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For instance, there were steep increases in the value of certain digital assets, including ether, over the course of 2021, and multiple market observers asserted that digital assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022 in digital asset trading prices, including for ether.
−Removed: These episodes of rapid price appreciation followed by steep drawdowns have occurred multiple times throughout ether’s history, including in in 2021-2023.
+Added: These episodes of rapid price appreciation followed by steep drawdowns have occurred multiple times throughout ether’s history, including in 2021-2025.
+Added: For example, ether lost approximately 12.2% of its value according to some sources in mid-October 2025 as part of wider digital asset market turmoil, widely attributed to global trade tensions, which triggered a number of dislocations in the digital asset market (the “October 2025 Flash Crash”), including liquidations of up to $20 billion in collateral in the form of various digital assets (including, but not limited to, ether) securing trades (particularly perpetual futures contracts and various forms of financing transactions), along with reported service interruptions, halted orders, forced unwinding of trades, and other issues, across centralized and decentralized exchanges.
As of the date of this report, digital asset prices have continued to fluctuate in 2026.
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These events have also negatively impacted the liquidity of the digital asset markets as certain entities affiliated with FTX engaged in significant trading activity.
−Removed: If the liquidity of the digital asset markets continues to be negatively impacted by these events, digital asset prices, including ether, may continue to experience significant volatility or price declines and confidence in the digital asset markets may be further undermined.
+Added: If the liquidity of the digital asset markets continues to be negatively impacted by these events, the prices of digital assets, including ether, may continue to experience significant volatility or declines and confidence in the digital asset markets may be further undermined.
In addition, regulatory and enforcement scrutiny has increased, including from, among others, the Department of Justice, the SEC, the CFTC, the White House and Congress, as well as state regulators and authorities.
These events are continuing to develop, and the full facts are continuing to emerge.
−Removed: It is not possible to predict at this time all of the risks that they may pose to the Trust, its service providers or to the digital asset industry as a whole.
−Removed: The price of some digital assets, including ether, has risen following the election of Donald Trump as president of the United States.
−Removed: Some expect the new administration to adopt a constructive attitude toward the digital assets industry.
+Added: It is not possible to predict at this time all of the risks that they may pose to the Trust, its service providers or the digital asset industry as a whole.
+Added: The prices of some digital assets, including ether, have fluctuated significantly following the election of Donald Trump as president of the United States.
+Added: Some expect the new administration to adopt a constructive attitude toward the digital asset industry.
Through his executive orders, President Trump has indicated that the administration will work toward providing greater regulatory clarity and certainty for emerging technologies, including blockchain technology and digital assets, thereby fostering their development.
−Removed: Similarly, the digital assets industry expects favorable legislation from the new U.S.
+Added: Similarly, the digital asset industry expects favorable legislation from the new U.S.
Congress as certain members have expressed interest in advancing digital asset specific legislation.
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There can be no assurance that such a bubble does not exist.
−Removed: The failure of the administration and Congress to provide greater regulatory clarity and certainty for blockchain technology and digital assets, such as through promulgating a regulatory framework governing the issuance and operation of digital assets that meets industry expectations, could lead to a decline in digital assets prices, including ether.
−Removed: Such a decline could cause a declines in the value of the Shares and cause Shareholders to suffer losses.
+Added: The failure of the administration and Congress to provide greater regulatory clarity and certainty for blockchain technology and digital assets, such as through promulgating a regulatory framework governing the issuance and operation of digital assets that meets industry expectations, could lead to a decline in the prices of digital assets, including ether.
+Added: Such a decline could cause a reduction in the value of the Shares and cause Shareholders to suffer losses.
Moreover, there can be no assurance that political sentiments toward the digital asset industry, or market perceptions of those sentiments, will not shift over time.
+Added: On March 6, 2025, President Trump issued an executive order for the “Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile” (the “Order”).
+Added: The Order requires the Secretary of the U.S.
+Added: Department of Treasury to establish two offices to administer and maintain a “Strategic Bitcoin Reserve” (the “Bitcoin Reserve”) and a U.S.
+Added: Digital Asset Stockpile (the “Digital Asset Stockpile”), respectively.
+Added: The Bitcoin Reserve will be capitalized with bitcoin forfeited as part of U.S.
+Added: criminal or civil proceedings or in satisfaction of penalties imposed by executive agencies.
+Added: The Order directs the Secretaries of the U.S.
+Added: Treasury Department and the U.S.
+Added: Department of Commerce to develop budget-neutral strategies for acquiring additional bitcoin for the Bitcoin Reserve.
+Added: As established by the Order, the Bitcoin Reserve will not contain ether, and there can be no assurance, and there is no present indication, that it would be changed to include ether in the future.
+Added: The Digital Asset Stockpile will be capitalized initially with digital assets other than bitcoin forfeited as part of criminal or civil asset forfeiture proceedings, which could include ether;
+Added: however, there will be no new acquisitions of ether as part of the Digital Asset Stockpile.
+Added: The anticipation of a U.S.
+Added: government-funded strategic cryptocurrency reserve may have motivated large-scale purchases of ether in the expectation of the U.S.
+Added: government potentially acquiring ether to fund such an expected reserve, and the market price of ether may have decreased as a result of the ultimate content of the Order, which did not ultimately provide for acquisition of ether as part of the Bitcoin Reserve, though ether could be held as part of the Digital Asset Stockpile.
+Added: While legislation has been introduced in the U.S.
+Added: Senate and the U.S.
+Added: House of Representatives, which would direct the acquisition of one million bitcoin by the federal government over a five-year period, no such similar federal legislation has been introduced that would provide for acquiring ether.
+Added: Even if such legislation providing for the acquisition of ether were to be introduced at the federal level, it could fail to pass.
+Added: Bills have also been introduced in several state legislatures to authorize the acquisition of bitcoin by state governments or their instrumentalities, some of which have failed to pass;
+Added: however, the Sponsor is not aware as of the date of this report that similar legislation at the state level has been introduced in respect of ether, in the same quantity as legislation in respect of bitcoin.
+Added: If now or in the future, the U.S.
+Added: federal government or any state government or any instrumentality thereof does not announce ether acquisition plans or does announce such plans, but these plans fall short of market expectations, the price of ether may decline, which may impact Share value.
+Added: Even if government acquisitions of ether were to occur or if legislation requiring acquisitions of ether is enacted, the price of ether may decline if there are implementation challenges, unexpected difficulties, or policy or legal reversals, any of which may negatively impact Share value.
+Added: Further, executive orders such as the Order are subject to change and can be reversed or overturned.
+Added: The enduring existence and size of the Digital Asset Stockpile is subject to complex challenges and uncertainty that makes it difficult to evaluate its effect on the value of ether and the Shares, now or in the future.
+Added: There can be no assurance that any particular legislation will ever be introduced or passed at either the federal or state level providing for the acquisition of ether by governmental instrumentalities.
Extreme volatility in the future, including further declines in the trading prices of ether, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value.
−Removed: The Trust is not actively managed and will not take any actions to take advantage, or mitigate the impacts, of volatility in the price of ether.
−Removed: The value of the Shares is subject to a number of factors relating to the fundamental investment characteristics of ether as a digital asset, including the fact that digital assets are bearer instruments and loss, theft, or compromise of the associated private keys could result in permanent loss of the asset, and the capabilities and development of blockchain technologies such as the Ethereum blockchain.
+Added: The Trust is not actively managed and will not take any action to take advantage, or mitigate the impacts, of volatility in the price of ether.
+Added: The value of the Shares is subject to a number of factors relating to the fundamental investment characteristics of ether as a digital asset, including the fact that digital assets are bearer instruments and loss, theft, destruction, or compromise of the associated private keys could result in permanent loss of the asset, and the capabilities and development of blockchain technologies such as the Ethereum blockchain.
Digital assets such as ether were only introduced within the past decade, and the medium-to-long term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies, such as the recentness of their development, their dependence on the internet and other technologies, their dependence on the role played by users, developers and validators and the potential for malicious activity.
For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares:
−Removed: Digital asset networks, including the Ether peer-to-peer network and associated blockchain ledger (such blockchain, the “Ethereum blockchain” and together with the peer-to-peer network, the “Ethereum network” or “Layer 1 Ethereum network”), and the software used to operate them are in the early stages of development.
+Added: Digital asset networks, including the Ethereum peer-to-peer network and associated blockchain ledger (such blockchain, the “Ethereum blockchain” and together with the peer-to-peer network, the “Ethereum network” or “Layer 1 Ethereum network”), and the software used to operate them are in the early stages of development.
Given the recentness of the development of digital asset networks, digital assets may not function as intended and parties may be unwilling to use digital assets, which would dampen the growth, if any, of digital asset networks.
Because ether is a digital asset, the value of the Shares is subject to a number of factors relating to the fundamental investment characteristics of digital assets, including the fact that digital assets are bearer instruments and loss, theft, compromise, or destruction of the associated private keys could result in permanent loss of the asset.
−Removed: Digital assets, including ether, are controllable only by the possessor of both the unique public key and private key or keys relating to the ether network address, or “wallet,” at which the digital asset is held.
+Added: Digital assets, including ether, are controllable only by the possessor of both the unique public key and private key or keys relating to the Ethereum network address, or “wallet,” at which the digital asset is held.
Private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital asset held in such wallet.
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As a result, there may be a lack of consensus or clarity on the governance of the Ethereum network, which may stymie the Ethereum network’s utility and ability to grow and face challenges.
−Removed: In particular, it may be difficult to find solutions or martial sufficient effort to overcome any future problems on the Ethereum network, especially long-term problems.
−Removed: The foregoing notwithstanding, the Ethereum network’s protocol is informally overseen by a collective of core developers who, along with members of the Ethereum community, can introduce proposals, known as Ether Improvement Proposals (“EIPs”), for updating the Ethereum network.
+Added: In particular, it may be difficult to find solutions or marshal sufficient effort to overcome any future problems on the Ethereum network, especially long-term problems.
+Added: The foregoing notwithstanding, the Ethereum network’s protocol is informally overseen by a collective of core developers who, along with members of the Ethereum community, can introduce proposals, known as Ethereum Improvement Proposals (“EIPs”), for updating the Ethereum network.
The core developers evolve over time, largely based on self-determined participation.
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To the extent that node operators update their individual Ethereum Client to new specifications, the Ethereum network could be subject to changes that may adversely affect the value of ether.
−Removed: In addition, if a digital asset network has high-profile contributors, a perception that such contributors will no longer contribute to the network could have an adverse effect on the market price of the related digital asset.
+Added: In addition, if a digital asset network has high-profile contributors, the perception that such contributors will no longer contribute to the network could have an adverse effect on the market price of the related digital asset.
Over the past several years, digital asset validator operations have evolved from individual users to “professionalized” validating operations using proprietary hardware or sophisticated machines.
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Any widespread delays in the recording of transactions could result in a loss of confidence in a digital asset network.
−Removed: Many digital asset networks, including the Ethereum network, face significant scaling challenges and may periodically be upgraded with various features designed to increase the speed of digital asset transactions and the number of transactions that can processed in a given period (known as “throughput”).
+Added: Many digital asset networks, including the Ethereum network, face significant scaling challenges and may periodically be upgraded with various features designed to increase the speed of digital asset transactions and the number of transactions that can be processed in a given period (known as “throughput”).
These attempts to increase the volume of transactions may not be effective or may result in unforeseen problems or issues, and such upgrades may fail, resulting in potentially irreparable damage to the Ethereum network and the value of ether.
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For more on an unplanned fork involving Geth clients, see “—A temporary or permanent “fork” could adversely affect the value of the Shares.” The cryptography underlying the Ethereum network or ether as an asset could prove to be flawed or ineffective, or developments in mathematics and/or technology, including advances in digital computing, algebraic geometry and quantum computing, could result in such cryptography becoming ineffective.
−Removed: In any of these circumstances, a malicious actor may be able to compromise the security of the Ethereum network or take the Trust’s ether, which would adversely affect the value of the Shares.
+Added: Quantum computing technology is an emerging phenomenon which, because it is still developing, makes it difficult to predict its ultimate effect on the future value of ether and other digital assets.
+Added: However, if quantum computing technology is able to advance and significantly increase its capacity relative to the capacity of today’s leading quantum computers, it could potentially undermine the viability of many of the cryptographic algorithms used across the world’s information technology infrastructure, including the cryptographic algorithms used for digital assets like ether.
+Added: If quantum computing is able to advance in that way, there is a risk that quantum computing could result in the cryptography underlying the Ethereum network becoming ineffective, which, if realized, could compromise the security of the Ethereum network, or allow a malicious actor to compromise the wallets holding ether owned by the Trust or others on the Ethereum network, which would result in losses to Shareholders.
+Added: While various actors in the Ethereum community are taking steps to enable the uses of cryptographic algorithms that would be resistant to advanced quantum computers, there is no guarantee that new quantum-proof architectures will be built and appropriate transitions will be implemented across the network at scale in a timely manner;
+Added: any such changes could require the achievement of broad consensus within the Ethereum network community and a fork (or multiple forks), and there can be no assurance that such consensus would be achieved or the changes implemented successfully.
+Added: See “—Changes in the governance of a digital asset network may not receive sufficient support from users and miners, which may negatively affect that digital asset network’s ability to grow and respond to challenges” and “—A temporary or permanent “fork” could adversely affect the value of the Shares.” If any of the foregoing were to occur, it could result in losses to Shareholders.
Moreover, normal operations and functionality of the Ethereum network may be negatively affected.
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Many of the contemplated upgrades to the Ethereum network will include updates to material aspects of its source code.
−Removed: Although some of these upgrade shave been successfully implemented, such as the Merge, which was completed in September 2022, there is no guarantee that there are not undiscovered flaws that will emerge in the future even in upgrades previously considered successful, and previously successful upgrades do not guarantee that future upgrades will be successful.
+Added: Although some of these upgrades have been successfully implemented, such as the Merge, which was completed in September 2022, there is no guarantee that there are not undiscovered flaws that will emerge in the future even in upgrades previously considered successful, and previously successful upgrades do not guarantee that future upgrades will be successful.
Any such undiscovered flaws, or the failure to properly implement future changes, could have a material adverse effect on the value of ether and the value of the Shares.
One completed upgrade is known as the “Shanghai” upgrade, which allows users to unstake their ether and remove it from the relevant smart contract.
−Removed: As a result of this or future upgrades, it is possible that significant volumes of currently locked and illiquid ether becomes unlocked and sold, which could increase volatility in ether prices or have a material adverse effect on the value of ether and the value of the Shares.
+Added: As a result of these or future upgrades, it is possible that significant volumes of currently locked and illiquid ether could become unlocked and sold, which could increase volatility in ether prices or have a material adverse effect on the value of ether and the value of the Shares.
Upgrades currently being considered to increase throughput and promote scaling, such as “sharding” the Layer 1 Ethereum network or greater reliance on so-called “Layer 2” solutions, could have effects which are difficult to anticipate at this time, but could – if unsuccessfully implemented, or if they contain undiscovered flaws – materially adversely impact or even effectively eliminate the value of ether, and therefore impact the price of the Shares.
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The Ethereum network is still in the process of developing and making significant decisions that will affect policies that govern the supply and issuance of ether as well as other Ethereum network protocols.
−Removed: For example, the Ethereum network has on three occasions reduced the quantity of ether rewarded per block and may make additional changes in the future.
+Added: For example, the Ethereum network has on occasion reduced the quantity of ether rewarded per block and may make additional changes in the future.
The open-source nature of many digital asset network protocols, such as the protocol for the Ethereum network, means that developers and other contributors are generally not directly compensated for their contributions in maintaining and developing such protocols.
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If the Ethereum network does not successfully develop its policies on supply and issuance and other major design decisions, or does so in a manner that is not attractive to network participants, it could lead to a decline in adoption of the Ethereum network and price of ether.
−Removed: Decentralized application and smart contract developers depend on being able to obtain ether to be able to run their programs and operate their businesses.
+Added: Decentralized application and smart contract developers depend on being able to obtain ether to run their programs and operate their businesses.
In particular, decentralized applications and smart contracts require ether in order to pay the gas fees needed to power such applications and smart contracts and execute transactions.
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A loose community known as the core developers has evolved to informally manage the source code for the protocol.
−Removed: Membership in the community of core developers evolve over time, largely based on self-determined participation in the resource section dedicated to Ethereum on Github.com.
+Added: Membership in the community of core developers evolves over time, largely based on self-determined participation in the resource section dedicated to Ethereum on Github.com.
The core developers can propose amendments to the Ethereum network’s source code that, if accepted by nodes, validators and users, could alter the protocols and software of the Ethereum network and the properties of ether.
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For example, there have been recent reports that the number of core developers who have the authority to make amendments to the Ethereum network’s source code in the GitHub repository is relatively small, although there are believed to be a larger number of developers who contribute to the overall development of the source code of the Ethereum network.
−Removed: The perception that high-profile contributors may no longer contribute to the network may have an adverse effect on the market price of any related digital assets.
−Removed: For example, in June 2017, an unfounded rumor circulated that Ethereum core developer Vitalik Buterin had died.
−Removed: Following the rumor, the price of ether decreased approximately 20% before recovering after Buterin himself dispelled the rumor.
−Removed: Some have speculated that the rumor led to the decrease in the price of ether.
−Removed: In the event a high-profile contributor to the Ethereum network, such as Vitalik Buterin, is perceived as no longer able to contribute to the Ethereum network due to death, retirement, withdrawal, incapacity, or otherwise, whether or not such perception is valid, it could negatively affect the price of ether, which could adversely impact the value of the Shares.
−Removed: Alternatively, some developers may be funded by entities whose interests are at odds with other participants in the Ethereum network.
−Removed: In addition, a bad actor could also attempt to interfere with the operation of the Ethereum network by attempting to exercise a malign influence over a core developer.
−Removed: To the extent that material issues arise with the Ethereum network protocol and the core developers and open-source contributors are unable to address the issues adequately or in a timely manner, the Ethereum network and an investment in the Trust may be adversely affected.
+Added: Another example of Ethereum’s open-source dependencies is that Shipyard, one of the key maintainers of libp2p – the peer-to-peer networking stack under Ethereum–ceased support for Go and JavaScript by September 30, 2025.
+Added: Libp2p is important for the efficient operation of the Ethereum network, particularly in broadcasting new blocks and validator votes, which illustrates Ethereum’s open‑source dependencies.
+Added: A failure to maintain or evolve the network’s open-source components could materially impair the Ethereum network’s functionality and, in turn, adversely impact the price of ether and value of the Shares.
Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful.
−Removed: Many digital asset networks, including the Ethereum network, face significant scaling challenges due to the fact that public blockchains generally face at tradeoff between security and scalability.
+Added: Many digital asset networks, including the Ethereum network, face significant scaling challenges due to the fact that public blockchains generally face a tradeoff between security and scalability.
One means through which public blockchains achieve security is decentralization, meaning that no intermediary is responsible for securing and maintaining these systems.
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As a result, a digital asset network may be limited in the number of transactions it can process by the fact that all validators participate in validating in each block and the capabilities of each single fully participating node.
−Removed: As of December 31, 2024, the Ethereum network handled approximately 12-15 transactions per second (according to Dune analytics).
+Added: As of December 31, 2025, the Ethereum network handled approximately 25 transactions per second (according to Coin Metrics).
In an effort to increase the volume of transactions that can be processed on a given digital asset network, many digital assets are being upgraded with various features to increase the speed and throughput of digital asset transactions.
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Since January 1, 2020, ether transaction fees have increased from $0.08 average daily transaction fees per ether transaction, to a high of up to approximately $200.06 average daily transaction fees per transaction on May 1, 2022.
−Removed: As of December 31, 2024, ether transaction fees stood at $3.52 per transaction, on average.
+Added: As of December 31, 2025, ether transaction fees stood at $0.15 per transaction, on average (according to Coin Metrics).
Increased fees and decreased settlement speeds could preclude certain uses for ether (e.g., micropayments), and could reduce demand for, and the price of, ether, which could adversely impact the value of the Shares.
In the second half of 2020, the Ethereum network began the first of several stages of an upgrade culminating in the Merge.
−Removed: The Merge amended the Ethereum network’s consensus mechanism to a process known as proof-of-stake, and was intended to address the perceived shortcomings of the proof-of work consensus mechanism in terms of labor intensity and duplicative computational effort expended by validators (known under proof-of-work as “miners”) who did not win the race, under proof of work, to be the first in time to solve the cryptographic puzzle that would allow them to be the only valid at or permitted to validate the block and receive the resulting block reward (which was only given to the first validator to successfully solve the puzzle and hash a given block, and not to others).
