Grayscale Ethereum Staking ETF 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our audited financial statements and related notes included elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report, particularly in “Item 1A. Risk Factors” and “Forward-Looking Statements.” Trust Overview The Trust is a passive entity that is managed and administered by the Sponsor and does not have any officers, directors or employees. The Trust holds ETH and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of ETH. As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on ETH per Share) to reflect the value of ETH held by the Trust, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. While an investment in the Shares is not a direct investment in ETH, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to ETH. To date, the Trust has not met its investment objective and the Shares quoted on OTCQX have not reflected the value of ETH held by the Trust, less the Trust’s expenses and other liabilities, but instead have traded at both premiums and discounts to such value, which at times have been substantial. The Trust is not managed like a business corporation or an active investment vehicle. As of December 31, 2023 2022 2021 Number of Shares authorized Unlimited Unlimited Unlimited Number of Shares outstanding 310,158,500 310,158,500 310,158,500 Number of Shares freely tradable (1) 305,275,122 304,828,878 304,018,381 Number of beneficial holders owning at least 100 Shares (2) 23 28 42 Number of holders of record (2) 25 29 42 (1) Includes the total number of Shares that are not restricted securities as such term is defined under Rule 144. (2) Includes Cede & Co. as nominee for DTC for the Shares traded on OTCQX, but not its direct participants. Therefore, this number does not include the individual holders who have bought/sold Shares on OTCQX or transferred their eligible Shares to their brokerage accounts. Forks The Ethereum Network operates using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and miners or validators, as applicable, of ETH adopt the modification. When a modification is introduced and a substantial majority of users and validators consent to the modification, the change is implemented and the network remains uninterrupted. However, if less than a substantial majority of users and validators consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “hard fork” of the Ethereum Network, with one group running the pre-modified software and the other running the modified software. The effect of such a fork is the existence of two versions of ETH running in parallel, yet lacking interchangeability. Holders of ETH on the original Ethereum Network, at the time the block is validated and the fork occurs, can then also receive an identical amount of new tokens on the new network. Ethereum Fork on September 15, 2022 (ETHPoW) Background and Measurement The Ethereum Network completed the final stages of an upgrade referred to as the “Merge,” which is a stage of what was previously referred to as Ethereum 2.0, on September 15, 2022, and the Ethereum Network transitioned to a proof-of-stake model. Following the Merge, a hard fork of the Ethereum Network occurred, as certain ETH miners and network participants planned to maintain the proof-of-work consensus mechanism that was removed as part of the Merge. This version of the Ethereum Network was rebranded as Ethereum Proof-of-Work (“ETHPoW”). Immediately following the hard fork on September 15, 2022, holders of ETH passively received Incidental Rights to an equal number of ETHPoW. At that time, the Trust held approximately 3,059,976 ETH and the newly created ETHPoW was inaccessible to 85 the Trust. On the date of the hard fork, the Incidental Rights to ETHPoW were determined to have no value as there were insufficient observable market inputs to determine the fair value of ETHPoW and the ETHPoW assets were not supported by the Custodian. Furthermore, on September 16, 2022, the Sponsor of the Trust announced that it had declared a distribution and established a record date for the distribution of the Incidental Rights to the shareholders of record as of the close of business on September 26, 2022 (“Record Date Shareholders”). Subsequent Measurement and Distribution of Incidental Rights to ETHPoW On September 26, 2022 (the “Record Date”), the Trust distributed the Incidental Rights to obtain approximately 3,059,976 ETHPoW tokens held by the Trust to the Record Date Shareholders. On the Record Date, the Trust, acting on behalf of the Record Date Shareholders and pursuant to the terms of the Trust Agreement governing the Trust, appointed Grayscale Investments, LLC as agent (in this capacity, the “Agent”) on behalf of the Record Date Shareholders and transferred the Incidental Rights to ETHPoW tokens held by the Trust to the Agent on behalf of the Record Date Shareholders. The Trust has no ownership interest in the distributed Incidental Rights to ETHPoW, no ability to control the actions of the Agent and no right to receive any information about the distributed Incidental Rights to ETHPoW or the disposition thereof or of the underlying ETHPoW from the Record Date Shareholders, their Agent or any other person. As of the Record Date, the Trust determined such Incidental Rights to have a fair value of $0 and no gain or loss was recognized as part of the Incidental Right distribution, due to the lack of a trading venue accessible to the Authorized Participant of the Trust and uncertainty regarding the ability to safely access and custody the ETHPoW. On September 18, 2023, the Agent announced that it irrevocably abandoned all of the Incidental Rights to ETHPoW. The Agent determined that the Custodian does not support ETHPoW, nor have trading venues with meaningful liquidity developed for ETHPoW. As such, it is not possible to exercise the rights to acquire and sell ETHPoW, and on behalf of the Record Date Shareholders, the Agent abandoned the rights to ETHPoW. Critical Accounting Policies and Estimates Investment Transactions and Revenue Recognition The Trust considers investment transactions to be the receipt of ETH for Share creations and the delivery of ETH for Share redemptions or for payment of expenses in ETH. At this time, the Trust is not accepting redemption requests from shareholders. The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in ETH. Principal Market and Fair Value Determination To determine which market is the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust’s net asset value in accordance with U.S. GAAP (“Principal Market NAV”), the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for ETH in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that ETH is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust only receives ETH in connection with a creation order from the Authorized Participant (or a Liquidity Provider) and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to market-based volume and level of activity for Digital Asset Markets. The Authorized Participant(s), or a Liquidity Provider, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets (referred to as “Trading Platform Markets” in this Annual Report), each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). In determining which of the eligible Digital Asset Markets is the Trust’s principal market, the Trust reviews these criteria in the following order: • First, the Trust reviews a list of Digital Asset Markets that maintain practices and policies designed to comply with AML and KYC regulations, and non-Digital Asset Trading Platform Markets that the Trust reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market. 86 • Second, the Trust sorts these Digital Asset Markets from high to low by market-based volume and level of activity of ETH traded on each Digital Asset Market in the trailing twelve months. • Third, the Trust then reviews pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. • Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Trading Platform Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Trading Platform Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of the aforementioned analysis, a Trading Platform Market has been selected as the Trust’s principal market. The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market’s trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market’s price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust’s determination of its principal market. The cost basis of ETH received in connection with a creation order is recorded by the Trust at the fair value of ETH at 4:00 p.m., New York time, on the creation date for financial reporting purposes. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors. Investment Company Considerations The Trust is an investment company for GAAP purposes and follows accounting and reporting guidance in accordance with the FASB ASC Topic 946, Financial Services—Investment Companies . The Trust uses fair value as its method of accounting for ETH in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company under the Investment Company Act of 1940. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material. Review of Financial Results Financial Highlights for the Years ended December 31, 2023, 2022 and 2021 (All amounts in the following table and the subsequent paragraphs, except Share, per Share, ETH and price of ETH amounts, are in thousands) For the Years Ended December 31, 2023 2022 2021 Net realized and unrealized gain (loss) on investment $ 3,243,340 $ (7,549,251 ) $ 8,946,394 Net increase (decrease) in net assets resulting from operations $ 3,108,856 $ (7,702,493 ) $ 8,728,949 Net assets (1) $ 6,758,054 $ 3,649,198 $ 11,351,691 (1) Net assets in the above table and subsequent paragraphs are calculated in accordance with U.S. GAAP based on the Digital Asset Market price of ETH on the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date. Net realized and unrealized gain on investment in ETH for the year ended December 31, 2023 was $3,243,340, which includes a realized gain of $102,973 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $3,140,367. Net realized and unrealized gain on investment in ETH for the year was driven by ETH price appreciation from $1,201.33 per ETH as of December 31, 2022, to $2,281.10 per ETH as of December 31, 2023. Net increase in net assets resulting from operations was $3,108,856 for the year ended December 31, 2023, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $134,484. Net assets increased to $6,758,054 at December 31, 2023, an 85% increase for the year. The increase in net assets resulted from the aforementioned ETH price appreciation, partially offset by the withdrawal of approximately 75,001 ETH to pay the foregoing Sponsor’s Fee. Net realized and unrealized loss on investment in ETH for the year ended December 31, 2022 was ($7,549,251), which includes a realized gain of $120,933 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in ETH of ($7,670,184). Net realized and unrealized loss on investment in ETH for the year was driven by ETH price depreciation from 87 $3,644.75 per ETH as of December 31, 2021, to $1,201.33 per ETH as of December 31, 2022. Net decrease in net assets resulting from operations was ($7,702,493) for the year ended December 31, 2022, which consisted of the net realized and unrealized loss on investment in ETH, plus the Sponsor’s Fee of $153,242. Net assets decreased to $3,649,198 at December 31, 2022, a 68% decrease for the year. The decrease in net assets resulted from the aforementioned ETH price depreciation and the withdrawal of approximately 76,901 ETH to pay the foregoing Sponsor’s Fee. Net realized and unrealized gain on investment in ETH for the year ended December 31, 2021 was $8,946,394, which includes a realized gain of $185,516 on the transfer of ETH to pay the Sponsor’s Fee, and net change in unrealized appreciation on investment in ETH of $8,760,878. Net realized and unrealized gain on investment in ETH was driven by ETH price appreciation from $744.99 per ETH as of December 31, 2020, to $3,644.75 per ETH as of December 31, 2021. Net increase in net assets resulting from operations was $8,728,949 for the year ended December 31, 2021, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $217,445. Net assets increased to $11,351,691 at December 31, 2021, a 419% increase for the year. The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 255,556 ETH, with a value of $434,615 to the Trust in connection with Share creations during the year, partially offset by the withdrawal of approximately 78,146 ETH to pay the foregoing Sponsor’s Fee. Cash Resources and Liquidity The Trust has not had a cash balance at any time since inception. When selling ETH, Incidental Rights and/or IR Virtual Currency in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor endeavors to sell the exact number of ETH, Incidental Rights and/or IR Virtual Currency needed to pay expenses in order to minimize the Trust’s holdings of assets other than ETH. As a consequence, the Sponsor expects that the Trust will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period. Furthermore, the Trust is not a party to any off-balance sheet arrangements. In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the periods covered by this Annual Report was the Sponsor’s Fee. The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. Selected Operating Data For the Years Ended December 31, 2023 2022 2021 (All ETH balances are rounded to the nearest whole ETH) ETH: Opening balance 3,037,631 3,114,532 2,937,122 Creations - - 255,556 Sponsor’s Fee, related party (75,001 ) (76,901 ) (78,146 ) Closing balance 2,962,630 3,037,631 3,114,532 Accrued but unpaid Sponsor’s Fee, related party - - - Net closing balance 2,962,630 3,037,631 3,114,532 Number of Shares: Opening balance 310,158,500 310,158,500 285,269,400 Creations - - 24,889,100 Closing balance 310,158,500 310,158,500 310,158,500 December 31, 2023 2022 2021 Price of ETH on principal market (1) $ 2,281.10 $ 1,201.33 $ 3,644.75 Principal Market NAV per Share (2) $ 21.79 $ 11.77 $ 36.60 Index Price (3) $ 2,280.96 $ 1,201.41 $ 3,644.98 NAV per Share (3) $ 21.79 $ 11.77 $ 36.60 (1) The Trust performed an assessment of the principal market at December 31, 2023, 2022 and 2021, and identified the principal market as Coinbase. (2) As of December 31, 2023, 2022 and 2021, the Principal Market NAV per Share was calculated using the fair value of ETH based on the price provided by Coinbase, the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date. Prior to February 23, 2024, Principal Market NAV was referred to as NAV and Principal Market NAV per Share was referred to as NAV per Share. 