Item 1. Business
Item 1. Business
DESCRIPTION OF THE TRUST
The Trust is an exchange-traded
fund that issues common shares of beneficial interest (the “Shares”) that trade on the Cboe BZX Exchange, Inc. (the “Exchange”).
The Trust’s investment objective is to seek to track the performance of XRP, as measured by the performance of the CME CF XRP—Dollar
Reference Rate — New York Variant (XRPUSD_NY) (the “Pricing Benchmark”), as adjusted for the Trust’s expenses
and other liabilities. The Pricing Benchmark is calculated by CF Benchmarks Ltd. (the “Benchmark Provider”). The Pricing Benchmark
is designed to track the performance of XRP in U.S. dollars. The Shares of the Trust are valued daily based on the Pricing Benchmark.
In seeking to achieve its
investment objective, the Trust holds XRP. The Sponsor is the sponsor of the Trust and CSC Delaware Trust Company (the “Trustee”)
is the trustee of the Trust. The Bank of New York Mellon (“BNYM”) serves as the Trust’s Administrator, Transfer Agent,
and the Cash Custodian. Coinbase Custody Trust Company, LLC (“Coinbase Custodian”), BitGo Bank & Trust Company, N.A. (“BitGo”),
and Anchorage Digital Bank N.A (“Anchorage”, and, together with Coinbase Custodian and BitGo, as the context may require,
the “XRP Custodians” and each an “XRP Custodian”), are the XRP Custodians for the Trust and hold all the Trust’s
XRP on the Trust’s behalf.
The Trust does not purchase
or sell XRP other than in connection with the creation and redemption of Shares or to pay certain expenses, which are facilitated by Coinbase,
Inc., (the “Prime Broker”), or any other prime brokers with whom the Trust contracts.
The Trust is not managed like
a corporation or an active investment vehicle. It does not have any officers, directors, or employees. The Trust is not registered as
an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), and is not required to register
under such act. The Trust does not and will not hold or trade in commodity futures contracts regulated under the Commodity Exchange Act,
as amended (“CEA”). The Trust is not a commodity pool for purposes of the CEA and none of the Sponsor, Trustee or the Marketing
Agent is subject to regulation by the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator or a commodity
trading advisor under the CEA in connection with the shares. The Sponsor is not registered with the SEC as an investment adviser and is
not subject to regulation by the SEC as such in connection with its activities with respect to the Trust.
The Sponsor maintains a website
at www.21shares.com/en-us, through which the Trust’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended (“Exchange Act”), are made available free of charge after they have been filed or furnished to the SEC. The information
on the Sponsor’s website is not, and shall not be deemed to be, part of this report or incorporated into any other filings we make
with the SEC. Additional information regarding the Trust may also be found on the SEC’s EDGAR database at www.sec.gov.
organization
The Trust is a Delaware statutory
trust, formed on June 3, 2024 pursuant to the Delaware Statutory Trust Act (“DSTA”). The Trust continuously issues Shares
that may be purchased and sold on the Exchange. The Trust operates pursuant to an Amended and Restated Trust Agreement (the “Trust
Agreement”). CSC Delaware Trust Company, a Delaware trust company, is the Delaware trustee of the Trust (the “Trustee”).
The Trust is managed and controlled by the Sponsor. The Sponsor is a limited liability company formed in the state of Delaware on June
16, 2021.
The Shares are issued and
redeemed by the Trust in blocks of 10,000 Shares (each a “Basket” or “Creation Basket”). The number of outstanding
Shares is expected to increase and decrease from time to time because of the creation and redemption of Baskets. The creation and redemption
of Baskets requires the delivery to the Trust or the distribution by the Trust of the amount of cash equivalent to the amount of XRP represented
by the net asset value (“NAV”) of the Baskets being created or redeemed. The total amount of XRP required for the creation
of Baskets is based on the combined net assets represented by the number of Baskets being created or redeemed.
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The Trust and the Sponsor
face competition with respect to the creation of competing products, such as exchange-traded products offering exposure to the spot XRP
market or other digital assets. There can be no assurance that the Trust will grow to or maintain an economically viable size. There is
no guarantee that the Sponsor will maintain a commercial advantage relative to competitors offering similar products. Whether or not the
Trust is successful in achieving its intended scale may be impacted by a range of factors, such as the Trust’s timing in entering
the market and its fee structure relative to those of competitive products.
The Trust has no fixed termination
date.
The fiscal year end of the
Trust is December 31.
