What changed in this filing

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Item 1A. Risk Factors

2024-11-12 compared with 2024-08-28 · 256 added, 10 removed, 0 unchanged (100% of the section changed)

You should carefully consider the factors discussed in “Risk Factors” in our Registration Statement on Form S-1 (333-274364)

declared effective on July 22, 2024, which could materially affect our business, financial condition or future results.

There have been

no material changes in our risk factors from those disclosed therein.

The risks described in our Amended S-1 filing are not the only risks facing the Trust.

You should also consider any risks and uncertainties

described under the caption “Risk Factors” in any applicable prospectus, prospectus supplement, registration statement or

other document that we file with the SEC before or after this date.

Additional risks and uncertainties not currently known to us or that

we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

You should carefully consider

the risk factors discussed below as well as the risk factors discussed in “Risk Factors” in our Launch S-1, which could materially

affect our business, financial condition or future results.

There have been no material changes in our risk factors from those disclosed

The risks described below

and in our Launch S-1 are not the only risks facing the Trust.

You should also consider any risks and uncertainties described under the

caption “Risk Factors” in any applicable prospectus, prospectus supplement, registration statement or other document that

we file with the SEC before or after this date.

Additional risks and uncertainties not currently known to us or that we currently deem

to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

An investment in the Trust is not a deposit

and is not FDIC-insured.

Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Administrator, Prime

Broker and Custodians expose the Trust and its Shareholders to the risk of loss of the Trust’s ether for which no person or entity

The Trust is not a banking

institution or otherwise a member of the Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection

Corporation (“SIPC”) and, therefore, deposits held with or assets held by the Trust are not subject to the protections enjoyed

by depositors with FDIC or SIPC member institutions.

In addition, neither the Trust nor the Sponsor insure the Trust’s ether.

On September 11, 2024, the

Trust entered into separate custodial services agreements (each, a “Custodial Services Agreement” and, collectively, including

the agreement with Coinbase Custody Trust Company, LLC (“Coinbase Custodian”) entered into between the Trust and the Coinbase

Custodian on May 8, 2024 (the “Coinbase Custody Agreement”), the “Custodial Services Agreements”) with each of

(i) BitGo New York Trust Company, LLC , a New York Trust Company (“BitGo Custodian”) (the “BitGo Custody Agreement”)

and (ii) Anchorage Digital Bank N.A., a South Dakota chartered Trust Company and a federally chartered crypto bank (“Anchorage Custodian”

and together with Coinbase Custodian and BitGo Custodian, the Custodians) (the “Anchorage Custody Agreement”).

While the Custodians

have advised the Sponsor that they have insurance coverage that covers certain losses of the digital assets it custodies on behalf of

its clients, including the Trust’s ether, resulting from theft, Shareholders cannot be assured that the Custodians will maintain

adequate insurance, that such coverage will cover losses with respect to the Trust’s ether, or that sufficient insurance proceeds

will be available to cover the Trust’s losses in full.

The Custodians’ insurance may not cover the type of losses experienced

by the Trust.

Alternatively, the Trust may be forced to share such insurance proceeds with other clients or customers of the Custodians,

which could reduce the amount of such proceeds that are available to the Trust.

In addition, the ether insurance market is limited, and

the level of insurance maintained by the Custodians may be substantially lower than the assets of the Trust.

While the Custodians maintain

certain capital reserve requirements depending on the assets under custody, and such capital reserves may provide additional means to

cover client asset losses, the Trust cannot be assured that the Custodians will maintain capital reserves sufficient to cover actual or

potential losses with respect to the Trust’s digital assets.

The insurance maintained by the Custodians is shared among all of the

Custodians’ customers, is not specific to the Trust or to customers holding ether with the Custodians, and may not be available

or sufficient to protect the Trust from all possible losses or sources of losses.

Furthermore, under each of

Custodial Services Agreements, the respective Custodian’s liability is limited.