88 (3) The Trust’s NAV per Share is derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date. The Trust’s NAV per Share is calculated using a non-GAAP methodology where the price is derived from multiple Digital Asset Trading Platforms. Prior to February 23, 2024, NAV was referred to as Digital Asset Holdings and NAV per Share was referred to as Digital Asset Holdings per Share. See “Item 1. Business—Overview of the ETH Industry and Market—ETH Value—The Index and the Index Price” for a description of the Index and the Index Price. The Digital Asset Trading Platforms included in the Index as of December 31, 2023 were Coinbase, Kraken, LMAX Digital, and Crypto.com. The Digital Asset Trading Platforms included in the Index as of December 31, 2022 were Coinbase, Kraken and LMAX Digital. The Digital Asset Trading Platforms included in the Index as of December 31, 2021 were Coinbase, Kraken, LMAX Digital and Bitstamp. For accounting purposes, the Trust reflects creations and the ETH receivable with respect to such creations on the date of receipt of a notification of a creation but does not issue Shares until the requisite number of ETH is received. At this time, the Trust is not accepting redemption requests from shareholders. Subject to receipt of regulatory approval from the SEC and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust has not sought such relief as of the date of this Annual Report, and even if such relief is sought in the future, no assurance can be given as to the timing of such relief or that such relief will be granted. As of December 31, 2023, the Trust had a net closing balance with a value of $6,757,639,388, based on the Index Price (non-GAAP methodology). As of December 31, 2023, the Trust had a total market value of $6,758,054,156, based on the Digital Asset Market price of ETH on the Trust’s principal market (Coinbase). As of December 31, 2022, the Trust had a net closing balance with a value of $3,649,440,771, based on the Index Price (non-GAAP methodology). As of December 31, 2022, the Trust had a total market value of $3,649,197,760, based on the Digital Asset Market price of ETH on the Trust’s principal market (Coinbase). As of December 31, 2021, the Trust had a net closing balance with a value of $11,352,407,205, based on the Index Price (non-GAAP methodology). As of December 31, 2021, the Trust had a total market value of $11,351,690,862, based on the Digital Asset Market price of ETH on the Trust’s principal market (Coinbase). Historical NAV and ETH Prices As movements in the price of ETH will directly affect the price of the Shares, investors should understand recent movements in the price of ETH. Investors, however, should also be aware that past movements in the ETH price are not indicators of future movements. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world. The following chart illustrates the movement in the Trust’s NAV per Share (as adjusted for the Share Split for periods prior to December 17, 2020) versus the Index Price and the Trust’s Principal Market NAV per Share (as adjusted for the Share Split for periods prior to December 17, 2020) from December 14, 2017 (the inception of the Trust’s operations) to December 31, 2023. For more information on the determination of the Trust’s NAV, see “Item 1. Business—Overview of the ETH Industry and Market—ETH Value—The Index and the Index Price.” 89 The following table illustrates the movements in the Index Price from January 1, 2019 to December 31, 2023. During such period, the Index Price has ranged from $102.84 to $4,776.32, with the straight average being $1,408.44 through December 31, 2023. The Sponsor has not observed a material difference between the Index Price and average prices from the constituent Digital Asset Trading Platforms individually or as a group. High Low Period Average Index Price Date Index Price Date End of period Last business day Twelve months ended December 31, 2019 $ 180.52 $ 350.60 6/26/2019 $ 102.84 2/6/2019 $ 127.84 $ 127.84 Twelve months ended December 31, 2020 $ 307.03 $ 752.13 12/30/2020 $ 109.83 3/16/2020 $ 745.01 $ 745.01 Twelve months ended December 31, 2021 $ 2,775.83 $ 4,776.32 11/9/2021 $ 731.87 1/1/2021 $ 3,644.98 $ 3,644.98 Twelve months ended December 31, 2022 $ 1,987.92 $ 3,816.94 1/4/2022 $ 913.51 6/18/2022 $ 1,201.41 $ 1,196.71 Twelve months ended December 31, 2023 $ 1,793.93 $ 2,375.87 12/10/2023 $ 1,200.90 1/1/2023 $ 2,280.96 $ 2,305.90 January 1, 2019 to December 31, 2023 $ 1,408.44 $ 4,776.32 11/9/2021 $ 102.84 2/6/2019 $ 2,280.96 $ 2,305.90 The following table illustrates the movements in the Digital Asset Market price of ETH, as reported on the Trust’s principal market, from January 1, 2019 to December 31, 2023. During such period, the price of ETH has ranged from $102.88 to $4,776.95, with the straight average being $1,408.48 through December 31, 2023: High Low Period Average Digital Asset Market Price Date Digital Asset Market Price Date End of period Last business day Twelve months ended December 31, 2019 $ 180.54 $ 350.76 6/26/2019 $ 102.88 2/6/2019 $ 127.86 $ 127.86 Twelve months ended December 31, 2020 $ 307.02 $ 751.88 12/30/2020 $ 110.29 3/16/2020 $ 744.99 $ 744.99 Twelve months ended December 31, 2021 $ 2,775.91 $ 4,776.95 11/9/2021 $ 731.87 1/1/2021 $ 3,644.75 $ 3,644.75 Twelve months ended December 31, 2022 $ 1,987.98 $ 3,816.02 1/4/2022 $ 913.24 6/18/2022 $ 1,201.33 $ 1,196.81 Twelve months ended December 31, 2023 $ 1,793.98 $ 2,376.20 12/10/2023 $ 1,200.85 1/1/2023 $ 2,281.10 $ 2,304.67 January 1, 2019 to December 31, 2023 $ 1,408.48 $ 4,776.95 11/9/2021 $ 102.88 2/6/2019 $ 2,281.10 $ 2,304.67 90 Secondary Market Trading The Trust’s Shares have been quoted on OTCQX under the symbol “ETHE” since June 20, 2019. The price of the Shares as quoted on OTCQX has varied significantly from the NAV per Share. From June 20, 2019 to December 31, 2023, the maximum premium of the closing price of the Shares quoted on OTCQX over the value of the Trust’s NAV per Share was 956%, the average premium was 191%, the maximum discount of the closing price of the Shares quoted on OTCQX below the value of the Trust’s NAV per Share was 60%, and the average discount was 26%. The closing price of the Shares, as quoted on OTCQX at 4:00 p.m., New York time, on each business day between June 20, 2019 and December 31, 2023, has been quoted at a discount on 711 days. As of December 29, 2023, the last business day of the period, the Trust’s Shares were quoted on OTCQX at a discount of 12% to the Trust’s NAV per Share. The following table sets out the range of high and low closing prices for the Shares as reported by OTCQX, the Trust’s Principal Market NAV per Share calculated in accordance with GAAP and the Trust’s NAV per Share for each of the quarters of the prior three years. High Low OTCQX Principal Market NAV per Share (1) NAV per Share (2) OTCQX Principal Market NAV per Share (1) NAV per Share (2) 2021 First quarter $ 22.09 $ 20.39 $ 20.39 $ 12.00 $ 7.53 $ 7.53 Second quarter $ 40.00 $ 41.73 $ 41.74 $ 18.17 $ 18.16 $ 18.15 Third quarter $ 38.50 $ 39.94 $ 39.94 $ 16.49 $ 18.17 $ 18.18 Fourth quarter $ 46.50 $ 48.14 $ 48.13 $ 31.53 $ 33.33 $ 33.31 2022 First quarter $ 33.72 $ 38.31 $ 38.32 $ 18.03 $ 23.45 $ 23.44 Second quarter $ 28.56 $ 34.85 $ 34.84 $ 7.06 $ 9.06 $ 9.07 Third quarter $ 15.20 $ 19.54 $ 19.55 $ 7.22 $ 10.31 $ 10.32 Fourth quarter $ 10.91 $ 16.21 $ 16.20 $ 4.72 $ 10.84 $ 10.84 2023 First quarter $ 8.58 $ 17.80 $ 17.80 $ 4.82 $ 11.76 $ 11.76 Second quarter $ 10.92 $ 20.58 $ 20.58 $ 7.36 $ 16.15 $ 16.13 Third quarter $ 12.06 $ 19.30 $ 19.30 $ 9.65 $ 14.81 $ 14.81 Fourth quarter $ 20.71 $ 22.73 $ 22.73 $ 10.71 $ 14.70 $ 14.71 (1) The Principal Market NAV is calculated using the fair value of ETH based on the price provided by the Digital Asset Market that the Trust considers its principal market, which is Coinbase. Prior to February 23, 2024, Principal Market NAV was referred to as NAV and Principal Market NAV per Share was referred to as NAV per Share. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Principal Market and Fair Value Determination.” (2) The Trust’s NAV per Share is derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date. The Index Price is calculated using non-GAAP methodology and is not used in the Trust’s financial statements. Prior to February 23, 2024, NAV was referred to as Digital Asset Holdings and NAV per Share was referred to as Digital Asset Holdings per Share. See “Item 1. Business—Valuation of ETH and Determination of NAV.” 91 The following chart sets out the historical closing prices for the Shares as reported by OTCQX and the Trust’s NAV per Share from June 20, 2019 to December 31, 2023. ETHE Premium/(Discount): ETHE Share Price vs. NAV per Share ($) The following chart sets out the historical premium and discount for the Shares as reported by OTCQX and the Trust’s NAV per Share from June 20, 2019 to December 31, 2023. ETHE Premium/(Discount): ETHE Share Price vs. NAV per Share (%) Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk The Trust Agreement does not authorize the Trust to borrow for payment of the Trust’s ordinary expenses. The Trust does not engage in transactions in foreign currencies which could expose the Trust or holders of Shares to any foreign currency related market risk. The Trust does not invest in derivative financial instruments and has no foreign operations or long-term debt instruments. Item 8. Financial Statemen ts and Supplementary Data See Index to Financial Statements on page F-1 for a list of the financial statements being filed therein. 92 Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure There have been no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the year ended December 31, 2023. Item 9A. Control s and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Principal Executive Officer and Principal Financial and Accounting Officer of the Sponsor, and to the audit committee of the board of directors of the Sponsor, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of the Principal Executive Officer and the Principal Financial and Accounting Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust’s disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based on this evaluation, the Principal Executive Officer and the Principal Financial and Accounting Officer of the Sponsor concluded that, as of December 31, 2023, the Trust’s disclosure controls and procedures were effective. Management’s Report on Internal Control over Financial Reporting The Sponsor’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). The Trust’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Trust’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Trust’s receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Trust’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Principal Executive Officer and Principal Financial and Accounting Officer of the Sponsor assessed the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2023. In making this assessment, they used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Their assessment included an evaluation of the design of the Trust’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on their assessment and those criteria, the Principal Executive Officer and Principal Financial and Accounting Officer of the Sponsor concluded that the Trust maintained effective internal control over financial reporting as of December 31, 2023. Marcum LLP, the independent registered public accounting firm that audited the financial statements as of and for the year ended December 31, 2023 included in this Annual Report on Form 10-K, as stated in their report which is included herein, issued an attestation report on the effectiveness of the Trust’s internal control over financial reporting as of December 31, 2023 on page F- 2 . Changes in Internal Control Over Financial Reporting There was no change in the Trust’s internal controls over financial reporting that occurred during the Trust’s most recently completed fiscal quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, these internal controls. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 93 PART III Item 10. Directors, Executive Of ficers and Corporate Governance Management of the Sponsor The Trust does not have any directors, officers or employees. Under the Trust Agreement, all management functions of the Trust have been delegated to and are conducted by the Sponsor, its agents and its affiliates, including without limitation, the Custodian and its agents. As officers of the Sponsor, Michael Sonnenshein, the principal executive officer of the Sponsor, and Edward McGee, the principal financial officer of the Sponsor, may take certain actions and execute certain agreements and certifications for the Trust, in their capacity as the principal officers of the Sponsor. The Sponsor has a board of directors (the “Board”) that is responsible for managing and directing the affairs of the Sponsor. The Board consists of Mark Shifke, Matthew Kummell, Mr. Sonnenshein, and Mr. McGee, who also retain the authority granted to them as officers under the limited liability company agreement of the Sponsor. The Sponsor has an Audit Committee. The Audit Committee has the responsibility for overseeing the financial reporting process of the Trust, including the risks and controls of that process and such other oversight functions as are typically performed by an audit committee of a public company. The Audit Committee consists of Messrs. Sonnenshein and McGee, and Hugh Ross, Chief Operating Officer of the Sponsor. The Sponsor has a code of ethics (the “Code of Ethics”) that applies to its executive officers and agents. The Code of Ethics is available by writing the Sponsor at 290 Harbor Drive, 4 th Floor, Stamford, Connecticut 06902 or calling the Sponsor at (212) 668- 1427. The Sponsor’s Code of Ethics is intended to be a codification of the business and ethical principles that guide the Sponsor, and to deter wrongdoing, to promote honest and ethical conduct, to avoid conflicts of interest, and to foster compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations and accountability for adherence to this code. Mark Shifke, Chairman of the Board Mark Shifke, 64, is the Chief Financial Officer of DCG and has served as chairman of the Board since January 2024. Since March 2021, Mr. Shifke has served on the board of directors of Dock Ltd., a full-stack payments and digital banking platform. Since September 2023, Mr. Shifke has served on the board of directors of Luno, a cryptocurrency platform. Mr. Shifke has nearly four decades of financial and fintech experience, and more than eight years of CFO experience leading two publicly-traded companies. Prior to joining DCG, Mr. Shifke served as CFO of Billtrust, a company focused on providing AR and cloud-based solutions around payments, and as CFO of Green Dot (NYSE: GDOT), a mobile banking company and payments platform. Previously, Mr. Shifke led teams at JPMorgan Chase and Goldman Sachs, specializing in M&A Structuring and Advisory, as well as Tax Asset Investments. Mr. Shifke also served as the Head of International Structured Finance Group at KPMG. Mr. Shifke began his career at Davis Polk, where he was a partner. He is a graduate of Tulane University (B.A./J.D.) and the New York University School of Law (LL.M. in Taxation). Matthew Kummell, Board Member Matt Kummell, 48, is Senior Vice President of Operations at DCG and has served as a director of the Sponsor since January 2024. In his role at DCG, Mr. Kummell leads the business’s post-investment efforts, including investment operations and value creation with regard to DCG’s portfolio companies. Since December 2023, Mr. Kummell has served as a member of the board of directors of Foundry, a digital asset mining and staking company. Until November 2023, Mr. Kummell served on the board of directors of CoinDesk, Inc., a digital media, events and information services company for the crypto asset and blockchain technology community. Until January 2012, Mr. Kummell served on the board of directors of Derivix Corporation, a financial services software company. Prior to joining DCG, Mr. Kummell was the Head of North America for Citi’s Business Advisory Services team, a strategic consulting practice focused on institutional investor clients in Citi’s Markets division. Mr. Kummell has also held strategic and front-office leadership roles at Citadel, Balyasny Asset Management, and S.A.C. Capital Advisors, the predecessor to Point 72 Asset Management. Previously, Mr. Kummell served as a case team leader at Bain & Company in its Boston headquarters. Mr. Kummell is an Adjunct Professor at the Tuck School of Business at Dartmouth College. He is a graduate of the University of California, Los Angeles (B.A.) and the Tuck School of Business at Dartmouth College (MBA). Michael Sonnenshein, Board Member and Chief Executive Officer Michael Sonnenshein, 37, has been CEO of the Sponsor since January 2021 and has served as a director of the Sponsor since February 2020. Before serving as CEO, Mr. Sonnenshein served as Managing Director of the Sponsor since 2018. In this role, Mr. Sonnenshein oversees the strategic direction and growth of the business. Mr. Sonnenshein is also responsible for maintaining many of the firm’s key relationships with clients, industry stakeholders, and regulators. From 2015 to 2017, Mr. Sonnenshein was Director of Sales & Business Development for the Sponsor, and prior to that served as an Account Executive from 2014 to 2015. Under his leadership, the firm has expanded its capabilities as a full services asset manager, establishing Grayscale Securities, LLC and Grayscale Advisors, LLC, and has grown to be a leader in crypto investing, offering a wide range of investments, including single-asset and diversified products and ETFs. 94 Prior to joining the Sponsor, Mr. Sonnenshein was a financial adviser at JP Morgan Securities, covering HNW individuals and institutions, and an analyst at Barclays Wealth, providing coverage to middle-market hedge funds and institutions. Mr. Sonnenshein earned his Bachelor of Business Administration from the Goizueta Business School at Emory University and his Master of Business Administration from the Leonard N. Stern School of Business at New York University. Mr. Sonnenshein was honored in 2021 as one of 100 People Transforming Business by Business Insider and in 2018 as the publication’s Rising Stars of Wall Street. Edward McGee, Board Member and Chief Financial Officer Edward McGee, 40, has been the Chief Financial Officer of the Sponsor since January 2022 and has served as a director of the Sponsor since January 2024. Before serving as CFO, Mr. McGee was Vice President, Finance and Controller of the Sponsor since June 2019. Prior to taking on his role at the Sponsor, Mr. McGee served as a Vice President, Accounting Policy at Goldman, Sachs & Co. providing coverage to their SEC Financial Reporting team facilitating the preparation and review of their financial statements and provided U.S. GAAP interpretation, application and policy development while servicing their Special Situations Group, Merchant Banking Division and Urban Investments Group from 2014 to 2019. From 2011 to 2014, Mr. McGee was an auditor at Ernst & Young providing assurance services to publicly listed companies. Mr. McGee earned his Bachelor of Science degree in accounting from the John H. Sykes College of Business at the University of Tampa and graduated with honors while earning his Master of Accountancy in Financial Accounting from the Rutgers Business School at the State University of New Jersey. Mr. McGee is a Certified Public Accountant licensed in the state of New York. Hugh Ross, Chief Operating Officer Hugh Ross, 56, has been the Chief Operating Officer of the Sponsor since February 2021. Prior to joining the Sponsor, Mr. Ross served twelve years as Chief Operating Officer of Horizon Kinetics LLC, a New York-based investment manager where he was responsible for the operating infrastructure and various digital asset initiatives. During the ten years immediately preceding his tenure at Horizon Kinetics, Mr. Ross was a Vice President with Goldman Sachs & Co. where he served as Chief Operating Officer of the long-only investment manager research team then-known as Global Manager Strategies (“GMS”), within Goldman Sachs Asset Management (“GSAM”). Mr. Ross also served as a compliance officer for both GSAM and Goldman’s Private Wealth Management business. Prior to joining Goldman Sachs, Mr. Ross worked as an in-house counsel for a transfer agent and started his career as a securities industry attorney representing broker-dealers and investment advisers. Mr. Ross is a graduate of the Goizueta Business School at Emory University (B.B.A.) and New York Law School (J.D.). Item 11. Executi ve Compensation Not applicable. Item 12. Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters Securities Authorized for Issuance under Equity Compensation Plans and Related Stockholder Matters Not applicable. Security Ownership of Certain Beneficial Owners and Management The Trust does not have any directors, officers or employees. The following table sets forth certain information with respect to the beneficial ownership of the Shares for (i) each person that, to the Sponsor’s knowledge based on the records of the Transfer Agent and other ownership information provided to the Sponsor, owns beneficially a significant portion of the Shares; (ii) each director and executive officer of the Sponsor individually; and (iii) all directors and executive officers of the Sponsor as a group. The number of Shares beneficially owned and percentages of beneficial ownership set forth below are based on the number of Shares outstanding as of February 19, 2024. 95 In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percentage of Beneficial Ownership Significant Shareholders: Digital Currency Group, Inc. (1) Genesis Global Capital, LLC (2) 8,717,520 2.81 % Total 8,717,520 2.81 % Directors & Executive Officers of the Sponsor: (3) Mark Shifke * * % Matthew Kummell * * % Michael Sonnenshein * * % Edward McGee * * % Hugh Ross * * % Directors & executive officers of the Sponsor as a group * * % (1) On March 2, 2022, the Board approved the purchase by DCG, the parent company of the Sponsor, of up to an aggregate total of $200 million worth of Shares of the Trust and shares of any of the following five investment products the Sponsor also acts as the sponsor and manager of, including Grayscale Bitcoin Trust (BTC) (NYSE Arca: GBTC), Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM), and Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG). The Share purchase authorization does not obligate DCG to acquire any specific number of Shares in any period, and may be expanded, extended, modified, or discontinued at any time. From March 2, 2022 through February 19, 2024, DCG had not purchased any Shares of the Trust under this authorization. (2) Genesis Global Capital, LLC is a wholly owned subsidiary of Genesis Global Holdco, LLC, which is a wholly owned subsidiary of, but not controlled by, Digital Currency Group, Inc. Genesis Global Capital, LLC, together with its parent company, Genesis Global Holdco, LLC, and certain other affiliates, filed a voluntary petition for reorganization under the Bankruptcy Code in January 2023. (3) The Trust does not have any directors, officers or employees. Under the Trust Agreement, all management functions of the Trust have been delegated to and are conducted by the Sponsor, its agents and its affiliates. * Represents beneficial ownership of less than 1%. Unless otherwise indicated, the address for each shareholder listed in the table above is c/o Grayscale Investments, LLC, 290 Harbor Drive, 4 th Floor, Stamford, Connecticut 06902. Item 13. Certain Relationships and Relate d Transactions and Director Independence General The Sponsor has not established formal procedures to resolve all potential conflicts of interest. Consequently, shareholders may be dependent on the good faith of the respective parties subject to such conflicts to resolve them equitably. Although the Sponsor attempts to monitor these conflicts, it is extremely difficult, if not impossible, for the Sponsor to ensure that these conflicts do not, in fact, result in adverse consequences to the Trust. The Sponsor presently intends to assert that shareholders have, by subscribing for Shares of the Trust, consented to the following conflicts of interest in the event of any proceeding alleging that such conflicts violated any duty owed by the Sponsor to investors. Digital Currency Group, Inc. Digital Currency Group, Inc. is (i) the sole member and parent company of the Sponsor, and parent company of Genesis, one of the Liquidity Providers from October 3, 2022 through September 12, 2023, (ii) the indirect parent company of Grayscale Securities, the only acting Authorized Participant as of the date of this Annual Report, (iii) formerly the indirect parent company of the Index Provider (prior to its sale to an unaffiliated third party on November 20, 2023), (iv) a minority interest holder in Coinbase, Inc., which operates Coinbase, one of the Digital Asset Trading Platforms included in the Index, and which is also the parent company of the Custodian, representing less than 1.0% of its equity, and (v) a minority interest holder in Kraken, one of the Digital Asset Trading Platforms included in the Index, representing less than 1.0% of its equity. Digital Currency Group, Inc. has investments in a large number of digital assets and companies involved in the digital asset ecosystem, including trading platforms and custodians. Digital Currency Group, Inc.’s positions on changes that should be adopted in the Ethereum Network could be adverse to positions that would benefit the Trust or its shareholders. Additionally, before or after a hard 96 fork, Digital Currency Group, Inc.’s position regarding which fork among a group of incompatible forks of the Ethereum Network should be considered the “true” Ethereum Network could be adverse to positions that would most benefit the Trust. The Sponsor The Sponsor has a conflict of interest in allocating its own limited resources among, when applicable, different clients and potential future business ventures, to each of which it owes fiduciary duties. Additionally, the professional staff of the Sponsor also services other affiliates of the Trust, including several other digital asset investment vehicles, and their respective clients. Although the Sponsor and its professional staff cannot and will not devote all of its or their respective time or resources to the management of the affairs of the Trust, the Sponsor intends to devote, and to cause its professional staff to devote, sufficient time and resources to manage properly the affairs of the Trust consistent with its or their respective fiduciary duties to the Trust and others. The Sponsor and Grayscale Securities are affiliates of each other, and the Sponsor may engage other affiliated service providers in the future. Because of the Sponsor’s affiliated status, it may be disincentivized from replacing affiliated service providers. In connection with this conflict of interest, shareholders should understand that affiliated service providers will receive fees for providing services to the Trust. Clients of the affiliated service providers may pay commissions at negotiated rates which are greater or less than the rate paid by the Trust. The Sponsor and any affiliated service provider may, from time to time, have conflicting