+Added: The Merge amended the Ethereum network’s consensus mechanism to a process known as proof‑of‑stake, and was intended to address the perceived shortcomings of the proof‑of‑work consensus mechanism in terms of labor intensity and duplicative computational effort expended by validators (known under proof‑of‑work as “miners”) who did not win the race, under proof-of-work, to be the first in time to solve the cryptographic puzzle that would allow them to be the only validator permitted to validate the block and receive the resulting block reward (which was only given to the first validator to successfully solve the puzzle and hash a given block, and not to others).
Instead, under proof-of-stake, a single validator is randomly selected to solve the cryptographic puzzle needed to validate a block, which it proposes to a committee of other validators, who vote for whether to include the block (or not), which reduces the computational work performed – and energy expended – to validate each block compared to proof-of-work.
−Removed: Following the Merge, core development of the Ethereum source code has increasingly focused on modifications of the Ethereum protocol to increase speed, throughput and scalability and also improve existing or next generation uses.
+Added: Following the Merge, core development of the Ethereum source code has increasingly focused on modifications of the Ethereum protocol to increase speed, throughput and scalability and to improve existing or next-generation uses.
Future upgrades to the Ethereum protocol and Ethereum blockchain to address scaling issues – such as network congestion, slow throughput and periods of high transaction fees owing to spikes in network demand – have been discussed by network participants, such as sharding.
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For example, “rollups” perform transaction execution outside the Layer 1 Ethereum network and then post the data, typically in batches, back to the Layer 1 Ethereum network where consensus is reached.
−Removed: “Zero knowledge rollups” are generally designed to run the computation needed to validate the transactions off-chain, on the Layer 2 protocol, and submit a proof of validity of a batch of transactions (not the entire transactions themselves) that is recorded on the Layer 1 Ethereum network.
+Added: “Zero knowledge rollups” are generally designed to run the computation needed to validate the transactions off-chain, on the Layer 2 protocol, and submit a proof of validity of a batch of transactions (not all of the transactions themselves) that is recorded on the Layer 1 Ethereum network.
By contrast, “optimistic rollups” assume transactions are valid by default and only run computation, via a fraud proof, in the event of a challenge.
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There is no guarantee that any potential scaling solution, whether a change to the Layer 1 Ethereum network like sharding or the introduction of a Layer 2 solution like rollups, state channels or side chains, will achieve widespread adoption.
+Added: Alternatively, in theory, the widespread adoption of Layer 2 solutions could succeed in reducing congestion on the Layer 1 Ethereum network by moving transactions and computational work to the Layer 2 level and thereby reducing direct transactions on the Layer 1 Ethereum network, but by reducing transactions on the Layer 1 Ethereum network, could reduce demand for ether on the Layer 1 Ethereum network, which could in theory negatively impact the price of ether.
It is possible that proposed changes to the Layer 1 Ethereum network could divide the community, potentially even causing a hard fork, or that the decentralized governance of the Ethereum network causes network participants to fail to coalesce overwhelmingly around any particular solution, causing the Ethereum network to suffer reduced adoption or causing nodes, users or validators to migrate to other blockchain networks.
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To the extent that any validators cease to record transactions that do not include the payment of a transaction fee in blocks or do not record a transaction because the transaction fee is too low, such transactions will not be recorded on the Ethereum blockchain until a block is validated by a validator who does not require the payment of transaction fees or is willing to accept a lower fee.
−Removed: Any widespread delays or disruptions in the recording of transactions could result in a loss of confidence in the Ethereum network and could prevent the Trust from completing transactions associated with the day-to-day operations of the Trust, including creations and redemptions of the Shares in exchange for ether with Authorized Participants.
+Added: Any widespread delays or disruptions in the recording of transactions could result in a loss of confidence in the Ethereum network and could prevent the Trust from completing transactions associated with the day-to-day operations of the Trust, including creations and redemptions of the Shares in exchange for ether or cash with Authorized Participants.
During the course of the block validation processes, validators exercise the discretion to select which transactions to include within a block and in what order to include these transactions.
−Removed: Beyond the standard block reward and transaction fees, validators have the ability to extract what is known as Maximal Extractable Value (“MEV”) by strategically choosing, reordering, or excluding certain transactions during block production in return for increased transaction fees or other forms of profit for such validators.
−Removed: In blockchain networks that facilitate DeFi protocols in particular, such as the Ethereum network, users may attempt to gain an advantage over other users by offering additional fees to validators for effecting the order or inclusions of transactions within a block.
+Added: Beyond the standard block reward and transaction fees, validators on many blockchains, including the Ethereum blockchain, have the ability to extract what is known as Maximal Extractable Value (“MEV”) by strategically choosing, reordering, or excluding certain transactions during block production in return for increased transaction fees or other forms of profit for such validators.
+Added: In blockchain networks that facilitate DeFi protocols in particular, such as the Ethereum network, users may attempt to gain an advantage over other users by offering additional fees to validators for effecting a certain order or inclusions of certain transactions within a block.
Certain software solutions, such as MEV Boost by Flashbots, have been developed which facilitate validators and other parties in the ecosystem in capturing MEV.
−Removed: The presence of MEV may incentivize associated practices such as sandwich attacks or front running that can have negative repercussions on DeFi users.
−Removed: A “sandwich attack” is executed by placing two transactions around a large, detected transaction to capitalize on the expected price impact.
−Removed: For instance, a market participant might identify a sizable transaction within the publicly visible so-called memory pool (“mempool”) of pending but unexecuted transactions awaiting validation that will significantly alter an asset’s price on a decentralized exchange.
+Added: MEV Boost is one way to capture MEV on the Ethereum network, but it is not the only way, although it is widely understood that most validation on the Ethereum network involves MEV Boost.
+Added: MEV Boost is designed to separate block building from block proposal (“proposer-builder separation”), with the intent to decentralize validation activity and reduce the likelihood of transaction censorship by validators.
+Added: In MEV Boost, there are four groups of market participants:
+Added: “searchers”, who identify MEV opportunities by scanning the publicly visible so-called memory pool (“mempool”) of pending but unexecuted transactions awaiting validation;
+Added: “builders”, who take transactions awaiting validation and build them into potential blocks in a manner that captures the MEV opportunities identified by searchers, but do not propose the block to the Ethereum network;
+Added: “relays”, who send limited information about the block (such as the amount of transaction fees payable to the validator), but not the complete list of transactions, to the validator who will propose them to the Ethereum network;
+Added: and “proposers”, the validators who have been selected by the Ethereum network to propose a particular block, who are generally intended to accept blocks in the form proposed by block builders and relayed by relays without changing their contents (leading to the intended proposer-builder separation that MEV-Boost was designed to facilitate).
+Added: The presence of MEV on many blockchains, including the Ethereum blockchain, may incentivize associated practices such as sandwich attacks or front running that can have negative repercussions on DeFi users.
+Added: A “sandwich attack” on many blockchains that enable DeFi transactions, including the Ethereum blockchain, is executed by placing two transactions around a large, detected transaction to capitalize on the expected price impact.
+Added: For instance, a market participant (such as a searcher on MEV Boost) might identify a sizable transaction within the publicly visible mempool that will significantly alter an asset’s price on a decentralized exchange.
The participant could then for example orchestrate a transaction bundle:
one transaction to acquire the asset prior to the detected transaction, followed by the large transaction itself, and a final transaction to sell the asset after the market price has increased due to the large transaction’s execution.
−Removed: Such transaction bundles can be submitted to validators through mechanisms like MEV-Boost, with validators receiving a share of the profits as an incentive to include the specific transaction bundle in the block.
−Removed: In the context of MEV, “front running” is said to occur when a user spots a transaction in the mempool, and then pays a high transaction fee to a validator to have their transaction executed on a priority basis in a manner designed to profit from the pending but unexecuted transaction that is still in the mempool.
−Removed: MEV may also compromise the predictability of transaction execution, which may deter usage of the network as a whole.
−Removed: Although based on widely available information given that transactions in the mempool are publicly visible, any potential perception of MEV a sun fair manipulation may also discourage users and other stakeholders from engaging with DeFi protocols or the Ethereum network in general.
−Removed: In addition, it is possible regulators or legislators could enact rules which restrict practices associated with MEV, which could diminish the popularity of the Ethereum network among users and validators.
−Removed: Any of these or other outcomes related to MEV may adversely affect the value of ether and the value of the Shares.
+Added: Such transaction bundles can be submitted to validators through mechanisms like MEV-Boost (in the case of the Ethereum network, with other networks having other mechanisms), with validators receiving a share of the profits as an incentive to include the specific transaction bundle in the block.
+Added: In the context of MEV on the Ethereum network, “front running” is said to occur when a user spots a transaction in the mempool, and then pays a high transaction fee to a validator to have their transaction executed on a priority basis in a manner designed to profit from the pending but unexecuted transaction that is still in the mempool.
+Added: MEV may also compromise the predictability of transaction execution on many blockchains, including the Ethereum blockchain, which may deter usage of the network as a whole.
+Added: Although based on widely available information given that transactions in the mempool are publicly visible, there have also been instances of validators allegedly leveraging the MEV-Boost software to allegedly trick the software into prematurely releasing the full contents of proposed blocks, such as by a block proposer providing a false signature to the relay.
+Added: For example, in April 2023, certain Ethereum validators (acting as proposers) allegedly exploited the MEV Boost software that allegedly allowed them to view the full contents of proposed blocks submitted by relays before this information was made public (for example, by allegedly signing transactions with relays using false signatures), allegedly enabling them to insert their own front-running transactions (acting as builders) in front of the front-running transactions originally identified by searchers, propose modified blocks containing those front-running transactions, and allegedly capture approximately $25 million in profits by manipulating block order to the detriment of the original sandwichers (i.e., the searchers who identified MEV opportunities for block builders to incorporate into potential blocks and relays to relay to potential proposers).
+Added: On May 15, 2024, Anton Peraire-Bueno and James Peraire-Bueno were indicted in the United States District Court for the Southern District of New York for this exploitation of MEV-Boost and specifically charged with wire fraud, wire fraud conspiracy, and money laundering.
+Added: They assert defenses on a variety of grounds, including, among others, that the searchers in MEV Boost conducted the original sandwich attacks, which victimize ordinary traders by driving up costs and exploiting their trades in the publicly visible mempool in the first place.
+Added: As of the date of this report, the case has not been decided yet.
+Added: The case, which the indictment itself acknowledges is the “first of its kind”, raises novel issues for the digital assets industry given that validators attempting to capture MEV is a widespread practice on many blockchain networks, including the Ethereum network, and is widely viewed as a test case by legal commentators, illustrating that applicable law and regulation around MEV remains unsettled.
+Added: Any potential perception of MEV as unfair manipulation, despite its prevalence on many blockchain networks, including the Ethereum network, may lead to adverse publicity, legal and regulatory uncertainty, or discourage users and other stakeholders from engaging with DeFi protocols or the Ethereum network in general, which could cause ether to lose value.
+Added: In addition, it is possible governmental authorities, regulators or legislators could enact rules which restrict practices associated with MEV, which could diminish the popularity of the Ethereum network among users and validators and could - if it hampers or impedes existing validation processes - potentially even lead to a reduction in network security or cause ether to lose value.
+Added: MEV is a novel issue, and while it is impossible to predict with certainty how it could affect the price of ether over time, any of these or other outcomes related to MEV may adversely affect the value of ether and the value of the Shares.
If a malicious actor or botnet obtains control of more than 33% of the validating stake on the Ethereum network, or otherwise obtains control over the Ethereum network through its influence over core developers or otherwise, such actor or botnet could delay or manipulate the Ethereum blockchain in the short term, which could adversely affect the value of the Shares or the ability of the Trust to operate.
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To the extent that such malicious actor or botnet did not yield its control of the validating power on the Ethereum network or the Ethereum community did not reject the fraudulent blocks as malicious, reversing any changes made to the Ethereum blockchain may not be possible.
−Removed: If the malicious actor were to gain control of more than 33% of the total staked ether on the Ethereum network, they could temporarily impede or delay block confirmation or even cause a temporary fork in the blockchain, but it is not believed that they could in double-spending or fraudulent block propagation.
+Added: If the malicious actor were to gain control of more than 33% of the total staked ether on the Ethereum network, it could temporarily impede or delay block confirmation or even cause a temporary fork in the blockchain, but it is not believed that it could engage in double-spending or fraudulent block propagation.
Even without 33% control, a malicious actor or botnet could create a flood of transactions in order to slow down the Ethereum network (similar to a denial-of-service attack).
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The attacks resulted in reorganizations of the Ethereum Classic blockchain that allowed the attacker or attackers to reverse previously recorded transactions in excess of $5 million and $1 million.
−Removed: In addition, in May 2019, the Bitcoin Cash network experienced a 51% attack when two large mining pools reversed a series of transactions in order to stop an unknown miner from taking advantage of a flaw in a recent Bitcoin Cash protocol upgrade.
−Removed: Although this particular attack was arguably benevolent, the fact that such coordinated activity was able to occur may negatively impact perceptions of the Bitcoin Cash network.
+Added: Additionally, in May 2019, the Bitcoin Cash network experienced a 51% attack when two large mining pools reversed a series of transactions in order to stop an unknown miner from taking advantage of a flaw in a recent Bitcoin Cash protocol upgrade.
+Added: Although this particular attack was arguably benevolent, the fact that such coordinated activity was able to occur could have negatively impacted perceptions of the Bitcoin Cash network.
Although the two attacks described above took place on proof-of-work-based networks, it is possible that a similar attack may occur on the proof-of-stake Ethereum network, which could negatively impact the value of ether and the value of the Shares.
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At times, Lido has reportedly controlled around or in excess of 33% of the total staked ether on the Ethereum network.
−Removed: While it is widely believed that Lido has little incentive to attempt to interfere with transaction finality or block confirmations using its reported 33% stake, since doing so would likely cause its entire stake to be slashed and thus lost (assuming good actors unaffiliated with Lido controlled the remainder), and also because Lido is believed to not control most of the third party node operators where its ether is staked, and finally since the occurrence of such manipulation of the Ethereum network’s consensus process by Lido or any other actor would likely cause ether to lose substantial value (which would obviously hurt Lido economically), it nevertheless poses centralization concerns.
+Added: While it is widely believed that Lido has little incentive to attempt to interfere with transaction finality or block confirmations using its reported 33% stake, since doing so would likely cause its entire stake to be slashed and thus lost (assuming good actors unaffiliated with Lido controlled the remainder), and also because Lido is believed to not control most of the third party node operators where its ether is staked, and finally because the occurrence of such manipulation of the Ethereum network’s consensus process by Lido or any other actor would likely cause ether to lose substantial value (which would hurt Lido economically), it nevertheless poses centralization concerns.
If Lido, or a bad actor with a similar sized stake, were to attempt to interfere with transaction finality or block confirmations, it could negatively affect the use and adoption of the Ethereum network, the value of ether, and thus the value of the Shares.
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In addition, anyone can propose a modification to the Ethereum network’s source code and then propose that the Ethereum network community support the modification.
−Removed: These proposed modifications to the Ethereum network’s source code, if adopted, can lead to forks (referred to as “planned forksˮ because they take place through a formal process).
−Removed: In the case of planned forks, the core developers, including those associated with or funded by the Ethereum Foundation, are able to access and alter the Ethereum network source code and, as a result, they are typically responsible for proposing quasi-official or widely publicized releases of updates and other changes to the Ethereum network’s source code called EIPs.
+Added: These proposed modifications to the Ethereum network’s source code, if adopted, could lead to forks (referred to as “planned forksˮ because they take place through a formal process).
+Added: In the case of planned forks, the core developers, including those associated with or funded by the Ethereum Foundation, are able to access and alter the Ethereum network source code and, as a result, they are typically responsible for proposing quasi-official or widely publicized releases of updates and other changes to the Ethereum network’s source code (“EIPs”).
Any user can propose an idea for modifying the Ethereum network’s source code, and the core developers are responsible for merging the proposed idea into the EIP repository on GitHub, where it formally becomes an EIP.
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If a fork caused operational problems for either post-fork network or blockchain, the digital assets associated with the affected network could lose some or all of their value.
−Removed: Furthermore, while the Sponsor will, as permitted by the terms of the Trust Agreement, determine which network is generally accepted as the Ethereum network and should therefore be considered the appropriate network for the Trust’s purposes, and there is no guarantee that the Sponsor will choose the network and the associated digital asset that is ultimately the most valuable fork.
+Added: Furthermore, while the Sponsor will, as permitted by the terms of the Trust Agreement, determine which network is generally accepted as the Ethereum network and should therefore be considered the appropriate network for the Trust’s purposes, there is no guarantee that the Sponsor will choose the network and the associated digital asset that is ultimately the most valuable.
Any of these events could therefore adversely impact the value of the Shares.
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Among other objectives, the Dencun software upgrade was designed to provide Layer 2 scaling solutions a designated storage space on the Layer 1 Ethereum network, called Binary Large Objects (“blobsˮ), which attach large data chunks to transactions on the Layer 1 Ethereum network and are recorded on its blockchain.
−Removed: The data in blobs become inaccessible on the Layer 1 Ethereum network after a temporary period of time (three weeks), unlike the previous method of storing batched data from Layer 2s on the Layer 1 Ethereum network, which was stored permanently.
−Removed: The cost of accessing the temporary storage in blobs is expected by proponents of the Dencun upgrade to be substantially lower than the cost of storing the data on the Ethereum Layer 1 network permanently, making Layer 2s more cost-efficient to operate and, some commentators hope, making them more attractive as a scaling solution.
+Added: The data in blobs become inaccessible on the Layer 1 Ethereum network after a temporary period (three weeks), unlike the previous method of storing batched data from Layer 2s on the Layer 1 Ethereum network, which was stored permanently.
+Added: The cost of accessing the temporary storage in blobs is expected by proponents of the Dencun upgrade to be substantially lower than the cost of storing the data on the Ethereum Layer 1 network permanently, making Layer 2s more cost-efficient to operate and, some commentators hope, more attractive as a scaling solution.
Immediately following the upgrade, some Layer 2s reportedly experienced reduced transaction fees when batching transactions to the main Layer 1 Ethereum network, which in turn lowered the transaction costs for executing transactions on such Layer 2s, but this also is believed to have resulted in ether prices (ether being the native asset of the Layer 1 Ethereum network) dropping as well, due in part to the reduced demand for ether to pay the transaction costs of recording data on the Layer 1 Ethereum network.
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This version of the network, which is not backwards compatible with the Ethereum Layer 1 blockchain, is considered a forked branch and was rebranded as “Ethereum Proof-of-Work.” To the extent significant developer talent, users or validators abandon the Ethereum Layer 1 network and adopt the Ethereum Proof-of-Work blockchain instead, the value of the Shares could be adversely affected.
−Removed: As illustrated by Dencun and the Merge, the Ethereum network regularly implements planned forks in an effort to achieve its development roadmap, advance the scalability process, and to improve the network generally.
+Added: The Ethereum core developers have agreed on December 2025 as the date of the upcoming Fusaka hard fork, which is designed to expand data capacity, reinforce defenses against denial-of-service attacks, and introduce new tools for developers and users, among others.
+Added: The main feature of the Fusaka upgrade is a new way of handling the data in the blobs introduced by the Dencun upgrade, which is expected to create improvements for Layer 2s to store data on the main Ethereum network.
+Added: As with any change to software code, planned forks such as Fusaka could introduce bugs, coding defects, unanticipated or undiscovered problems, flaws, security risks, problematic incentive structures, or otherwise fail to work as intended or achieve the expected benefits that proponents hope for in the short term or the long term, which could also have an adverse effect on adoption of the Ethereum network and the value of ether, and therefore the Shares.
+Added: As illustrated by Dencun, the Merge, and Fusaka, the Ethereum network regularly implements planned forks in an effort to achieve its development roadmap, advance the scalability process, and to improve the network generally.
For example, in connection with the Ethereum development roadmap, the Ethereum network executed planned forks to transition from the initial Frontier development stage into the Homestead development stage in 2016; to transition from the Homestead development stage to the first sub-stage, Byzantium, of the Metropolis development stage in 2017; to transition from the Byzantium substage to the St.
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In 2023, Ethereum underwent the Capella and Shanghai planned forks (collectively, “Shapella”), which enabled withdrawals of staked assets to the Ethereum Layer 1 blockchain main net for the first time (they had previously been locked on the Beacon Chain test net following the Merge).