With respect to the Coinbase Custody Agreement,

Coinbase Custody’s liability is as follows, among others:

(i) other than with respect to claims and losses arising from spot trading

of ether, or fraud or willful misconduct, the Mutually Capped Liabilities (defined below), the Coinbase Custodian’s aggregate liability

under the Custodial Services Agreement shall not exceed the greater of (A) the greater of (x) $100 million and (y) the aggregate fees

paid by the Trust to the Coinbase Custodian in the 12 months prior to the event giving rise to the Coinbase Custodian’s liability,

and (B) the value of the affected ether or cash giving rise to the Coinbase Custodian’s liability;

(ii) the Coinbase Custodian’s

aggregate liability in respect of each cold storage address shall not exceed $100 million;

(iii) in respect of the Coinbase Custodian’s

obligations to indemnify the Trust and its affiliates against third-party claims and losses to the extent arising out of or relating to,

among others, the Coinbase Custodian’s gross negligence, violation of its confidentiality, data protection and/or information security

obligations, or violation of any law, rule or regulation with respect to the provision of its services (the “Mutually Capped Liabilities”),

the Coinbase Custodian’s liability shall not exceed the greater of (A) $5 million and (B) the aggregate fees paid by the Trust to

the Coinbase Custodian in the 12 months prior to the event giving rise to the Coinbase Custodian’s liability;

and (iv) in respect

of any incidental, indirect, special, punitive, consequential or similar losses, the Coinbase Custodian is not liable, even if the Coinbase

Custodian has been advised of or knew or should have known of the possibility thereof.

In general, the Coinbase Custodian is not liable

under the Custodial Services Agreement unless in the event of its negligence, fraud, material violation of applicable law or willful misconduct.

The Coinbase Custodian is not liable for delays, suspension of operations, failure in performance, or interruption of service to the extent

it is directly due to a cause or condition beyond the reasonable control of the Coinbase Custodian.

In the event of potential losses incurred

by the Trust as a result of the Coinbase Custodian losing control of the Trust’s ether or failing to properly execute instructions

on behalf of the Trust, the Coinbase Custodian’s liability with respect to the Trust will be subject to certain limitations which

may allow it to avoid liability for potential losses or may be insufficient to cover the value of such potential losses, even if the Coinbase

Custodian directly caused such losses.

Furthermore, the insurance maintained by the Coinbase Custodian may be insufficient to cover its

liabilities to the Trust.

to the BitGo Custody Agreement, BitGo and its affiliates, including their officers, directors, agents, and employees, are not liable for

any lost profits, special, incidental, indirect, intangible, or consequential damages resulting from authorized or unauthorized use of

the Trust or Sponsor’s site or services.

This includes damages arising from any contract, tort, negligence, strict liability, or

other legal grounds, even if BitGo was previously advised of, knew, or should have known about the possibility of such damages.

this exclusion of liability does not extend to cases of BitGo’s fraud, willful misconduct, or gross negligence.

In situations of

gross negligence, BitGo’s liability is specifically limited to the value of the digital assets or fiat currency that were affected

by the negligence.

Additionally, the total liability of BitGo for direct damages is capped at the fees paid or payable to them under the

relevant agreement during the twelve-month period immediately preceding the first incident that caused the liability.

With respect to

the Anchorage Custody Agreement, except for Anchorage’s bad acts, confidentiality obligations under the Anchorage Custody Agreement,

indemnification obligations under Anchorage Custody Agreement, or obligations with respect to rights to or limits on use under the Anchorage

Custody Agreement, Anchorage is not liable for any losses, whether in contract, tort or otherwise, for any amount in excess of fees paid

by the Trust in the twelve (12) months prior to when the liability arises.

Moreover, Anchorage is not liable for (i) losses which arise

from its compliance with applicable laws, including sanctions laws administered by OFAC;

or (ii) special, indirect or consequential damages,

or lost profits or loss of business arising in connection with Anchorage Custody Agreement.

In addition, Anchorage is not be liable for

any losses which arise as a result of the non-return of digital assets that the Trust has delegated to Anchorage or a third party for

on-chain services, such as staking, voting, vesting, and signaling, unless such losses occur as a result of Anchorage’s fraud or

intentional misconduct.