demands in respect of their obligations to the Trust and, in the future, to other clients. It is possible that future business ventures of the Sponsor and affiliated service providers may generate larger fees, resulting in increased payments to employees, and therefore, incentivizing the Sponsor and/or the affiliated service providers to allocate it/their limited resources accordingly to the potential detriment of the Trust. There is an absence of arm’s length negotiation with respect to some of the terms of the Trust, and, where applicable, there has been no independent due diligence conducted with respect to the Trust. The Sponsor will, however, not retain any affiliated service providers for the Trust which the Sponsor has reason to believe would knowingly or deliberately favor any other client over the Trust. The Authorized Participant Prior to October 3, 2022, Genesis, an affiliate of the Trust and the Sponsor, was the only Authorized Participant and was party to a participant agreement with the Sponsor and the Trust. Since October 3, 2022, the only Authorized Participant is Grayscale Securities, an affiliate of the Trust and the Sponsor. As a result of this affiliation, the Sponsor has an incentive to resolve questions between Grayscale Securities, on the one hand, and the Trust and shareholders, on the other hand, in favor of Grayscale Securities (including, but not limited to, questions as to the calculation of the Basket Amount). Lastly, several employees of the Sponsor and Digital Currency Group, Inc. are FINRA-registered representatives who maintain their licenses through Grayscale Securities. Prior to September 12, 2023, Genesis, an affiliate of the Trust and the Sponsor, had been engaged to act as one of the Liquidity Providers. In its capacity as a Liquidity Provider, Genesis engaged in ETH trading with the Trust’s affiliated entities. For example, when the Sponsor received the Sponsor’s Fee in ETH, it sold the ETH through Genesis. For this service, Genesis charged the Sponsor a transaction fee, which was not borne by the Trust. Additionally, the Sponsor’s parent company, Digital Currency Group, Inc., is the sole shareholder and parent company of Genesis, in addition to a customer of Genesis, and may buy or sell ETH through Genesis from time to time, independent of the Trust. As of September 12, 2023, Genesis no longer serves as a Liquidity Provider. Proprietary Trading/Other Clients Because the officers of the Sponsor may trade ETH for their own personal trading accounts (subject to certain internal trading policies and procedures) at the same time as they are managing the account of the Trust, the activities of the officers of the Sponsor, subject to their fiduciary duties, may, from time-to-time, result in their taking positions in their personal trading accounts which are opposite of the positions taken for the Trust. Records of the Sponsor’s officers’ personal trading accounts will not be available for inspection by shareholders. The Index Provider Digital Currency Group, Inc. was the indirect parent company of the Index Provider until the Index Provider was sold by Digital Currency Group, Inc. to an unaffiliated third party in November 2023. Prior to its sale by Digital Currency Group, Inc., the Index Provider was an affiliate of the Sponsor and the Trust and had an incentive to resolve questions regarding, or changes to, the manner in which the Index was constructed and in which the Index Price was calculated in a way that favored the Sponsor and the Trust. Item 14. Principal Accou ntant Fees and Services Fees for services performed by Marcum LLP and Friedman LLP, prior to the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022, for the years ended December 31, 2023 and 2022 were: 97 Years Ended December 31, 2023 2022 (1) Audit fees $ 273,000 $ 199,100 Total $ 273,000 $ 199,100 (1) The Sponsor was notified that certain assets of Friedman LLP (“Friedman”), the Trust’s independent registered public accounting firm, were acquired by Marcum LLP (“Marcum”) effective September 1, 2022. On September 27, 2022, the Audit Committee of the Board of Directors of the Sponsor approved the dismissal of Friedman and the engagement of Marcum to serve as the independent registered public accounting firm of the Trust. As of September 1, 2022, the services previously provided by Friedman are provided by Marcum. In the table above, in accordance with the SEC’s definitions and rules, Audit Fees are fees paid to Marcum for professional services for the audit of the Trust’s financial statements included in the annual report on Form 10-K and review of financial statements included in the quarterly reports on Form 10-Q, and for services that are normally provided by the accountants in connection with regulatory filings or engagements. Pre-Approved Policies and Procedures The Trust has no board of directors, and as a result, has no audit committee or pre-approval policy with respect to fees paid to its principal accounting firm. Such determinations, including for the fiscal year ended December 31, 2023, are made by the Sponsor’s Board of Directors and Audit Committee. 98 PART IV Item 15. Exhibits and Fina ncial Statements Schedules 1. Financial Statements See Index to Financial Statements on Page F-1 for a list of the financial statements being filed herein. 2. Financial Statement Schedules Schedules have been omitted since they are either not required, not applicable, or the information has otherwise been included. 3. Exhibits Exhibit Number Exhibit Description 4.1 Amended and Restated Declaration of Trust and Trust Agreement (incorporated by reference to Exhibit 4.1 of the Registration Statement on Form 10 filed by the Registrant on August 6, 2020). 4.2 Amendment No. 1 to the Amended and Restated Declaration of Trust and Trust Agreement (incorporated by reference to Exhibit 4.2 of the Registration Statement on Form 10 filed by the Registrant on August 6, 2020). 4.3 Certificate of Amendment to Certificate of Trust (attached as Exhibit A to Amendment No. 1 to the Amended and Restated Declaration of Trust and Trust Agreement). 4.4 Amendment No. 2 to the Amended and Restated Declaration of Trust and Trust Agreement (incorporated by reference to Exhibit 4.4 of the Registration Statement on Form 10 filed by the Registrant on August 6, 2020). 4.5 Participant Agreement, dated October 3, 2022, between the Sponsor and Grayscale Securities, LLC (incorporated by reference to Exhibit 4.1 on Form 8-K filed by the Registrant on October 3, 2022) 4.6 Description of Registrant’s Securities (incorporated by reference to Exhibit 4.6 of the Annual Report on Form 10-K filed by the Registrant on March 5, 2021). 10.1† Amended and Restated Custodian Agreement, dated June 29, 2022, between the Sponsor and the Custodian (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed by the Registrant on August 5, 2022). 10.2 Distribution and Marketing Agreement, dated October 3, 2022, between the Sponsor and Grayscale Securities, LLC (incorporated by reference to Exhibit 10.1 on Form 8-K filed by the Registrant on October 3, 2022). 10.3† Index License Agreement (incorporated by reference to Exhibit 10.1 on Form 8-K filed by the Registrant on February 4, 2022). 10.4† Amendment No. 1 to the Index License Agreement dated June 20, 2023, between the Sponsor and Index Provider (incorporated by reference to Exhibit 10.1 on Form 8-K filed by the Registrant on June 23, 2023). 10.5 Transfer Agency and Service Agreement (incorporated by reference to Exhibit 10.4 of the Registration Statement on Form 10 filed by the Registrant on August 6, 2020). 31.1* Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. 104 Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. * Filed herewith. 99 † Portions of this exhibit (indicated by asterisks) have been omitted as the Registrant has determined that (i) the omitted information is not material and (ii) the omitted information is of the type that the Registrant treats as private or confidential. Item 16. Form 10-K Summary Not applicable. 100 Glossary of D efined Terms In this Annual Report, each of the following quoted terms has the meanings set forth after such term: “ Actual Exchange Rate ”—With respect to any particular asset, at any time, the price per single unit of such asset (determined net of any associated fees) at which the Trust is able to sell such asset for U.S. dollars (or other applicable fiat currency) at such time to enable the Trust to timely pay any Additional Trust Expenses, through use of the Sponsor’s commercially reasonable efforts to obtain the highest such price. “ Additional Trust Expenses ”—Together, any expenses incurred by the Trust in addition to the Sponsor’s Fee that are not Sponsor-paid Expenses, including, but not limited to, (i) taxes and governmental charges, (ii) 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 (including in connection with any Incidental Rights and any IR Virtual Currency), (iii) any indemnification of the Custodian or other agents, service providers or counterparties of the Trust, (iv) the fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including legal, marketing and audit fees and expenses) to the extent exceeding $600,000 in any given fiscal year and (v) extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters. “ Administrator Fee ”—The fee payable to any administrator of the Trust for services it provides to the Trust, which the Sponsor will pay such administrator as a Sponsor-paid Expense. “ Affirmative Action ”—A decision by the Trust to acquire or abandon specific Incidental Rights and IR Virtual Currency at any time prior to the time of a creation of Shares. “ Agent ”—A Person appointed by the Trust to act on behalf of the shareholders in connection with any distribution of Incidental Rights and/or IR Virtual Currency. “ Authorized Participant ”—Certain eligible financial institutions that have entered into an agreement with the Trust and the Sponsor concerning the creation of Shares. Each Authorized Participant (i) is a registered broker-dealer, (ii) has entered into a Participant Agreement with the Sponsor and (iii) owns a digital wallet address that is known to the Custodian as belonging to the Authorized Participant or a Liquidity Provider. “ Basket ”—A block of 100 Shares. “ Basket Amount ”—On any trade date, the number of ETH required as of such trade date for each Creation Basket, as determined by dividing (x) the number of ETH owned by the Trust at 4:00 p.m., New York time, on such trade date, after deducting the number of ETH representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust (converted using the Index Price at such time, and carried to the eighth decimal place), by (y) the number of Shares outstanding at such time (with the quotient so obtained calculated to one one-hundred-millionth of one ETH ( i.e. , carried to the eighth decimal place)), and multiplying such quotient by 100. “ Blockchain ” or “ Ethereum Blockchain ”—The public transaction ledger of the Ethereum Network on which transactions in ETH are recorded. “ CEA ”—Commodity Exchange Act of 1936, as amended. “ CFTC ”—The U.S. Commodity Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and option markets in the United States. “ Code ”—The U.S. Internal Revenue Code of 1986, as amended. “ Covered Person ”—The Sponsor and its affiliates. See “Item 1. Business—Description of the Trust Agreement—The Sponsor—Liability of the Sponsor and Indemnification.” “ Creation Basket ”—Basket of Shares issued by the Trust in exchange for deposits of the Basket Amount required for each such Creation Basket. “ Creation Time ”—With respect to the creation of any Shares by the Trust, the time at which the Trust creates such Shares. 101 “ Custodial Services ”—The Custodian’s services that (i) allow ETH to be deposited from a public blockchain address to the Trust’s Digital Asset Account and (ii) allow the Trust and the Sponsor to withdraw ETH from the Trust’s Digital Asset Account to a public blockchain address the Trust or the Sponsor controls pursuant to instructions the Trust or the Sponsor provides to the Custodian. “ Custodian ”—Coinbase Custody Trust Company, LLC. “ Custodian Agreement ”—The Amended and Restated Custodial Services Agreement, dated as of June 29, 2022, by and between the Trust and the Sponsor and Custodian that governs the Trust’s and the Sponsor’s use of the Custodial Services provided by the Custodian as a fiduciary with respect to the Trust’s assets. “ Custodian Fee ”—Fee payable to the Custodian for services it provides to the Trust, which the Sponsor shall pay to the Custodian as a Sponsor-paid Expense. “ DCG ”—Digital Currency Group, Inc. “ Digital Asset Account ”—A segregated custody account controlled and secured by the Custodian to store private keys, which allow for the transfer of ownership or control of the Trust’s ETH on the Trust’s behalf. “ Digital Asset Market ”—A “Brokered Market,” “Dealer Market,” “Principal-to-Principal Market” or “Exchange Market” (referred to as “Trading Platform Market” in this Annual Report), as each such term is defined in the Financial Accounting Standards Board Accounting Standards Codification Master Glossary. “ Digital Asset Trading Platform ”—An electronic marketplace where trading platform participants may trade, buy and sell ETH based on bid-ask trading. The largest Digital Asset Trading Platforms are online and typically trade on a 24-hour basis, publishing transaction price and volume data. “ Digital Asset Trading Platform Market ”—The global exchange market for the trading of ETH, which consists of transactions on electronic Digital Asset Trading Platforms. “ DSTA ”—The Delaware Statutory Trust Act, as amended. “ DTC ”—The Depository Trust Company. DTC is a limited purpose trust company organized under New York law, a member of the U.S. Federal Reserve System and a clearing agency registered with the SEC. DTC will act as the securities depository for the Shares. “ ETC ” or “ Ethereum Classic ”—Ether Classic tokens, which are a type of digital asset based on an open-source cryptographic protocol existing on the