−Removed: Any of these or future planned forks could fail to work as intended or could introduce bugs, coding defects, unanticipated or undiscovered problems, flaws, or security risks, create problematic economic incentives which incentivize behavior which has a negative effect on the Ethereum network’s nodes, users, validators, or the Ethereum network as a whole, or otherwise adversely affect, the speed, security, usability, or value of the Ethereum network or ether.
+Added: On May 7, 2025, “Pectra” which is a combination of the Prague execution layer hard fork and the Electra consensus layer upgrade, went live.
+Added: Pectra, among other changes, increased the maximum amount of ether that a validator can stake from 32 to 2,048, allowing validators to manage higher balances with the goals of potentially reducing costs;
+Added: introducing account abstraction, allowing externally owned accounts (EOAs) to temporarily function like smart contracts;
+Added: and reducing security risks and shortenening the wait time for new validators.
+Added: Any of these or future planned forks could fail to work as intended or could introduce bugs, coding defects, unanticipated or undiscovered problems, flaws, or security risks, or create problematic economic incentives which could increase behavior that has a negative effect on the Ethereum network’s nodes, users, validators, or the Ethereum network as a whole, or otherwise adversely affect, the speed, security, usability, or value of the Ethereum network or ether.
Alternatively, such hard forks could be contentious, leading to a split and fracture in the Ethereum community to its collective detriment, as discussed above.
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For example, in July 2016, Ethereum underwent a hard fork between the Layer 1 Ethereum network and a new digital asset running on a “forked” branch of the network, Ethereum Classic, as a result of the Ethereum network community’s response to a significant security breach.
−Removed: In June 2016, an anonymous hacker exploited a smart contract running on the Ethereum network to syphon approximately $60 million of ether held by The DAO, a distributed autonomous organization, into a segregated account.
+Added: In June 2016, an anonymous hacker exploited a smart contract running on the Ethereum network to syphon approximately $60 million of ether held by The DAO, a decentralized autonomous organization, into a segregated account.
In response to the hack, and after a contentious debate, most participants in the Ethereum community elected to adopt a hard fork that effectively reversed the hack, and this network constitutes the Layer 1 Ethereum network.
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In November 2020, a bug was discovered in Geth (but not the other Ethereum Clients at the time, such as Besu, Open Ethereum, and Nethermind), and a patch was released that all nodes using the Geth client were supposed to download and apply simultaneously.
−Removed: However, not all nodes using Geth did so, resulting with the non-patched Geth nodes temporarily running a different version of the Ethereum blockchain than the patched Geth nodes and nodes using other Ethereum Clients.
+Added: However, not all nodes using Geth did so, resulting in the non-patched Geth nodes temporarily running a different version of the Ethereum blockchain than the patched Geth nodes and nodes using other Ethereum Clients.
This temporarily created two conflicting versions of the Ethereum blockchain, causing the nodes using the non-patched Geth version to be unable to reach consensus with the rest of the nodes on the Ethereum blockchain, interrupting the non-patch Geth nodes’ access to the Ethereum network.
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There are multiple groups independently developing and implementing their respective Execution Clients and Consensus Clients; while some individual Execution Clients or Consensus Clients are more popular or widely adopted than others, there remains heterogeneity among Ethereum Clients.
−Removed: Each Execution Client and Consensus Client needs to interoperate effectively with each other Execution Client and Consensus Client.
+Added: Each Execution Client and Consensus Client needs to interoperate effectively with the other Execution Client and Consensus Client.
Although this diversity of Ethereum Clients is perceived by some to promote decentralization of the Ethereum network, it comes at a potential cost:
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Protocols may also be cloned.
−Removed: Unlike a fork, which modifies an existing blockchain, and results in two competing networks, each with the same genesis block, a “clone” is a copy of a protocol’s codebase, but results in an entirely new blockchain and new genesis block.
+Added: Unlike a fork, which modifies an existing blockchain, and results in two competing networks, each with the same genesis block, a “clone” is a copy of a protocol’s codebase that results in an entirely new blockchain and new genesis block.
Tokens are created solely from the new “clone” network and, in contrast to forks, holders of tokens of the existing network that was cloned do not receive any tokens of the new network.
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For example, on November 6, 2016, Rhett Creighton, a Zcash developer, cloned the Zcash Network to launch Zclassic, a substantially identical version of the Zcash Network that eliminated the Founders’ Reward.
−Removed: For the days following the date the first Zclassic block was mined, the price of ZEC fell from $504.57 on November 5, 2016 to $236.01 on November 7, 2016 in the midst of a broader sell off of ZEC beginning immediately after the Zcash Network launch on October 28, 2016.
+Added: For the days following the date the first Zclassic block was mined, the price of ZEC, the native cryptocurrency of Zcash, fell from $504.57 on November 5, 2016 to $236.01 on November 7, 2016 in the midst of a broader sell-off of ZEC beginning immediately after the Zcash Network launch on October 28, 2016.
Shareholders will not receive the benefits of any Incidental Rights and any IR Digital Asset, including any forked or airdropped assets.
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Airdrops could create operational, security, legal or regulatory, or other risks for the Trust, the Sponsor, the Ether Custodian, Authorized Participants, or other entities.
−Removed: We refer to the right to receive any such benefit as an “Incidental Right” and any such digital asset (other than ether) acquired through an Incidental Right as “IR Digital Asset.” With respect to a fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Digital Asset associated with such event.
−Removed: As such, Shareholders will not receive the benefits of any Incidental Rights and any IR Digital Asset.
−Removed: In the event the Trust seeks to change the Trust’s policy with respect to Incidental Rights or IR Digital Asset, an application would need to be filed with the SEC by NASDAQ seeking approval to amend its listing rules to permit the Trust to sell Incidental Rights or IR Digital Asset and distribute the cash proceeds (net of expenses and applicable withholding taxes) to DTC or distribute the Incidental Rights or IR Digital Asset in-kind to DTC.
+Added: We refer to the right to receive any such benefit as an “Incidental Right” and any such digital asset (other than ether) acquired through an Incidental Right as an “IR Digital Asset.” With respect to a fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights and any IR Digital Asset associated with such event.
+Added: As such, Shareholders will not receive the benefits of any Incidental Rights or any IR Digital Asset.
+Added: In the event the Trust seeks to change the Trust’s policy with respect to Incidental Rights or IR Digital Assets, an application would need to be filed with the SEC by NASDAQ seeking approval to amend its listing rules to permit the Trust to sell Incidental Rights or IR Digital Assets and distribute the cash proceeds (net of expenses and applicable withholding taxes) to DTC or distribute the Incidental Rights or IR Digital Asset in-kind to DTC.
However, there can be no assurance as to whether or when the Sponsor would make such a decision, or when NASDAQ will seek or obtain this approval, if at all.
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The Sponsor will base its determination on whatever factors it deems relevant, including, but not limited to, the Sponsor’s beliefs regarding expectations of the core developers of ether, users, services, businesses, validators and other constituencies, as well as the actual continued acceptance of, validating power on, and community engagement with, the Ethereum network, or whatever other factors it deems relevant.
−Removed: There is no guarantee that the Sponsor will choose the digital asset that is ultimately the most valuable fork, and the Sponsor’s decision may adversely affect the value of the Shares as a result.
+Added: There is no guarantee that the Sponsor will choose the digital asset that is ultimately the most valuable, and the Sponsor’s decision may adversely affect the value of the Shares as a result.
The Sponsor may also disagree with Shareholders, the Ether Custodian, other service providers, the Index Administrator, crypto asset platforms, or other market participants on what is generally accepted as ether and should therefore be considered “ether” for the Trust’s purposes, which may also adversely affect the value of the Shares as a result.
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For example, Bitcoin Cash may sometimes be referred to as Bitcoin ABC in an effort to differentiate itself from any Bitcoin Cash hard forks, such as Bitcoin Satoshi’s Vision, and in the third quarter of 2018, the team behind ZEN rebranded and changed the name of ZenCash to “Horizen.” The Sponsor cannot predict the impact of any name change and any associated rebranding initiative on ether.
−Removed: After a name change and an associated rebranding initiative, a digital asset may not be able to achieve or maintain brand name recognition or status that is comparable to the recognition and status previously enjoyed by such digital asset.
−Removed: The failure of any name change and any associated rebranding initiative by a digital asset may result in such digital asset not realizing some or all of the anticipated benefits contemplated by the name change and associated rebranding initiative, and could negatively impact the value of ether and the value of the Shares.
+Added: After a name change and associated rebranding initiative, a digital asset may not be able to achieve or maintain brand-name recognition or status that is comparable to the recognition and status previously enjoyed by such digital asset.
+Added: The failure of any name change and associated rebranding initiative by ether could result in ether not realizing some or all of the anticipated benefits contemplated by the name change and associated rebranding initiative, and could negatively impact the value of ether and the value of the Shares.
Smart contracts, including those relating to DeFi applications, are a new technology and their ongoing development and operation may result in problems, 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.
Smart contracts are programs that run on the Ethereum blockchain that execute automatically when certain conditions are met.
−Removed: Since smart contracts typically cannot be stopped or reversed, vulnerabilities in their programming can have damaging effects.
+Added: Because smart contracts typically cannot be stopped or reversed, vulnerabilities in their programming can have damaging effects.
For example, in June 2016, a vulnerability in the smart contracts underlying The DAO allowed an attack by a hacker to syphon approximately $60 million worth of ether from The DAO’s accounts into a segregated account.
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Despite these efforts, the price of ether reportedly dropped approximately 35% in the aftermath of the attack and subsequent hard fork.
−Removed: In addition, in July 2017, a vulnerability in a smart contract for a multi-signature wallet software developed by Parity led to a reportedly $30 million theft of ether, and in November 2017, a new vulnerability in Parity’s wallet software reportedly led to roughly $160 million worth of ether being indefinitely frozen in an account.
−Removed: Furthermore, in April 2018, a batch overflow bug was found in many Ethereum-based ERC20-compatible smart contract tokens that allows hackers to create a large number of smart contract tokens, causing multiple crypto asset platforms worldwide to shut down ERC20-compatible token trading.
+Added: In addition, in July 2017, a vulnerability in a smart contract for a multi-signature wallet software developed by Parity reportedly led to a $30 million theft of ether, and in November 2017, a new vulnerability in Parity’s wallet software reportedly led to roughly $160 million worth of ether being indefinitely frozen in an account.
+Added: Furthermore, in April 2018, a batch overflow bug was found in many Ethereum-based ERC20-compatible smart contract tokens that allowed hackers to create a large number of smart contract tokens, causing multiple crypto asset platforms worldwide to shutdown ERC20-compatible token trading.
Similarly, in March 2020, a design flaw in the Maker DAO smart contract caused forced liquidations of crypto assets at significantly discounted prices, resulting in millions of dollars of losses to users who had deposited crypto assets into the smart contract.
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Problems with the development, deployment, and operation of smart contracts may have an adverse effect on the value of ether.
−Removed: In some cases, smart contracts can be controlled by one or more “admin keys” or users with special privileges, or “super users.” These users may have the ability to unilaterally make changes to the smart contract, enable or disable features on the smart contract, change how the smart contract receives external inputs and data or transmits ether or other digital assets, and make other changes to the smart contract.
−Removed: Furthermore, in some cases inadequate public information may be available about certain smart contracts or applications, and information asymmetries may exist, even with respect to open source smart contracts or applications; certain participants may have hidden informational or technological advantages, making for an uneven playing field.
+Added: In some cases, smart contracts can be controlled by one or more “admin keys” or users with special privileges, or “super users.” These users may have the ability to unilaterally make changes to the smart contract, enable or disable features on the smart contract, change how the smart contract receives external inputs and data or transmits ether or other digital assets, or make other changes to the smart contract.
+Added: Furthermore, in some cases inadequate public information may be available about certain smart contracts or applications, and information asymmetries may exist, even with respect to open-source smart contracts or applications;
+Added: certain participants may have hidden informational or technological advantages, making for an uneven playing field.
There may be opportunities for bad actors to perpetrate fraudulent schemes and engage in illicit activities and other misconduct, such as exit scams and rug pulls (orchestrated by developers and/or influencers who promote a smart contract or application and, ultimately, escape with the money at an agreed time), or Ponzi or similar fraud schemes.
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DeFi applications may achieve their investment purposes through self-executing smart contracts that may allow users, for example, to invest digital assets in a pool from which other users can borrow without requiring an intermediate party to facilitate these transactions.
−Removed: These investments may earn interest to the investor based on the rates at which borrowers repay the loan, and can generally be withdrawn by the investor.
+Added: These investments may earn interest based on the rates at which borrowers repay the loan, and can generally be withdrawn by the investor.
For smart contracts that hold a pool of digital asset reserves, smart contract super users or admin key holders may be able to extract funds from the pool, liquidate assets held in the pool, or take other actions that decrease the value of the digital assets held by the smart contract in reserves.
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Similar risks apply to any smart contract or decentralized application, not just DeFi applications.
+Added: The complexity and interconnectedness of digital asset networks, applications, and economic systems enables new forms of malicious attacks that leverage a feature or vulnerability of one system to attack another.
+Added: Such an attack may take the form of a temporary manipulation of the price of certain digital assets that trigger second order behaviors, such as automatic collateral liquidations on decentralized applications or digital asset trading platforms.
+Added: Such an attack could adversely affect investments.
+Added: A malicious actor can exploit the structure of one or a series of smart contracts or applications in ways that do not technically constitute exploitation of a “bug” or flaw in the smart contract or application.
+Added: For example, such an exploit has occurred repeatedly in the Ethereum DeFi ecosystem, whereby a decentralized trading platform or lending application is designed to reference an external pricing source of a particular digital asset to determine when to liquidate collateral.
+Added: By manipulating the price of the particular digital asset on a third-party platform (such as a digital asset trading platform), the pricing source used by the decentralized trading platform or application is consequently manipulated, which then leads to uneconomic collateral liquidations on the decentralized trading platform or application.
+Added: Such liquidations may be processed automatically and could have a material adverse effect on our investments and trading strategies.
Validators may suffer losses due to staking, or staking may prove unattractive to validators, which could make the Ethereum network less attractive.
−Removed: Validation on the Ethereum network requires ether to be transferred into smart contracts on the underlying blockchain networks not under the Trust’s or anyone else’s control.
+Added: Validation on the Ethereum network requires ether to be transferred into smart contracts on the underlying blockchain networks that are not under the Trust’s or anyone else’s control.
If the Ethereum network source code or protocol fail to behave as expected, suffer cybersecurity attacks or hacks, experience security issues, or encounter other problems, such assets may be irretrievably lost.
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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.
−Removed: A more severe sanction (i.e., “slashing”) is imposed if a validator commits malicious acts related to the proposal or attestation of blocks with invalid transactions.
−Removed: Slashing can result in the validator having a portion of its staked ether immediately confiscated, withdrawn or burned by the network, resulting in losses to them.
+Added: A more severe sanction, known as “slashing,” may be imposed if a validator engages in malicious behavior, such as proposing or attesting to blocks containing invalid transactions.
+Added: Slashing can result in the immediate forfeiture, withdrawal, or burning of a portion of the validator’s staked ether by the network, resulting in losses to the validator.
After this initial slashing, the validator is queued for forceful removal from the Ethereum network’s validator “pool,” and more of the validator’s stake is burned over a period of approximately 36 days, with the exact amount of ether burned and time period determined by the network regardless of whether the validator makes any further slashable errors, at which point the validator is automatically removed from the validator pool.
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To prevent this, an inactivity leak causes the ether staked by the inactive validators to gradually “bleed away” until these inactive validators represent less than one-third of the total stake, thereby allowing the remaining active validators to finalize proposed blocks.
−Removed: This provides a further incentive for validators to remain online and continue performing validation activities.
+Added: This provides a further incentive for validators to remain online and continuously perform validation activities.
Within the post-Merge Ethereum network, as part of the “activating” and “exiting” processes of staking, staked ether will be inaccessible for a variable period of time determined by a range of factors, including network congestion, resulting in potential inaccessibility during those periods.
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The duration of activating and exiting periods are dependent on a range of factors, including network conditions.
−Removed: However, depending on demand, un-staking can take between hours, days or weeks to complete.
−Removed: Furthermore, the Ethereum network requires the payment of base fees and the practice of paying tips is common, and such fees can become significant as the amount and complexity of the transaction grows, depending on the degree of network congestion and the price of ether.
+Added: In periods of low demand, un-staking may be completed within hours or several days, while in periods of elevated exit activity the process may take multiple weeks or longer to complete.
+Added: The Ethereum network requires the payment of base fees and the practice of paying tips is common, and such fees can become significant as the amount and complexity of the transaction grows, depending on the degree of network congestion and the price of ether.
Any cybersecurity attacks, security issues, hacks, penalties, slashing events, or other problems could damage validators’ willingness to participate in validation, discourage existing and future validators from serving as such, and adversely impact the Ethereum network’s adoption or the price of ether.
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This could lead to these blockchains, and their associated digital assets, having undetected vulnerabilities, structural design flaws, suboptimal incentive structures for network participants (e.g., validators), technical disruptions, or a wide variety of other problems, any of which could cause these blockchains not to function as intended, lead to outright failure to function entirely causing a total outage or disruption of network activity, or to suffer other operational problems or reputational damage, leading to a loss of users or adoption or a loss in value of the associated digital assets, including the Trust’s assets.
−Removed: Over the long term, there can be no assurance that the proof-of-stake blockchain on which the Trust’s assets rely will achieve widespread scale or adoption or perform successfully; any failure to do so could negatively impact the value of the Trust’s assets.
+Added: Over the long term, there can be no assurance that the proof-of-stake blockchain on which the Trust’s assets rely will achieve widespread scale or adoption or perform successfully and any failure to do so could negatively impact the value of the Trust’s assets.
+Added: Unlike some digital assets, which have a limit on outstanding supply, there is no limit on ether supply.
+Added: Some digital assets have a limit (“hard cap”) on the supply of outstanding digital assets.
+Added: There is no hard cap on the supply of ether, which will continue to be issued as a reward to validators for new blocks.
+Added: The prices of many digital assets like ether are heavily influenced by supply and demand.
+Added: If the supply of ether is inflationary, then in the absence of deflationary forces, ether could lose value, assuming the same amount of demand.
Risk Factors Related to the Digital Asset Markets
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market conditions of, and overall sentiment towards, the digital assets and blockchain technology industry;
−Removed: trading activity on digital asset platforms, which, in many cases, are largely unregulated or may be subject to manipulation;
−Removed: the adoption of ether as a medium of exchange, store-of-value or other consumptive asset and the maintenance and development of the open-source software protocol of the Ethereum network, and their ability to meet user demands;
+Added: trading activity on digital asset platforms, which, in many cases, is largely unregulated or may be subject to manipulation;
+Added: the adoption of ether as a medium of exchange, store of value or other consumptive asset and the maintenance and development of the open‑source software protocol of the Ethereum network, and its ability to meet user demands;
manipulative trading activity on digital asset platforms, which, in many cases, are largely unregulated;
+Added: the lack of a hard cap on ether supply;
forks in the Ethereum network;
changes or instability in the leadership of the Ethereum Foundation;
−Removed: investors’ expectations with respect to interest rates, the rates of inflation of fiat currencies or ether, and digital asset platform rates;
+Added: investors’ expectations with respect to interest rates, the rates of inflation of fiat currencies or ether, and digital asset exchange rates;
consumer preferences and perceptions of ether specifically and digital assets generally;
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the liquidity of digital asset markets and any increase or decrease in trading volume or market making on digital asset markets;
−Removed: business failures, bankruptcies, hacking, fraud, crime, government investigations, or other negative developments affecting digital asset businesses, including digital asset platforms, or banks or other financial institutions and service providers which provide services to the digital assets industry;
+Added: business failures, bankruptcies, hacking, fraud, crime, government investigations, or other negative developments affecting digital asset businesses, including digital asset platforms, or banks or other financial institutions and service providers which provide services to the digital asset industry;
the use of leverage in digital asset markets, including the unwinding of positions, “margin calls,” collateral liquidations and similar events;
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an active derivatives market for ether or for digital assets generally;
−Removed: monetary policies of governments, legislation or regulation, trade restrictions, currency devaluations and revaluations and regulatory measures or enforcement actions, if any, that restrict the use of ether as a form of payment or the purchase of ether on the digital asset markets;
−Removed: global or regional political, economic or financial conditions, events and situations, or major public issues such as the novel coronavirus (“COVID‑19") outbreak;
+Added: monetary policies of governments, legislation or regulation, tariffs, trade restrictions, currency devaluations and revaluations;
+Added: regulatory measures or enforcement actions, if any, that restrict the use of ether as a form of payment or the purchase of ether on the digital asset markets;
+Added: global or regional political, economic or financial conditions, events and situations, or major public issues;
fees associated with processing an ether transaction and the speed at which ether transactions are settled;
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the ability for the Ethereum network to attract and retain validators to secure and confirm transactions accurately and efficiently;
−Removed: ongoing technological viability and security of the Ethereum network and ether transactions, including vulnerabilities against hacks and scalability;
+Added: ongoing technological viability and security of the Ethereum network and ether transactions, including scalability and vulnerabilities against hacks;
governmental or regulatory actions by, or investigations or litigation in, countries around the world targeting well-known decentralized applications or smart contracts that are built on the Ethereum network, or other developments or problems, and associated publicity, involving or affecting such decentralized applications or smart contracts;
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poor risk management or fraud by entities in the digital assets ecosystem;
−Removed: increased competition from other digital assets or networks, including other blockchain networks combining smart contracts, programmable scripting languages, and an associated runtime environment, with blockchain-based recordkeeping, particularly where such other blockchain networks are able to offer users access to a larger consumer user base, greater efficiency, reliability, or processing speed, or more economical transaction processing fees than the Ethereum network; and
+Added: increased competition from other digital assets or networks, including other blockchain networks combining smart contracts, programmable scripting languages, and an associated runtime environment, with blockchain-based record keeping, particularly where such other blockchain networks are able to offer users access to a larger consumer user base, greater efficiency, reliability, or processing speed, more economical transaction processing fees, or any other more favorable attributes, than the Ethereum network;
the Trust’s own acquisitions or dispositions of ether, since there is no limit on the number of ether that the Trust may acquire, and the Sponsor is an affiliate of BlackRock, which is a prominent participant in financial markets.
