Grayscale Avalanche Staking ETF 10-Q

Item 2. 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 unaudited financial statements and related notes included elsewhere in this Quarterly 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 set forth under “Part II, Item 1A. Risk Factors” in this Quarterly Report, or in “Risk Factors” and “Forward-Looking Statements” or other sections of our Registration Statement on Form S-1. 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 AVAX and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of AVAX. On March 11, 2026 in connection with the approval of application under the Generic Listing Standards and the effectiveness of the registration statement on Form S-1, the Sponsor authorized the commencement of a redemption program. Shares of the Trust began trading on NASDAQ on March 12, 2026, following the effectiveness of the Trust’s registration statement on Form S-1. The Trust issues Shares only in one or more blocks of 10,000 Shares (a block of 10,000 Shares is called a “Basket”) to certain Authorized Participants from time to time. Baskets are offered in exchange for AVAX. Through its redemption program, the Trust redeems Shares from Authorized Participants on an ongoing basis. As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on AVAX per Share) to reflect the value of the AVAX held by the Trust, including AVAX earned as Staking Consideration, 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 AVAX, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to AVAX. The Trust is not managed like a business corporation or an active investment vehicle. The Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet its investment objective. Prior to October 1, 2025, the Trust valued the AVAX held by the Trust for operational purposes by reference to the CoinDesk AVAX Reference Rate Price. As of October 1, 2025, the Index is the CoinDesk AVAX Benchmark Rate which is used to calculate the NAV and NAV per Share. Prior to October 1, 2025, references to the “Index” in the Trust’s filings with the SEC, including this Quarterly Report on Form 10-Q, refer to the CoinDesk AVAX Reference Rate. From and after October 1, 2025, references to the “Index” in the Trust’s filings with the SEC are to the CoinDesk Avalanche Benchmark Rate. Staking On March 12, 2026, the Trust began staking its AVAX pursuant to staking arrangements with the Custodian and certain third-party staking providers and earns staking rewards in the form of additional AVAX (“Staking Consideration”). The amount of Staking Consideration received by the Trust is influenced by factors including Avalanche Network conditions, protocol-level reward rates, the amount of AVAX held by the Trust and the portion of the Trust’s AVAX that is staked, and the Trust does not expect Staking Consideration to be earned at a consistent rate. Staking also introduces operational and liquidity considerations, including that staked AVAX may be inaccessible for a period of time required to un-stake and withdraw AVAX under Avalanche Network protocols and the Trust’s dependence on third-party staking providers for the execution of staking activities. Pursuant to the Trust’s staking arrangements and the Trust Agreement, a portion of gross Staking Consideration is allocated among the Custodian, the applicable staking providers and the Sponsor (the “Sponsor’s Staking Fee”), with the remainder retained by the Trust. Staking Consideration retained by the Trust increases the Trust’s AVAX holdings, while distributions or sales of AVAX reduce the Trust’s AVAX holdings. The Trust may distribute Staking Consideration (in AVAX or cash from the sale of AVAX) to shareholders at the Sponsor’s discretion and subject to the Trust Agreement. 18 Critical Accounting Policies and Estimates Investment Transactions and Revenue Recognition The Trust considers investment transactions to be the receipt of AVAX by the Trust in connection with Share creations and the delivery of AVAX by the Trust in connection with Share redemptions or for payment of expenses in AVAX. 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 AVAX. 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”) Topic 820-10, Fair Value Measurement , which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for AVAX 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 AVAX 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 AVAX 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 Quarterly 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 AVAX 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. Investment Company Considerations The Trust is an investment company for U.S. 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 AVAX 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. U.S. 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. 19 Review of Financial Results (unaudited) Financial Highlights for the Three and Six Months Ended June 30, 2026 and 2025 (All amounts in the following table and the subsequent paragraphs, except Share, AVAX and price of AVAX amounts, are in thousands) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net realized and unrealized loss on investment in AVAX $ (1,453 ) $ (3,558 ) $ (3,458 ) $ (4,861 ) Net decrease in net assets resulting from operations $ (1,416 ) $ (3,602 ) $ (3,444 ) $ (4,918 ) Net assets (1) $ 4,270 $ 10,571 $ 4,270 $ 10,571 (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 AVAX 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 loss on investment in AVAX for the three months ended June 30, 2026 was ($1,453), which includes a realized loss of ($2) on the transfer of AVAX to pay Sponsor’s Fee, net realized loss on investment