70If 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
71. 71the liquidity of the Shares, which could adversely affect the value of the Shares, and termination of the Trust in response to the changed regulatory circumstances may be at a time that is disadvantageous to the shareholders
72. 72Statutory 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
73. 73The treatment of the Trust for U.S. federal income tax purposes is uncertain
74. 74The treatment of digital assets for U.S. federal income tax purposes is uncertain
75. 75Future developments regarding the treatment of digital assets for U.S. federal income tax purposes could adversely affect the value of the Shares
76. 76Future 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
77. 77The tax treatment of SOL and transactions involving SOL for state and local tax purposes is not settled
78. 78A U.S. tax-exempt shareholder may recognize “unrelated business taxable income” as a consequence of an investment in Shares
79. 79Shareholders may be subject to withholding tax on Staking Consideration received as staking rewards and income derived from forks, airdrops and similar occurrences
80. 80Risk Factors Related to Potential Conflicts of Interest
81. 81DCG is a minority interest holder in Kraken, which operates one of the Digital Asset Trading Platforms included in the Index Price
82. 82Shareholders 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 SOL
83. 83Although 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
84. 84proposal. However, there can be no assurance that the Custodian would continue to qualify as a “qualified custodian” under a final rule that may be proposed or adopted by the SEC in the future
85. 85Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust
86. 86The Trust is an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make the Shares less attractive to investors
87. 87Risk Factors Related to Staking
88. 88Staking introduces a risk of loss of SOL. 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
89. 89Staked SOL tokens will be inaccessible for a variable period of time, determined by a range of factors, which could result in certain liquidity risk to the Trust
90. 90The Trust will be dependent on third parties or intermediary technical systems to effectively execute the Trust’s Staking Arrangements
91. 91The regulatory landscape surrounding Staking is uncertain
92. 92Beneficial owners of Shares could incur tax liabilities without receiving corresponding distributions from the Trust