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The ether market globally and in the United States is not subject to comparable regulatory guardrails as exist in regulated securities markets.
−Removed: Further more,many ether trading venues lack certain safeguards put in place by exchanges for more traditional assets to enhance the stability of trading on the exchanges and prevent “flash crashes,” such as limit-down circuit breakers.
+Added: Furthermore, many ether trading venues lack certain safeguards put in place by exchanges for more traditional assets to enhance the stability of trading on the exchanges and prevent “flash crashes,” such as limit-down circuit breakers.
As a result, the prices of ether on trading venues may be subject to larger and/or more frequent sudden declines than assets traded on more traditional exchanges.
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(“FTX”), one of the largest digital asset platforms by volume at the time, halted customer withdrawals amid rumors of the company’s liquidity issues and likely insolvency, which were subsequently corroborated by its CEO.
−Removed: Shortly thereafter, FTX’s CEO resigned and FTX and many of its affiliates filed for bankruptcy in the United States, while other affiliates have entered insolvency, liquidation, or similar proceedings around the globe, following which the U.S.
+Added: Shortly thereafter, FTX’s CEO resigned, and FTX and many of its affiliates filed for bankruptcy in the United States, while other affiliates entered insolvency, liquidation, or similar proceedings around the globe, following which the U.S.
Department of Justice brought criminal fraud and other charges, and the SEC and CFTC brought civil securities and commodities fraud charges, against certain of FTX’s and its affiliates’ senior executives, including its former CEO.
Around the same time, there were reports that approximately $300-600 million of digital assets were removed from FTX and the full facts remain unknown, including whether such removal was the result of a hack, theft, insider activity, or other improper behavior.
+Added: On February 21, 2025, Bybit, a centralized platform for exchanging digital assets, announced that more than $1.4 billion in ether had been stolen from its platform.
+Added: Hackers were able to manipulate Bybit’s transfer process to authorize and complete the illicit transaction.
+Added: The incident has resulted in renewed concerns over the security of digital asset platforms.
Negative perception, a lack of stability and standardized regulation in the digital asset markets and the closure or temporary shutdown of digital asset platforms due to fraud, business failure, security breaches or government mandated regulation, and associated losses by customers, may reduce confidence in the Ethereum network and result in greater volatility or decreases in the prices of ether.
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The Index price is a composite CF Benchmarks Index calculated using volume-weighted trading price data from various Constituent Platforms.
−Removed: The Index has only featured its current list of Constituent Platforms since May 2022.
+Added: The Index has only featured its current list of Constituent Platforms since March 2025.
A longer history of actual performance through various economic and market conditions would provide greater and more reliable information for an investor to assess the Index’s performance.
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Moreover, there may be variances in the prices of ether on the various Constituent Platforms, including as a result of differences in fee structures or administrative procedures on different Constituent Platforms.
+Added: Certain exchanges within the list of Constituent Platforms employ a proprietary order book combining a traditional limit order book with automated market maker instructions.
+Added: As their automated market maker relies on a mathematical formula and does not rely on any external pricing data or third-party source, differences in the bids and asks placed by the automated market maker compared to prices offered by other digital currency trading venues, or other external market data sources, for the same digital assets may emerge.
While the Index provides a U.S.
−Removed: dollar-denominated composite CF Benchmarks Index for the price of ether based on, in the case of the CF Benchmarks Index, the volume-weighted price of ether on certain Constituent Platforms, at any given time, the prices on each such Constituent Platforms or pricing source may not be equal to the value of an ether as represented by the Index.
+Added: dollar-denominated composite for the price of ether based on, in the case of the CF Benchmarks Index, the volume-weighted price of ether on certain Constituent Platforms, at any given time, the prices on each such Constituent Platform or pricing source may not be equal to the value of ether as represented by the Index.
It is possible that the price of ether on the Constituent Platforms could be materially higher or lower than the Index price.
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The Index price used to calculate the value of the Trust ’ s ether may be volatile, adversely affecting the value of the Shares.
−Removed: The price of ether on public digital asset platforms has a very limited history, and during this history, ether prices on the digital asset markets more generally, and on digital asset platforms individually, have been volatile and subject to influence by many factors, including operational interruptions.
+Added: The price of ether on public digital asset platforms has a limited history, and during this history, ether prices on the digital asset markets more generally, and on digital asset platforms individually, have been volatile and subject to influence by many factors, including operational interruptions.
While the Index is designed to limit exposure to the interruption of individual digital asset platforms, the Index price, and the price of ether generally, remains subject to volatility experienced by digital asset platforms, and such volatility could adversely affect the value of the Shares.
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If the CF Benchmarks Index is not available or the Sponsor in its sole discretion determines the CF Benchmarks Index is unreliable as the Index and therefore determines not to use the CF Benchmarks Index the Trust’s holdings may be fair valued on a temporary basis in accordance with the fair value policies approved by the Trustee.
−Removed: See “Business of the Trust—Net Asset Value.” To the extent the valuation determined in accordance with the policy approved by the Trustee differs materially from the actual market price of ether, the price of the Shares may no longer track, whether temporarily or over time, the price of ether, which could adversely affect an investment in the Trust and the value of Shares by reducing investors’ confidence in the Shares’ ability to track the price of ether.
+Added: To the extent the valuation determined in accordance with the policy approved by the Trustee differs materially from the actual market price of ether, the price of the Shares may no longer track, whether temporarily or over time, the price of ether, which could adversely affect an investment in the Trust and the value of Shares by reducing investors’ confidence in the Shares’ ability to track the price of ether.
The Index price being used to determine the net asset value of the Trust may not be consistent with GAAP.
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Given the foundational 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 ether.
−Removed: Because a large portion of the digital asset market still depends on stablecoins such as Tether and USDC, there is a risk that a disorderly de-pegging or a run-on Tether or USDC could lead to dramatic market volatility in digital assets more broadly.
−Removed: Volatility in stablecoins, operational issues with stablecoins (for example, technical issues that prevent settlement), concerns about the sufficiency of any reserves that support stablecoins or potential manipulative activity when unbacked stablecoins are used to pay for other digital assets (including ether), or regulatory concerns about stablecoin issuers or intermediaries, such as exchanges, that support stablecoins, or the removal or migration of prominent stablecoins away from the Ethereum network, could impact individuals’ willingness to trade on trading venues that rely on stablecoins, reduce liquidity in the ether market, and affect the value of ether, and in turn impact an investment in the Shares.
+Added: A significant portion of the digital asset market continues to depend on stablecoins such as Tether and USDC.
+Added: As such, any disruption in the operation or perceived stability of these stablecoins such as a disorderly de-pegging event or a loss of market confidence resulting in a run on reserves could lead to substantial market volatility across digital assets more broadly.
+Added: Additional risks such as operational failures (e.g., technical issues that prevent settlement), concerns regarding the adequacy or transparency of reserve assets backing stablecoins, the use of unbacked or undercollateralized stablecoins in potentially manipulative trading practices and regulatory scrutiny of stablecoin issuers or intermediaries, including exchanges that facilitate stablecoin transactions, may also adversely affect market confidence and liquidity.
+Added: Further, these risks are underscored by recent legislative developments.
+Added: On July 18, 2025, the Guiding and Establishing National Innovation for U.S.
+Added: Stablecoins Act of 2025 (“GENIUS Act”) was enacted, establishing a federal regulatory framework for payment stablecoins.
+Added: The GENIUS Act will become effective on July 18, 2028.
+Added: The GENIUS Act prohibits the issuance or use of payment stablecoins unless the issuer obtains a qualifying license and complies with a range of regulatory requirements, including reserve backing with liquid assets, redemption rights, governance standards, and operational transparency.
+Added: The GENIUS Act also restricts the payment of interest on stablecoins and imposes oversight on both bank and nonbank issuers.
+Added: The enactment of the GENIUS Act, or the removal or migration of prominent stablecoins from the Ethereum network, could reduce the willingness of market participants to engage in digital asset transactions that rely on stablecoins, diminish liquidity in the ether market, and adversely affect the price of ether.
+Added: Any such developments could, in turn, materially and adversely impact the value of the Shares.
Competition from the emergence or growth of other digital assets or methods of investing in ether could have a negative impact on the price of ether and adversely affect the value of the Shares.
−Removed: As of December 31, 2024, ether was the second largest digital asset by market capitalization as tracked by CoinMarketCap.com.
−Removed: There are over 10,000 alternative digital assets tracked by CoinMarketCap.com, having a total market capitalization of approximately $3.26 trillion (including the approximately $401 billion market capitalization of ether), as calculated using market prices and total available supply of each digital asset.
+Added: As of December 31, 2025, ether was the second largest digital asset by market capitalization as tracked by CoinGecko.com.
+Added: There are over 17,000 alternative digital assets tracked by CoinGecko.com, having a total market capitalization of approximately $3.0 trillion (including the approximately $359 billion market capitalization of ether), as calculated using market prices and total available supply of each digital asset.
In addition, many consortiums and financial institutions are also researching and investing resources into private or permissioned smart contracts platforms rather than open platforms like the Ethereum network.
−Removed: Competition from the emergence or growth of alternative digital assets and smart contract platforms, such as Solana, Avalanche, Polkadot, or Cardano, could have a negative impact on the demand for, and price of, ether and thereby adversely affect the value of the Shares.
−Removed: If other blockchain networks with smart contracts or similar capabilities better meet the needs of users, application developers, and/or validators, whether due to higher performance or otherwise, or prove to be more popular than the Ethereum blockchain for any reason, it could lead to less activity on the Ethereum blockchain and lower demand for ether, causing the price of ether and the value of the Shares to decline.
+Added: Competition from the emergence or growth of alternative digital assets and smart contract platforms, such as Solana, Avalanche, Tron, BNB Coin, Polkadot, or Cardano, among many others, could have a negative impact on the demand for, and price of, ether and thereby adversely affect the value of the Shares.
In addition, some digital asset networks, including the Ethereum network, may be the target of ill will from users of other digital asset networks.
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In addition, the Trust may also fail to attract adequate liquidity in the secondary market due to such competition, resulting in a sub-standard number of Authorized Participants willing to make a market in the Shares, which in turn could result in a significant premium or discount in the Shares for extended periods and the Trust’s failure to reflect the performance of the price of ether.
+Added: Digital asset treasury companies risk.
+Added: In recent times, a number of companies engaged in businesses outside the digital asset industry have begun to hold their corporate treasuries in digital assets instead of in fiat currency (“digital asset treasury companies”).
+Added: In some cases, these companies have raised funds through financing or securities offerings and applied the proceeds to purchase digital assets, including ether.
+Added: Digital asset treasury companies are a relatively new phenomenon and it is difficult to predict their long-term sustainability, and therefore their impact to digital asset markets, and to the Trust.
+Added: Digital asset treasury companies may increase procyclical dynamics in the market because they may purchase digital assets, such as ether, when prices are rising and they may in certain circumstances be forced to sell such assets when prices are decreasing, potentially causing downward pressure on ether prices in a falling market (causing prices to fall faster than they otherwise would).
+Added: Digital asset treasury companies could cause greater volatility in digital asset markets, including markets for ether.
+Added: Negative events or sentiment surrounding digital asset treasury companies could affect the market for ether.
+Added: The increase of consolidated positions in ether held by digital asset treasury companies could affect the operation of the Ethereum blockchain.
+Added: One digital asset treasury company, BitMine Immersion Technology Inc.
+Added: (“BitMine Immersion”), held approximately 2.8% of ether’s supply as of November 3, 2025.
+Added: If BitMine Immersion or another similarly situated digital asset treasury company begins to operate validators, it could gain influence in how the Ethereum blockchain operates.
+Added: The foregoing or similar events involving digital asset treasury companies could adversely affect holders of Shares in the Trust.
+Added: Operational cost may exceed the award for validating transaction, and increased transaction fees may adversely affect the usage of the Ethereum network.
+Added: If transaction confirmation fees become too high, the marketplace may be reluctant to use ether.
+Added: This may result in decreased usage and limit expansion of the Ethereum network in the retail, commercial and payments space, adversely impacting investment in the Trust.
+Added: Conversely, if the reward for validators or the value of the transaction fees is insufficient to motivate validators, they may cease to validate transactions.
+Added: Ultimately, if the awards of new ether costs of validating transactions grow disproportionately, validators may operate at a loss, transition to other networks, or cease operations altogether.
+Added: Each of these outcomes could, in turn, slow transaction validation and usage, which could have a negative impact on the Ethereum network and could adversely affect the value of the ether held by the Trust.
+Added: As a result of Ethereum’s fee burning mechanism, the incentives for validators to validate transactions with higher gas fees may be reduced, since fee burning changes the gas fee split between users, validators, and token holders.
+Added: An acute cessation of validator operations would reduce the collective processing power on the Ethereum network, which would adversely affect the transaction verification process by temporarily decreasing the speed at which blocks are added to the blockchain and make the blockchain more vulnerable to a malicious actor obtaining control in excess of 50% of the processing power on the blockchain.
+Added: Reductions in processing power could result in material, though temporary, delays in transaction confirmation time.
+Added: Any reduction in confidence in the transaction verification process may adversely impact the value of Shares of the Trust or the ability of the Sponsor to operate.
+Added: If regulators or public utilities take actions that restrict or otherwise impact mining activities, such actions could result in decreased security of a digital asset network, including the Ethereum network, which could adversely affect the value of the Shares.
+Added: Concerns have been raised about the electricity required to secure and maintain digital asset networks.
+Added: Although measuring the electricity consumed by the process of securing and maintaining digital asset networks is difficult because these operations are performed by various machines with varying levels of efficiency, the process consumes a significant amount of energy.
+Added: Driven by concerns around energy consumption and the impact on public utility companies, various states and cities have implemented, or are considering implementing, moratoriums on mining activity in their jurisdictions.
+Added: Ethereum uses a system called proof-of-stake to validate transaction information.
+Added: Anyone that owns the specific proof-of-stake digital asset can participate in staking, subject to certain minimum amounts as determined by the applicable proof-of-stake digital asset.
+Added: Generally, the higher the amount staked by any actor, the higher the chances of being chosen by the applicable blockchain to act as validator and reaping validator rewards;
+Added: in other words, the higher the stake, the higher the chances of earning a staking reward.
+Added: This has led to the creation of staking pools, where third parties combine smaller stakes into large pools, which leads to higher returns for owners of small stakes, in return for a fee collected by the third parties.
+Added: Other digital asset networks may use a system called proof-of-work to validate transaction information.
+Added: It’s called proof-of-work because solving the encrypted hash takes time and energy, which acts as proof that work was done.
+Added: Proof of work requires users to mine or complete complex computational puzzles before submitting new transactions to the network.
+Added: Proof-of-stake digital assets allow people to pledge or lock up some of their holdings as a way of vouching for the accuracy of newly added information.
+Added: Meanwhile, proof-of-work digital assets require people to solve complex cryptographic puzzles — which can incur significant energy costs — before they’re allowed to propose a new block.
+Added: This expenditure of time, computing power and energy is intended to make the cost of fraud higher than the potential rewards of a dishonest action.
+Added: The operations of digital asset networks can consume significant amounts of electricity, which may have a negative environmental impact and give rise to public opinion against allowing, or government regulations restricting, the use of electricity for mining operations, in the case of proof-of-work networks.
+Added: Additionally, miners on proof-of-work networks may be forced to cease operations during an electricity shortage or power outage, or if electricity prices increase where the mining activities are performed.
+Added: The operations of the Ethereum network and other digital asset networks may also consume significant amounts of energy, even though the Ethereum blockchain is generally considered to consume significantly less energy than other digital asset networks, such as the Bitcoin blockchain, due to its proof- of-stake, rather than proof-of-work, transaction validation mechanism.
+Added: Further, in addition to the direct energy costs of performing calculations on any given digital asset network, there are indirect costs that impact a network’s total energy consumption, including the costs of cooling the machines that perform these calculations.
+Added: Notwithstanding Ethereum’s move to proof-of-stake, if regulators or public utilities take actions that restrict or otherwise impact mining activities, such actions could result in decreased security of digital asset networks that rely on proof-of-stake.
+Added: This could create negative sentiment around digital assets generally and, consequently, adversely impact the value of the Shares.
Risk Factors Related to the Trust and the Shares
The Trust 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 Trust.
−Removed: A public health emergency, such as the COVID-19 pandemic, could adversely affect the economics of many nations and could have serious negative effects on social, economic and financial systems, including significant uncertainty and volatility in the digital asset markets.
+Added: A public health emergency could adversely affect the economics of many nations and could have serious negative effects on social, economic and financial systems, including significant uncertainty and volatility in the digital asset markets.
For example, digital asset prices, including ether decreased significantly in the first quarter of 2020 amidst broader market declines as a result of the COVID-19 outbreak.
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An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, is likely to increase volatility in the digital asset markets, which could adversely affect the value of ether and the price of the Shares.
−Removed: The Trust relies on the information and technology systems of the Custodian, the Trustee, the Sponsor, the Authorized Participants, the Ether Trading Counterparties, the listing exchange, and the Trust ’ s other service providers and counterparties (referred to herein as the “ Service Providers ” ), each of which could be directly or indirectly adversely affected by information systems interruptions, cybersecurity incidents or other disruptions, which in turn could have a material adverse effect on the Trust.
+Added: The Trust relies on the information and technology systems of the Custodians, the Trustee, the Sponsor, the Authorized Participants, the Ether Trading Counterparties, the listing exchange, and the Trust ’ s other service providers and counterparties (referred to herein as the “ Service Providers ” ), each of which could be directly or indirectly adversely affected by information systems interruptions, cybersecurity incidents or other disruptions, which in turn could have a material adverse effect on the Trust.
The Trust and the Service Providers are susceptible to operational, information security and related cybersecurity risks both directly and through their own service providers.
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The Trust may incur substantial costs in order to resolve or prevent cyber incidents.
−Removed: The Sponsor, an indirect subsidiary of BlackRock, is responsible for the oversight and overall management of the Trust.
+Added: The Sponsor, a consolidated subsidiary of BlackRock, is responsible for the oversight and overall management of the Trust.
The Sponsor relies on BlackRock’s Enterprise Risk Management (“ERM”) framework for the Trust’s cybersecurity risk management and strategy.
−Removed: Although BlackRock has implemented policies and controls, and takes protective measures involving significant expense, to prevent and address potential data breaches, inadvertent disclosures, increasingly sophisticated cyber-attacks and cyber-related fraud, there can be no assurance that any of these measures proves fully effective.
−Removed: In addition, a successful cyber-attack may persist for an extended period of time before being detected, and it may take a considerable amount of time for an investigation to be completed and the severity and potential impact to be known.
+Added: Although BlackRock has implemented policies and controls, and takes protective measures involving significant expense, to prevent and address potential data breaches, inadvertent disclosures, increasingly sophisticated cyberattacks and cyber-related fraud, there can be no assurance that any of these measures proves fully effective.
+Added: In addition, a successful cyberattack may persist for an extended period of time before being detected, and it may take a considerable amount of time for an investigation to be completed and the severity and potential impact to be known.