Similarly, under the Prime

Broker Agreement, the Prime Broker’s liability is limited as follows, among others:

(i) other than with respect to claims and losses

arising from spot trading of ether, or fraud or willful misconduct, or the PB Mutually Capped Liabilities (defined below), the Prime Broker’s

aggregate liability shall not exceed the greater of (A) the greater of (x) $5 million and (y) the aggregate fees paid by the Trust to

the Prime Broker in the 12 months prior to the event giving rise to the Prime Broker’s liability, and (B) the value of the cash

or affected ether giving rise to the Prime Broker’s liability;

(ii) in respect of the Prime Broker’s obligations to indemnify

the Trust and its affiliates against third-party claims and losses to the extent arising out of or relating to, among others, the Prime

Broker’s gross negligence, violation of its confidentiality, data protection and/or information security obligations, violation

of any law, rule or regulation with respect to the provision of its services, or the full amount of the Trust’s assets lost due

to the insolvency of or security event at a Connected Trading Venue (as defined below) (the “PB Mutually Capped Liabilities”),

the Prime Broker’s liability shall not exceed the greater of (A) $5 million and (B) the aggregate fees paid by the Trust to the

Prime Broker in the 12 months prior to the event giving rise to the Prime Broker’s liability;

and (iii) in respect of any incidental,

indirect, special, punitive, consequential or similar losses, the Prime Broker is not liable, even if the Prime Broker has been advised

of or knew or should have known of the possibility thereof.

In general, with limited exceptions (such as for failing to execute an order),

the Prime Broker is not liable under the Prime Broker Agreement unless in the event of its gross negligence, fraud, material violation

of applicable law or willful misconduct.

The Prime Broker is not liable for delays, suspension of operations, failure in performance,

or interruption of service to the extent it is directly due to a cause or condition beyond the reasonable control of the Prime Broker.

These and the other limitations on the Prime Broker’s liability may allow it to avoid liability for potential losses or may be insufficient

to cover the value of such potential losses, even if the Prime Broker directly caused such losses.

Both the Trust and the Prime Broker

and its affiliates (including the Coinbase Custodian) are required to indemnify each other under certain circumstances.

Moreover, in the event of

an insolvency or bankruptcy of the Prime Broker (in the case of the Trading Balance) or the Custodians (in the case of the segregated

accounts in which the Custodians will custody all of the Trust’s ether from time to time (the “Vault Balances”) in the

future, given that the contractual protections and legal rights of customers with respect to digital assets held on their behalf by third

parties are relatively untested in a bankruptcy of an entity such as the Custodians or Prime Broker in the virtual currency industry,

there is a risk that customers’ assets — including the Trust’s assets — may be considered the property of the

bankruptcy estate of the Prime Broker (in the case of the Trading Balance) or the Custodians (in the case of the Vault Balance), and customers

— including the Trust — may be at risk of being treated as general unsecured creditors of such entities and subject to the

risk of total loss or markdowns on value of such assets.

The Coinbase Custodial Services

Agreement contains an agreement by the parties to treat the ether credited to the Trust’s Vault Balance at the Coinbase Custodian

as financial assets under Article 8 of the New York Uniform Commercial Code (“Article 8”), in addition to stating that the

Coinbase Custodian will serve as fiduciary and custodian on the Trust’s behalf.

The Coinbase Custodian’s parent, Coinbase

Global Inc., has stated in its most recent public securities filings that in light of the inclusion in its custody agreements of provisions

relating to Article 8 it believes that a court would not treat custodied digital assets as part of its general estate in the event the

Coinbase Custodian were to experience insolvency.

However, due to the novelty of digital asset custodial arrangements courts have not

yet considered this type of treatment for custodied digital assets and it is not possible to predict with certainty how they would rule

in such a scenario.

If the Coinbase Custodian became subject to insolvency proceedings and a court were to rule that the custodied ether

were part of the Coinbase Custodian’s general estate and not the property of the Trust, then the Trust would be treated as a general

unsecured creditor in the Coinbase Custodian’s insolvency proceedings and the Trust could be subject to the loss of all or a significant

portion of its assets.

Moreover, in the event of the bankruptcy of the Coinbase Custodian, an automatic stay could go into effect and

protracted litigation could be required in order to recover the assets held with the Coinbase Custodian, all of which could significantly

and negatively impact the Trust’s operations and the value of the Shares.