Ethereum Classic network. “ ETH ” or “ Ethereum ”—Ethereum tokens, which are a type of digital asset based on an open source cryptographic protocol existing on the Ethereum Network, comprising units that constitute the assets underlying the Trust’s Shares. “ Ethereum Classic Network ”—The online, end-user-to-end-user network hosting a public transaction ledger, known as the Ethereum Classic blockchain, and the source code comprising the basis for the cryptographic and algorithmic protocols governing the Ethereum Classic network. “ Ethereum Network ”—The online, end-user-to-end-user network hosting the public transaction ledger, known as the Ethereum Blockchain, and the source code comprising the basis for the cryptographic and algorithmic protocols governing the Ethereum Network. See “Item 1. Business—Overview of the ETH Industry and Market.” “ Ethereum Proof-of-Work ” or “ ETHPoW ”—A type of digital currency based on an open source cryptographic protocol existing on the Ethereum Proof-of-Work network, which came into existence following the Ethereum hard fork on September 15, 2022. “ ERISA ”—The Employee Retirement Income Security Act of 1974, as amended. “ Exchange Act ”—The Securities Exchange Act of 1934, as amended. “ FDIC ”—The Federal Deposit Insurance Corporation. “ FinCEN ”—The Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury. 102 “ FINRA ”—The Financial Industry Regulatory Authority, Inc., which is the primary regulator in the United States for broker-dealers, including Authorized Participants. “ GAAP ”—United States generally accepted accounting principles. “ Genesis ”—Genesis Global Trading, Inc., a wholly owned subsidiary of Digital Currency Group, Inc., which served as a Liquidity Provider from October 3, 2022 through September 12, 2023. “ Grayscale Securities ”—Grayscale Securities, LLC, a wholly owned subsidiary of the Sponsor, which as of the date of this Annual Report, is the only acting Authorized Participant. “ Incidental Rights ”—Rights to acquire, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Trust’s ownership of ETH and arise without any action of the Trust, or of the Sponsor or Trustee on behalf of the Trust. “ Index ”—The CoinDesk Ether Price Index (ETX). “ Index License Agreement ”—The license agreement, dated as of February 1, 2022, between the Index Provider and the Sponsor governing the Sponsor’s use of the Index for calculation of the Index Price, as amended by Amendment No. 1 thereto and as the same may be amended from time to time. “ Index Price ”—The U.S. dollar value of an ETH derived from the Digital Asset Trading Platforms that are reflected in the Index, calculated at 4:00 p.m., New York time, on each business day. See “Item 1. Business—Overview of the ETH Industry and Market—ETH Value—The Index and the Index Price” for a description of how the Index Price is calculated. For purposes of the Trust Agreement, the term ETH Index Price shall mean the Index Price as defined herein. “ Index Provider ”—CoinDesk Indices, Inc., a Delaware corporation that publishes the Index. Prior to its sale to an unaffiliated third party on November 20, 2023, DCG was the indirect parent company of CoinDesk Indices, Inc. As a result, CoinDesk Indices, Inc. was an affiliate of the Sponsor and the Trust and was considered a related party of the Trust. “ Investment Advisers Act ”—Investment Advisers Act of 1940, as amended. “ Investment Company Act ”—Investment Company Act of 1940, as amended. “ Investor ”—Any investor that has entered into a subscription agreement with an Authorized Participant, pursuant to which such Authorized Participant will act as agent for the investor. “ IR Virtual Currency ”—Any virtual currency tokens, or other asset or right, acquired by the Trust through the exercise (subject to the applicable provisions of the Trust Agreement) of any Incidental Right. “ IRS ”—The U.S. Internal Revenue Service, a bureau of the U.S. Department of the Treasury. “ Layer 1 ”—The underlying smart contract platform blockchain on which Ethereum functions. “ Layer 2 ” —Protocols built on top of an underlying smart contract platform blockchain intended to provide scalability to the underlying blockchain by increasing transaction efficiency. “ Liquidity Provider ”—A service provider that facilitates the purchase of ETH in connection with the creation of Baskets. “ Marketing Fee ”—Fee payable to the marketer for services it provides to the Trust, which the Sponsor will pay to the marketer as a Sponsor-paid Expense. “ NAV ”—The aggregate value, expressed in U.S. dollars, of the Trust’s assets (other than U.S. dollars or other fiat currency), less its liabilities (which include estimated accrued but unpaid fees and expenses), a Non-GAAP metric, calculated in the manner set forth under “Item 1. Business—Valuation of ETH and Determination of NAV.” See also “Item 1. Business—Investment Objective” for a description of the Trust’s Principal Market NAV, as calculated in accordance with GAAP. Prior to February 23, 2024, NAV was referred to as Digital Asset Holdings. For purposes of the Trust Agreement, the term ETH Holdings shall mean the NAV as defined herein. 103 “ NAV Fee Basis Amount ”—The amount on which the Sponsor’s Fee for the Trust is based, as calculated in the manner set forth under “Item 1. Business—Valuation of ETH and Determination of NAV”. For purposes of the Trust Agreement, the term ETH Holdings Basis Amount shall mean the NAV Fee Basis Amount as defined herein. “ OTCQX ”—The OTCQX tier of OTC Markets Group Inc. “ Participant Agreement ”—An agreement entered into by an Authorized Participant with the Sponsor that provides the procedures for the creation of Baskets and for the delivery of ETH required for Creation Baskets. “ Pre-Creation Abandonment ”—The abandonment by the Trust, irrevocably for no direct or indirect consideration, all Incidental Rights and IR Virtual Currency to which the Trust would otherwise be entitled, effective immediately prior to a Creation Time for the Trust. “ Pre-Creation Abandonment Notice ”—A notice delivered by the Sponsor to the Custodian, on behalf of the Trust, stating that the Trust is abandoning irrevocably for no direct or indirect consideration, effective immediately prior to each Creation Time, all Incidental Rights and IR Virtual Currency to which it would otherwise be entitled as of such time and with respect to which the Trust has not taken any Affirmative Action at or prior to such time. “ Principal Market NAV ”—The net asset value of the Trust determined on a GAAP basis. Prior to February 23, 2024, Principal Market NAV was referred to as NAV. “ SEC ”—The U.S. Securities and Exchange Commission. “ Secondary Market ”—Any marketplace or other alternative trading system, as determined by the Sponsor, on which the Shares may then be listed, quoted or traded, including but not limited to, the OTCQX tier of the OTC Markets Group Inc. “ Securities Act ”—The Securities Act of 1933, as amended. “ Shares ”—Common units of fractional undivided beneficial interest in, and ownership of, the Trust. “ Share Split ”—A 9-for-1 Share split of the Trust’s issued and outstanding Shares, which was effective on December 17, 2020 to shareholders of record as of the close of business on December 14, 2020. “ SIPC ”—The Securities Investor Protection Corporation. “ Sponsor ”—Grayscale Investments, LLC. “ Sponsor-paid Expenses ”—The fees and expenses incurred by the Trust in the ordinary course of its affairs that the Sponsor is obligated to assume and pay, excluding taxes, but including: (i) the Marketing Fee, (ii) the Administrator Fee, (iii) the Custodian Fee and fees for any other security vendor engaged by the Trust, (iv) the Transfer Agent fee, (v) the Trustee fee, (vi) the fees and expenses related to the listing, quotation or trading of the Shares on any Secondary Market (including customary legal, marketing and audit fees and expenses) in an amount up to $600,000 in any given fiscal year, (vii) ordinary course, legal fees and expenses, (viii) audit fees, (ix) regulatory fees, including, if applicable, any fees relating to the registration of the Shares under the Securities Act or the Exchange Act, (x) printing and mailing costs, (xi) costs of maintaining the Trust’s website and (xii) applicable license fees, provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. “ Sponsor’s Fee ”—A fee, payable in ETH, which accrues daily in U.S. dollars at an annual rate of 2.5% of the NAV Fee Basis Amount of the Trust as of 4:00 p.m., New York time, on each day; provided that for a day that is not a business day, the calculation of the Sponsor’s Fee will be based on the NAV Fee Basis Amount from the most recent business day, reduced by the accrued and unpaid Sponsor’s Fee for such most recent business day and for each day after such most recent business day and prior to the relevant calculation date. “ Total Basket Amount ”—With respect to any creation order, the applicable Basket Amount multiplied by the number of Baskets being created. “ Transfer Agency and Service Agreement ”—The agreement between the Sponsor and the Transfer Agent which sets forth the obligations and responsibilities of the Transfer Agent with respect to transfer agency services and related matters. 104 “ Transfer Agent ”—Continental Stock Transfer & Trust Company, a Delaware corporation. “ Transfer Agent Fee ”—Fee payable to the Transfer Agent for services it provides to the Trust, which the Sponsor will pay to the Transfer Agent as a Sponsor-paid Expense. “ Treasury Regulations ”—The regulations, including proposed or temporary regulations, promulgated under the Code. “ Trust ”—Grayscale Ethereum Trust (ETH), a Delaware statutory trust, formed on December 13, 2017 under the DSTA and pursuant to the Trust Agreement. “ Trust Agreement ”—The Amended and Restated Declaration of Trust and Trust Agreement between the Trustee and the Sponsor establishing and governing the operations of the Trust, as amended by Amendments No. 1 and No. 2 thereto and as the same may be amended from time to time. “ Trustee ”—Delaware Trust Company (formerly known as CSC Trust Company of Delaware), a Delaware trust company, is the Delaware trustee of the Trust. “ U.S. ”—United States. “ U.S. dollar ” or “ $ ”—United States dollar or dollars. 105 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated, thereunto duly authorized. Grayscale Investments, LLC as Sponsor of Grayscale Ethereum Trust (ETH) By: /s/ Michael Sonnenshein Name: Michael Sonnenshein Title: Member of the Board of Directors and Chief Executive Officer (Principal Executive Officer)* By: /s/ Edward McGee Name: Edward McGee Title: Member of the Board of Directors and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)* By: /s/ Mark Shifke Name: Mark Shifke Title: Chairman of the Board of Directors Director* By: /s/ Matthew Kummell Name: Matthew Kummell Title: Member of the Board of Directors Director* Date: February 23, 2024 * The Registrant is a trust and the persons are signing in their capacities as officers or directors of Grayscale Investments, LLC, the Sponsor of the Registrant. 106 INDEX TO FINANCIAL STATEMENTS Page Grayscale Ethereum Trust (ETH) Annual Financial Statements Reports of Independent Registered Public Accounting Firms (Marcum LLP, PCAOB ID 688 ; Friedman LLP, PCAOB ID 711 ) F- 2 Statements of Assets and Liabilities at December 31, 2023 and 2022 F- 6 Schedules of Investment at December 31, 2023 and 2022 F- 7 Statements of Operations for the years ended December 31, 2023, 2022 and 2021 F- 8 Statements of Changes in Net Assets for the years ended December 31, 2023, 2022 and 2021 F- 9 Notes to Financial Statements F- 10 F- 1 REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM To the Shareholders and Sponsor of Grayscale Ethereum Trust (ETH) Opinion on the Financial Statements We have audited the accompanying statements of assets and liabilities, including the schedules of investment, of Grayscale Ethereum Trust (ETH) (the “Trust”) as of December 31, 2023 and 2022, and the related statements of operations and changes in net assets for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of December 31, 2023 and 2022, and the results of its operations for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Trust’s internal control over financial reporting as of December 31, 2023, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated February 23, 2024, expressed an unqualified opinion on the effectiveness of the Trust’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the management of the Trust’s Sponsor, Grayscale Investments, LLC. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of audit evidence pertaining to the existence, rights and control of digital assets We identified the evaluation of audit evidence pertaining to the existence of digital assets and whether the Trust controls and has the rights to the digital assets as a critical audit matter. Subjective auditor judgment was involved in determining the nature and extent of evidence required to assess the existence of digital assets and whether the Trust controls and has the rights to the digital assets. Control over the digital assets is proven through access to private cryptographic keys stored using third-party custodial services. The following are the primary procedures we performed to address this critical audit matter. We consulted with subject matter experts regarding our planned audit response to address risks of material misstatement of digital assets. We evaluated and tested the design and operating effectiveness of certain internal controls over digital assets, including controls over the comparison of the Trust’s records of digital assets held to the custodial records. We evaluated the sufficiency of the design and operating effectiveness of internal controls at the custodian, including the processes surrounding private key lifecycle management, the storage of private keys and the authorization of digital asset transactions by evaluating service and subservice organization reports. We obtained confirmation from the custodian of the Trust’s digital assets as of December 31, 2023, and compared the total digital assets confirmed to the Trust’s record of digital asset holdings. We also compared the Trust’s record of digital asset holdings to the records on the public blockchain and evaluated the reliability of audit evidence obtained from public blockchains. We tested movements on the blockchain to evidence that the Trust F- 2 controls the digital assets through the custodian account. We evaluated the sufficiency and appropriateness of audit evidence obtained by assessing the results of procedures performed over the digital assets. /s/ Marcum LLP We have served as the Trust’s auditor since 2018 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022). New York, New York February 23, 2024 F- 3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Shareholders and Sponsor of Grayscale Ethereum Trust (ETH) Opinion on Internal Control over Financial Reporting We have audited Grayscale Ethereum Trust (ETH)’s (the “Trust”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the statements of assets and liabilities, including the schedules of investment, of the Trust as of December 31, 2023 and 2022, and the related statements of operations and changes in net assets and the related notes for each of the two years in the period ended December 31, 2023, of the Trust (collectively referred to as the “financial statements”) and our report dated February 23, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The management of Grayscale Investments, LLC (the Trust’s Sponsor) is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate. /s/ Marcum LLP New York, New York February 23, 2024 F- 4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Sponsor of Grayscale Ethereum Trust (ETH) Opinion on the Financial Statements We have audited the statements of operations and changes in net assets of Grayscale Ethereum Trust (ETH) (the “Trust”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the results of the Trust’s operations for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the management of the Trust’s Sponsor, Grayscale Investments, LLC. Our responsibility is to express an opinion on the Trust’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Friedman LLP We have served as the Trust’s auditor from 2018 through 2022. East Hanover, New Jersey February 25, 2022 F- 5 GRAYSCALE ETHEREUM TRUST (ETH) STATEMENTS OF ASSET S AND LIABILITIES ( Amounts in thousands, except Share and per Share amounts) December 31, 2023 2022 Assets: Investment in ETH, at fair value (cost $ 1,244,746 and $ 1,276,257 as of December 31, 2023 and 2022, respectively) $ 6,758,054 $ 3,649,198 Total assets $ 6,758,054 $ 3,649,198 Liabilities: Sponsor's Fee payable, related party $ - $ - Total liabilities - - Net assets $ 6,758,054 $ 3,649,198 Net Assets consists of: Paid-in-capital $ 1,353,419 $ 1,353,419 Accumulated net investment loss ( 521,663 ) ( 387,179 ) Accumulated net realized gain on investment in ETH 412,990 310,017 Accumulated net change in unrealized appreciation on investment in ETH 5,513,308 2,372,941 $ 6,758,054 $ 3,649,198 Shares issued and outstanding, no par value (unlimited Shares authorized) 310,158,500 310,158,500 Principal market net asset value per Share $ 21.79 $ 11.77 See accompanying notes to financial statements. F- 6 GRAYSCALE ETHEREUM TRUST (ETH) SCHEDULES OF INVESTMENT ( Amounts in thousands, except quantity of ETH and percentages) December 31, 2023 Quantity of ETH Cost Fair Value % of Net Assets Investment in ETH 2,962,629.50149940 $ 1,244,746 $ 6,758,054 100 % Net assets $ 1,244,746 $ 6,758,054 100 % December 31, 2022 Quantity of ETH Cost Fair Value % of Net Assets Investment in ETH 3,037,631.42522860 $ 1,276,257 $ 3,649,198 100 % Net assets $ 1,276,257 $ 3,649,198 100 % See accompanying notes to financial statements. F- 7 GRAYSCALE ETHEREUM TRUST (ETH) STATEMENTS OF OPERATIONS ( Amounts in thousands) Years Ended December 31, 2023 2022 2021 Investment income: Investment income $ - $ - $ - Expenses: Sponsor's Fee, related party 134,484 153,242 217,445 Net investment loss ( 134,484 ) ( 153,242 ) ( 217,445 ) Net realized and unrealized gain (loss) from: Net realized gain on investment in ETH 102,973 120,933 185,516 Net change in unrealized appreciation (depreciation) on investment in ETH 3,140,367 ( 7,670,184 ) 8,760,878 Net realized and unrealized gain (loss) on investment 3,243,340 ( 7,549,251 ) 8,946,394 Net increase (decrease) in net assets resulting from operations $ 3,108,856 $ ( 7,702,493 ) $ 8,728,949 See accompanying notes to financial statements. F- 8 GRAYSCALE ETHEREUM TRUST (ETH) STATEMENTS OF CHANG ES IN NET ASSETS ( Amounts in thousands, except change in Shares outstanding) Years Ended December 31, 2023 2022 2021 (Increase) decrease in net assets from operations: Net investment loss $ ( 134,484 ) $ ( 153,242 ) $ ( 217,445 ) Net realized gain on investment in ETH 102,973 120,933 185,516 Net change in unrealized appreciation (depreciation) on investment in ETH 3,140,367 ( 7,670,184 ) 8,760,878 Net increase (decrease) in net assets resulting from operations 3,108,856 ( 7,702,493 ) 8,728,949 Increase in net assets from capital share transactions: Shares issued - - 434,615 Net increase in net assets resulting from capital share transactions - - 434,615 Total increase (decrease) in net assets from operations and capital share transactions 3,108,856 ( 7,702,493 ) 9,163,564 Net assets: Beginning of year 3,649,198 11,351,691 2,188,127 End of year $ 6,758,054 $ 3,649,198 $ 11,351,691 Change in Shares outstanding: Shares outstanding at beginning of year 310,158,500 310,158,500 285,269,400 Shares issued - - 24,889,100 Net increase in Shares - - 24,889,100 Shares outstanding at end of year 310,158,500 310,158,500 310,158,500 See accompanying notes to financial statements. F- 9 GRAYSCALE ETHEREUM TRUST (ETH) NOTES TO THE FINA NCIAL STATEMENTS 1. Organization Grayscale Ethereum Trust (ETH) (the “Trust”) is a Delaware Statutory Trust that was formed on December 13, 2017 and commenced operations on December 14, 2017. In general, the Trust holds Ethereum (“ETH”) and, from time to time, issues common units of fractional undivided beneficial interest (“Shares”) (in minimum baskets of 100 Shares, referred to as “Baskets”) in exchange for ETH. The redemption of Shares is not currently contemplated and the Trust does not currently operate a redemption program. Subject to receipt of regulatory approval and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust has not sought such relief as of the date of this Annual Report. The Trust’s investment objective is for the value of the Shares (based on ETH per Share) to reflect the value of ETH held by the Trust, less the Trust’s expenses and other liabilities. The Trust may also receive Incidental Rights and/or IR Virtual Currency as a result of the Trust’s investment in ETH, in accordance with the terms of the Trust Agreement. Incidental Rights are rights to claim, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Trust’s ownership of ETH and arise without any action of the Trust, or of the Sponsor or Trustee on behalf of the Trust; IR Virtual Currency is any virtual currency tokens, or other asset or right, received by the Trust through the exercise (subject to the applicable provisions of the Trust Agreement) of any Incidental Right. Grayscale Investments, LLC (“Grayscale” or the “Sponsor”) acts as the Sponsor of the Trust and is a wholly owned subsidiary of Digital Currency Group, Inc. (“DCG”). The Sponsor is responsible for the day-to-day administration of the Trust pursuant to the provisions of the Trust Agreement. Grayscale is responsible for preparing and providing annual and quarterly reports on behalf of the Trust to investors and is also responsible for selecting and monitoring the Trust’s service providers. As partial consideration for the Sponsor’s services, the Trust pays Grayscale a Sponsor’s Fee as discussed in Note 7. The Sponsor also acts as the sponsor and manager of other investment products including Grayscale Basic Attention Token Trust (BAT) (OTCQB: GBAT), Grayscale Bitcoin Trust (BTC) (NYSE Arca: GBTC), Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Chainlink Trust (LINK) (OTCQB: GLNK), Grayscale Decentraland Trust (MANA) (OTCQX: MANA), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), Grayscale Filecoin Trust (FIL) (OTCQB: FILG), Grayscale Horizen Trust (ZEN) (OTCQX: HZEN), Grayscale Litecoin Trust (LTC) (OTCQX: LTCN), Grayscale Livepeer Trust (LPT) (OTCQB: GLIV), Grayscale Solana Trust (SOL) (OTCQB: GSOL), Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM), Grayscale Zcash Trust (ZEC) (OTCQX: ZCSH), Grayscale Decentralized Finance (DeFi) Fund LLC (OTCQB: DEFG), Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), and Grayscale Smart Contract Platform Ex Ethereum (ETH) Fund LLC, each of which is an affiliate of the Trust. The following investment products sponsored or managed by the Sponsor are also SEC reporting companies with their shares registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): Grayscale Bitcoin Cash Trust (BCH), Grayscale Ethereum Classic Trust (ETC), Grayscale Horizen Trust (ZEN), Grayscale Litecoin Trust (LTC), Grayscale Stellar Lumens Trust (XLM), Grayscale Zcash Trust (ZEC), and Grayscale Digital Large Cap Fund LLC. On January 10, 2024, the Securities and Exchange Commission (the “SEC”) approved an application under Rule 19b-4 of the Exchange Act by NYSE Arca, Inc. (“NYSE Arca”) to list the shares of the Grayscale Bitcoin Trust (BTC), which began trading on NYSE Arca on January 11, 2024. Grayscale Bitcoin Trust (BTC) is an SEC reporting company with its shares registered pursuant to Section 12(b) of the Exchange Act. Grayscale Advisors, LLC, a Registered Investment Advisor and an affiliate of the Sponsor, is the advisor to the Grayscale Future of Finance (NYSE: GFOF) product. Authorized Participants of the Trust are the only entities who may place orders to create or, if permitted, redeem Baskets. Grayscale Securities, LLC (“Grayscale Securities” or, in such capacity, an “Authorized Participant”), a registered broker-dealer and wholly owned subsidiary of the Sponsor, is the only Authorized Participant, and is party to a participant agreement with the Sponsor and the Trust. Additional Authorized Participants may be added at any time, subject to the discretion of the Sponsor. Liquidity Providers may be engaged from time to time and at any time. Genesis Global Trading, Inc. (“Genesis”), a wholly owned subsidiary of DCG, served as a Liquidity Provider from October 3, 2022 to September 12, 2023. An unaffiliated Liquidity Provider has since been engaged, and additional Liquidity Providers who are unaffiliated with the Trust may be engaged in the future. The custodian of the Trust is Coinbase Custody Trust Company, LLC (the “Custodian”), a third-party service provider. The Custodian is responsible for safeguarding the ETH, Incidental Rights, and IR Virtual Currency held by the Trust, and holding the private key(s) that provide access to the Trust’s digital wallets and vaults. The transfer agent for the Trust (the “Transfer Agent”) is Continental Stock Transfer & Trust Company. The responsibilities of the Transfer Agent are to maintain creations, redemptions, transfers, and distributions of the Trust’s Shares which are primarily held in book-entry form. F- 10 On May 23, 2019, the Trust received notice that its Shares were qualified for public trading on the OTCQX U.S. Marketplace of the OTC Markets Group Inc. (“OTCQX”). The Trust’s trading symbol on OTCQX is “ETHE” and the CUSIP number for its Shares is 389638107. On December 17, 2020, the Trust completed a 9 -for-1 Share Split of the Trust’s issued and outstanding Shares. Each beneficial owner of a Share (a “shareholder”) of record as of the close of business on December 14, 2020 received eight additional Shares of the Trust for each Share held. The number of outstanding Shares and per-Share amounts disclosed for all periods presented have been retroactively adjusted to reflect the effects of the Share Split. 2. Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed by the Trust: The financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Trust qualifies as an investment company for accounting purposes pursuant to the accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies . The Trust uses fair value as its method of accounting for ETH in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company under the Investment Company Act of 1940. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material. The Trust conducts its transactions in ETH, including receiving ETH for the creation of Shares and delivering ETH for the redemption of Shares and for the payment of the Sponsor’s Fee. At this time, the Trust is not accepting redemption requests from shareholders. Since its inception, the Trust has not held cash or cash equivalents. Principal Market and Fair Value Determination To determine which market is the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust’s net asset value in accordance with U.S. GAAP (“Principal Market NAV”), the Trust follows ASC 820-10, which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for ETH in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that ETH is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust only receives ETH in connection with a creation order from the Authorized Participant (or a Liquidity Provider) and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to market-based volume and level of activity for Digital Asset Markets. The Authorized Participant(s), or a Liquidity Provider, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets (referred to as “Trading Platform Markets” in this Annual Report), each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). In determining which of the eligible Digital Asset Markets is the Trust’s principal market, the Trust reviews these criteria in the following order: First, the Trust reviews a list of Digital Asset Markets that maintain practices and policies designed to comply with anti-money laundering (“AML”) and know-your-customer (“KYC”) regulations, and non-Digital Asset Trading Platform Markets that the Trust reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market. Second, the Trust sorts these Digital Asset Markets from high to low by market-based volume and level of activity of ETH traded on each Digital Asset Market in the trailing twelve months. Third, the Trust then reviews pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Trading Platform Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Trading Platform Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of the aforementioned analysis, a Trading Platform Market has been selected as the Trust’s principal market. F- 11 The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market’s trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market’s price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust’s determination of its principal market. The cost basis of ETH received in connection with a creation order is recorded by the Trust at the fair value of ETH at 4:00 p.m., New York time, on the creation date for financial reporting purposes. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors. Investment Transactions and Revenue Recognition The Trust considers investment transactions to be the receipt of ETH for Share creations and the delivery of ETH for Share redemptions or for payment of expenses in ETH. At this time, the Trust is not accepting redemption requests from shareholders. The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in ETH. Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the ‘exit price’) in an orderly transaction between market participants at the measurement date. GAAP utilizes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Trust. Unobservable inputs reflect the Trust’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: • Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, these valuations do not entail a significant degree of judgment. • Level 2 – Valuations based on quoted prices in markets that are not active or for which significant inputs are observable, either directly or indirectly. • Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The availability of valuation techniques and observable inputs can vary by investment. To the extent that valuations are based on sources that are less observable or unobservable in the market, the determination of fair value requires more judgment. Fair value estimates do not necessarily represent the amounts that may be ultimately realized by the Trust. Fair Value Measurement Using (Amounts in thousands) Amount at Fair Value Level 1 Level 2 Level 3 December 31, 2023 Assets Investment in ETH $ 6,758,054 $ 6,758,054 $ - $ - December 31, 2022 Assets Investment in ETH $ 3,649,198 $ 3,649,198 $ - $ - Recently Issued Accounting Pronouncements In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 is intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto F- 12 asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08 is effective for annual and interim reporting periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued. The Trust adopted this new guidance on January 1, 2024, with no material impact on its financial statements and disclosures as the Trust historically used fair value as its method of accounting for ETH in accordance with its classification as an investment company for accounting purposes. 3. Fair Value of Ethereum ETH is held by the Custodian on behalf of the Trust and is carried at fair value. As of December 31, 2023, 2022 and 2021 the Trust held 2,962,629.50149940 , 3,037,631.42522860 and 3,114,532.09753906 ETH, respectively. The Trust determined the fair value per ETH to be $ 2,281.10 , $ 1,201.33 , and $ 3,644.75 on December 31, 2023, 2022 and 2021, respectively, using the price provided at 4:00 p.m., New York time, by the Digital Asset Trading Platform Market considered to be the Trust’s principal market (Coinbase). The following represents the changes in quantity of ETH and the respective fair value: (Amounts in thousands, except ETH amounts) Quantity Fair Value Balance at December 31, 2020 2,937,122.40311770 $ 2,188,127 ETH contributed 255,555.46585612 434,615 ETH distributed for Sponsor's Fee, related party ( 78,145.77143476 ) ( 217,445 ) Net change in unrealized appreciation on investment in ETH - 8,760,878 Net realized gain on investment in ETH - 185,516 Balance at December 31, 2021 3,114,532.09753906 $ 11,351,691 ETH contributed - - ETH distributed for Sponsor's Fee, related party ( 76,900.67231046 ) ( 153,242 ) Net change in unrealized depreciation on investment in ETH - ( 7,670,184 ) Net realized gain on investment in ETH - 120,933 Balance at December 31, 2022 3,037,631.42522860 $ 3,649,198 ETH contributed - - ETH distributed for Sponsor's Fee, related party ( 75,001.92372920 ) ( 134,484 ) Net change in unrealized appreciation on investment in ETH - 3,140,367 Net realized gain on investment in ETH - 102,973 Balance at December 31, 2023 2,962,629.50149940 $ 6,758,054 4. Distributions When a proposed modification to the Ethereum Network is accepted by the vast majority of validators and users but is nonetheless not accepted by an other than insignificant population of participants in the network, a “fork” in the blockchain occurs, resulting in two separate Ethereum Networks. Holders of ETH on the original Ethereum Network, at the time the block is validated and the fork occurs, may also receive an identical amount of new tokens on the new network. Ethereum Fork on September 15, 2022 (ETHPoW) Background and Measurement The Ethereum Network completed the final stages of an upgrade referred to as the “Merge,” which is a stage of what was previously referred to as Ethereum 2.0, on September 15, 2022, and the Ethereum Network transitioned to a proof-of-stake model. Following the Merge, a hard fork of the Ethereum Network occurred, as certain ETH miners and network participants planned to maintain the proof-of-work consensus mechanism that was removed as part of the Merge. This version of the Ethereum Network was rebranded as Ethereum Proof-of-Work. Immediately following the hard fork on September 15, 2022, holders of ETH passively received Incidental Rights to an equal number of Ethereum Proof-of-Work tokens (“ETHPoW”). At that time, the Trust held approximately 3,059,976 ETH and the newly created ETHPoW was inaccessible to the Trust. On the date of the hard fork, the Incidental Rights to ETHPoW were determined to have no value as there were insufficient observable market inputs to determine the fair value of ETHPoW and the ETHPoW assets were not supported by the Custodian. F- 13 Furthermore, on September 16, 2022, the Sponsor of the Trust announced that it had declared a distribution and established a record date for the distribution of the Incidental Rights to the shareholders of record as of the close of business on September 26, 2022 (“Record Date Shareholders”). Subsequent Measurement and Distribution of Incidental Rights to ETHPoW On September 26, 2022 (the “Record Date”), the Trust distributed the Incidental Rights to obtain approximately 3,059,976 ETHPoW tokens held by the Trust to the Record Date Shareholders as of the close of business on September 26, 2022. On the Record Date, the Trust, acting on behalf of the Record Date Shareholders and pursuant to the terms of the Trust Agreement governing the Trust, appointed Grayscale Investments, LLC as agent (in this capacity, the “Agent”) on behalf of the Record Date Shareholders and transferred the Incidental Rights to ETHPoW tokens held by the Trust to the Agent on behalf of the Record Date Shareholders. The Trust has no ownership interest in the distributed Incidental Rights to ETHPoW, no ability to control the actions of the Agent and no right to receive any information about the distributed Incidental Rights to ETHPoW or the disposition thereof or of the underlying ETHPoW from the Record Date Shareholders, their Agent or any other person. As of the Record Date, the Trust determined such Incidental Rights to have a fair value of $ 0 and no gain or loss was recognized as part of the Incidental Right distribution, due to the lack of a trading venue accessible to the Authorized Participant of the Trust and uncertainty regarding the ability to safely access and custody the ETHPoW. On September 18, 2023, the Agent announced that it irrevocably abandoned all of the Incidental Rights to ETHPoW. The Agent determined that the Custodian does not support ETHPoW, nor have trading venues with meaningful liquidity developed for ETHPoW. As such, it is not possible to exercise the rights to acquire and sell ETHPoW, and on behalf of the Record Date Shareholders, the Agent abandoned the rights to ETHPoW. 5. Creations and Redemptions of Shares At December 31, 2023 and 2022, there were an unlimited number of Shares authorized by the Trust. The Trust creates (and, should the Trust commence a redemption program, redeems) Shares from time to time, but only in one or more Baskets. The creation and redemption of Baskets on behalf of investors are made by the Authorized Participant in exchange for the delivery of ETH to the Trust or the distribution of ETH by the Trust. The number of ETH required for each creation Basket or redemption Basket is determined by dividing (x) the number of ETH owned by the Trust at 4:00 p.m., New York time, on such trade date of a creation or redemption order, after deducting the number of ETH representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust, by (y) the number of Shares outstanding at such time and multiplying the quotient obtained by 100. Each Share represented approximately 0.0096 and 0.0098 of one ETH at December 31, 2023 and 2022, respectively. The decrease in the number of ETH represented by each Share is primarily a result of the periodic withdrawal of ETH to pay the Sponsor’s Fee. The cost basis of investments in ETH recorded by the Trust is the fair value of ETH, as determined by the Trust, at 4:00 p.m., New York time, on the date of transfer to the Trust by the Authorized Participant based on the creation Baskets. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of each Share to investors. The Authorized Participant may realize significant profits buying, selling, creating, and, if permitted, redeeming Shares as a result of changes in the value of Shares or ETH. At this time, the Trust is not operating a redemption program and is not accepting redemption requests. Subject to receipt of regulatory approval and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. On October 2, 2023, NYSE Arca, Inc. (“NYSE Arca”) filed an application with the SEC pursuant to Rule 19b-4 under the Exchange Act to list the Shares of the Trust on NYSE Arca. As of the date of this filing, the NYSE Arca 19b-4 application has not been approved by the SEC and the Trust has not obtained relief from the SEC under Regulation M, and the Trust makes no representation as to when or if such approval and relief will be obtained. 6. Income Taxes The Sponsor takes the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.S. federal income tax. Rather, if the Trust is a grantor trust, each beneficial owner of Shares will be treated as directly owning its pro rata Share of the Trust’s assets and a pro rata portion of the Trust’s income, gain, losses and deductions will “flow through” to each beneficial owner of Shares. If the Trust were not properly classified as a grantor trust, the Trust might be classified as a partnership for U.S. federal income tax purposes. However, due to the uncertain treatment of digital assets, including forks, airdrops and similar occurrences for U.S. federal income tax purposes, there can be no assurance in this regard. If the Trust were classified as a partnership for U.S. federal income tax purposes, the tax consequences of owning Shares generally would not be materially different from the tax consequences described F- 14 herein, although there might be certain differences, including with respect to timing. In addition, tax information reports provided to beneficial owners of Shares would be made in a different form. If the Trust were not classified as either a grantor trust or a partnership for U.S. federal income tax purposes, it would be classified as a corporation for such purposes. In that event, the Trust would be subject to entity-level U.S. federal income tax (currently at the rate of 21 %) on its net taxable income and certain distributions made by the Trust to shareholders would be treated as taxable dividends to the extent of the Trust’s current and accumulated earnings and profits. In accordance with GAAP, the Trust has defined the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the applicable taxing authority and requires measurement of a tax position meeting the “more-likely-than-not” threshold, based on the largest benefit that is more than 50% likely to be realized. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as a tax benefit or expense in the current period. As of and during the years ended December 31, 2023, 2022, and 2021, the Trust did not have a liability for any unrecognized tax amounts. However, the Sponsor’s conclusions concerning its determination of “more-likely-than-not” tax positions may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance, and ongoing analyses of and changes to tax laws, regulations and interpretations thereof. The Sponsor of the Trust has evaluated whether or not there are uncertain tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions related to federal, state and local income taxes existed as of December 31, 2023 or 2022 . 