Furthermore, the Trust cannot control the cybersecurity plans and systems of its Service Providers.
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A decrease in the amount of ether represented by each Share results in a decrease in its price even if the price of ether has not changed.
−Removed: To retain the Share’s original price, the price of ether has to increase.
+Added: To retain the Share’s original price, the price of ether must increase.
Without that increase, the lesser amount of ether represented by the Share will have a correspondingly lower price.
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To the extent the value of ether decreases, these delays may result in a decrease in the amount the Authorized Participant will receive when the redemption occurs, as well as a reduction in liquidity for all Shareholders in the secondary market.
−Removed: Although Shares surrendered by Authorized Participants in Basket-size aggregations are redeemable in exchange for the cash proceeds from selling the underlying amount of ether, redemptions may be suspended (i) during any period in which regular trading on NASDAQ is suspended or restricted, or the exchange is closed (other than scheduled holiday or weekend closings) or (ii) during a period when the Sponsor determines that delivery, disposal or evaluation of ether is not reasonably practicable (for example, as a result of an interruption in services or availability of the Prime Execution Agent, Ether Custodian, Cash Custodian, Administrator, Ether Trading Counterparties, or other service providers to the Trust, act of God, catastrophe, civil disturbance, government prohibition, war, terrorism, strike or other labor dispute, fire, force majeure, interruption in telecommunications, iShares order entry system, Internet services, or network provider services, unavailability of Fedwire, SWIFT or banks’ payment processes, significant technical failure, bug, error, disruption or fork of the Ethereum network, hacking, cybersecurity breach, or power, Internet, or Ethereum network outage, or similar event).
+Added: Although Shares surrendered by Authorized Participants in Basket-size aggregations are redeemable in exchange for the underlying amount of ether or cash proceeds from selling the underlying amount of ether, redemptions may be suspended (i) during any period in which regular trading on NASDAQ is suspended or restricted, or the exchange is closed (other than scheduled holiday or weekend closings) or (ii) during a period when the Sponsor determines that delivery, disposal or evaluation of ether is not reasonably practicable (for example, as a result of an interruption in services or availability of the Prime Execution Agent, the Ether Custodian, the Cash Custodian, the Trust Administrator, the Ether Trading Counterparties, or other service providers to the Trust, act of God, catastrophe, civil disturbance, government prohibition, war, terrorism, strike or other labor dispute, fire, force majeure, interruption in telecommunications, iShares order entry system, Internet services, or network provider services, unavailability of Fedwire, SWIFT or banks’ payment processes, significant technical failure, bug, error, disruption or fork of the Ethereum network, hacking, cybersecurity breach, or power, internet, or Ethereum network outage, or similar event).
If any of these events occurs at a time when an Authorized Participant intends to redeem Shares, and the price of ether decreases before such Authorized Participant is able again to surrender for redemption Baskets, such Authorized Participant will sustain a loss with respect to the amount that it would have been able to obtain upon the redemption of its Shares, had the redemption taken place when such Authorized Participant originally intended it to occur.
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If you need to sell your Shares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price you receive for your Shares (assuming you are able to sell them).
−Removed: The lack of ability to facilitate in-kind creations and redemptions of Shares could have adverse consequences for the Trust.
−Removed: The Trust is currently only able to accept cash purchase orders and redemption orders, which means that an Authorized Participant will deliver only cash to create Shares and will receive only cash when redeeming Shares and the Trust will choose, in its sole discretion, to enter into a transaction with an Ether Trading Counterparty or the Prime Execution Agent to buy or sell ether in exchange for cash.
−Removed: However, and in common with other spot ether exchange‑traded products, the Trust is not at this time able to create and redeem Shares via in-kind transactions with Authorized Participants in exchange for ether.
+Added: The limited ability to facilitate in-kind creations and redemptions of Shares could have adverse consequences for the Trust.
Authorized Participants must be registered broker-dealers.
Registered broker-dealers are subject to various requirements of the federal securities laws and rules, including financial responsibility rules such as the customer protection rule, the net capital rule and recordkeeping requirements.
−Removed: There has yet to be definitive regulatory guidance on whether and how registered broker-dealers can comply with these rules with regard to transacting in or holding spot ether.
+Added: On May 15, 2025, the Division of Trading and Markets of the SEC and the Office of General Counsel of the Financial Industry Regulatory Authority (“FINRA”) stated that broker-dealers are permitted to facilitate in-kind creations and redemptions in connection with spot crypto exchange-traded products;
+Added: however, there has yet to be definitive regulatory guidance on and the specific details of how registered broker-dealers can comply with SEC rules with regard to transacting in or holding spot ether.
Until further regulatory clarity emerges regarding whether registered broker-dealers can hold and deal in ether under such rules, there is a risk that registered broker-dealers participating in the in-kind creation or redemption of Shares for ether may be unable to demonstrate compliance with such requirements.
−Removed: While compliance with these requirements would be the broker-dealer’s responsibility, a national securities exchange is required to enforce compliance by its member broker-dealers with applicable federal securities law and rules.
−Removed: As a result, the SEC is unlikely to permit an exchange to adopt listing rules for a product if it is not clear that the exchange’s members would be able to comply with applicable rules when transacting in the product as designed.
−Removed: To the extent further regulatory clarity emerges, NASDAQ may seek In-Kind Regulatory Approval, to amend its listing rules to permit the Trust to create and redeem Shares through in-kind creations and redemptions, in which Authorized Participants or their designees would deposit ether directly with the Trust or receive ether directly from the Trust.
−Removed: However, there can be no assurance as to when such regulatory clarity will emerge, or when NASDAQ will seek or obtain this approval, if at all.
−Removed: To the knowledge of the Sponsor, exchange-traded products for all spot-market commodities other than digital assets, such as gold and silver, employ in kind creations and redemptions with the underlying asset.
−Removed: The Sponsor believes that it is generally more efficient, and therefore less costly, for spot commodity exchange-traded products to utilize in-kind orders rather than cash orders, because there are fewer steps in the process and therefore there is less operational risk involved when an authorized participant can manage the buying and selling of the underlying asset itself, rather than depend on an unaffiliated party such as the issuer or sponsor of the exchange-traded product.
−Removed: As such, a spot commodity exchange-traded product that only employs cash creations and redemptions and does not permit in-kind creations and redemptions is a relatively novel product, and could be impacted by any resulting operational inefficiencies.
−Removed: In particular, the Trust’s inability to facilitate in-kind creations and redemptions could result in the exchange-traded product arbitrage mechanism failing to function as efficiently as it otherwise would, leading to the potential for the Shares to trade at premiums or discounts to the NAV, and such premiums or discounts could be substantial.
−Removed: See “—The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the price of ether and, as a result, the price of the Shares may fall or otherwise diverge from NAV.” Furthermore, if cash creations or redemptions are unavailable, either due to the Sponsor’s decision to reject or suspend such orders, the unavailability of Ether Trading Counterparties or the Prime Execution Agent’s services, or otherwise, it will not be possible for Authorized Participants to redeem or create Shares, in which case the arbitrage mechanism would be unavailable.
+Added: While compliance with rules such as the customer protection rule, the net capital rule and recordkeeping requirements would be the broker-dealer’s responsibility, a national securities exchange is required to enforce compliance by its member broker-dealers with applicable federal securities law and rules.
+Added: As of the date of this report, Virtu Americas LLC, ABN AMRO Clearing USA LLC, and Macquarie Capital (USA) Inc., have executed an agreement that gives them the ability to conduct creations and redemptions in-kind for ether in addition to conducting creations and redemptions for cash.
+Added: Even with the recent approval of in-kind creations and redemptions, the Trust’s limited ability to facilitate in-kind creations and redemptions could result in the exchange-traded product arbitrage mechanism failing to function as efficiently as it otherwise would, leading to the potential for the Shares to trade at premiums or discounts to the NAV, and such premiums or discounts could be substantial.
+Added: See “—The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the price of ether and, as a result, the price of the Shares may fall or otherwise diverge from NAV.” Furthermore, if cash creations or redemptions are unavailable, either due to the Sponsor’s decision to reject or suspend such orders, the unavailability of Ether Trading Counterparties or the Prime Execution Agent’s services, or otherwise, Authorized Participants will be limited in their ability to redeem or create Shares, in which case the arbitrage mechanism may not function as efficiently.
This could result in impaired liquidity for the Shares, wider bid/ask spreads in secondary trading of the Shares and greater costs to investors and other market participants.
−Removed: In addition, the Trust’s inability to facilitate in-kind creations and redemptions, and resulting reliance on cash creations and redemptions, could cause the Sponsor to halt or suspend the creation or redemption of Shares during times of market volatility or turmoil, among other consequences.
−Removed: Even if In-Kind Regulatory Approval were obtained, there can be no assurance that in-kind creations or redemptions of the Shares will be available in the future, or that broker-dealers would be willing to serve as Authorized Participants with respect to the in-kind creation and redemption of Shares.
+Added: In addition, the Trust’s limited ability to facilitate in-kind creations and redemptions, and resulting relative reliance on cash creations and redemptions, could cause the Sponsor to halt or suspend the creation or redemption of Shares during times of market volatility or turmoil, among other consequences.
Any of these factors could adversely affect the performance of the Trust and the value of the Shares.
If the process of creation and redemption of Baskets encounters any unanticipated difficulties, the possibility for arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the price of ether may not exist and, as a result, the price of the Shares may fall or otherwise diverge from NAV.
−Removed: If the processes of creation and redemption of Shares (which depend on timely transfers of ether to and by the Ether Custodian and Prime Execution Agent) encounter any unanticipated difficulties due to, for example, the price volatility of ether, the insolvency, business failure or interruption, default, failure to perform, security breach, or other problems affecting the Prime Execution Agent, Ether Custodian, Authorized Participants or Ether Trading Counterparties, the inability to perform in-kind creations and redemptions, the closing of ether trading platforms due to fraud, failures, security breaches or otherwise, or network outages or congestion, spikes in transaction fees demanded by miners, or other problems or disruptions affecting the Ethereum network, then potential market participants, such as the Authorized Participants and their customers, who would otherwise be willing to purchase or redeem Baskets (in the case of Authorized Participants) to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares and the price of the underlying ether or to engage in ether transactions (in the case of Ether Trading Counterparties or transactions facilitated by the Prime Execution Agent) may not take the risk that, as a result of those difficulties, they may not be able to realize the profit they expect.
+Added: If the processes of creation and redemption of Shares (which depend on timely transfers of ether to and by the Authorized Participant or its designated agent or client, the Ether Custodian and the Prime Execution Agent) encounter any unanticipated difficulties due to, for example, the price volatility of ether, the insolvency, business failure or interruption, default, failure to perform, security breach, or other problems affecting the Prime Execution Agent, Ether Custodian, Authorized Participants or Ether Trading Counterparties, the closing of ether trading platforms due to fraud, failures, security breaches or otherwise, or network outages or congestion, spikes in transaction fees demanded by miners, or other problems or disruptions affecting the Ethereum network, then potential market participants, such as the Authorized Participants and their customers, who would otherwise be willing to purchase or redeem Baskets (in the case of Authorized Participants) to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares and the price of the underlying ether or to engage in ether transactions (in the case of Ether Trading Counterparties or transactions facilitated by the Prime Execution Agent) may not take the risk that, as a result of those difficulties, they may not be able to realize the profit they expect.
In certain such cases, the Trustee may, and upon the direction of the Sponsor shall, suspend the process of creation and redemption of Baskets.
During such times, trading spreads, and the resulting premium or discount, on Shares may widen.
−Removed: Alternatively, in the case of a network outage or other problems affecting the Ethereum network, the processing of transactions on the Ethereum network may be disrupted, which in turn may prevent Ether Trading Counterparties from depositing or withdrawing ether from their accounts at the Prime Execution Agent, or prevent the Prime Execution Agent from facilitating ether transactions through its Coinbase Prime service, which in turn could affect the creation or redemption of Baskets.
+Added: Alternatively, in the case of a network outage or other problems affecting the Ethereum network, the processing of transactions on the Ethereum network may be disrupted, which in turn may prevent Authorized Participants or their designated agent or client, Ether Trading Counterparties from depositing or withdrawing ether from their accounts at the Prime Execution Agent, or prevent the Prime Execution Agent from facilitating ether transactions through its Coinbase Prime service, which in turn could affect the creation or redemption of Baskets.
If this is the case, the liquidity of the Shares may decline and the price of the Shares may fluctuate independently of the price of ether and may fall or otherwise diverge from NAV.
1 unchanged sentence
The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely linked to the price of ether and, as a result, the price of the Shares may fall or otherwise diverge from NAV.
+Added: Baskets may be created or redeemed in exchange for ether or cash.
+Added: However, only certain Authorized Participants, at present, have the ability to also, through their affiliates, support in-kind creation and redemption activity.
The use of cash creations and redemptions, as opposed to in-kind creations and redemptions, could cause delays in trade execution due to potential operational issues arising from implementing a cash creation and redemption model, which involves greater operational steps (and therefore execution risk) than the originally contemplated in-kind creation and redemption model, or the potential unavailability or exhaustion of the Trade Credits, which the Trust would not be able to use in connection with in-kind creations and redemptions.
5 unchanged sentences
This may adversely affect the arbitrage mechanism intended to keep the price of the Shares closely linked to the price of ether, and as a result, the price of the Shares may fall or otherwise diverge from NAV.
−Removed: If the arbitrage mechanism is not effective, purchases or sales of Shares on the secondary market could occur at a premium or discount to NAV, which could harm Shareholders by causing them buy Shares at a price higher than the value of the underlying ether held by the Trust or sell Shares at a price lower than the value of the underlying ether held by the Trust, causing Shareholders to suffer losses.
−Removed: Alternatively, Authorized Participants could refrain from participating in creating and redeeming Baskets, and if not replaced, could disrupt the Trust’s ability to operate.
−Removed: Similarly, if Ether Trading Counterparties or the parties to transactions with the Trust through the Prime Execution Agent’s Coinbase Prime service refrain from transacting with the Trust, and if not replaced, it could disrupt the Trust’s ability to operate.
+Added: If the arbitrage mechanism is not effective, purchases or sales of Shares on the secondary market could occur at a premium or discount to NAV, which could harm Shareholders by causing them to buy Shares at a price higher than the value of the underlying ether held by the Trust or sell Shares at a price lower than the value of the underlying ether held by the Trust, causing Shareholders to suffer losses.
+Added: Alternatively, Authorized Participants could refrain from participating in creating and redeeming baskets and could disrupt the Trust’s ability to operate.
+Added: Similarly, if Ether Trading Counterparties or the parties to transactions with the Trust through the Prime Execution Agent’s Coinbase Prime service refrain from transacting with the Trust it could disrupt the Trust’s ability to operate.
The Trust expects to conduct ether purchase and sale transactions through the Prime Execution Agent’s Coinbase Prime service and with Ether Trading Counterparties.
−Removed: The reliance on the Prime Execution Agent’s Coinbase Prime service and Ether Trading Counterparties creates a risk that if the Prime Execution Agent’s Coinbase Prime service or trading with Ether Trading Counterparties is unavailable or disrupted for any reason, the Trust will be unable to execute ether transactions and the Trust’s creation and redemption processes will be disrupted.
+Added: The reliance on the Prime Execution Agent’s Coinbase Prime service and Ether Trading Counterparties creates a risk that if the Prime Execution Agent’s Coinbase Prime service or trading with Ether Trading Counterparties is unavailable or disrupted for any reason, the Trust will be unable to execute ether transactions and the Trust’s cash creation and redemption processes will be disrupted.
In addition, a failure to settle ether transactions, whether with the Ether Trading Counterparty or the Prime Execution Agent’s Coinbase Prime service, could disrupt the calculation of the Trust’s NAV or potentially cause inaccuracies in NAV calculation, which could disrupt the Trust’s operations or cause Shareholders to suffer losses.
11 unchanged sentences
The Investment Company Act is designed to protect investors by preventing insiders from managing investment companies to their benefit and to the detriment of public investors, such as:
−Removed: the issuance of securities having inequitable or discriminatory provisions; the management of investment companies by irresponsible persons; the use of unsound or misleading methods of computing earnings and asset value; changes in the character of investment companies without the consent of investors; and investment companies from engaging in excessive leveraging.
−Removed: To accomplish these ends, the Investment Company Act requires the safekeeping and proper valuation of fund assets, restricts greatly transactions with affiliates, limits leveraging, and imposes governance requirements as a check on fund management.
+Added: the issuance of securities having inequitable or discriminatory provisions; the management of investment companies by irresponsible persons; the use of unsound or misleading methods of computing earnings and asset value; changes in the character of investment companies without the consent of investors; and investment companies engaging in excessive leveraging.
+Added: To accomplish these ends, the Investment Company Act requires the safekeeping and proper valuation of fund assets, greatly restricts transactions with affiliates, limits leveraging, and imposes governance requirements as a check on fund management.
The 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.
3 unchanged sentences
Consequently, Shareholders will not have the regulatory protections provided to investors in CEA-regulated instruments or commodity pools.
+Added: However, Congress is currently considering legislation, such as the Digital Asset Market Clarity Act of 2025 (CLARITY Act), which could give the CFTC greater powers to regulate the spot digital asset market.
+Added: It is possible that, if legislation is passed, it could require the Trust or the Sponsor, or service providers to the Trust, such as the Prime Execution Agent, Authorized Participants, or Ether Trading Counterparties, among others, to register with the CFTC.
+Added: Such additional regulatory obligations may cause the Trust, the Trustee, the Sponsor, Prime Execution Agent, Authorized Participants or Ether Trading Counterparties to incur extraordinary expenses.
+Added: If the Trust, the Trustee, the Sponsor, Prime Execution Agent, Authorized Participants or the Ether Trading Counterparties decided to seek the required licenses, there is no guarantee that they will timely receive them.
+Added: The Trustee may decide to discontinue and wind up the Trust.
+Added: A dissolution of the Trust in response to the changed regulatory circumstances may be at a time that is disadvantageous to the Shareholders.
+Added: An Ether Trading Counterparty may also instead decide to terminate its role as an Ether Trading Counterparty of the Trust, which may decrease the liquidity of the Shares.
As the Sponsor and its management have limited history of operating investment vehicles like the Trust, their experience may be inadequate or unsuitable to manage the Trust.
−Removed: The Sponsor and its management team have a limited track record in operating investment vehicles that specifically deal with cryptoassets such as the Trust.
+Added: The Sponsor and its management team have a limited track record in operating investment vehicles, such as the Trust, that specifically deal with crypto assets.
This limited experience poses several potential risks to the effective management and operation of the Trust.
−Removed: Cryptoassets, such as ether, are known for their high volatility, unique technical, legal and regulatory challenges, and rapidly evolving market dynamics.
−Removed: The Sponsor’s limited experience in this specific field may not fully equip them to navigate these complexities effectively.
+Added: Crypto assets, such as ether, are known for their high volatility, unique technical, legal and regulatory challenges, and rapidly evolving market dynamics.
+Added: The Sponsor’s limited experience in this specific field may not fully equip it to navigate these complexities effectively.
The past performances of the Sponsor’s management in other investment vehicles are no indication of their ability to manage an investment vehicle such as the Trust.
−Removed: The unique nature of cryptoassets makes past performance an unreliable indicator of future success in this area.
+Added: The unique nature of crypto assets makes past performance an unreliable indicator of future success in this area.
The crypto asset market is technology-driven and requires a deep understanding of the underlying blockchain technology and security considerations.
30 unchanged sentences
To the extent that the Trust is unable to seek redress for such error or theft, such loss could adversely affect the value of the Shares.
−Removed: If the Custodian Agreement, Prime Execution Agent Agreement, an Authorized Participant Agreement or Ether Trading Counterparty Agreement is terminated, or the Ether Custodian, Prime Execution Agent, an Authorized Participant or an Ether Trading Counterparty fails to provide services as required, the Trustee may need to find and appoint a replacement custodian, execution agent, authorized participant or ether trading counterparty, which could pose a challenge to the safekeeping of the Trust’s ether, the Trust’s ability to create and redeem Shares and the Trust’s ability to continue to operate may be adversely affected.
+Added: If the Custodian Agreement, Prime Execution Agent Agreement, an Authorized Participant Agreement or Ether Trading Counterparty Agreement is terminated, or the Ether Custodian, Prime Execution Agent, an Authorized Participant or an Ether Trading Counterparty fails to provide services as required, the Trustee may operationalize the Additional Ether Custodian, or may need to find and appoint a replacement custodian, execution agent, authorized participant or ether trading counterparty, which could pose a challenge to the safekeeping of the Trust ’ s ether, the Trust ’ s ability to create and redeem Shares and the Trust ’ s ability to continue to operate may be adversely affected.