With respect to the Prime

Broker Agreement, there is a risk that the Trading Balance, in which the Trust’s ether and cash is held in omnibus accounts by the

Prime Broker, could be considered part of the Prime Broker’s bankruptcy estate in the event of the Prime Broker’s bankruptcy.

The Prime Broker Agreement contains an Article 8 opt-in clause with respect to the Trust’s assets held in the Trading Balance.

The amount of ether that may

be held in the Trading Balance will be limited to the amount necessary to process a given creation or redemption transaction, as applicable,

or to pay for Trust Expenses not assumed by the Sponsor in consideration for the Sponsor Fee.

The Prime Broker is not required

to hold any of the ether or cash in the Trust’s Trading Balance in segregation.

Within the Trading Balance, the Prime Broker Agreement

provides that the Trust does not have an identifiable claim to any particular ether (and cash).

Instead, the Trust’s Trading Balance

represents an entitlement to a pro rata share of the ether (and cash) the Prime Broker has allocated to the omnibus wallets the Prime

Broker holds, as well as the accounts in the Prime Broker’s name that the Prime Broker maintains at Connected Trading Venues (the

“Connected Trading Venue”) (which are typically held on an omnibus, rather than segregated, basis).

If the Prime Broker suffers

an insolvency event, there is a risk that the Trust’s assets held in the Trading Balance could be considered part of the Prime Broker’s

bankruptcy estate and the Trust could be treated as a general unsecured creditor of the Prime Broker, which could result in losses for

the Trust and Shareholders.

Moreover, in the event of the bankruptcy of the Prime Broker, an automatic stay could go into effect and protracted

litigation could be required in order to recover the assets held with the Prime Broker, all of which could significantly and negatively

impact the Trust’s operations and the value of the Shares.

Under the Trust Agreement,

the Trustee and the Sponsor will not be liable for any liability or expense incurred, including, without limitation, as a result of any

loss of ether by the Custodians or Prime Broker, absent willful misconduct, gross negligence, reckless disregard or bad faith on the part

of the Trustee or the Sponsor or breach by the Sponsor of the Trust Agreement, as the case may be.

As a result, the recourse of the Trust

or the Shareholders to the Trustee or the Sponsor, including in the event of a loss of ether by the Custodians or Prime Broker, is limited.

The Shareholders’ recourse

against the Sponsor, the Trustee, and the Trust’s other service providers for the services they provide to the Trust, including,

without limitation, those relating to the holding of ether or the provision of instructions relating to the movement of ether, is limited.

For the avoidance of doubt, neither the Sponsor, the Trustee, nor any of their affiliates, nor any other party has guaranteed the assets

or liabilities, or otherwise assumed the liabilities, of the Trust, or the obligations or liabilities of any service provider to the Trust,

including, without limitation, the Custodians and Prime Broker.

The Prime Broker Agreement and Coinbase Custodial Services Agreement provide

that neither the Sponsor, the Trustee, nor their affiliates shall have any obligation of any kind or nature whatsoever, by guaranty, enforcement

or otherwise, with respect to the performance of any the Trust’s obligations, agreements, representations or warranties under the

Prime Broker Agreement or Custodial Services Agreement or any transaction thereunder.

Consequently, a loss may be suffered with respect

to the Trust’s ether that is not covered by the Coinbase Custodian’s insurance and for which no person is liable in damages.

As a result, the recourse of the Trust or the Shareholders, under applicable law, is limited.

Lack of recourse.

The Custodians have limited

liability, impairing the ability of the Trust to recover losses relating to its ether and any recovery may be limited, even in the event

In addition, the Custodians may not be liable for any delay in performance of any of their custodial obligations by reason of

any cause beyond its reasonable control, including force majeure events, war or terrorism, and may not be liable for any system failure

or third-party penetration of its systems.

As a result, the recourse of the Trust to Custodians may be limited.

Under the Coinbase Custody

Agreement, the Coinbase Custodian’s liability is limited to the greater of (i) the market value of the Trust’s ether

held by the Coinbase Custodian at the time the events giving rise to the liability occurred and (ii) the fair market value of the

Trust’s ether held by the Coinbase Custodian at the time that the Coinbase Custodian notifies the Sponsor or Trustee in writing,

or the Sponsor or the Trustee otherwise has actual knowledge of the events giving rise to the liability.

