Franklin XRP Trust (XRPZ) 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 XRP
3. 03A temporary or permanent “fork” could adversely affect the value of the Shares
4. 04The Fund’s fee structure, liquidity, or trading volume and spreads relative to other competitor XRP 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. 06The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants and/or their designees or XRP Trading Counterparties
7. 07XRP 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
8. 08Risk Factors Related to the Regulation of the Fund and the Shares
9. 09If 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
10. 10The ultimate impact of these recent regulatory developments on the Fund’s business is uncertain and it is not possible to predict at this time what risks, if any, that regulatory developments may pose to the Fund, its service providers or to the digital asset industry as a whole
11. 11Although unlikely, the acceptance of software patches or upgrades by some, but not all, nodes, users and validators in a digital asset network, such as the XRP Ledger, could theoretically result in a “fork” in such network’s blockchain, including the XRP Ledger, resulting in the operation of multiple separate networks
12. 12Users, protocol and application developers and validators may otherwise switch to or adopt certain digital assets at the expense of their engagement with other digital asset networks, which may negatively impact those networks, including the XRP Ledger
13. 13The XRP Ledger’s governance structure may negatively affect its ability to grow and respond to challenges
14. 14Potential amendments to the XRP Ledger’s protocols and software could, if accepted and authorized by the XRP Ledger community, adversely affect the value of an investment in the Fund
15. 15If 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
16. 16A 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
17. 17If validators exit the XRP Ledger, it could increase the likelihood of a malicious actor obtaining control
18. 18A temporary or permanent “fork” or “clone” of the XRP Ledger 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 XRP Ledger, 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 for XRP or the XRP Ledger may not be favorably received by the digital asset community, which could negatively impact the value of XRP and the value of the Shares
22. 22Validators may cease participating in validating activities because they are provided no direct financial incentive to participate or because certain jurisdictions may limit or otherwise regulated validating activities, which could negatively impact the value of XRP and the value of the Shares
23. 23The value of the Shares relates directly to the value of XRP which has been in the past, and may continue to be, highly volatile and subject to fluctuations due to a number of factors
24. 24the Fund’s own acquisitions or dispositions of XRP, since there is no limit on the number of XRP that the Fund may acquire
25. 25Because the Fund holds only XRP and cash, an investment in the Fund may be more volatile than an investment in a more broadly diversified portfolio
26. 26XRP is a relatively new technological innovation with limited operating history
27. 27Mathematical or technological advances could undermine the XRP Ledger’s consensus mechanism
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 fixed supply of XRP may negatively impact the operation of the XRP Ledger
30. 30The significant holdings of XRP by Ripple Labs and other early stakeholders could have an adverse effect on the market price of XRP
31. 31The concentration of XRP in the hands of Ripple Labs and early stakeholders has sometimes led to perceptions of centralization, which could affect the market’s confidence in XRP as a decentralized asset
32. 32Coinbase 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
33. 33The Index has a relatively limited performance history, the Index price could fail to track the global XRP 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
34. 34The Index price used to calculate the value of the Fund’s XRP may be volatile, adversely affecting the value of the Shares
35. 35The Index Administrator could experience system failures or errors
36. 36Competition from central bank digital currencies (“CBDCs”) and emerging payments initiatives involving financial institutions could adversely affect the price of XRP and other digital assets
37. 37The price of XRP may be affected due to stablecoins (including Tether and US Dollar Coin (“USDC”)), the activities of stablecoin issuers and their regulatory treatment
38. 38Competition from the emergence or growth of other digital assets or methods of investing in XRP could have a negative impact on the price of XRP and adversely affect the value of the Shares
39. 39Competitive pressures may negatively affect the ability of the Fund to maintain substantial assets and achieve long-term commercial success
40. 40Blockchain 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
41. 41Digital asset treasury companies may exacerbate volatility in digital asset markets
42. 42Congestion or delay in the XRP Ledger may delay purchase or sales of XRP by the Fund
43. 43If 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 XRP Ledger, which could adversely affect the value of the Shares
44. 44The 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
45. 45The amount of the Fund’s assets represented by each Share will decline over time as the Fund pays the Sponsor’s Fee and additional expenses born by the Fund, and as a result, the value of the Shares may decrease over time