in AVAX sold to pay Sponsor’s Staking Fee of ($18) and net change in unrealized appreciation/depreciation on investment in AVAX of ($1,433). Net realized and unrealized loss on investment in AVAX for the period was driven by AVAX price depreciation from $8.89 per AVAX as of March 31, 2026 to $6.57 per AVAX as of June 30, 2026. Net decrease in net assets resulting from operations was ($1,416) for the three months ended June 30, 2026, which consisted of the net realized and unrealized loss on investment in AVAX, and the net investment gain of $37. Net assets decreased to $4,270 at June 30, 2026, a 20% decrease for the three-month period. The decrease in net assets resulted from the aforementioned AVAX price depreciation, the withdrawal of approximately 112 AVAX to pay the foregoing Sponsor’s Fee and the withdrawal of approximately 1,167 AVAX to pay the foregoing Sponsor’s Staking Fee, partially offset by the contribution of approximately 48,309 AVAX with a value of $377 to the Trust in connection with Share creations during the period and the contribution of approximately 5,660 AVAX in connection with Staking Rewards. Net realized and unrealized loss on investment in AVAX for the three months ended June 30, 2025 was ($3,558), which includes a realized loss of ($10) on the sale of AVAX to pay Sponsor’s Fee and net change in unrealized appreciation/depreciation on investment in AVAX of ($3,548). Net realized and unrealized loss on investment in AVAX for the period was driven by AVAX price depreciation from $18.64 per AVAX as of March 31, 2025, to $18.21 per AVAX as of June 30, 2025. Net decrease in net assets resulting from operations was ($3,602) for the three months ended June 30, 2025, which consisted of the net realized and unrealized loss on investment in AVAX, plus the Sponsor’s Fee of $44. Net assets increased to $10,571 at June 30, 2025, a 610% increase for the three-month period. The increase in net assets resulted from the contribution of approximately 502,763 AVAX with a value of $12,684 to the Trust in connection with Share creations during the period, partially offset by the aforementioned AVAX price depreciation and the withdrawal of approximately 2,141 AVAX to pay the foregoing Sponsor’s Fee. Net realized and unrealized loss on investment in AVAX for the six months ended June 30, 2026 was ($3,458), which includes a realized loss of ($41) on the transfer of AVAX to pay Sponsor’s Fee, net realized loss on investment in AVAX sold to pay Sponsor's Staking Fee of ($22) and net change in unrealized appreciation/depreciation on investment in AVAX of ($3,395). Net realized and unrealized loss on investment in AVAX for the period was driven by AVAX price depreciation from $12.33 per AVAX as of December 31, 2025 to $6.57 per AVAX as of June 30, 2026. Net decrease in net assets resulting from operations was ($3,444) for the six months ended June 30, 2026, which consisted of the net realized and unrealized loss on investment in AVAX, and the net investment gain of $14. Net assets decreased to $4,270 at June 30, 2026, a 40% decrease for the six-month period. The decrease in net assets resulted from the aforementioned AVAX price depreciation, the withdrawal of approximately 2,862 AVAX to pay the foregoing Sponsor’s Fee and the withdrawal of approximately 1,399 AVAX to pay the foregoing Sponsor’s Staking Fee, partially offset by the contribution of approximately 72,355 AVAX with a value of $624 to the Trust in connection with Share creations during the period and the contribution of approximately 6,784 AVAX in connection with Staking Rewards. Net realized and unrealized loss on investment in AVAX for the six months ended June 30, 2025 was ($4,861), which includes a realized loss of ($9) on the sale of AVAX to pay Sponsor’s Fee and net change in unrealized appreciation/depreciation on investment in AVAX of ($4,852). Net realized and unrealized loss on investment in AVAX for the period was driven by AVAX price depreciation from $35.81 per AVAX as of December 31, 2024, to $18.21 per AVAX as of June 30, 2025. Net decrease in net assets resulting from operations was ($4,918) for the six months ended June 30, 2025, which consisted of the net realized and unrealized loss on investment in AVAX, plus the Sponsor’s Fee of $57. Net assets increased to $10,571 at June 30, 2025, a 295% increase for the six-month period. 20 The increase in net assets resulted from the contribution of approximately 508,440 AVAX with a value of $12,815 to the Trust in connection with Share creations during the period, partially offset by the aforementioned AVAX price depreciation and the withdrawal of approximately 2,614 AVAX to pay the foregoing Sponsor’s Fee. Cash Resources and Liquidity The Trust only receives and holds cash in order to facilitate creations and redemptions pursuant to Cash Orders, and has not otherwise had or maintained a cash balance at any time since inception. When selling AVAX in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor endeavors to sell the exact amount of AVAX needed to pay expenses in order to minimize the Trust’s holdings of assets other than AVAX. In addition, upon the consummation or deemed failure of a Cash Order to create or redeem Baskets, the Trust will promptly return any excess cash it continues to hold with respect to such Cash Order to the applicable counterparty. 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. Generally, the Trust does not intend to hold cash, except in connection with Cash Orders for creations or redemptions of Baskets. Cash includes non-interest bearing non-restricted cash with one institution. Cash in a bank deposit account, at times, may exceed U.S. federally insured limits. The Trust has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits. 