21Shares XRP ETF (TOXR) risk factors, FY2025 10-K

Other

1. 01The value of the Shares relates directly to the price of XRP, which may be highly volatile and subject to fluctuations due to a number of factors
2. 02XRP is a relatively new technological innovation with a limited operating history
3. 03The Trust will not directly or indirectly participate in any staking program, and accordingly investors will not receive any staking rewards or other income
4. 04The fixed supply of XRP may negatively impact the operation of the XRP Ledger
5. 05The significant holdings of XRP by Ripple Labs and other early stakeholders could have an adverse effect on the market price of XRP
6. 06A determination that XRP or any other digital asset is offered or sold as a “security” may adversely affect the price of XRP and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust
7. 07Spot markets on which XRP trades are relatively new and largely unregulated
8. 08Authorized Participants may act in the same or similar capacity for other competing products
9. 09Spot markets may be exposed to security breaches
10. 10Spot markets may be exposed to fraud and market manipulation
11. 11Over 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
12. 12Spot markets may be exposed to wash trading
13. 13Spot markets may be exposed to front-running
14. 14The market value of XRP is subject to momentum pricing
15. 15The Sponsor will not have any strategy relating to the development of XRP and the XRP network. However, a lack of expansion in usage of XRP and the XRP network could adversely affect an investment in Shares
16. 16The failure or poor performance of, or perceptions of risk or negative publicity around one or more of the protocols based on the XRP Ledger or that make use of XRP may adversely affect demand for XRP, the price of XRP, or the price of the Shares
17. 17Irrevocable nature of blockchain-recorded transactions
18. 18The loss or destruction of a private key required to access XRP may be irreversible
19. 19An 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, Prime Broker and XRP Custodians expose the Trust and its Shareholders to the risk of loss of the Trust’s XRP for which no person or entity is liable
20. 20The amount of XRP 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
21. 21Loss 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
22. 22The XRP Custodians and the Prime Broker may act in the same or similar capacity for other competing products
23. 23The 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
24. 24A disruption of the Internet may affect XRP operations, which may adversely affect the XRP industry and an investment in the Trust
25. 25The XRP Ledger’s governance structure may negatively affect its ability to grow and respond to challenges
26. 26Potential changes to the XRP network’s protocols and software could, if accepted and authorized by the XRP network community, adversely affect an investment in the Trust
27. 27Anonymity and illicit financing risk
28. 28In 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
29. 29The actual or perceived use of XRP and other digital assets in illicit transactions may adversely affect the XRP industry and an investment in the Trust
30. 30The only digital asset to be held by the Trust is XRP
31. 31With respect to any fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights or IR Virtual Currency. In the event the Trust seeks to change this position, an application would need to be filed with the SEC by the Exchange seeking approval to amend its listing rules
32. 32Any name change and any associated rebranding initiative 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
33. 33XRP is subject to cybersecurity risks, which could adversely affect an investment in the Trust or the ability of the Trust to operate
34. 34A 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
35. 35A temporary or permanent “fork” or “clone” of the XRP Ledger could adversely affect the value of the Shares
36. 36The XRP Ledger faces scaling challenges and efforts to increase the volume of transactions may not be successful
37. 37Smart 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 XRP or cause a wider loss of confidence in the XRP Ledger, either of which could have an adverse impact on the value of XRP
38. 38New competing digital assets may result in a reduction in demand for XRP, which could have a negative impact on the price of XRP and may have a negative impact on the performance of the Trust
39. 39Competition from other consortia or private blockchains could have a negative impact on the price of XRP and adversely affect an investment in the Shares
40. 40Competition from central bank digital currencies (“CBDCs”) could adversely affect the value of XRP and other digital assets
41. 41Prices of XRP may be affected due to stablecoins, the activities of stablecoin issuers and their regulatory treatment
42. 42Validators 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
43. 43Validators may cease to record transactions as a result of low transaction fees, which may adversely affect the usage of the XRP Ledger
44. 44Large-Scale Sales or Distributions
45. 45Congestion or delay in the XRP Ledger may delay purchases or sales of XRP by the Trust
46. 46Investment Related Risks
47. 47The NAV or the Principal Market NAV may not always correspond to the market price of XRP
48. 48Deviations between the Trust’s NAV and NAV per Share versus the Trust’s Principal Market NAV and Principal Market NAV per Share may occur
49. 49Owning Shares is different from directly owning XRP
50. 50Pricing Benchmark tracking risk
51. 51The value of the Shares may be influenced by a variety of factors unrelated to the value of XRP
52. 52The Administrator is solely responsible for determining the value of the Trust’s XRP, 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
53. 53XRP Counterparties’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares
54. 54Selling activity associated with sales of XRP in connection with redemption orders may decrease the XRP prices, which will result in lower prices for the Shares. Decreases in XRP prices may also occur as a result of selling activity by other market participants
55. 55The inability of XRP Counterparties to hedge their XRP exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares
56. 56Arbitrage transactions intended to keep the price of Shares closely linked to the price of XRP may be problematic if the process for the creation and redemption of Baskets encounters difficulties, which may adversely affect an investment in the Shares
57. 57Security threats and cyberattacks 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
58. 58The Trust’s XRP Custodians could become insolvent
59. 59The Trust is subject to risks due to its concentration of investments in a single asset
60. 60The lack of active trading markets for the Shares may result in losses on Shareholders’ investments at the time of disposition of Shares
61. 61Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
62. 62The amount of XRP represented by the Shares will continue to be reduced during the life of the Trust due to the transfer of the Trust’s XRP to pay for the Sponsor Fee and other liabilities
63. 63The development and commercialization of the Trust is subject to competitive pressures
64. 64A loss of confidence in, or breach of, an XRP Custodian may adversely affect the Trust and the value of an investment in the Shares
65. 65The Sponsor may need to find and appoint a replacement custodian or prime broker quickly, which could pose a challenge to the safekeeping of the Trust’s XRP
66. 66The 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 XRP Custodians or the Prime Broker
67. 67Intellectual property rights claims may adversely affect the Trust and the value of the Shares
68. 68Amendment of Trust Agreement Without Shareholder Consent
69. 69By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust Agreement
70. 70The Pricing Benchmark has a limited history
71. 71Right to change the pricing benchmark

Risks related to pricing

1. 72Shareholders also should note that the size of the Trust in terms of total XRP held may change substantially over time and as Baskets are created and redeemed

Regulatory Risk

1. 73XRP’s status as being offered or sold as a “security” under U.S. federal securities laws remains unsettled
2. 74There is a lack of consensus regarding the regulation of digital assets, including XRP
3. 75In 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. 76Shareholders 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. 77The 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. 78Future 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. 79Future legal or regulatory developments may negatively affect the value of XRP 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. 80The ongoing activities of the Trust may generate tax liabilities for Shareholders
2. 81The tax treatment of XRP and transactions involving XRP for United States federal income tax purposes may change
3. 82The tax treatment of XRP and transactions involving XRP for state and local tax purposes is not settled
4. 83A hard “fork” of the XRP Ledger could result in Shareholders incurring a tax liability
5. 84The intended tax treatment of the Trust will limit the flexibility of the Trust’s investment decisions

Other Risks

1. 85The 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. 86The 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. 87The market infrastructure of the XRP 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. 88Shareholders 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. 89The 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. 90In addition, certain personnel performing services on behalf of the Sponsor are shared with the respective affiliates of the Sponsor, including with respect to execution, Trust operations and legal, regulatory and tax oversight. Such individuals devote a small percentage of their time to those activities
7. 91The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
8. 92Shareholders 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
9. 93Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
10. 94Shareholders 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