21Shares Hyperliquid Staking ETF (THYP) risk factors, 2026 10-K

Other

1. 01HYPE is a relatively new technological innovation with a limited operating history
2. 02HYPE and the Hyperliquid Network generally
3. 03Proof-of-Stake (PoS) Consensus Mechanisms
4. 04The Trust is exposed to risks associated with Hyperliquid Labs
5. 05The scheduled creation of newly minted HYPE and their subsequent sale may cause the price of HYPE to decline, which could negatively affect an investment in the Trust
6. 06The fixed supply of HYPE may negatively impact the operation of the Hyperliquid Network
7. 07The prevailing level of transaction fees may adversely affect the usage of the Hyperliquid Network
8. 08A determination that HYPE or any other digital asset is offered or sold as a “security” may adversely affect the price of HYPE and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
9. 09Digital 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
10. 10Spot markets on which HYPE trades are relatively new and largely unregulated
11. 11Authorized Participants may act in the same or similar capacity for other competing products
12. 12Spot markets may be exposed to security breaches
13. 13Spot markets may be exposed to fraud and market manipulation
14. 14Over 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 spot markets were not compensated or made whole for the partial or complete losses of their account balances in such digital asset exchanges
15. 15Spot markets may be exposed to wash trading
16. 16Spot markets may be exposed to front-running
17. 17The Trust’s Staking Activities involve legal and 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 Shares
18. 18The Trust may be negatively impacted by Staking Activities
19. 19The Staking Services Provider may not optimally execute the Staking Activities
20. 20The Trust may vary the amount of HYPE to be staked and the rewards received may accordingly change from time to time
21. 21The market value of HYPE is subject to momentum pricing
22. 22The Sponsor will not have any strategy relating to the development of HYPE and the Hyperliquid Network. However, a lack of expansion in usage of HYPE and the Hyperliquid Network could adversely affect an investment in Shares
23. 23The failure of one or more of the Foundation’s strategic partnerships with one or more institutional players may adversely affect demand for HYPE, the price of HYPE, or the price of the Shares
24. 24Irrevocable nature of blockchain-recorded transactions
25. 25The loss or destruction of a private key required to access HYPE may be irreversible
26. 26An investment in the Trust is not a deposit and is not FDIC-insured. Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Administrator, and HYPE Custodians expose the Trust and its Shareholders to the risk of loss of the Trust’s HYPE for which no person or entity is liable
27. 27Loss of a critical banking relationship for, or the failure of a bank used by, the Trust could adversely impact the Trust’s ability to create or redeem Baskets, or could cause losses to the Trust
28. 28The HYPE Custodians may act in the same or similar capacity for other competing products
29. 29A disruption of the Internet may affect HYPE operations of the Hyperliquid Network, which may adversely affect the HYPE industry and an investment in the Trust
30. 30Potential changes to the Hyperliquid Network’s protocols and software could, if accepted and authorized by the Hyperliquid Network community, adversely affect an investment in the Trust
31. 31The governance of the Hyperliquid Network could have a negative impact on the performance of the Trust
32. 32Anonymity and illicit financing risk
33. 33In 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 rating
34. 34Restricted Persons may access the Hyperliquid interface in violation of the Hyperliquid interface’s terms of use
35. 35The Hyperliquid Network is subject to cyberattacks by state-sponsored actors
36. 36The actual or perceived use of HYPE and other digital assets in illicit transactions, which may adversely affect the HYPE industry and an investment in the Trust
37. 37The inability to recognize the economic benefit of a “fork” or an “airdrop” could adversely impact an investment in the Trust
38. 38Any name change and any associated rebranding initiative of HYPE may not be favorably received by the digital asset community, which could negatively impact the value of HYPE and the value of the Shares
39. 39HYPE is subject to cybersecurity risks, which could adversely affect an investment in the Trust or the ability of the Trust to operate
40. 40At two-thirds of the staked HYPE, a mischievous group of validators could theoretically split the chain into two equally sized forks and then simply use their stake to vote contrarily to the honest validator set, thereby maintaining the two forks and preventing finality
41. 41Other digital asset networks have been subject to malicious activity achieved through control of over 50% of the processing power on the network. Any similar attacks on the Hyperliquid Network could negatively impact the value of HYPE and the value of the Shares
42. 42Additionally, an attacker with 66% or more of the total staked HYPE can finalize their preferred chain without having to coerce any honest validators. The attacker can simply vote for their preferred fork and then finalize it, simply because they can vote with a dishonest supermajority
43. 43If validators expend less processing power on the Hyperliquid Network, it could increase the likelihood of a malicious actor obtaining control
44. 44Denial of service attacks
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 Hyperliquid Network less attractive
47. 47The Hyperliquid Network faces scaling challenges and efforts to increase the volume and speed of transactions may not be successful
48. 48Smart 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 HYPE or cause a wider loss of confidence in the Hyperliquid Network, either of which could have an adverse impact on the value of HYPE
49. 49Risks associated with centralization and the limited validator set of the Hyperliquid Network
50. 50New competing digital assets may pose a challenge to HYPE’s current market position, resulting in a reduction in demand for HYPE, which could have a negative impact on the price of HYPE and may have a negative impact on the performance of the Trust
51. 51Competition from central bank digital currencies (“CBDCs”) could adversely affect the value of HYPE and other digital assets
52. 52Prices of HYPE may be affected due to stablecoins, the activities of stablecoin issuers and their regulatory treatment
53. 53Given the role that stablecoins play in global digital asset markets, their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the market for HYPE
54. 54Operational cost may exceed the award for validating transaction, and increased transaction fees may adversely affect the usage of the Hyperliquid Network
55. 55Validators may cease to record transactions as a result of low transaction fees, which may adversely affect the usage of the Hyperliquid Network
56. 56Large-scale sales or distributions
57. 57Congestion or delay in the Hyperliquid Network may delay purchases or sales of HYPE by the Trust
58. 58Investment related risks
59. 59The NAV or the Principal Market NAV may not always correspond to the market price of HYPE
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 from directly owning HYPE
62. 62Pricing Benchmark tracking risk
63. 63The value of the Shares may be influenced by a variety of factors unrelated to the value of HYPE
64. 64The Administrator is solely responsible for determining the value of the Trust’s HYPE, 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
65. 65HYPE Counterparties’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares
66. 66Selling activity associated with sales of HYPE in connection with redemption orders may decrease the HYPE prices, which will result in lower prices for the Shares. Decreases in HYPE prices may also occur as a result of selling activity by other market participants
67. 67The inability of HYPE Counterparties to hedge their HYPE exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares
68. 68Arbitrage transactions intended to keep the price of Shares closely linked to the price of HYPE may be problematic if the process for the creation and redemption of Baskets encounters difficulties, which may adversely affect an investment in the Shares
69. 69Security breaches, cyber-attacks, computer malware and computer hacking attacks have been a prevalent concern in relation to digital assets. Thefts of digital assets, including HYPE, from other holders of digital assets have occurred in the past
70. 70The HYPE Custodians could become insolvent
71. 71The Trust is subject to risks due to its concentration of investments in a single asset
72. 72The lack of active trading markets for the Shares may result in losses on Shareholders’ investments at the time of disposition of Shares
73. 73Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
74. 74The amount of HYPE represented by the Shares will continue to be reduced during the life of the Trust due to the transfer of the Trust’s HYPE to pay for the Sponsor Fee and other liabilities
75. 75The development and commercialization of the Trust is subject to competitive pressures
76. 76A loss of confidence in or breach of the HYPE Custodians may adversely affect the Trust and the value of an investment in the Shares
77. 77The Sponsor may need to find and appoint a replacement custodian quickly, which could pose a challenge to the safekeeping of the Trust’s HYPE
78. 78The 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 HYPE Custodians
79. 79Intellectual property rights claims may adversely affect the Trust and the value of the Shares
80. 80Shareholders may be adversely affected by the amendment of the Trust Agreement without shareholder consent
81. 81By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust Agreement
82. 82The Sponsor’s receipt of a portion of staking rewards may create conflicts of interest
83. 83The Pricing Benchmark has a limited history
84. 84Right to change the Pricing Benchmark