The Trust is dependent on the Ether Custodian, which is Coinbase Custody, and the Prime Execution Agent, Coinbase Inc.
9 unchanged sentences
has violated the Securities Act by failing to register with the SEC the offer and sale of its staking program, and (iii) that Coinbase Global is jointly and severally liable as a control person under the Exchange Act for Coinbase Inc.’s violations of the Exchange Act to the same extent as Coinbase Inc.
−Removed: The SEC’s complaint against the Relevant Coinbase Entities does not allege that ether is a security, nor does it allege that Coinbase Inc’s activities involving ether caused the alleged registration violations, and the Ether Custodian was not named as a defendant.
−Removed: The SEC’s complaint seeks a permanent injunction against the Relevant Coinbase Entities to prevent them from violations of the Exchange Act or Securities Act, disgorgement, civil monetary penalties, and such other relief as the court deems appropriate or necessary.
−Removed: Coinbase Inc., as Prime Execution Agent, could be required, as a result of a judicial determination, or could choose, to restrict or curtail the services it offers, or its financial condition and ability to provide services to the Trust could be affected.
−Removed: If the Prime Execution Agent were to be required or choose, as a result of a regulatory action (including, for example, the litigation initiated by the SEC), to restrict or curtail the services it offers, it could negatively affect the Trust’s ability to operate or process creations or redemptions of Baskets, which could force the Trust to liquidate or adversely affect the price of the Shares.
−Removed: While the Ether Custodian is not named in the complaint, if Coinbase Global, as the parent of the Ether Custodian, is required, as a result of a judicial determination, or could choose, to restrict or curtail the services its subsidiaries provide to the Trust, or its financial condition is negatively affected, it could negatively affect the Trust’s ability to operate.
−Removed: Alternatively, the Trustee could decide to replace Coinbase Custody as the Ether Custodian with custody of the Trust’s ether, pursuant to the Custodian Agreement.
+Added: The SEC’s complaint against the Relevant Coinbase Entities did not allege that ether is a security, nor did it allege that Coinbase Inc’s activities involving ether caused the alleged registration violations, and the Ether Custodian was not named as a defendant.
+Added: The SEC’s complaint sought a permanent injunction against the Relevant Coinbase Entities to prevent them from violations of the Exchange Act or Securities Act, disgorgement, civil monetary penalties, and such other relief as the court deems appropriate or necessary.
+Added: On February 27, 2025, the SEC and Coinbase Inc.
+Added: and Coinbase Global filed a joint stipulation to dismiss the case with prejudice, and the case has been dismissed.
+Added: Notwithstanding the dismissal of the SEC enforcement action, Coinbase Inc.
+Added: is currently, and it and the Ether Custodian from time to time may be, subject in the future, to a variety of other litigation.
+Added: Although the Trust does not presently anticipate such an outcome, there can be no assurance that in the future Coinbase Inc., as Prime Execution Agent, or Coinbase Custody, as the Ether Custodian, will not be required, as a result of a judicial determination, or will not choose, to restrict or curtail the services they offer, or their financial condition and ability to provide services to the Trust will not be negatively affected.
+Added: If in the future the Prime Execution Agent or the Ether Custodian were to be required or choose to restrict or curtail the services they offer for any reason, whether related to litigation or otherwise, it could negatively affect the Trust’s ability to operate or process creations or redemptions of Baskets, which could force the Trust to liquidate or adversely affect the price of the Shares.
+Added: Alternatively, the Trustee could decide to replace Coinbase Custody as the Ether Custodian of the Trust’s ether, pursuant to the Custodian Agreement.
Similarly, Coinbase Custody or Coinbase Inc.
−Removed: could terminate services under the Custodian Agreement or the Amended and Restated Coinbase Prime Broker Agreement (the “Prime Execution Agent Agreement”) respectively upon providing the applicable notice to the Trust for any reason, or immediately for Cause (a “Termination for Cause” is defined in the Custodian Agreement as (i) the Trust materially breaching any provision of the Custodian Agreement; (ii) the Trust becomes bankrupt or insolvent; or (iii) the Trust fails to pay and settle in full its obligations to Coinbase Custody’s affiliate, the Trade Credit Lender (as defined below), which may, from time to time, provide financing to the Trust in the form of Trade Credits).
−Removed: Transferring maintenance responsibilities of the Trust’s account at the Ether Custodian to another custodian will likely be complex and could subject the Trust’s ether to the risk of loss during the transfer, which could have a negative impact on the performance of the Shares or result in loss of the Trust’s assets.
+Added: could terminate services under the Custodian Agreement or the Prime Execution Agent Agreement respectively upon providing the applicable notice to the Trust for any reason, or immediately for Cause.
+Added: A Termination for Cause is defined in the Custodian Agreement and Prime Execution Agent Agreement as (i) the Trust materially breaching any provision of the Custodian Agreement and such failure is not cured within 30 calendar days after notice of such breach is provided by Coinbase Inc.
+Added: to the Trust, or the Trust materially breaching any provision of the Prime Execution Agent Agreement and such breach remains uncured for 10 calendar days following notice;
+Added: (ii) the Trust becomes bankrupt or insolvent;
+Added: or (iii) the Trust fails to pay and settle in full its obligations to Coinbase Custody’s affiliate, the Trade Credit Lender (as defined below), which may, from time to time, provide financing to the Trust in the form of Trade Credits.
+Added: In the event that the Trust transfers maintenance responsibilities of the Trust’s account at the Ether Custodian to another custodian (or transfers the Trust’s ether from the Ether Custodian or the Prime Execution Agent to the Additional Ether Custodian or vice versa), the Trust’s ether would be subject to a risk of loss during the transfer, which, if such risk eventuates, could have a negative impact on the performance of the Shares or result in loss of the Trust’s assets.
As Prime Execution Agent, Coinbase Inc.
4 unchanged sentences
Also, if Coinbase Custody or Coinbase Inc.
−Removed: become insolvent, suffer business failure, cease business operations, default on or fail to perform their obligations under their contractual agreements with the Trust, or abruptly discontinue the services they provide to the Trust for any reason, the Trust’s operations including its creation and redemption processes would be adversely affected.
+Added: becomes insolvent, suffers business failure, ceases business operations, defaults on or fails to perform their obligations under their contractual agreements with the Trust, or abruptly discontinues the services they provide to the Trust for any reason, the Trust’s operations, including its creation and redemption processes, would be adversely affected.
+Added: Further, if the Trustee decides to operationalize the Additional Ether Custodian, the Additional Ether Custodian would perform essential functions in terms of safekeeping any of the Trust’s ether that is held with Anchorage.
+Added: The Anchorage Custodian Agreement provides the Trust with an available alternative custodian to safeguard the Trust’s ether;
+Added: however, if the Trustee does not operationalize the Additional Ether Custodian, or if Anchorage fails to perform the functions of the Anchorage Custodian Agreement once operationalized, the Trust may be unable to operate or create or redeem Baskets, or may suffer losses, which could force the Trust to liquidate or adversely affect the price of the Shares.
+Added: Anchorage could terminate services under the Anchorage Custodian Agreement upon providing the applicable notice to the Trust for any reason, or immediately for Cause.
+Added: A “Termination for Cause” is defined in the Anchorage Custodian Agreement as:
+Added: (i) the Trust materially breaches any provision of the Additional Ether Custodian Agreement, and such breach remains uncured for a period of 30 calendar days after notice of such breach is provided by Anchorage to the Trust;
+Added: or (ii) the Trust becomes bankrupt or insolvent.
+Added: If Anchorage were to terminate services under the Anchorage Custodian Agreement, the Trustee may need to find and appoint a replacement ether custodian.
The Trustee may not be able to find a party willing to serve as the custodian of the Trust’s ether or as the Trust’s prime execution agent under the same terms as the current custodian agreement or prime execution agent agreement or at all.
2 unchanged sentences
If the Trust is unable to find a replacement prime execution agent, its operations could be adversely affected.
−Removed: Similarly, if an Authorized Participant or an Ether Trading Counterparty suffers insolvency, business failure or interruption, default, failure to perform, security breach, or in certain circumstances a force majeure event or if an Authorized Participant or an Ether Trading Counterparty chooses not to participate in the creation and redemption process of the Trust, and the Trust is unable to engage replacement Authorized Participants or Ether Trading Counterparties or access alternative services on commercially acceptable terms or at all, then the creation and redemption process of the Trust, the arbitrage mechanism used to keep the Shares in line with the NAV and the Trust’s operations generally could be negatively affected.
−Removed: The lack of full insurance and Shareholders ’ limited rights of legal recourse against the Trust, Delaware Trustee, Sponsor, Trust Administrator, Cash Custodian, Prime Execution Agent and Ether Custodian expose the Trust and its Shareholders to the risk of loss of the Trust ’ s ether for which no person or entity is liable.
+Added: Similarly, if an Authorized Participant or an Ether Trading Counterparty suffers insolvency, business failure or interruption, default, failure to perform, security breach, or in certain circumstances a force majeure event or if an Authorized Participant or an Ether Trading Counterparty, as applicable, chooses not to participate in the creation and redemption process of the Trust, and the Trust is unable to engage replacement Authorized Participants or Ether Trading Counterparties or access alternative services on commercially acceptable terms or at all, then the creation and redemption process of the Trust, the arbitrage mechanism used to keep the Shares in line with the NAV and the Trust’s operations generally could be negatively affected.
+Added: The lack of full insurance and Shareholders ’ limited rights of legal recourse against the Trust, Delaware Trustee, Sponsor, Trust Administrator, Cash Custodian, Prime Execution Agent, the Ether Custodian, if operationalized, the Additional Ether Custodian expose the Trust and its Shareholders to the risk of loss of the Trust ’ s ether for which no person or entity is liable.
The Trust is not a banking institution or otherwise a member of the FDIC or Securities Investor Protection Corporation (“SIPC”) and, therefore, deposits held with or assets held by the Trust are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.
In addition, neither the Trust nor the Sponsor insure the Trust’s ether.
−Removed: Coinbase Global maintains a commercial crime insurance policy of up to $320 million, which is intended to cover the loss of client assets held by Coinbase Global and all of its subsidiaries, including the Ether Custodian and the Prime Execution Agent (collectively, Coinbase Global and its subsidiaries are referred to as the “Coinbase Insureds”), including from employee collusion or fraud, physical loss including theft, damage of key material, security breach or hack, and fraudulent transfer.
−Removed: The insurance maintained by the Coinbase Global is shared among all of Coinbase’s customers, is not specific to the Trust or to customers holding ether with the Ether Custodian or Prime Execution Agent and may not be available or sufficient to protect the Trust from all possible losses or sources of losses.
+Added: Coinbase Global has informed the Sponsor that it maintains a commercial crime insurance policy, which is intended to cover the loss of client assets held by Coinbase Global and all of its subsidiaries, including the Ether Custodian and the Prime Execution Agent (collectively, Coinbase Global and its subsidiaries are referred to as the “Coinbase Insureds”), including from employee collusion or fraud, physical loss including theft, damage of key material, security breach or hack, and fraudulent transfer.
+Added: The insurance maintained by Coinbase Global is shared among all of Coinbase’s customers, is not specific to the Trust or to customers holding ether with the Ether Custodian or Prime Execution Agent and may not be available or sufficient to protect the Trust from all possible losses or sources of losses.
Coinbase Global’s insurance may not cover the type of losses experienced by the Trust.
2 unchanged sentences
While the Ether Custodian maintains certain capital reserve requirements depending on the assets under custody, and such capital reserves may provide additional means to cover client asset losses, the Trust cannot be assured that the Ether Custodian will maintain capital reserves sufficient to cover actual or potential losses with respect to the Trust’s digital assets.
+Added: None of Coinbase Inc., Coinbase Custody, or Coinbase Global is an FDIC or SIPC member institution.
Furthermore, under the Custodian Agreement, the Ether Custodian’s liability is limited as follows, among others:
4 unchanged sentences
Furthermore, the insurance maintained by the Ether Custodian may be insufficient to cover its liabilities to the Trust.
+Added: If the Trustee operationalizes the Additional Ether Custodian, the Trust’s holdings at the Additional Ether Custodian would be covered by insurance held by Anchor Labs Inc., the parent company of the Additional Ether Custodian (“Anchor Labs”).
+Added: Anchor Labs maintains crime insurance coverage for a minimum limit of $100,000,000, which is intended to cover the loss of Trust assets held by the Additional Ether Custodian, including from dishonest or fraudulent acts committed by Anchor Labs and all of its subsidiaries, including the Additional Ether Custodian (collectively Anchor Labs and its subsidiaries are referred to as the “Anchor Labs Insureds”) employees, its agents and subcontractors;
+Added: forgery and alteration;
+Added: computer crime;
+Added: wire transfer coverage;
+Added: physical damage or theft of private key data;
+Added: social engineering coverage;
+Added: and security breaches or hacking.
+Added: The insurance maintained by Anchor Labs may be shared among Anchor Labs Insureds’ other customers, is not necessarily exclusive to the Trust or to customers holding ether with the Additional Ether Custodian and may not be available or sufficient to protect the Trust from all possible losses or sources of losses.
+Added: Alternatively, the Trust may be forced to share such insurance proceeds with other clients or customers of the Anchor Labs Insureds, which could reduce the amount of such proceeds that are available to the Trust.
+Added: In addition, the digital asset insurance market is limited, and the level of insurance maintained by Anchor Labs may be substantially lower than the assets of the Trust.
+Added: While the Additional Ether Custodian maintains certain capital reserve requirements depending on the assets under custody, and such capital reserves may provide additional means to cover client asset losses, the Trust cannot be assured that the Additional Ether Custodian will maintain capital reserves sufficient to cover actual or potential losses with respect to the Trust’s digital assets.
+Added: The insurance program does not cover, insure or guarantee the performance of the Trust.
+Added: The Additional Ether Custodian is neither FDIC-insured nor SIPC-insured.
+Added: With respect to the Anchorage Custodian Agreement, other than with respect to claims and losses arising from:
+Added: (i) fraud or willful misconduct of the Additional Ether Custodian and (ii) the Anchorage Mutually Capped Liabilities (defined below), in no event will the Additional Ether Custodian’s liability exceed the value of the cash or affected ether giving rise to such liability.
+Added: With respect to Anchorage Mutually Capped Liabilities, other than with respect to claims and losses arising from fraud or willful misconduct of the Additional Ether Custodian, in no event will the Additional Ether Custodian’s liability exceed the greater of $5 million and the aggregate amount of fees paid by client to the Additional Ether Custodian in the 12-month period prior to the event giving rise to such liability.
+Added: “Anchorage Mutually Capped Liabilities” means (i) claims and losses arising from a party’s breach of its confidentiality obligations under the Anchorage Custodian Agreement, (ii) a party’s indemnity obligations under the Anchorage Custodian Agreement (except with respect to the full amount of any Trust ether lost, which shall not constitute an Anchorage Mutually Capped Liability), and (iii) claims and losses arising from the violation, misappropriation, or infringement by a party of any third party intellectual and/or industrial property rights, including patent rights, copyrights, moral rights, trademarks, trade names, service marks, trade secrets, rights in inventions (including applications for, and registrations, extensions, renewals, and re‑issuances of the foregoing).
+Added: With respect to claims and losses related to a withdrawal or transfer of ether, if the Trust has operationalized Anchorage, the value of such digital assets shall be determined by reference to the benchmark valuation on the date delivery of such ether in connection with such withdrawal or transfer is due in accordance with the terms of the Anchorage Custodian Agreement.
+Added: In respect of any incidental, indirect, special, punitive, consequential or similar losses, the Additional Ether Custodian is not liable, even if the Additional Ether Custodian has been advised of or knew or should have known of the possibility thereof.
+Added: The Additional Ether Custodian is not liable for delays, suspension of operations, failure in performance, or interruption of service to the extent it is directly due to a cause or condition beyond the reasonable control of the Additional Ether Custodian.
Similarly, under the Prime Execution Agent Agreement, the Prime Execution Agent’s liability is limited as follows, among others:
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Both the Trust and the Prime Execution Agent and its affiliates (including the Ether Custodian) are required to indemnify each other under certain circumstances.
−Removed: Moreover, in the event of an insolvency or bankruptcy of the Prime Execution Agent (in the case of the Trading Balance) or the Ether Custodian (in the case of the Vault Balance) in the future, given that the contractual protections and legal rights of customers with respect to digital assets held on their behalf by third parties are relatively untested in a bankruptcy of an entity such as the Ether Custodian or Prime Execution Agent in the digital asset industry, there is a risk that customers’ assets – including the Trust’s assets – may be considered the property of the bankruptcy estate of the Prime Execution Agent (in the case of the Trading Balance) or the Ether Custodian (in the case of the Vault Balance), and customers – including the Trust – may be at risk of being treated as general unsecured creditors of such entities and subject to the risk of total loss or markdowns on value of such assets.
+Added: Moreover, in the event of an insolvency or bankruptcy of the Prime Execution Agent (in the case of the Trading Balance) or the Ether Custodian (in the case of the Vault Balance), given that the contractual protections and legal rights of customers with respect to digital assets held on their behalf by third parties are relatively untested in insolvency of these types of entities in the digital asset industry, there is a risk that customers’ assets – including the Trust’s assets – may be considered the property of the estate of the Prime Execution Agent (in the case of the Trading Balance), or the Ether Custodian (in the case of the Vault Balance), and customers – including the Trust – may be at risk of being treated as general unsecured creditors of such entities and subject to the risk of total loss or markdowns on value of such assets.
The Custodian Agreement contains an agreement by the parties to treat the ether credited to the Trust’s Vault Balance as financial assets under Article 8 of the New York Uniform Commercial Code (“Article 8”), in addition to stating that the Ether Custodian will serve as fiduciary and custodian on the Trust’s behalf.
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To the extent that the execution price for purchases and sales of ether related to creations and redemptions and sales of ether in connection with paying the Sponsor’s Fee and any other Trust expenses deviate significantly from the Index price used to determine the net asset value of the Trust, the Shareholders may be negatively impacted because the added costs of such price deviations would be incurred by the Authorized Participants and may be passed onto the Shareholders in the secondary market.
−Removed: Moreover, this risk factor relating to the unavailability or exhaustion of the Trade Credits should be interpreted as a heightened risk as a result of the Trust being required to conduct cash creations and redemptions in lieu of in-kind creations and redemptions.
+Added: Moreover, this risk factor relating to the unavailability or exhaustion of the Trade Credits should be interpreted as a heightened risk as when choosing cash creations and redemptions rather than contemplated in-kind creations and redemptions.
The Trust generally must repay Trade Credits by 6:00 p.m.
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The Prime Execution Agent relies on bank accounts to provide its trading platform services and including temporarily holding any cash related to a customer’s purchase or sale of ether.
−Removed: In particular, the Prime Execution Agent has disclosed that customer cash held by the Prime Execution Agent, including the cash associated with the Trust’s Trading Balance, is held in one or more banks’ accounts for the benefit of the Prime Execution Agent’s customers, or in money market funds in compliance with Rule 2a-7 under the Investment Company Act and rated “AAA” by S&P (or the equivalent from any eligible rating service), provided that such investments are held in accounts in Coinbase’s name for the benefit of customers and are permitted and held in accordance with state money transmitter laws (“Money Market Funds”).
+Added: In particular, the Prime Execution Agent has disclosed that customer cash held by the Prime Execution Agent, including the cash associated with the Trust’s Trading Balance, is held in one or more banks’ accounts for the benefit of the Prime Execution Agent’s customers, or in money market funds in compliance with Rule 2a-7 under the Investment Company Act and rated “AAA” by S&P (or the equivalent from any eligible rating service) (“Money Market Funds”), provided that such investments are held in accounts in Coinbase’s name for the benefit of customers and are permitted and held in accordance with state money transmitter laws.
The Prime Execution Agent has represented to the Sponsor that it has implemented the following policy with respect to the cash associated with the Trust’s Trading Balance.
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Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting the value of the Shares.
−Removed: In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed ordinary course operational and periodic expenses of the Trust, with the exception of those described in “Business of the Trust—Trust Expenses.” Expenses incurred by the Trust but not assumed by the Sponsor, such as, among others, taxes and governmental charges; expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders; or extraordinary legal fees and expenses are not assumed by the Sponsor and are borne by the Trust.
+Added: In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed ordinary course operational and periodic expenses of the Trust, with certain exceptions.