46. 46The Fund is a passive investment vehicle that does not seek to generate returns beyond tracking the price of XRP. The Fund is not actively managed, does not seek to generate excess returns beyond tracking the price of XRP and will be adversely affected by a general decline in the price of XRP
47. 47An investment in the Shares deviates from a direct investment in XRP
48. 48The value of the Shares may be influenced by a variety of factors unrelated to the price of XRP
49. 49The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants or XRP Trading Counterparties
50. 50The Fund and the Shares may be negatively affected by Authorized Participant Concentration
51. 51Certain shareholders may from time to time own a substantial amount of the Fund’s Shares
52. 52The 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
53. 53exemption 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
54. 54The Fund is subject to certain risks due to its concentration in only one asset
55. 55The lack of an active trading market for the Shares may result in losses on your investment at the time of disposition of your Shares
56. 56To 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 XRP and, as a result, the price of the Shares may fall or otherwise diverge from NAV
57. 57As an owner of Shares, you will not have the rights normally associated with ownership of other types of shares
58. 58The Sponsor may amend the Declaration of Trust without the consent of the Shareholders
59. 59Shareholders 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
60. 60The 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
61. 61As 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
62. 62Security threats to the Fund’s account at the XRP 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
63. 63The lack of full insurance and Shareholders’ limited rights of legal recourse against the Fund, Trustee, Sponsor, Administrator, Cash Custodian, Prime Broker and XRP Custodian expose the Fund and its Shareholders to the risk of loss of the Fund’s XRP for which no person or entity is liable
64. 64If the Trade Credits are not available or become exhausted, the Fund may face delays in buying or selling XRP 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
65. 65Loss 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
66. 66The 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
67. 67The Sponsor may terminate and liquidate the Fund or Trust for any reason in its sole discretion
68. 68The Declaration of Trust includes provisions that limit Shareholders’ voting rights and the ability to participate in shareholder derivative actions
69. 69The 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
70. 70Extraordinary expenses resulting from unanticipated events may become payable by the Fund, adversely affecting the value of the Shares
71. 71The Fund’s delivery or sale of XRP to pay expenses or otherwise in connection with operations of the Fund could result in Shareholders incurring tax liability without an associated distribution from the Fund
72. 72The value of the Shares will be adversely affected if the Fund is required to indemnify the Sponsor, the Trustee, the Administrator, the XRP Custodian or the Cash Custodian pursuant to its contractual arrangements
73. 73Moreover, 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
74. 74A 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 Fund
75. 75Competing 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
76. 76Regulatory 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
77. 77If 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
78. 78Anonymity and illicit financing risk
79. 79Regulatory 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
80. 80The treatment of the Fund for U.S. federal income tax purposes is uncertain
81. 81The 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
82. 82The treatment of digital currency for U.S. federal income tax purposes is uncertain
83. 83Chief 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
84. 84Future developments regarding the treatment of digital currency for U.S. federal income tax purposes could adversely affect the value of the Shares
85. 85Future 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
86. 86A U.S. Tax-Exempt Shareholder may recognize “unrelated business taxable income” a consequence of an investment in Shares
87. 87Shareholders could incur a tax liability without an associated distribution of the Fund
88. 88A hard “fork” of the XRP Ledger could result in Shareholders incurring a tax liability
89. 89Potential 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
90. 90Investment 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 XRP Custodian
91. 91Shareholders 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 XRP
92. 92Although the XRP 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
93. 93Coinbase serves as the XRP Custodian and prime execution agent for several competing exchange-traded XRP products, which could adversely affect the Fund’s operations and ultimately the value of the Shares
94. 94Shareholders may be adversely affected by the lack of independent advisers representing investors in the Fund
95. 95Shareholders and Authorized Participants lack the right under the Custodian Agreement to assert claims directly against the XRP Custodian, which significantly limits their options for recourse
96. 96Risk Factors Related to ERISA