Risks related to pricing

1. 85Shareholders also should note that the size of the Trust in terms of total HYPE held may change substantially over time and as Baskets are created and redeemed

Regulatory Risk

1. 86HYPE’s status as being offered or sold as a “security” under U.S. federal securities laws remains unsettled
2. 87There is a lack of consensus regarding the regulation of digital assets, including HYPE
3. 88In 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 sanctions
4. 89Shareholders 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. 90The 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. 91Future 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. 92A number of jurisdictions worldwide have adopted prohibitions or restrictions on activity relating to digital assets which could negatively affect HYPE prices or demand
8. 93Future legal or regulatory developments may negatively affect the value of HYPE 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. 94The ongoing activities of the Trust may generate tax liabilities for Shareholders
2. 95The tax treatment of HYPE and transactions involving HYPE for United States federal income tax purposes may change
3. 96The tax treatment of HYPE and transactions involving HYPE for state and local tax purposes is not settled
4. 97A hard “fork” of the Hyperliquid Network blockchain could result in Shareholders incurring a tax liability
5. 98HYPE staking may result in adverse tax consequences for Shareholders
6. 99The treatment of staking in a grantor trust for U.S. federal income tax purposes is still developing
7. 100The intended tax treatment of the Trust will limit the flexibility of the Trust’s investment decisions

Other Risks

1. 101The Sponsor is leanly staffed and relies heavily on key personnel to manage its activities
2. 102The 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
3. 103The 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
4. 104The market infrastructure of the HYPE 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
5. 105Shareholders 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
6. 106The 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
7. 107In 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
8. 108The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
9. 109Shareholders 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 rights
10. 110The Trust Agreement includes a provision restricting Shareholders’ right to bring a derivative action
11. 111Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
12. 112Shareholders 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