Under the Trust Agreement,

the Trustee and the Sponsor will not be liable for any liability or expense incurred absent gross negligence or willful misconduct on

the part of the Trustee or the Sponsor or breach by the Sponsor of the Trust Agreement, as they case may be.

As a result, the recourse

of the Trust or the Shareholder to Trustee or the Sponsor may be limited.

The Index Provider has limited

liability relating to the use of the Index, impairing the ability of the Trust to recover losses relating to its use of the Index.

Index Provider does not guarantee the accuracy, completeness, or performance of the Index or the data included therein and shall have

no liability in connection with the Index or index calculation, errors, omissions or interruptions of the Index or any data included therein.

The Index could be calculated now or in the future in a way that adversely affects an investment in the Trust.

Under the BitGo Custody Agreement,

BitGo and its affiliates, including their officers, directors, agents, and employees, are not liable for any lost profits, special, incidental,

indirect, intangible, or consequential damages resulting from authorized or unauthorized use of the Trust or Sponsor’s site or services.

This includes damages arising from any contract, tort, negligence, strict liability, or other legal grounds, even if BitGo was previously

advised of, knew, or should have known about the possibility of such damages.

However, this exclusion of liability does not extend to

cases of BitGo’s fraud, willful misconduct, or gross negligence.

In situations of gross negligence, BitGo’s liability is specifically

limited to the value of the digital assets or fiat currency that were affected by the negligence.

Additionally, the total liability of

BitGo for direct damages is capped at the fees paid or payable to them under the relevant agreement during the twelve-month period immediately

preceding the first incident that caused the liability.

In addition, BitGo shall not

be liable for delays, suspension of operations, whether temporary or permanent, failure in performance, or interruption of service which

results directly or indirectly from any cause or condition beyond the reasonable control of BitGo, including, but not limited to, any

delay or failure due to an act of God, natural disasters, act of civil or military authorities, act of terrorists, including, but not

limited to, cyber-related terrorist acts, hacking, government restrictions, exchange or market rulings, civil disturbance, war, strike

or other labor dispute, fire, interruption in telecommunications or Internet services or network provider services, failure of equipment

and/or software, other catastrophe or any other occurrence which is beyond the reasonable control of BitGo.

Under the Anchorage

Custody Agreement, except for Anchorage’s bad acts, confidentiality obligations under the Anchorage Custody Agreement, indemnification

obligations under Anchorage Custody Agreement, or obligations with respect to rights to or limits on use under the Anchorage Custody Agreement,

Anchorage is not liable for any losses, whether in contract, tort or otherwise, for any amount in excess of fees paid by the Trust in

the twelve (12) months prior to when the liability arises.

Moreover, Anchorage is not liable for (i) losses which arise from its compliance

with applicable laws, including sanctions laws administered by OFAC;

or (ii) special, indirect or consequential damages, or lost profits

or loss of business arising in connection with Anchorage Custody Agreement.

In addition, Anchorage is not be liable for any losses which

arise as a result of the non-return of digital assets that the Trust has delegated to Anchorage or a third party for on-chain services,

such as staking, voting, vesting, and signaling, unless such losses occur as a result of Anchorage’s fraud or intentional misconduct.

In addition, Anchorage shall not be liable for the failure to perform

or delay in the performance of its obligations under the Anchorage Custody Agreement to the extent such failure or delay is caused by

or results from a circumstance beyond its reasonable control and that could not have been prevented or avoided by the exercise of due

diligence, as long as the fact of the occurrence of such event is duly proven or is reasonably provable, including, but not limited to

natural catastrophes, fire, explosions, pandemic or local epidemic, war or other action by a state actor, public power outages, civil

unrests and conflicts, labor strikes or extreme shortages, acts of terrorism or espionage, Domain Name System server issues outside Anchorage’s

direct control, technology attacks (e.g., DoS, DDoS, MitM), cyberattack or malfunction on the blockchain network or protocol, or governmental

action rendering performance illegal or impossible.

Anchorage Custody Agreement shall not be held liable by the Trust for such non-performance

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors