Franklin Solana Trust (SOEZ) risk factors, FY2026 10-K

Other

1. 01Risk Factors Related to Digital Assets
2. 02Digital assets represent a new and rapidly evolving industry, and the value of the Shares depends on the acceptance of Solana
3. 03Competition from the emergence or growth of alternative digital assets and smart contracts platforms, such as Ethereum, Avalanche, or Cardano, could have a negative impact on the demand for, and price of, Solana and thereby adversely affect the value of the Shares
4. 04The Fund’s timing in reaching the market and fee structure relative to other competitor Solana products could have a detrimental effect on the scale and sustainability of the Fund
5. 05Risk Factors Related to the Fund and the Shares
6. 06Solana transactions are irrevocable and stolen or incorrectly transferred Solana may be irretrievable. As a result, any incorrectly executed Solana transactions could adversely affect the value of the Shares
7. 07Risk Factors Related to the Regulation of the Fund and the Shares
8. 08If regulators subject the Fund or the Sponsor to regulation as a money services business (“MSB”) or money transmitter, this could result in extraordinary expenses to the Fund or the Sponsor and also result in decreased liquidity for the Shares
9. 09The acceptance of software patches or upgrades by some, but not all, nodes, users and validators in a digital asset network, such as the Solana Network, could result in a “fork” in such network’s blockchain, including the Solana blockchain, resulting in the operation of multiple separate networks
10. 10Changes in the governance of a digital asset network may not receive sufficient support from users and validators, which may negatively affect that digital asset network’s ability to grow and respond to challenges
11. 11Potential amendments to the Solana Network’s protocols and software could, if accepted and authorized by the Solana Network community, adversely affect the value of an investment in the Fund
12. 12Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful
13. 13Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital assets
14. 14Liquid 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
15. 15“33% attack” where, if a validator or group of validators were to gain control of more than 33% of the staked Solana, a malicious actor could temporarily impede or delay block confirmation or cause a temporary fork in the blockchain
16. 16Liquid staking applications pose centralization concerns
17. 17If validators exit the Solana Network, it could increase the likelihood of a malicious actor obtaining control
18. 18A temporary or permanent “fork” or “clone” of the Solana Network could adversely affect the value of the Shares
19. 19Shareholders will not receive the benefits of any Incidental Rights and any IR Virtual Currency, including any forked or airdropped assets
20. 20In the event of a hard fork of the Solana Network, the Sponsor will, if permitted by the terms of the Declaration of Trust, use its discretion to determine which network should be considered the appropriate network for the Fund’s purposes, and in doing so may adversely affect the value of the Shares
21. 21Any name change and any associated rebranding initiative by the core developers, users or validators of Solana or the Solana Network may not be favorably received by the digital asset community, which could negatively impact the value of Solana and the value of the Shares
22. 22Validators may suffer losses due to staking, or staking may prove unattractive to validators, which could make the Solana Network less attractive
23. 23Proof-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
24. 24The 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 Solana and the investment in the Shares
25. 25The value of the Shares relates directly to the value of Solana which has been in the past, and may continue to be, highly volatile and subject to fluctuations due to a number of factors
26. 26the Fund’s own acquisitions or dispositions of Solana, since there is no limit on the number of Solana that the Fund may acquire
27. 27Because the Fund holds only Solana and cash, an investment in the Fund may be more volatile than an investment in a more broadly diversified portfolio
28. 28Solana is a relatively new technological innovation with limited operating history
29. 29Coinbase serves as the Custodian and prime execution agent for several competing exchange-traded digital assets products, which could adversely affect the Fund’s operations and ultimately the value of the Shares
30. 30The Index has a relatively limited performance history, the Index price could fail to track the global Solana price, and a failure of the Index price could adversely affect the value of the Shares, and the Index’s methodology may be subject to change
31. 31The Index price used to calculate the value of the Fund’s Solana may be volatile, adversely affecting the value of the Shares
32. 32The Index Administrator could experience system failures or errors
33. 33Competition from central bank digital currencies (“CBDCs”) and emerging payments initiatives involving financial institutions could adversely affect the value of Solana and other digital assets
34. 34Prices of Solana may be affected due to stablecoins (including Tether and US Dollar Coin (“USDC”)), the activities of stablecoin issuers and their regulatory treatment
