Grayscale XRP Trust ETF (GXRP) risk factors, FY2025 10-K

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1. 01Risk Factors Related to Digital Assets
2. 02Digital assets such as XRP 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 XRP Network, would affect the ability to transfer digital assets, including XRP, 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 XRP
6. 06of such digital assets, such as miners or developers, which could contribute to price volatility that makes retailers less likely to accept digital assets in the future
7. 07Changes in the governance of a digital asset network or protocol may not receive sufficient support from users and miners, which may negatively affect that digital asset network’s or protocol’s ability to grow and respond to challenges
8. 08Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful
9. 09Digital 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
10. 10Digital 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
11. 11Validators may cease participating in validating activities because they are provided no direct financial incentive to participate or because certain jurisdictions may limit or otherwise regulate validating activities, which could negatively impact the price of XRP and the value of the Shares
12. 12If the malicious actor cannot control the validator nodes directly, they might attempt to compromise the validators that are already trusted by the network (i.e., those on the commonly used UNLs). This could involve hacking, bribery, deception or coercion
13. 13A 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
14. 14A temporary or permanent “fork” or a “clone” could adversely affect the value of the Shares
15. 15In the event of a hard fork of the XRP 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
16. 16In the event of a hard fork of the XRP Ledger, 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 XRP holdings
17. 17Any name change and any associated rebranding initiative by the core developers of XRP may not be favorably received by the digital asset community, which could negatively impact the value of XRP and the value of the Shares
18. 18If the XRP Network is used to facilitate illicit activities, businesses that facilitate transactions in XRP could be at increased risk of criminal or civil lawsuits, or of having services cut off, which could negatively affect the price of XRP and the value of the Shares
19. 19In 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
20. 20Recent 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
21. 21Digital 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 Federal Deposit Insurance Corporation (“FDIC”) receiverships
22. 22The value of the Shares relates directly to the value of XRP, the value of which may be highly volatile and subject to fluctuations due to a number of factors
23. 23In addition, there is no assurance that XRP will maintain its value in the long or intermediate term. In the event that the price of XRP declines, the Sponsor expects the value of the Shares to decline proportionately
24. 24adversely affect the value of XRP and/or negatively affect the market perception of XRP, which could in turn adversely impact the value of the Shares
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 Sponsor will not have any strategy relating to the development of XRP and the XRP Ledger. However, a lack of expansion in usage of XRP and the XRP Ledger could adversely affect an investment in Shares
29. 29The Index Price used to calculate the value of the Trust’s XRP 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
30. 30Competition from the emergence or growth of other digital assets could have a negative impact on the price of XRP and adversely affect the value of the Shares
31. 31Congestion or delay on the XRP Network may delay purchases or sales of XRP 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, XRP 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 XRP and other digital assets
34. 34Prices of XRP may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment
35. 35The price of XRP may become closely correlated with other asset classes
36. 36The significant holdings of XRP by Ripple Labs and other early stakeholders could have an adverse effect on the market price of XRP
37. 37Competition from certain Ripple Labs solutions that do not require XRP to function, as well as from consortia or private blockchains, could have a negative impact on the price of XRP and adversely affect an investment in the Shares
38. 38In February 2016, Ripple Labs settled a legal dispute involving one of Ripple Labs’ co-founders, Jed McCaleb, relating to a 2014 agreement that Ripple Labs and McCaleb entered into in connection with McCaleb’s leaving Ripple Labs to launch the Stellar Network
39. 39The 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 XRP and to the operations of the Trust
40. 40on the proposal. 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
41. 41The 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
42. 42The 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
43. 43Any suspension or other unavailability of the Trust’s redemption program may cause the Shares to trade at a discount to the NAV per Share
44. 44Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust’s NAV per Share
45. 45The 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
46. 46The value of the Shares may be influenced by a variety of factors unrelated to the value of XRP
47. 47Shareholders 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
48. 48The 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
49. 49There is no guarantee that an active trading market for the Shares will continue to develop
50. 50As 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
51. 51Security 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
52. 52XRP transactions are irrevocable and stolen or incorrectly transferred XRP may be irretrievable. As a result, any incorrectly executed XRP transactions could adversely affect the value of the Shares
53. 53The 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 XRP for which no person or entity is liable
54. 54The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders
55. 55The Trust Agreement includes provisions that limit shareholders’ voting rights and restrict shareholders’ right to bring a derivative action
56. 56The 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
57. 57Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares
58. 58The Trust’s delivery or sale of XRP to pay expenses or other operations of the Trust could result in shareholders’ incurring tax liability without an associated distribution from the Trust
59. 59The 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
60. 60Intellectual property rights claims may adversely affect the Trust and the value of the Shares
61. 61Pandemics, epidemics and other natural and man-made disasters could negatively impact the value of the Trust’s holdings and/or significantly disrupt its affairs
62. 62accept cash from, the Cash Account in connection with the creation and redemption of Baskets, and a Liquidity Provider will obtain or
63. 63Shareholders will not receive the benefits of any forks or airdrops
64. 64With 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
65. 65The Trust will not directly or indirectly participate in any staking program, and accordingly the Shareholders will not receive any staking rewards or other income
66. 66Coinbase Global serves as the XRP custodian and prime execution agent for several competing exchange-traded XRP products, which could adversely affect the Trust’s operations and ultimately the value of the Shares
67. 67Certain of the Authorized Participants engaged by the Trust may serve in a similar capacity for competing exchange-traded XRP products, which could adversely affect the arbitrage mechanism, the Trust’s operations, the performance of the Trust and ultimately the value of the Shares
68. 68Shareholders 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
69. 69A determination that XRP or any other digital asset is a “security” may adversely affect the value of XRP and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
70. 70federal level, embrace DeFi, launch or relaunch crypto innovation efforts, and promote U.S. private sector leadership in the responsible development of cross-border payments and financial markets technologies, among others
71. 71Competing 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
72. 72Regulatory 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
73. 73If 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
74. 74Statutory 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
75. 75To the extent that XRP is deemed to fall within the definition of a “commodity interest” under the CEA, due to the passage of the CLARITY Act or otherwise, the Trust and the Sponsor may be subject to additional regulation under the CEA and CFTC regulations
76. 76The treatment of the Trust for U.S. federal income tax purposes is uncertain
77. 77The treatment of digital assets for U.S. federal income tax purposes is uncertain
78. 78Future developments regarding the treatment of digital assets for U.S. federal income tax purposes could adversely affect the value of the Shares
79. 79Future 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
80. 80The tax treatment of XRP and transactions involving XRP for state and local tax purposes is not settled
81. 81A U.S. tax-exempt shareholder may recognize “unrelated business taxable income” as a consequence of an investment in Shares
82. 82Risk Factors Related to Potential Conflicts of Interest
83. 83DCG is a minority interest holder in Kraken, which operates one of the Digital Asset Trading Platforms included in the Index Price
84. 84Shareholders 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 XRP
85. 85Although 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
86. 86Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust
87. 87The Trust is an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make the Shares less attractive to investors