7. Related Parties The Trust considered the following entities, their directors, and certain employees to be related parties of the Trust as of December 31, 2023: DCG, Genesis, Grayscale, and Grayscale Securities. As of December 31, 2023 and 2022 , 12,277 and 11,811,797 Shares of the Trust were held by related parties of the Trust, respectively. On November 20, 2023, it was announced that CoinDesk Indices, Inc., the Index Provider, previously an affiliate of the Sponsor and the Trust at the time of this event, was acquired by an unaffiliated third party. This transaction did not have any impact on the Trust, or disrupt the operations of the Trust. The Sponsor’s parent, an affiliate of the Trust, holds a minority interest in Coinbase, Inc., the parent company of the Custodian, that represents less than 1.0 % of Coinbase, Inc.’s ownership. In accordance with the Trust Agreement governing the Trust, the Trust pays a fee to the Sponsor, calculated as 2.5 % of the aggregate value of the Trust’s assets, less its liabilities (which include any accrued but unpaid expenses up to, but excluding, the date of calculation), as calculated and published by the Sponsor or its delegates in the manner set forth in the Trust Agreement (the “Sponsor’s Fee”). The Sponsor’s Fee accrues daily in U.S. dollars and is payable in ETH, monthly in arrears. The amount of ETH payable in respect of each daily U.S. dollar accrual will be determined by reference to the same U.S. dollar value of ETH used to determine such accrual. For purposes of these financial statements, the U.S. dollar value of ETH is determined by reference to the Digital Asset Trading Platform Market that the Trust considers its principal market as of 4:00 p.m., New York time, on each valuation date. The Trust held no Incidental Rights or IR Virtual Currency as of December 31, 2023 and 2022 . No Incidental Rights or IR Virtual Currencies have been distributed in payment of the Sponsor’s Fee during the years ended December 31, 2023, 2022 and 2021. As partial consideration for receipt of the Sponsor’s Fee, the Sponsor is obligated under the Trust Agreement to assume and pay all fees and other expenses incurred by the Trust in the ordinary course of its affairs, excluding taxes, but including marketing fees; administrator fees, if any; custodian fees; transfer agent fees; trustee fees; the fees and expenses related to the listing, quotation or trading of the Shares on any secondary market (including customary legal, marketing and audit fees and expenses) in an amount up to $ 600,000 in any given fiscal year; ordinary course legal fees and expenses; audit fees; regulatory fees, including, if applicable, any fees relating to the registration of the Shares under the Securities Act or the Exchange Act; printing and mailing costs; the costs of maintaining the Trust’s website and applicable license fees (together, the “Sponsor-paid Expenses”), provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. The Trust may incur certain extraordinary, non-recurring expenses that are not Sponsor-paid Expenses, including, but not limited to, 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 (including in connection with any Incidental Rights and any IR Virtual Currency), any indemnification of the Custodian or other agents, service providers or counterparties of the Trust, the fees and expenses related to the listing, quotation or trading of the Shares on any secondary market (including legal, marketing and audit fees and expenses) to the extent exceeding $ 600,000 in any given fiscal year and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters (collectively “Additional Trust Expenses”). In such circumstances, the Sponsor or its delegate (i) will instruct the Custodian to withdraw from the Digital Asset Account ETH, Incidental Rights and/or IR Virtual Currency in such quantity as may be necessary to permit payment of such Additional F- 15 Trust Expenses and (ii) may either (x) cause the Trust (or its delegate) to convert such ETH, Incidental Rights and/or IR Virtual Currency into U.S. dollars or other fiat currencies at the Actual Exchange Rate or (y) when the Sponsor incurs such expenses on behalf of the Trust, cause the Trust (or its delegate) to deliver such ETH, Incidental Rights and/or IR Virtual Currency in kind to the Sponsor, in each case in such quantity as may be necessary to permit payment of such Additional Trust Expenses. For the years ended December 31, 2023, 2022 and 2021, the Trust incurred Sponsor’s Fees of $ 134,484,415 , $ 153,242,544 and $ 217,445,124 , respectively. As of December 31, 2023 and 2022 , there were no accrued and unpaid Sponsor’s Fees. In addition, the Sponsor may pay Additional Trust Expenses on behalf of the Trust, which are reimbursable by the Trust to the Sponsor. For the years ended December 31, 2023, 2022 and 2021 , the Sponsor did no t pay any Additional Trust Expenses on behalf of the Trust. On March 2, 2022, the Board of the Sponsor (the “Board”) approved the purchase by DCG, the parent company of the Sponsor, of up to an aggregate total of $ 200 million worth of Shares of the Trust and shares of any of the following five investment products the Sponsor also acts as the sponsor and manager of, including Grayscale Bitcoin Trust (BTC) (NYSE Arca: GBTC), Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), and Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM). Subsequently, DCG authorized such purchase. The Share purchase authorization does not obligate DCG to acquire any specific number of Shares in any period, and may be expanded, extended, modified, or discontinued at any time. From March 2, 2022 through December 31, 2023 , DCG had no t purchased any Shares of the Trust under this authorization. 8. Risks and Uncertainties The Trust is subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, ETH. Investing in ETH is currently highly speculative and volatile. The net asset value of the Trust, calculated by reference to the principal market price, relates primarily to the value of ETH held by the Trust, and fluctuations in the price of ETH could materially and adversely affect an investment in the Shares of the Trust. The price of ETH has a limited history. During such history, ETH prices have been volatile and subject to influence by many factors, including the levels of liquidity. If the Digital Asset Markets continue to experience significant price fluctuations, the Trust may experience losses. Several factors may affect the price of ETH, including, but not limited to, global ETH supply and demand, theft of ETH from global trading platforms or vaults, competition from other forms of digital currency or payment services, global or regional political, economic or financial conditions, and other unforeseen events and situations. The ETH held by the Trust are commingled, and the Trust’s shareholders have no specific rights to any specific ETH. In the event of the insolvency of the Trust, its assets may be inadequate to satisfy a claim by its shareholders. There is currently no clearing house for ETH, nor is there a central or major depository for the custody of ETH. There is a risk that some or all of the Trust’s ETH could be lost or stolen. There can be no assurance that the Custodian will maintain adequate insurance or that such coverage will cover losses with respect to the Trust’s ETH. Further, transactions in ETH are irrevocable. Stolen or incorrectly transferred ETH may be irretrievable. As a result, any incorrectly executed ETH transactions could adversely affect an investment in the Shares. The SEC has stated that certain digital assets may be considered “securities” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Public, though non-binding, statements by senior officials at the SEC have indicated that the SEC did not consider Bitcoin or Ethereum to be securities, and does not currently consider Bitcoin to be a security. The SEC staff has also provided informal assurances via no-action letter to a handful of promoters that their digital assets are not securities. On the other hand, the SEC has brought enforcement actions against the issuers and promoters of several other digital assets on the basis that the digital assets in question are securities. If ETH is determined to be a “security” under federal or state securities laws by the SEC or any other agency, or in a proceeding in a court of law or otherwise, it may have material adverse consequences for ETH. For example, it may become more difficult for ETH to be traded, cleared and custodied as compared to other digital assets that are not considered to be securities, which could, in turn, negatively affect the liquidity and general acceptance of ETH and cause users to migrate to other digital assets. As such, any determination that ETH is a security under federal or state securities laws may adversely affect the value of ETH and, as a result, an investment in the Shares. In addition, if ETH is in fact a security, the Trust could be considered an unregistered “investment company” under the Investment Company Act of 1940, which could necessitate the Trust’s liquidation. In this case, the Trust and the Sponsor may be deemed to have participated in an illegal offering of securities and there is no guarantee that the Sponsor will be able to register the Trust under the Investment Company Act of 1940 at such time or take such other actions as may be necessary to ensure the Trust’s activities comply with applicable law, which could force the Sponsor to liquidate the Trust. F- 16 To the extent a private key required to access an ETH address is lost, destroyed or otherwise compromised and no backup of the private keys are accessible, the Trust may be unable to access the ETH controlled by the private key and the private key will not be capable of being restored by the Ethereum Network. The processes by which ETH transactions are settled are dependent on the ETH peer-to-peer network, and as such, the Trust is subject to operational risk. A risk also exists with respect to previously unknown technical vulnerabilities, which may adversely affect the value of ETH. The Trust relies on third-party service providers to perform certain functions essential to its operations. Any disruptions to the Trust’s service providers’ business operations, resulting from business failures, financial instability, security failures, government mandated regulation or operational problems could have an adverse impact on the Trust’s ability to access critical services and be disruptive to the operations of the Trust. The Sponsor and the Trust may be subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of its business. 9. Quarterly Statements of Operations Fiscal Year Ended December 31, 2023 Three Months Ended (unaudited) (Amounts in thousands) Mar-31, 2023 Jun-30, 2023 Sept-30, 2023 Dec-31, 2023 Year Ended December 31, 2023 Expenses Sponsor's Fee, related party $ 29,638 $ 34,879 $ 33,146 $ 36,821 $ 134,484 Net investment loss $ ( 29,638 ) $ ( 34,879 ) $ ( 33,146 ) $ ( 36,821 ) $ ( 134,484 ) Net realized and unrealized gain (loss) from: Net realized gain on investment in ETH 21,794 26,999 25,228 28,952 102,973 Net change in unrealized appreciation (depreciation) on investment in ETH 1,880,269 264,140 ( 762,834 ) 1,758,792 3,140,367 Net realized and unrealized gain (loss) on investment 1,902,063 291,139 ( 737,606 ) 1,787,744 3,243,340 Net increase (decrease) in net assets resulting from operations $ 1,872,425 $ 256,260 $ ( 770,752 ) $ 1,750,923 $ 3,108,856 Fiscal Year Ended December 31, 2022 Three Months Ended (unaudited) (Amounts in thousands) Mar-31, 2022 Jun-30, 2022 Sept-30, 2022 Dec-31, 2022 Year Ended December 31, 2022 Expenses Sponsor's Fee, related party $ 56,218 $ 42,739 $ 29,260 $ 25,025 $ 153,242 Net investment loss $ ( 56,218 ) $ ( 42,739 ) $ ( 29,260 ) $ ( 25,025 ) $ ( 153,242 ) Net realized and unrealized (loss) gain from: Net realized gain on investment in ETH 48,176 34,658 21,142 16,957 120,933 Net change in unrealized (depreciation) appreciation on investment in ETH ( 1,177,858 ) ( 7,020,891 ) 959,906 ( 431,341 ) ( 7,670,184 ) Net realized and unrealized (loss) gain on investment ( 1,129,682 ) ( 6,986,233 ) 981,048 ( 414,384 ) ( 7,549,251 ) Net (decrease) increase in net assets resulting from operations $ ( 1,185,900 ) $ ( 7,028,972 ) $ 951,788 $ ( 439,409 ) $ ( 7,702,493 ) F- 17 10. Financial Highlights Per Share Performance Years Ended December 31, 2023 2022 2021 Per Share Data: Principal market net asset value, beginning of year $ 11.77 $ 36.60 $ 7.67 Net increase (decrease) in net assets from investment operations: Net investment loss ( 0.43 ) ( 0.49 ) ( 0.71 ) Net realized and unrealized gain (loss) 10.45 ( 24.34 ) 29.64 Net increase (decrease) in net assets resulting from operations 10.02 ( 24.83 ) 28.93 Principal market net asset value, end of year $ 21.79 $ 11.77 $ 36.60 Total return 85.13 % - 67.84 % 377.18 % Ratios to average net assets: Net investment loss - 2.50 % - 2.50 % - 2.50 % Expenses - 2.50 % - 2.50 % - 2.50 % An individual shareholder’s return, ratios, and per Share performance may vary from those presented above based on the timing of Share transactions. The amount shown for a Share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the number of Shares issued in Creations occurring at an operational value derived from an operating metric as defined in the Trust Agreement. Total return is calculated assuming an initial investment made at the Principal Market NAV at the beginning of the year and assuming redemption on the last day of the year. 11. Indemnifications In the normal course of business, the Trust enters into certain contracts that provide a variety of indemnities, including contracts with the Sponsor and affiliates of the Sponsor, DCG and its officers, directors, employees, subsidiaries and affiliates, and the Custodian as well as others relating to services provided to the Trust. The Trust’s maximum exposure under these and its other indemnities is unknown. However, no liabilities have arisen under these indemnities in the past and, while there can be no assurances in this regard, there is no expectation that any will occur in the future. Therefore, the Sponsor does not consider it necessary to record a liability in this regard. 12. Subsequent Events As of the close of business on February 19, 2024 , the fair value of ETH determined in accordance with the Trust’s accounting policy was $ 2,934.92 per ETH. There are no known events that have occurred that require disclosure other than that which has already been disclosed in these notes to the financial statements. F- 18