35. 35Competition from the emergence or growth of other digital assets or methods of investing in Solana could have a negative impact on the price of Solana and adversely affect the value of the Shares
36. 36Competitive pressures may negatively affect the ability of the Fund to garner substantial assets and achieve commercial success
37. 37Blockchain 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
38. 38Digital asset treasury companies may exacerbate volatility in digital asset markets
39. 39Operational cost may exceed the award for validating transaction, and increased transaction fees may adversely affect the usage of the Solana Network
40. 40If regulators or public utilities take actions that restrict or otherwise impact validator activities, such actions could result in decreased security of a digital asset network, including the Solana network, which could adversely affect the value of the Shares
41. 41The Fund will not stake its Solana until the Staking Requirement is satisfied, any additional requirements are satisfied, and the Fund has entered into written agreements with Staking Provider(s), which could harm the value of the Shares
42. 42As a result of any staking activities in which the Fund engages, the Fund expects to receive Staking Rewards in the form of Solana, which may be treated as income for U.S. federal income tax purposes
43. 43The Fund’s Policy for managing the liquidity risks of staking may not fully prevent the Fund from experiencing liquidity challenges, especially in extreme or stressed market conditions
44. 44Shareholders may incur tax liability without a corresponding cash distribution from the Fund
45. 45The Fund may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and the markets and service providers relevant to the performance of the Fund
46. 46The amount of Solana represented by each Share will decrease over the life of the Fund due to the sales of Solana necessary to pay the Sponsor’s Fee and other Fund expenses. Without increases in the price of Solana sufficient to compensate for that decrease, the price of the Shares will also decline
47. 47The Fund is a passive investment vehicle that does not seek to generate returns beyond tracking the price of Solana. The Fund is not actively managed, does not seek to generate excess returns beyond tracking the price of Solana and will be adversely affected by a general decline in the price of Solana
48. 48An investment in the Shares deviates from a direct investment in Solana
49. 49The value of the Shares may be influenced by a variety of factors unrelated to the value of Solana
50. 50The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants or Solana Trading Counterparties
51. 51The Fund and the Shares may be negatively affected by Authorized Participant Concentration
52. 52Certain shareholders may from time to time own a substantial amount of the Fund’s Shares
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. 54exemption 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
55. 55The Fund is subject to certain risks due to its concentration in only one asset
56. 56The lack of an active trading market for the Shares may result in losses on your investment at the time of disposition of your Shares
57. 57The limited ability to facilitate in-kind creations and redemptions of Shares could have adverse consequences for the Fund
58. 58Any of these factors could adversely affect the performance of the Fund and the value of the Shares
59. 59To the extent the Fund uses cash creations and redemptions, that may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the price of Solana and, as a result, the price of the Shares may fall or otherwise diverge from NAV
60. 60As an owner of Shares, you will not have the rights normally associated with ownership of other types of shares
61. 61The Sponsor may amend the Declaration of Trust without the consent of the Shareholders
62. 62Shareholders 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
63. 63The 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
64. 64As the Sponsor and its management have limited history of operating investment vehicles like the Fund, their experience may be inadequate or unsuitable to manage the affairs of the Fund
65. 65Security threats to the Fund’s account at the Solana Custodian could result in the halting of Fund operations and a loss of Fund assets or damage to the reputation of the Fund, each of which could result in a reduction in the value of the Shares
66. 66The lack of full insurance and Shareholders’ limited rights of legal recourse against the Fund, Trustee, Sponsor, Administrator, Cash Custodian, Prime Broker and Solana Custodian expose the Fund and its Shareholders to the risk of loss of the Fund’s Solana for which no person or entity is liable
67. 67If the Trade Credits are not available or become exhausted, the Fund may face delays in buying or selling Solana that may adversely impact Shareholders; if the Fund does not repay the Trade Credits on time, its assets may be liquidated by the Trade Credit Lender and its affiliates
68. 68Loss of a critical banking relationship for, or the failure of a bank used by, the Prime Broker could adversely impact the Fund’s ability to create or redeem Creation Units, or could cause losses to the Fund
69. 69The Prime Broker routes orders through Connected Trading Venues in connection with trading services under the Prime Broker Agreement. The loss or failure of any such Connected Trading Venues may adversely affect the Prime Broker’s business and cause losses for the Fund