+Added: Expenses incurred by the Trust but not assumed by the Sponsor, such as, among others, taxes and governmental charges; expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders; or extraordinary legal fees and expenses are not assumed by the Sponsor and are borne by the Trust.
The Sponsor will cause the Trust to either (i) sell ether held by the Trust or (ii) deliver ether in-kind to the Sponsor to pay Trust expenses not assumed by the Sponsor on an as-needed basis.
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The Sponsor is not aware of any intellectual property rights claims that may prevent the Trust from operating and holding ether.
−Removed: However, third parties may assert intellectual property rights claims relating to the operation of the Trust and the mechanics instituted for the investment in, holding of and transfer of ethe.
+Added: However, third parties may assert intellectual property rights claims relating to the operation of the Trust and the mechanics instituted for the investment in, holding of and transfer of ether.
Regardless of the merit of an intellectual property or other legal action, any legal expenses to defend or payments to settle such claims would be extraordinary expenses that would be borne by the Trust through the sale or transfer of its ether.
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As a result, an intellectual property rights claim against the Trust could adversely affect the value of the Shares.
+Added: The Shares may trade at a price that is at, above or below the Trust ’ s NAV as a result of the non-current trading hours between NASDAQ and the digital asset market.
+Added: The Trust’s NAV will fluctuate with changes in the market value of ether, and the Sponsor expects the trading price of the Shares to fluctuate in accordance with changes in the Trust’s NAV, as well as market supply and demand.
+Added: However, the Shares may trade on NASDAQ at a price that is at, above or below the Trust’s NAV for a variety of reasons.
+Added: For example, NASDAQ is open for trading in the Shares for a limited period each day, but the digital asset market is a 24-hour marketplace.
+Added: During periods when NASDAQ is closed but constituent trading platforms are open, significant changes in the price of ether on the digital asset market could result in a difference in performance between the value of ether as measured by the Index and the most recent NAV or closing trading price.
+Added: For example, if the price of ether on the digital asset market, and the value ether as measured by the Index, move significantly in a negative direction after the close of NASDAQ, the trading price of the Shares may “gap” down to the full extent of such negative price shift when the Exchange reopens.
+Added: If the price of ether on the digital asset market drops significantly during hours the NASDAQ is closed, Shareholders may not be able to sell their Shares until after the “gap” down has been fully realized, resulting in an inability to mitigate losses in a negative market.
+Added: Even during periods when the NASDAQ is open, large constituent trading platforms (or a substantial number of smaller constituent trading platforms) may be lightly traded or closed for any number of reasons, which could increase trading spreads and widen any premium or discount on the Shares.
Risk Factors Related to the Regulation of the Trust and the Shares
−Removed: Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of ether or the Shares, such as by banning, restricting or imposing onerous conditions or prohibitions on the use of ether, validator activity, digital wallets, the provision of services related to trading and custodying ether, the operation of the Ethereum network, or the digital asset markets generally.
+Added: Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of ether or the Shares, such as by banning, restricting or imposing onerous conditions or prohibitions on the use of ether, validator activity, digital wallets, the provision of services related to trading and providing custody services for ether, the operation of the Ethereum network, or the digital asset markets generally.
There is a lack of consensus regarding the regulation of digital assets, including ether, and their markets.
−Removed: As a result of the growth in the size of the digital asset market, as well as the 2022 Events, the U.S.
+Added: As a result of the growth in the size of the digital asset market, as well as the 2022 Events described below, the U.S.
Congress and a number of U.S.
−Removed: federal and state agencies (including FinCEN, SEC, OCC, CFTC, FINRA, the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the Internal Revenue Service (“IRS”), state financial institution regulators, and others) have been examining the operations of digital asset networks, digital asset users and the digital asset markets.
+Added: federal and state agencies (including FinCEN, SEC, Office of the Comptroller of the Currency (the “OCC”), CFTC, FINRA, the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the Internal Revenue Service (“IRS”), state financial institution regulators, and others) have been examining the operations of digital asset networks, digital asset users and the digital asset markets.
Many of these state and federal agencies have brought enforcement actions or issued consumer advisories regarding the risks posed by digital assets to investors.
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Federal and state legislatures and regulatory agencies may introduce and enact new laws and regulations to regulate crypto asset intermediaries, such as digital asset platforms and custodians.
−Removed: The March 2023 collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank, which in some cases provided services to the digital assets industry, may amplify and/or accelerate these trends.
+Added: The March 2023 collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank, which in some cases provided services to the digital asset industry, may amplify and/or accelerate these trends.
On January 3, 2023, the federal banking agencies issued a joint statement on crypto-asset risks to banking organizations following events which exposed vulnerabilities in the crypto asset sector, including the risk of fraud and scams, legal uncertainties, significant volatility, and contagion risk.
−Removed: Although banking organizations are not prohibited from crypto-asset related activities, the agencies have expressed significant safety and soundness concerns with business models that are concentrated in crypto-asset related activities or have concentrated exposures to the crypto-asset sector.
+Added: Although banking organizations are not prohibited from cryptoasset-related activities, the agencies have expressed significant safety and soundness concerns with business models that are concentrated in crypto asset-related activities or have concentrated exposures to the crypto asset sector.
US federal and state regulators, as well as the White House, have issued reports and releases concerning crypto assets, including ether, and crypto asset markets.
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the Digital Assets, Financial Technology and Inclusion Subcommittee and the Commodity Markets, Digital Assets, and Rural Development Subcommittee, each of which were formed in part to analyze issues concerning crypto assets and demonstrate a legislative intent to develop and consider the adoption of federal legislation designed to address the perceived need for regulation of and concerns surrounding the crypto industry.
−Removed: However, the extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and it may not be ascertainable in the near future.
−Removed: A divided Congress makes any prediction difficult.
+Added: However, the extent and content of any forthcoming laws and regulations are not yet ascertainable with certainty, and may not be ascertainable in the near future.
We cannot predict how these and other related events will affect us or the crypto asset business.
−Removed: President Biden’s March 9, 2022 Executive Order, asserting that technological advances and the rapid growth of the digital asset markets “necessitate an evaluation and alignment of the United States Government approach to digital assets,” signals an ongoing focus on digital asset policy and regulation in the United States.
−Removed: A number of reports issued pursuant to the Executive Order have focused on various risks related to the digital asset ecosystem and have recommended additional legislation and regulatory oversight.
−Removed: There have also been several bills introduced in Congress that propose to establish additional regulation and oversight of the digital asset markets.
−Removed: It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators, what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of digital asset markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets generally and ether held by the Trust specifically.
+Added: It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the CFTC, SEC or other regulators, what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of digital asset markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets generally and ether held by the Trust specifically.
The consequences of increased federal regulation of digital assets and digital asset activities could have a material adverse effect on the Trust and the Shares.
−Removed: FinCEN requires any administrator or exchanger of convertible digital assets to register with FinCEN as a money transmitter and comply with the anti‑money laundering regulations applicable to money transmitters.
+Added: FinCEN requires any administrator or exchanger of convertible virtual currency (“CVC”) to register with FinCEN as a money transmitter and comply with the anti-money laundering regulations applicable to money transmitters.
Entities which fail to comply with such regulations are subject to fines, may be required to cease operations, and could have potential criminal liability.
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Treasury Department, proposed a rule that would require financial institutions to submit reports, keep records, and verify the identity of customers for certain transactions to or from so-called “unhosted” wallets, also commonly referred to as self-hosted wallets.
−Removed: In January 2021, U.S.
+Added: In January 2021, then U.S.
Treasury Secretary nominee Janet Yellen stated her belief that regulators should “look closely at how to encourage the use of digital assets for legitimate activities while curtailing their use for malign and illegal activities.”
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citizens from using Tornado Cash, a digital asset protocol designed to obfuscate blockchain transactions, by adding certain Ethereum wallet addresses associated with the protocol to its Specially Designated Nationals list.
−Removed: On October 19, 2023, FinCEN published a proposed rulemaking to apply the authorities in Section 311 of the USA PATRIOT Act to impose requirements on financial institutions that engage in convertible virtual currency (“CVC”) transactions with CVC mixers.
+Added: On October 19, 2023, FinCEN published a proposed rulemaking to apply the authorities in Section 311 of the USA PATRIOT Act to impose requirements on financial institutions that engage in CVC transactions with CVC mixers.
The proposed rule, if adopted, would require covered financial institutions to report to FinCEN any CVC transactions they process that involves CVC mixing within or involving a jurisdiction outside the United States.
The term “CVC mixing” covers more than just transactions that involve CVC mixers like Tornado Cash, and seemingly could cover a broader range of conduct involving technologies, services, or methods that have the effect of obfuscating the source, destination, or amount of a CVC transaction, whether or not the obfuscation was intentional.
−Removed: If the rule were to be adopted as proposed and if the Ethereum network were to be deemed to or were to adopt features which come within the rule’s ambit, it could cause covered financial institutions – such as many virtual currency exchanges, or the Trust’s service providers, such as the Prime Execution Agent or Cash Custodian – to reduce support for or cease offering services for ether or to the Trust, which could impair the utility of ether, the value of the Shares and the Trust’s ability to operate in compliance with new laws and regulations.
+Added: If the rule were to be adopted as proposed and if the Ethereum network were to be deemed to or were to adopt features which come within the rule’s ambit, it could cause covered financial institutions – such as many digital asset platforms, or the Trust’s service providers, such as the Prime Execution Agent or Cash Custodian – to reduce support for or cease offering services for ether or to the Trust, which could impair the utility of ether, the value of the Shares and the Trust’s ability to operate in compliance with new laws and regulations.
A determination that ether or any other digital asset is a “ security ” may adversely affect the value of ether and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.
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However, in the weeks following the SEC’s complaint, XRP’s market capitalization fell to less than $10 billion, which was less than half of its market capitalization in the days prior to the complaint.
−Removed: The SEC’s action against XRP’s issuer underscores the continuing uncertainty around which digital assets are securities, and demonstrates that such factors as how long a digital asset has been in existence, how widely held it is, how large its market capitalization is and that it has actual usefulness in commercial transactions, ultimately may have no bearing on whether the SEC or a court will find it to be a security.
+Added: Although the SEC and Ripple reached a settlement in August 2025 to resolve the enforcement action and to dismiss their respective court appeals, which has largely been viewed as positive in the digital assets market, there remains continued uncertainty as to the regulatory framework that will be applied by the SEC and courts to digital assets.
+Added: Such uncertainty may remain until legislation providing a regulatory framework is adopted.
In addition, if ether is determined to be a security, the Trust could be considered an unregistered “investment company” under SEC rules, which could necessitate the Trust’s liquidation.
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Both China and South Korea have banned initial coin offerings entirely and regulators in other jurisdictions, including Canada, Singapore and Hong Kong, have opined that initial coin offerings may constitute securities offerings subject to local securities regulations.
+Added: In May 2021, the Chinese government announced renewed efforts to restrict crypto asset trading and mining activities.
+Added: Regulators in the Inner Mongolia and other regions of China have proposed regulations that would create penalties for companies engaged in crypto asset mining activities and introduce heightened energy saving requirements on industrial parks, data centers and power plants providing electricity to crypto asset miners.
The United Kingdom’s Financial Conduct Authority published final rules in October 2020 banning the sale of derivatives and exchange traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors citing extreme volatility, valuation challenges and association with financial crime.
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For example, Russia’s invasion of Ukraine on February 24, 2022 led to volatility in digital asset prices, with an initial steep decline followed by a sharp rebound in prices.
−Removed: The effect of any future regulatory change or other events on the Trust or ether is impossible to predict, and such change could be substantial and adverse to the Trust and the value of the Shares.
−Removed: If regulators subject the Trust, the Trustee, the Sponsor or Ether Trading Counterparties to regulation as a money services business or money transmitter, this could result in extraordinary expenses to the Trust, the Trustee, the Sponsor or the Ether Trading Counterparties and also result in decreased liquidity for the Shares.
−Removed: To the extent that the activities of the Trust, the Trustee, the Sponsor or Ether Trading Counterparties cause it to be deemed an MSB under the regulations promulgated by FinCEN, the Trust, the Trustee, the Sponsor or the Ether Trading Counterparties may be required to comply with FinCEN regulations, make certain reports to FinCEN and maintain certain records.
−Removed: Similarly, the activities of the Trust, the Trustee, the Sponsor or Ether Trading Counterparties may require it to be licensed as a money transmitter or as a digital asset business, such as under the New York State Department of Financial Services’ BitLicense regulation.
−Removed: Such additional regulatory obligations may cause the Trust, the Trustee, the Sponsor or Ether Trading Counterparties to incur extraordinary expenses.
−Removed: If the Trust, the Trustee, the Sponsor or the Ether Trading Counterparties decided to seek the required licenses, there is no guarantee that they will timely receive them.
+Added: The effect of any future regulatory change or other events on the Trust or ether is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Shares.
+Added: If regulators subject the Trust, the Trustee, the Sponsor, Authorized Participants or Ether Trading Counterparties to regulation as a money services business or money transmitter, this could result in extraordinary expenses to the Trust, the Trustee, the Sponsor or the Ether Trading Counterparties and also result in decreased liquidity for the Shares.
+Added: To the extent that the activities of the Trust, the Trustee, the Sponsor, Authorized Participants or Ether Trading Counterparties cause it to be deemed an MSB under the regulations promulgated by FinCEN, the Trust, the Trustee, the Sponsor, Authorized Participants or the Ether Trading Counterparties may be required to comply with FinCEN regulations, make certain reports to FinCEN and maintain certain records.
+Added: Similarly, the activities of the Trust, the Trustee, the Sponsor, Authorized Participants or Ether Trading Counterparties may require it to be licensed as a money transmitter or as a digital asset business, such as under the New York State Department of Financial Services’ BitLicense regulation.
+Added: Such additional regulatory obligations may cause the Trust, the Trustee, the Sponsor, Authorized Participants or Ether Trading Counterparties to incur extraordinary expenses.
+Added: If the Trust, the Trustee, the Sponsor, Authorized Participants or the Ether Trading Counterparties decided to seek the required licenses, there is no guarantee that they will timely receive them.
The Trustee may decide to discontinue and wind up the Trust.
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An Ether Trading Counterparty may also instead decide to terminate its role as an Ether Trading Counterparty of the Trust, which may decrease the liquidity of the Shares.
−Removed: Additionally, to the extent the Trust, the Trustee, the Sponsor or Ether Trading Counterparties are found to have operated without appropriate state or federal licenses, it may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which would harm the reputation of the Trust, the Trustee, the Sponsor or the Ether Trading Counterparties and have a material adverse effect on the price of the Shares.
+Added: Additionally, to the extent the Trust, the Trustee, the Sponsor, Authorized Participants or Ether Trading Counterparties are found to have operated without appropriate state or federal licenses, it may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which would harm the reputation of the Trust, the Trustee, the Sponsor, Authorized Participants or the Ether Trading Counterparties and have a material adverse effect on the price of the Shares.
Although Ether Trading Counterparties represent to the Trust that they have obtained all necessary governmental licenses and approvals and have consulted their own counsel in connection with the activities contemplated by the Ether Trading Counterparty Agreements, if such representations prove inaccurate, such Ether Trading Counterparties may suffer adverse consequences and be unable to perform their obligations or engage in ether transactions with the Trust, or the Trust’s operations could be adversely affected and decreased liquidity for the Shares or losses for Shareholders could result.
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Given that the Ethereum network is global and anyone can validate transactions or program dApps or smart contracts that will operate and record transactions on the Ethereum blockchain, and the fact that their operators, creators or programmers sometimes remain anonymous, it is not inconceivable that bad actors, such as those subject to sanctions, could seek to do so.
−Removed: On November 26, 2024, the United States Court of Appeals for the Fifth Circuit overturned sanctions against Tornado Cash;
−Removed: however, the U.S.
−Removed: government is expected to continue attempts to combat illicit financing risks posed by emerging technologies like ether.
The opaque nature of the market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops and pump and dump schemes.
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If such risks eventuate, the Trust, the Sponsor or the Trustee or their affiliates could face civil or criminal liability, fines, penalties, or other punishments, be subject to investigation, have their assets frozen, lose access to banking services or services provided by other service providers, or suffer disruptions to their operations, any of which could negatively affect the Trust’s ability to operate or cause losses in value of the Shares.
−Removed: The Trust and affiliates of the indirect parent of the Sponsor (“BlackRock”) have adopted and implemented policies and procedures that are designed to comply with applicable anti-money laundering laws and sanctions laws and regulations, including applicable know your customer laws and regulations.
+Added: The Trust and affiliates of the consolidated parent of the Sponsor (“BlackRock”) have adopted and implemented policies and procedures that are designed to comply with applicable anti-money laundering laws and sanctions laws and regulations, including applicable know your customer laws and regulations.
The Sponsor and the Trust will only interact with known third-party service providers with respect to whom the Sponsor or its affiliates have engaged in a thorough due diligence process and or a thorough know your customer process, such as the Authorized Participants, Ether Trading Counterparties, Prime Execution Agent and Ether Custodian.
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As a result, the Sponsor and the Trust have instituted procedures reasonably designed to ensure that a situation would not arise where the Trust would engage in transactions with a counterparty whose identity the Sponsor and the Trust did not know.
−Removed: Furthermore, Authorized Participants, as broker-dealers, and the Prime Execution Agent and Ether Custodian, as an entity licensed to conduct virtual currency business activity by the New York Department of Financial Services and a limited purpose trust company subject to New York Banking Law, respectively, are “financial institutions” subject to the U.S.
+Added: Furthermore, Authorized Participants, as broker-dealers, and the Prime Execution Agent, as an entity licensed to conduct digital asset business activity by the New York Department of Financial Services, the Ether Custodian, as and a limited purpose trust company subject to New York Banking Law, and the Additional Ether Custodian, as a national trust bank chartered by the OCC, are “financial institutions” subject to the U.S.
Bank Secrecy Act, as amended (“BSA”), and U.S.
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Moreover, the Prime Execution Agent has represented to the Trust that it has implemented and will maintain and follow compliance programs that are designed to comply with applicable sanctions and anti-money laundering laws and that it performs both initial and ongoing due diligence on each of its customers as well as ongoing transaction monitoring that is designed to identify and report suspicious activity conducted through customer accounts opened at the Prime Execution Agent, including any opened by the Trust’s counterparties for purposes of facilitating ether deposits to and withdrawals from, the Trust’s Trading Balance, as required by law.
−Removed: The Prime Execution Agent, Ether Custodian and Ether Trading Counterparties have adopted and implemented anti-money laundering and sanctions compliance programs, which provides additional protections to ensure that the Sponsor and the Trust do not transact with a sanctioned party.
+Added: The Prime Execution Agent, Ether Custodian and Ether Trading Counterparties have adopted and implemented anti-money laundering and sanctions compliance programs, which provide additional protections to ensure that the Sponsor and the Trust do not transact with a sanctioned party.
Notably, every Ether Trading Counterparty must establish an account at the Prime Execution Agent through which the Ether Trading Counterparty transfers ether to the Trust during a purchase order or receives ether from the Trust in connection with a redemption order.
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However, there is the risk that Ether Trading Counterparties may not conduct sufficient due diligence processes on the sources of their ether or that their representations to the Trust may turn out to be inaccurate, which could cause the Trust to suffer a loss.
−Removed: If the Authorized Participants or Ether Trading Counterparties have inadequate policies, procedures and controls for complying with applicable anti-money laundering and applicable sanctions laws or the Trust’s procedures or diligence prove to be ineffective, violations of such laws could result, which could result in regulatory liability for the Trust, the Sponsor, the Trustee or their affiliates under such laws, including governmental fines, penalties, and other punishments, as well as potential liability to or cessation of services by the Prime Execution Agent and its affiliates, including the Ether Custodian, under the Prime Execution Agent Agreement and Custodian Agreement, or the Trust’s other service providers and counterparties.
+Added: If the Authorized Participants or Ether Trading Counterparties have inadequate policies, procedures and controls for complying with applicable anti-money laundering and applicable sanctions laws or the Trust’s procedures or diligence prove to be ineffective, violations of such laws could result in regulatory liability for the Trust, the Sponsor, the Trustee or their affiliates under such laws, including governmental fines, penalties, and other punishments, as well as potential liability to or cessation of services by the Prime Execution Agent and its affiliates, including the Ether Custodian, under the Prime Execution Agent Agreement and Custodian Agreement, or the Trust’s other service providers and counterparties.
Any of the foregoing could result in losses to the Shareholders or negatively affect the Trust’s ability to operate.
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Any such termination could result in the liquidation of the Trust’s ether at a time that is disadvantageous to Shareholders.
−Removed: The SEC has recently proposed amendments to the custody rules under Rule 406(4)-2 of the Investment Advisers Act.
