21Shares Ethereum Staking ETF (TETH) risk factors, FY2025 10-K

Other

1. 01Ether is a relatively new technological innovation with a limited operating history
2. 02Ether and Ethereum generally
3. 03Moving from Proof-of-Work (PoW) to Proof-of-Stake (PoS) Consensus Mechanism25% rewritten
4. 04Staking introduces a risk of loss of ether, which could adversely affect the value of the Shares48% rewritten
5. 05A validator may face penalties if it fails to take certain actions, such as providing a timely attestation to a block proposed by another validator. Under this scenario, a validator’s staked ether could be burned in an amount equal to the reward to which it would have been entitled for performing the actions
6. 06Staked ether 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
7. 07The Trust is dependent on third parties to effectively execute the Trust’s Staking Activities58% rewritten
8. 08The Trust will stake its ether only if it may do so without undue legal or regulatory risk, such as, without limitation, the risk of jeopardizing the Trust’s ability to qualify as a grantor trust for tax purposes, which could harm the value of the SharesNew
9. 09The Trust may be negatively impacted by Staking ActivitiesNew
10. 10The Staking Provider may not optimally execute the staking activitiesNew
11. 11The Trust may vary the amount of ether to be staked and the rewards received may accordingly change from time to timeNew
12. 12The scheduled creation of newly minted ether and their subsequent sale may cause the price of ether to decline, which could negatively affect an investment in the Trust
13. 13Ether is the second largest cryptocurrency by market capitalization behind bitcoin. As of December 31, 2025, ether had a total market capitalization of approximately $358 billion and represented approximately 11.42% of the entire digital asset market
14. 14The change from proof-of-work to proof-of-stake also limits the total supply of ether in circulation by effectively locking staked, certain period of time, making it temporarily unavailable for trading or selling
15. 15The prevailing level of transaction fees may adversely affect the usage of the Ethereum network
16. 16Spot markets on which ether trades are relatively new and largely unregulated24% rewritten
17. 17Authorized Participants may act in the same or similar capacity for other competing products
18. 18Spot markets may be exposed to security breaches
19. 19Spot markets may be exposed to fraud and market manipulation
20. 20Over the past several years, a number of digital asset spot markets have been closed or faced issues due to fraud. In many of these instances, the customers of such ether spot markets were not compensated or made whole for the partial or complete losses of their account balances in such digital asset exchanges
21. 21Spot markets may be exposed to wash trading
22. 22Spot markets may be exposed to front-running68% rewritten
23. 23The market value of ether is subject to momentum pricingNew
24. 24The Sponsor will not have any strategy relating to the development of ether and the Ethereum network. However, a lack of expansion in usage of ether and the Ethereum network could adversely affect an investment in Shares
25. 25Irrevocable nature of blockchain-recorded transactions51% rewritten
26. 26The loss or destruction of a private key required to access ether may be irreversible92% rewritten
27. 27The amount of ether that may be held in the Trading Balance is limited to the amount necessary to process a given creation or redemption transaction, as applicable, or to pay for Trust Expenses not assumed by the Sponsor in consideration for the Sponsor Fee
28. 28Loss of a critical banking relationship for, or the failure of a bank used by, the Trust or the Prime Broker could adversely impact the Trust’s ability to create or redeem Baskets, or could cause losses to the Trust
29. 29The Ether Custodians and the Prime Broker may act in the same or similar capacity for other competing products
30. 30The 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 Trust
31. 31A disruption of the Internet may affect Ethereum operations, which may adversely affect the Ethereum industry and an investment in the Trust
32. 32Potential changes to the Ethereum network’s protocols and software could, if accepted and authorized by the Ethereum network community, adversely affect an investment in the Trust
33. 33Decentralized governance of the Ethereum network could have a negative impact on the performance of the Trust
34. 34Anonymity and illicit financing risk
35. 35In accordance with their regulatory obligations, the Authorized Participants conduct customer due diligence and enhanced due diligence on their counterparties, which enable them to determine each counterparty’s AML and other risks and assign an appropriate risk ratingNew
36. 36The actual or perceived use of ether and other digital assets in illicit transactions may adversely affect the ether industry and an investment in the Trust
37. 37The only digital asset to be held by the Trust is ether87% rewritten
38. 38Ethereum is subject to cybersecurity risks, which could adversely affect an investment in the Trust or the ability of the Trust to operate
39. 39At 50% of the staked ether, a mischievous group of validators could theoretically split the chain into two equally sized forks and then simply use their entire 50% stake to vote contrarily to the honest validator set, thereby maintaining the two forks and preventing finality