70. 70The Sponsor may terminate and liquidate the Fund or Trust for any reason in its sole discretion. See “The Offering —Termination Events” in the prospectus
71. 71The Declaration of Trust includes provisions that limit Shareholders’ voting rights and the ability to participate in shareholder derivative actions
72. 72The Sponsor is solely responsible for determining the value of the net asset value of the Fund, and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares
73. 73Extraordinary expenses resulting from unanticipated events may become payable by the Fund, adversely affecting the value of the Shares
74. 74The Fund’s delivery or sale of Solana to pay expenses or otherwise in connection with operations of the Fund, as well as rewards from Staking, could result in Shareholders incurring tax liability without an associated distribution from the Fund
75. 75The value of the Shares will be adversely affected if the Fund is required to indemnify the Sponsor, the Trustee, the Staking Provider, the Administrator, the Solana Custodian or the Cash Custodian pursuant to its contractual arrangements
76. 76Moreover, President Trump has issued executive orders addressing the administration’s intention to establish a comprehensive digital asset regulatory framework. There have also been several bills introduced in Congress that propose to establish additional regulation and oversight of the digital asset markets
77. 77A determination that Solana or any other digital asset is a “security” may adversely affect the value of Solana and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Fund
78. 78Competing 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
79. 79Regulatory changes or actions 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 platform market in a manner that adversely affects the value of the Shares
80. 80Anonymity and illicit financing risk
81. 81Regulatory changes or interpretations could obligate an Authorized Participant, the Fund, the Trust, the Sponsor or other Fund service providers to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Fund
82. 82Further, the proposed amendments could have a severe negative impact on the price of Solana and therefore the value of the Shares if enacted, by, among other things, making it more difficult for investors to gain access to Solana, or causing certain holders of Solana to sell their holdings
83. 83The treatment of the Fund for U.S. federal income tax purposes is uncertain
84. 84The Fund may take certain positions with respect to the tax consequences of Incidental Rights and its receipt of IR Virtual Currency. If the IRS were to disagree with, and successfully challenge any of these positions the Fund might not qualify as a grantor trust
85. 85The treatment of digital currency for U.S. federal income tax purposes is uncertain
86. 86Chief Counsel Memorandum 202316008 clarified that a taxpayer holding a digital asset does not have a realization event solely as the result of a protocol upgrade
87. 87The treatment of Staking Activities under U.S. federal securities laws may be unsettled
88. 88Future developments regarding the treatment of digital currency for U.S. federal income tax purposes could adversely affect the value of the Shares
89. 89Future 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
90. 90A U.S. Tax-Exempt Shareholder may recognize “unrelated business taxable income” a consequence of an investment in Shares
91. 91Shareholders could incur a tax liability without an associated distribution of the Fund
92. 92A hard “fork” of the Solana blockchain could result in Shareholders incurring a tax liability
93. 93Potential conflicts of interest may arise among the Sponsor or its affiliates and the Fund. The Sponsor and its affiliates have no fiduciary duties to the Fund or its Shareholders, which may permit them to favor their own interests to the detriment of the Fund and its Shareholders
94. 94Investment vehicles advised or managed by affiliates of the Sponsor may, from time to time, hold an interest in Coinbase Global, the parent of Coinbase, Inc., which serves as the Fund’s Prime Broker and operates one of the digital asset platforms included in the Index price and is the parent of the Solana Custodian
95. 95Shareholders cannot be assured that the Sponsor will be willing or able to continue to serve as sponsor to the Fund for any length of time. If the Sponsor discontinues its activities on behalf of the Fund and a substitute sponsor is not appointed, the Fund will terminate and liquidate its Solana
96. 96Although the Solana Custodian is a fiduciary with respect to the Fund’s assets, it could resign or be removed by the Sponsor, which may trigger early dissolution of the Fund
97. 97Coinbase serves as the Solana Custodian and prime execution agent for several competing exchange-traded Solana products, which could adversely affect the Fund’s operations and ultimately the value of the Shares
98. 98Shareholders may be adversely affected by the lack of independent advisers representing investors in the Fund
99. 99Shareholders and Authorized Participants lack the right under the Custodian Agreement to assert claims directly against the Solana Custodian, which significantly limits their options for recourse
100. 100Risk Factors Related to ERISA