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 expenses of the Trust during the periods covered by this Quarterly Report were the Sponsor’s Fee and Sponsor’s Staking Fee. The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee of the Trust in its discretion for stated periods of time. Effective March 12, 2026, the Sponsor determined to waive a portion of the Sponsor’s Fee until the earlier of (x) June 12, 2026 and (y) the first date on which the NAV of the Trust exceeds $1.0 billion (such period, the “Fee Waiver Period”). Following the expiration date of the three-month waiver period on June 12, 2026 (the “Sponsor’s Fee Waiver Expiration Date”), the Sponsor’s Fee is 0.35%. 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 As of June 30, 2026 2025 Price of AVAX on principal market $ 6.57 $ 18.21 Principal Market NAV per Share (1)(2) $ 15.93 $ 44.56 Principal Market NAV (2) $ 4,269,783 $ 10,570,805 Index Price $ 6.57 $ 18.13 NAV per Share (1)(3) $ 15.93 $ 44.36 NAV (3) $ 4,268,486 $ 10,524,365 (1) Shares and per Share amounts for periods presented prior to the Reverse Share Split have been retroactively adjusted for the 1-for-5 Reverse Share Split of the Trust’s issued and outstanding Shares completed on March 6, 2026. (2) The Principal Market NAV and Principal Market NAV per Share are calculated using the fair value of AVAX based on the price provided by 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, in accordance with U.S. GAAP. (3) The Trust’s NAV and NAV per Share are 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. The Digital Asset Trading Platforms included in the Index (the “Constituent Trading Platforms”) as of June 30, 2026 were Binance, Bitstamp by Robinhood, Bullish, Bybit, Crypto.com, Gate, Gemini, HashKey, Kraken and OKX. The Digital Asset Trading Platforms included in the Index as of June 30, 2025 were Coinbase, Kraken, and Crypto.com. See “Business—Overview of the Avalanche Industry and Market—The Index and the Index Price” in our Registration Statement on Form S-1 for a description of the Index and the Index Price. The Trust reflects creations and redemptions and the AVAX for proceeds receivable or payable with respect to such creations and redemptions, respectively, on the trade date, which is the business day an accepted creation or redemption order is placed by an Authorized Participant. Creation and redemption orders are settled on T+1 or T+2, as established at the time of order placement, and 21 therefore the AVAX for proceeds receivable or payable with respect to such creations and redemptions, respectively, are recorded as a receivable or payable until the AVAX are delivered or removed from the Trust for settlement. Historical NAV and AVAX Prices As movements in the price of AVAX will directly affect the price of the Shares, investors should understand recent movements in the price of AVAX. Investors, however, should also be aware that past movements in the AVAX 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 Reverse Share Split for periods prior to March 6, 2026) versus the Index Price and the Trust’s Principal Market NAV per Share (as adjusted for the Reverse Share Split for periods prior to March 6, 2026) from August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2026. For more information on the determination of the Trust’s NAV, see “Business—Overview of the Avalanche Industry and Market—The Index and the Index Price” in our Registration Statement on Form S-1. 22 The following table illustrates the movements in the Index Price from August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2026. The Sponsor has not observed a material difference between the Index Price and average prices from the Constituent Trading Platforms as of June 30, 2026, individually or as a group. High Low Period Average Index Price Date Index Price Date End of period Last business day August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2025 $ 27.40 $ 54.44 12/4/2024 $ 16.01 6/22/2025 $ 18.13 $ 18.13 Twelve months ended June 30, 2026 $ 15.31 $ 34.57 9/18/2025 $ 5.87 6/19/2026 $ 6.57 $ 6.57 August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2026 $ 20.91 $ 54.44 12/4/2024 $ 5.87 6/19/2026 $ 6.57 $ 6.57 The following table illustrates the movements in the Digital Asset Market price of AVAX, as reported on the Trust’s principal market, from August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2026. High Low Period Average Digital Asset Market Price Date Digital Asset Market Price Date End of period Last business day August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2025 $ 27.39 $ 54.16 12/4/2024 $ 15.95 6/22/2025 $ 18.21 $ 18.21 Twelve months ended June 30, 2026 $ 15.30 $ 34.73 9/18/2025 $ 5.88 6/19/2026 $ 6.57 $ 6.57 August 20, 2024 (the commencement of the Trust’s operations) to June 30, 2026 $ 20.91 $ 54.16 12/4/2024 $ 5.88 6/19/2026 $ 6.57 $ 6.57 23 Effective March 12, 2026, the Trust established an ongoing share creation and redemption program and the Shares of the Trust were listed to NASDAQ. The following chart sets out the historical closing prices for the Shares as reported by NASDAQ and the Trust’s NAV per Share from March 12, 2026 to June 30, 2026. GAVA Premium/(Discount): GAVA Share Price vs. NAV per Share (Non-GAAP) ($) The following chart sets out the historical premium and discount for the Shares calculated as a percentage of the historical closing prices for the Shares as reported by NASDAQ divided by the Trust’s NAV per Share from March 12, 2026 to June 30, 2026. GAVA Premium/(Discount): GAVA Share Price vs. NAV per Share (Non-GAAP) (%) 24