−Removed: The proposed rule changes would amend the definition of a “qualified custodian” under Rule 206(4)-2(d)(6) and expand the current custody rule in 406(4)-2 to cover all digital assets, including ether, and related advisory activities.
−Removed: If enacted as proposed, these rules would likely impose additional regulatory requirements with respect to the custody and storage of digital assets, including ether.
+Added: Rules like those previously proposed by the SEC, that would amend the definition of a “qualified custodian” and expand the current custody rule in 406(4)-2 to cover all digital assets, including ether, and related advisory activities, would likely impose additional regulatory requirements with respect to the custody and storage of digital assets, including ether.
The Sponsor is studying the impact that such amendments may have on the Trust and its arrangements with the Ether Custodian and Prime Execution Agent.
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federal income tax purposes.
−Removed: However, due to the uncertain treatment of digital assets for U.S.
−Removed: federal income tax purposes, future developments regarding the treatment of digital assets for U.S.
−Removed: federal income tax purposes could adversely affect the value of the Shares.
If the Trust were classified as a partnership for U.S.
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Shareholders are urged to consult their tax advisers regarding the tax consequences of owning and disposing of Shares and digital assets in general.
−Removed: F uture developments regarding the treatment of digital assets for U.S.
+Added: Future developments regarding the treatment of digital assets for U.S.
federal income tax purposes could adversely affect the value of the Shares.
As discussed above, many significant aspects of the U.S.
−Removed: federal income tax treatment of digital currency, such as ether, are uncertain, and it is unclear what guidance on the treatment of digital currency for U.S.
+Added: federal income tax treatment of digital assets, such as ether, are uncertain, and it is unclear what guidance on the treatment of digital currency for U.S.
federal income tax purposes may be issued in the future.
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federal income tax purposes could adversely affect the value of the Shares.
−Removed: The taxing authorities of certain states, including New York, (i) have announced that they will follow the Notice with respect to the treatment of digital currencies for state income tax purposes and/or (ii) have issued guidance exempting the purchase and/or sale of digital currencies for fiat currency from state sales tax.
−Removed: Other states have not issued any guidance on these points, and could take different positions (e.g., imposing sales taxes on purchases and sales of digital assets for fiat currency), and states that have issued guidance on their tax treatment of digital currencies (or other digital assets) could update or change their tax treatment of digital currencies.
+Added: The taxing authorities of certain states, including New York, (i) have announced that they will follow the Notice with respect to the treatment of digital currencies for state income tax purposes and/or (ii) have issued guidance exempting the purchase and/or sale of digital assets for fiat currency from state sales tax.
+Added: Other states have not issued any guidance on these points, and could take different positions (e.g., imposing sales taxes on purchases and sales of digital currencies for fiat currency), and states that have issued guidance on their tax treatment of digital currencies (or other digital assets) could update or change their tax treatment of digital currencies.
It is unclear what further guidance on the treatment of digital currencies for state or local tax purposes may be issued in the future.
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As a result, any such future guidance could have an adverse effect on the value of the Shares.
−Removed: Tax-Exempt Shareholder may recognize “ unrelated business taxable income ” a consequence of an investment in Shares.
+Added: Tax-Exempt Shareholder may recognize “ unrelated business taxable income ” as a consequence of an investment in Shares.
Under the guidance provided in the Ruling & FAQs, hard forks, airdrops and similar occurrences with respect to digital currencies will under certain circumstances be treated as taxable events giving rise to ordinary income.
In the absence of guidance to the contrary, it is possible that any such income recognized by a U.S.
−Removed: Tax-Exempt Shareholder (as defined under “U.S.
−Removed: Federal Income Tax Consequences” below) would constitute “unrelated business taxable income” (“UBTI”).
+Added: Tax-Exempt Shareholder would constitute “unrelated business taxable income” (“UBTI”).
Tax-exempt Shareholders should consult their tax advisers regarding whether such Shareholder may recognize UBTI as a consequence of an investment in Shares.
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In the normal course of business, it is possible that the Trust could incur a taxable gain in connection with the sale of ether (such as sales of ether to obtain fiat currency with which to pay the Sponsor’s Fee or Trust expenses, and including deemed sales of ether as a result of the Trust using ether to pay the Sponsor’s Fee or its expenses) that is otherwise not associated with a distribution to Shareholders.
−Removed: Shareholders may be subject to tax due to the grantor trust status of the Trust even though there is not a corresponding distribution from the Trust.
−Removed: A hard “ fork ” of the ether blockchain could result in Shareholders incurring a tax liability.
−Removed: If a hard fork occurs in the ether blockchain, the Trust could hold both the original ether and the alternative new ether.
−Removed: The IRS has held that a hard fork resulting in the creation of new units of crypto asset is a taxable event giving rise to ordinary income.
+Added: Accordingly, Shareholders may be subject to tax due to the grantor trust status of the Trust even though there is not a corresponding distribution from the Trust.
+Added: A hard “ fork ” of the Ethereum blockchain could result in Shareholders incurring a tax liability.
+Added: If a hard fork occurs in the Ethereum blockchain, the Trust could hold both the original ether and the alternative new ether.
+Added: The IRS has held that a hard fork resulting in the creation of new units of crypto assets is a taxable event giving rise to ordinary income.
Moreover, if such an event occurs, the Trust Agreement provides that the Sponsor shall have the discretion to determine whether the original or the alternative asset shall constitute ether.
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person as a result of a fork, airdrop or similar occurrence could be subject to the 30% withholding tax imposed on U.S.-source “fixed or determinable annual or periodical” income.
−Removed: Shareholders (as defined under “U.S.
−Removed: Federal Income Tax Consequences” below) should assume that, in the absence of guidance, a withholding agent (including the Sponsor) is likely to withhold 30% of any such income recognized by a Non-U.S.
+Added: Shareholders should assume that, in the absence of guidance, a withholding agent (including the Sponsor) is likely to withhold 30% of any such income recognized by a Non-U.S.
Shareholder in respect of its Shares, including by deducting such withheld amounts from proceeds that such Non-U.S.
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Although neither the Sponsor nor any affiliates of the Sponsor nor any investment vehicles managed or advised by any of them exercise control over Coinbase, it is possible that positions of investment vehicles managed by affiliates of the Sponsor in Coinbase may present risks to Shareholders to the extent affiliates of the Sponsor cause the Sponsor to favor Coinbase’s interests over the interests of the Trust or its Shareholders with respect to, for example, fees charged, and the quality of service provided by Coinbase as Prime Execution Agent.
−Removed: Similarly, investors could have concerns that the Sponsor or affiliates of the Sponsor could influence market data provided by Coinbase in a way that benefits the Sponsor, for example by artificially inflating the values of ether in order to increase the Sponsor’s fees.
+Added: Similarly, investors could have concerns that the Sponsor or affiliates of the Sponsor could influence market data provided by Coinbase in a way that benefits the Sponsor, for example by artificially inflating the values of ether in order to increase the Sponsor’s Fee.
This could make the Trust’s Shares less attractive to investors than the shares of similar vehicles that do not present these concerns, adversely affect investor sentiment about the Trust and negatively affect Share trading prices.
−Removed: Coinbase Global is also the parent company of the Ether Custodian, Coinbase Custody Trust Company, LLC.
+Added: Coinbase Global is also the parent company of the Ether Custodian.
The Ether Custodian serves as a fiduciary and custodian on the Trust’s behalf, and is responsible for safeguarding digital assets held by the Trust and holding the private keys that provide access to the Trust’s digital wallets and vaults.
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Although the Ether Custodian is a fiduciary with respect to the Trust ’ s assets, it could resign or be removed by the Sponsor, which may trigger early dissolution of the Trust.
−Removed: The Ether Custodian has represented that it is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Advisers Act and is licensed to custody the Trust’s ether in trust on the Trust’s behalf.
−Removed: However, the Ether Custodian may terminate the Custodian Agreement for cause at any time, and the Ether Custodian can terminate the Custodian Agreement for any reason upon providing the applicable notice provided under the Custodian Agreement.
−Removed: If the Ether Custodian resigns, is removed, or is prohibited by applicable law or regulation to act as custodian, and no successor custodian has been employed, the Sponsor may dissolve the Trust in accordance with the terms of the Trust Agreement.
−Removed: Coinbase serves as the ether custodian and prime execution agent for several competing exchange-traded Ethereum products, which could adversely affect the Trust ’ s operations and ultimately the value of the Shares.
−Removed: The Prime Execution Agent and Ether Custodian are both affiliates of Coinbase Global.
−Removed: As of the date hereof, Coinbase Global is the largest publicly traded crypto asset company in the world by market capitalization and is also the largest crypto asset custodian in the world by assets under custody.
−Removed: By virtue of its leading market position and capabilities, and the relatively limited number of institutionally-capable providers of crypto asset brokerage and custody services, Coinbase serves as the ether custodian and prime execution agent for several competing exchange-traded Ethereum products.
−Removed: Therefore, Coinbase has a critical role in supporting the U.S.
−Removed: spot Ethereum exchange-traded product ecosystem, and its size and market share creates the risk that Coinbase may fail to properly resource its operations to adequately support all such products that use its services that could harm the Trust, the Shareholders and the value of the Shares.
−Removed: If Coinbase were to favor the interests of certain products over others, it could result in inadequate attention or comparatively unfavorable commercial terms to less favored products, which could adversely affect the Trust’s operations and ultimately the value of the Shares.
−Removed: The Trust ’ s Authorized Participants and Ether Trading Counterparties act in similar or identical capacities for several competing exchange-traded Ethereum products which may impact the ability or willingness of one or more Authorized Participants or Ether Trading Counterparties to participate in the creation and redemption process, adversely affect the Trust ’ s ability to create or redeem Baskets and adversely affect the Trust ’ s operations and ultimately the value of the Shares.
−Removed: Many of the Trust’s Authorized Participants and Ether Trading Counterparties, now or in the future, act or may act in the same capacity for several competing exchange-traded Ethereum products.
+Added: The Ether Custodian has represented that it is a fiduciary under § 100 of the New York Banking Law.
+Added: Further, the Ether Custodian is a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Advisers Act and is licensed to custody the Trust’s ether in trust on the Trust’s behalf.
+Added: However, the Ether Custodian may terminate the Custodian Agreement for cause at any time upon providing the applicable notice provided under the Custodian Agreement.
+Added: If the Ether Custodian resigns, is removed, or is prohibited by applicable law or regulation to act as custodian, and no successor custodian has been employed and operationalized, the Sponsor may dissolve the Trust in accordance with the terms of the Trust Agreement.
+Added: Coinbase serves as the ether custodian and the prime execution agent for several competing exchange-traded Ethereum products, which could adversely affect the Trust ’ s operations and ultimately the value of the Shares.
+Added: The Prime Execution Agent and the Ether Custodian are both affiliates of Coinbase Global.
+Added: As of the date hereof, Coinbase Global is one of the largest publicly traded crypto asset company in the world by market capitalization and is also the largest crypto asset custodian in the world by assets under custody.
+Added: By virtue of its leading market position and capabilities, and the relatively limited number of institutionally-capable providers of crypto asset brokerage and custody services, Coinbase serves as the ether custodian and prime execution agent for several competing exchange-traded ether products, as well as other companies in the digital asset industry, such as digital asset treasury companies.
+Added: Similarly, the Additional Ether Custodian serves as the custodian for several competing exchange-traded ether products and other companies in the digital assets industry.
+Added: Therefore, Coinbase and Anchorage have a critical role in supporting the U.S.
+Added: spot ether exchange-traded product ecosystem and the digital assets industry generally, and their size and market share creates the risk that they may fail to properly resource its operations to adequately support all such products that use their services that could harm the Trust, the Shareholders and the value of the Shares.
+Added: If the Ether Custodian or Additional Ether Custodian were to favor the interests of certain products over others, it could result in inadequate attention or comparatively unfavorable commercial terms to less favored products, which could adversely affect the Trust’s operations and ultimately the value of the Shares.
+Added: As illustrated by the 2022 Events, many of the players in the digital assets markets are interconnected - for example, certain market participants may be active in both borrowing and lending, or engage in a wide variety of trading relationships and transactions, with respect to many of the same counterparties, or with respect to the same digital assets or blockchain networks - which can heighten the contagion risks if one of them defaults on its obligations to others or a given digital blockchain network or digital asset were to stop functioning properly or lose substantial value, as applicable, leading to correlated failures in a wider market downturn or a disruption or market dislocation affecting that particular blockchain network or that particular digital asset, or losses.
+Added: It is possible that, in circumstances similar to the 2022 Events, this interconnectedness risk affecting the Ether Custodian, the Additional Ether Custodian, the Prime Execution Agent, Authorized Participants, Ether Trading Counterparties, or other service providers to the Trust could adversely affect the Trust or its Shareholders, for instance by disrupting creation and redemption processes, or (in the case of the Prime Execution Agent or the Ether Custodian or Additional Ether Custodian) resulting in a loss of funds, such as (in the event of a large scale system failure or cybersecurity breach) by exhausting available insurance funds.
+Added: The Trust ’ s Authorized Participants act in similar or identical capacities for several competing exchange-traded ether products which may impact the ability or willingness of one or more Authorized Participants to participate in the creation and redemption process, adversely affect the Trust ’ s ability to create or redeem Baskets and adversely affect the Trust ’ s operations and ultimately the value of the Shares.
+Added: Many of the Trust’s Authorized Participants now or in the future, act or may act in the same capacity for several competing exchange-traded ether products.
Each Authorized Participant and Ether Trading Counterparty has limited balance sheet capacity, which means that, particularly during times of heightened market trading activity or market volatility or turmoil, Authorized Participants may not be able or willing to submit creation or redemption orders, and Ether Trading Counterparties may not be able or willing to engage in ether purchases or sales with the Trust or may do so in limited capacities.
The inability or unwillingness of Authorized Participants or Ether Trading Counterparties to do so could lead to the potential for the Shares to trade at premiums or discounts to the NAV, and such premiums or discounts could be substantial.
−Removed: Furthermore, if creations or redemptions are unavailable due to the inability or unwillingness of one or more of the Trust’s Authorized Participants to submit creation or redemption orders with the Trust (or do so in a limited capacity) or the inability or unwillingness of Ether Trading Counterparties to engage in ether purchases or sales, the arbitrage mechanism may fail to function as efficiently as it otherwise would or be unavailable.
+Added: Furthermore, if creations or redemptions are unavailable due to the inability or unwillingness of one or more of the Trust’s Authorized Participants to submit creation or redemption orders with the Trust (or do so in a limited capacity), the arbitrage mechanism may fail to function as efficiently as it otherwise would or be unavailable.
This could result in impaired liquidity for the Shares, wider bid/ask spreads in the secondary trading of the Shares and greater costs to investors and other market participants, all of which could cause the Sponsor to halt or suspend the creation or redemption of Shares during such times, among other consequences.
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There is no guarantee that every employee, officer, director, or similar person associated with the Sponsor, Trustee, or the BlackRock Affiliates will comply with the Policies, duties and training and refrain from engaging in insider trading in violation of their duties to the Trust and Sponsor.
−Removed: While the Sponsor has adopted and implemented the policies and procedures that are reasonably designed to ensure compliance with applicable law, including a Compliance Manual and Code of Business Conduct and Ethics, which address conflicts of interest (together, the “Policies”) and will adopt standard operating practices requiring that certain applicable personnel pre-clear personal trading activity in which ether is the referenced asset, there is no way to guarantee that every employee, officer, director, or similar person associated the Sponsor, Trustee, or the BlackRock affiliates will comply at all times with such Policies, duties and training and refrain from engaging in insider trading in violation of their duties to the Trust and Sponsor.
+Added: While the Sponsor has adopted and implemented the policies and procedures that are reasonably designed to ensure compliance with applicable law, including a Compliance Manual and Code of Business Conduct and Ethics, which address conflicts of interest (together, the “Policies”) and will adopt standard operating practices requiring that certain applicable personnel pre-clear personal trading activity in which ether is the referenced asset, there is no way to guarantee that every employee, officer, director, or similar person associated with the Sponsor, Trustee, or the BlackRock affiliates will comply at all times with such Policies, duties and training and refrain from engaging in insider trading in violation of their duties to the Trust and Sponsor.
This risk is present in traditional financial markets and is not unique to ether.
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Risk Factors Related to ERISA
−Removed: Notwithstanding the commercially reasonable efforts of the Sponsor, it is possible that the underlying assets of the Trust will be deemed to include “plan assets” for the purposes of Title I of the ERISA or Section 4975 of the Code.
−Removed: If the assets of the Trust were deemed to be “plan assets,” this could result in, among other things, (i) the application of the prudence and other fiduciary standards of ERISA to investments made by the Trust and (ii) the possibility that certain transactions in which the Trust might otherwise seek to engage in the ordinary course of its business and operation could constitute non-exempt “prohibited transactions” under Section 406 of ERISA and/or Section 4975 of the Code, which could restrict the Trust from entering into an otherwise desirable investment or from entering into an otherwise favorable transaction.
+Added: Notwithstanding the commercially reasonable efforts of the Sponsor, it is possible that the underlying assets of the Trust will be deemed to include “plan assets” for the purposes of Part 4 of Subtitle B of Title I of ERISA or Section 4975 of the Code.
+Added: A determination that the assets of the Trust were “plan assets” could result in, among other things, (i) the application of the prudence and other fiduciary standards of ERISA to investments made by the Trust and (ii) the possibility that certain transactions in which the Trust might otherwise seek to engage in the ordinary course of its business and operation could constitute non-exempt “prohibited transactions” under Section 406 of ERISA and/or Section 4975 of the Code, which could restrict the Trust from entering into an otherwise desirable investment or from entering into an otherwise favorable transaction.
In addition, fiduciaries who decide to invest in the Trust could, under certain circumstances, be liable for “prohibited transactions” or other violations as a result of their investment in the Trust or as co-fiduciaries for actions taken by or on behalf of the Trust or the Sponsor.
−Removed: There may be other federal, state, local, non-U.S.
−Removed: law or regulation that contains one or more provisions that are similar to the foregoing provisions of ERISA and the Code that may also apply to an investment in the Trust.
+Added: There may be other similar laws that also apply to an investment in the Trust.
Seed Capital Investor.
−Removed: The Sponsor or one or more of its affiliates may be a party in interest or a disqualified person with respect to one or more Benefit Plan Investors considering an investment in the Trust.
−Removed: Given the Sponsor’s or an affiliate’s expected initial ownership interest of 50% or more of the Trust, the Trust would be a Party in Interest to any Benefit Plan Investor with respect to which the Sponsor or an affiliate is a party in interest or a disqualified person.
−Removed: Therefore, the purchase by any such Benefit Plan Investor in the Trust would be prohibited under ERISA and/or Section 4975 of the Code absent an exemption.
−Removed: Fiduciaries of Benefit Plan Investors should consider whether a purchase of interests constitutes a non-exempt prohibited transaction under ERISA and/or Section 4975 of the Code.
+Added: The Sponsor or one or more of its affiliates may be a party in interest or a disqualified person with respect to one or more Plans considering an investment in the Trust.
+Added: Given the Sponsor’s or an affiliate’s expected initial ownership interest of 50% or more of the Trust, the Trust would be a party in interest to any Plans with respect to which the Sponsor or an affiliate is a party in interest or a disqualified person.
+Added: Therefore, the purchase by any such Plans in the Trust would be prohibited under ERISA and/or Section 4975 of the Code absent an exemption.
+Added: Fiduciaries of Plans should consider whether a purchase of interests constitutes a non-exempt prohibited transaction under ERISA and/or Section 4975 of the Code.
Available exemptions from the prohibited transaction rules of ERISA and the Code include PTCE 84-14, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23, and Section 408(b)(17) of ERISA (and the corresponding provisions of Section 4975(d)(20) of the Code).
The application of ERISA (including the corresponding provisions of the Code and other relevant laws) may be complex and dependent upon the particular facts and circumstances of the Trust and of each Plan, and it is the responsibility of the appropriate fiduciary of each investing Plan to ensure that any investment in the Trust by such Plan is consistent with all applicable requirements.
−Removed: Each Shareholder, whether or not subject to Title I of ERISA or Section 4975 of the Code, should consult its own legal and other advisors regarding the considerations discussed above and all other relevant ERISA and other considerations before purchasing the Shares.
+Added: Each Shareholder, whether or not subject to Part 4 of Subtitle B of Title I of ERISA or Section 4975 of the Code, should consult its own legal and other advisors regarding the considerations discussed above and all other relevant ERISA and other considerations before purchasing the Shares.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.