40. 40Other digital asset networks have been subject to malicious activity achieved through control of over 50% of the processing power on the network. Any similar attack on the Ethereum network could negatively impact the value of ether and the value of the Shares
41. 41Liquid staking applications pose risks associated with concentration of control
42. 42A temporary or permanent “fork” could adversely affect the value of the Shares
43. 43If validators expend less processing power on the Ethereum network, it could increase the likelihood of a malicious actor obtaining control
44. 44Mathematical or technological advances could undermine the Ethereum network’s consensus mechanism
45. 45Proof-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
46. 46Validators may suffer losses due to staking, which could make the Ethereum network less attractive30% rewritten
47. 47The Sponsor’s receipt of a portion of staking rewards may create conflicts of interestNew
48. 48The Ethereum network faces scaling challenges and efforts to increase the volume of transactions may not be successful
49. 49Smart contracts are new and their ongoing development and operation may result in problems or be subject to errors or hacks, which could reduce the demand for ether or cause a wider loss of confidence in the Ethereum network, either of which could have an adverse impact on the value of ether
50. 50Ethereum faces significant competition from other digital assets, as well as from other technologies or payment forms, such as Swift, ACH, remittance networks, credit cards and cash. There is no guarantee that ether will become a dominant form of payments, store of value or method of exchange
51. 51Competition from central bank digital currencies (“CBDCs”) could adversely affect the value of ether and other digital assets
52. 52Prices of ether may be affected due to stablecoins, the activities of stablecoin issuers and their regulatory treatment
53. 53Operational cost may exceed the award for validating transaction fees, and increased transaction fees may adversely affect the usage of the Ethereum network
54. 54As a result of Ethereum’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
55. 55Validators may cease to record transactions as a result of low transaction fees, which may adversely affect the usage of the Ethereum network
56. 56Large-Scale Sales or Distributions
57. 57Congestion or delay in the Ethereum network may delay purchases or sales of ether by the Trust
58. 58Investment Related Risks
59. 59The NAV or the Principal Market NAV may not always correspond to the market price of ether
60. 60Deviations between the Trust’s NAV and NAV per Share versus the Trust’s Principal Market NAV and Principal Market NAV per Share may occur
61. 61Owning Shares is different than directly owning ether
62. 62The value of the Shares may be influenced by a variety of factors unrelated to the value of ether
63. 63The Administrator is solely responsible for determining the value of the Trust’s ether, the Trust’s NAV and the Trust’s Principal Market NAV. The value of the Shares may experience an adverse effect in the event of any errors, discontinuance or changes in such valuation calculations
64. 64Ether Counterparties’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares
65. 65Selling activity associated with sales of ether in connection with redemption orders may decrease the ether prices, which will result in lower prices for the Shares. Decreases in ether prices may also occur as a result of selling activity by other market participants
66. 66The inability of Ether Counterparties to hedge their ether exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares
67. 67Arbitrage transactions intended to keep the price of Shares closely linked to the price of ether may be problematic if the process for the creation and redemption of Baskets encounters difficulties, which may adversely affect an investment in the Shares
68. 68Security threats and cyber-attacks 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
69. 69The Ether Custodians could become insolvent
70. 70The Trust is subject to risks due to its concentration of investments in a single asset
71. 71A lack of active trading markets for the Shares may result in losses on Shareholders’ investments at the time of disposition of Shares
72. 72Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
73. 73The amount of ether represented by the Shares will continue to be reduced during the life of the Trust due to the transfer of the Trust’s ether to pay for the Sponsor Fee and other liabilities
74. 74The development and commercialization of the Trust is subject to competitive pressures
75. 75A loss of confidence in or breach of an Ether Custodian may adversely affect the Trust and the value of an investment in the Shares27% rewritten
76. 76The Sponsor may need to find and appoint a replacement ether custodian or prime broker quickly, which could pose a challenge to the safekeeping of the Trust’s ether23% rewritten
77. 77The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Administrator, the Transfer Agent, the Ether Custodians or the Prime Broker
78. 78Intellectual property rights claims may adversely affect the Trust and the value of the Shares31% rewritten
79. 79Amendment of Trust Agreement without shareholder consentNew
80. 80By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust AgreementNew
81. 81The Index has a limited history

Risks related to pricing

1. 82Shareholders also should note that the size of the Trust in terms of total ether held may change substantially over time and as Baskets are created and redeemed

Regulatory Risk

1. 83Ether’s status as being offered or sold as a “security” under U.S. federal securities laws remains unsettledNew
2. 84There is a lack of consensus regarding the regulation of digital assets, including etherNew
3. 85In March 2022, Senators Elizabeth Warren, Jack Reed, Mark Warner, and Jon Tester introduced the Digital Asset Sanctions Compliance Enhancement Act in an attempt to ensure blacklisted Russian individuals and businesses do not use digital assets to evade economic sanctions21% rewritten
4. 86Shareholders do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or commodity pools under the CEA
5. 87The Trust is not registered as an investment company under the 1940 Act, and the Sponsor believes that the Trust is not permitted or required to register under such act. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies
6. 88Future and current laws and regulations by a United States or foreign government or quasi-governmental agencies could have an adverse effect on an investment in the Trust
7. 89Future legal or regulatory developments may negatively affect the value of ether or require the Trust or the Sponsor to become registered with the SEC or CFTC, which may cause the Trust to incur unforeseen expenses or liquidate

Tax Risk

1. 90The ongoing activities of the Trust may generate tax liabilities for Shareholders43% rewritten
2. 91Ether staking may result in adverse tax consequences for ShareholdersNew
3. 92The treatment of staking in a grantor trust for U.S. federal income tax purposes is still developingNew
4. 93The tax treatment of ether and transactions involving ether for United States federal income tax purposes may change
5. 94The tax treatment of ether and transactions involving ether for state and local tax purposes is not settled
6. 95A hard “fork” of the Ethereum blockchain could result in Shareholders incurring a tax liability
7. 96The intended tax treatment of the Trust will limit the flexibility of the Trust’s investment decisionsNew

Other Risks

1. 97The 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
2. 98The 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
3. 99The market infrastructure of the ether spot market could result in the absence of active Authorized Participants able to support the trading activity of the Trust, which would affect the liquidity of the Shares in the secondary market and make it difficult to dispose of Shares
4. 100Shareholders 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
5. 101The Sponsor relies heavily on key personnel. The departure of any such key personnel could negatively impact the Trust’s operations and adversely impact an investment in the Trust
6. 102In addition, certain personnel performing services on behalf of the Sponsor will be shared with the respective affiliates of the Sponsor, including with respect to execution, Trust operations and legal, regulatory and tax oversight. Such individuals will devote a small percentage of their time to those activities
7. 103The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
8. 104Shareholders 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 rights21% rewritten
9. 105Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
10. 106Shareholders may be adversely affected by an overstatement or understatement of the NAV or the Principal Market NAV calculation of the Trust due to the valuation methodology employed on the date of the NAV or the Principal Market NAV calculation
11. 107Shareholders may be adversely affected by the amendment of the Trust Agreement without Shareholder consentNew