DESCRIPTION OF THE SHARES
Each Share represents a fractional undivided beneficial
interest in the net assets of the Trust. All Shares are transferable, fully paid and non-assessable. Upon redemption of the Shares, the
applicable Authorized Participant is paid solely out of the funds and property of the Trust. The assets of the Trust consist primarily
of XRP held by the XRP Custodians on behalf of the Trust. Creation Baskets are redeemed by the Trust in exchange for an amount of XRP
or cash equal to the amount of XRP represented by the aggregate number of Shares redeemed.
The Trust is a passive investment
vehicle and is not a leveraged product. The Sponsor does not actively manage the XRP held by the Trust. The XRP held by the Trust will
only be sold (1) on an as-needed basis to pay the Trust’s expenses and to meet redemption requests, (2) in the event the Trust terminates
and liquidates its assets, or (3) as otherwise required by law or regulation. The sale of XRP by the Trust is a taxable event to its shareholders
(the “Shareholders”).
Except in limited circumstances,
Shareholders have no voting rights under the Trust Agreement.
The Sponsor may terminate
the Trust in its sole discretion. The Sponsor will give written notice of the termination of the Trust, specifying the date of termination,
to Shareholders of the Trust, at least 30 days prior to the termination of the Trust. The Sponsor will, within a reasonable time after
such termination, sell all the Trust’s XRP not already distributed to Authorized Participants redeeming Creation Baskets, if any,
in such a manner to effectuate orderly sales. The Sponsor shall not be liable for or responsible in any way for depreciation or loss incurred
by reason of any sale or sales made in accordance with the provisions of the Trust Agreement. The Sponsor may suspend its sales of the
Trust’s XRP upon the occurrence of unusual or unforeseen circumstances.
Investment Objective
The Trust’s investment
objective is to seek to track the performance of XRP, as measured by the Pricing Benchmark, adjusted for the Trust’s expenses and
other liabilities. In seeking to achieve its investment objective, the Trust will hold XRP and will value its Shares daily as of 4:00
p.m. ET based on the Pricing Benchmark.
Principal
Market and Fair Value Determination of XRP
The NAV of the Trust is used
by the Trust in its day-to-day operations to measure the net value of the Trust’s assets. The NAV is calculated on each day other
than a day when the Exchange is closed for regular trading (a “Business Day”) and is equal to the aggregate value of the Trust’s
assets less its liabilities based on the Pricing Benchmark price. In determining the NAV of the Trust on any Business Day, the Administrator
will calculate the price of the XRP held by the Trust as of 4:00 p.m. ET on such day. The Administrator will also calculate the “NAV
per Share” of the Trust, which equals the NAV of the Trust divided by the number of outstanding Shares.
In addition to calculating
NAV and NAV per Share, for purposes of the Trust’s financial statements, the Trust determines the Principal Market NAV and Principal
Market NAV per Share on each valuation date for such financial statements. The determination of the Principal Market NAV and Principal
Market NAV per Share is identical to the calculation of NAV and NAV per Share, respectively, except that the value of XRP is determined
using the fair value of XRP based on the price in the XRP market that the Trust considers its “principal market” as of 4:00
p.m. ET on the valuation date, rather than using the Pricing Benchmark.
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NAV and NAV per Share are
not measures calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and are not intended as substitute for Principal Market and Principal Market NAV per Share, respectively.
The Trust follows the provisions
of ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 provides guidance for determining fair value and requires increased
disclosure regarding the inputs to valuation techniques used to measure fair value. ASC 820 determines fair value to be the price that
would be received for XRP in a current sale, which assumes an exit price resulting from an orderly transaction between market participants
on the measurement date. ASC 820-10 requires the assumption that XRP is sold in its principal market to market participants (or in the
absence of a principal market, the most advantageous market).
The cost basis of the investment
in XRP recorded by the Trust for financial reporting purposes is the fair value of XRP at the time of transfer. 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.
Fees, Expenses and Realized
Gain (Loss)
The Trust pays the unitary Sponsor Fee of 0.30% of the Trust’s
NAV (the “Sponsor Fee”). The Sponsor Fee accrues daily and is payable in XRP weekly in arrears. The Administrator calculates
the Sponsor Fee on a daily basis by applying a 0.30% annualized rate to the Trust’s NAV, and the amount of XRP payable in respect
of each daily accrual is determined by reference to the Pricing Benchmark. The Sponsor has agreed to pay all operating expenses (except
for litigation expenses and other extraordinary expenses) out of the Sponsor Fee.
As partial consideration for
receipt of the Sponsor Fee, the Sponsor assumes and pays all fees and other expenses incurred by the Trust in the ordinary course of its
affairs, excluding taxes, but including (i) the fee payable to the Marketing Agent for services it provides to the Trust (the “Marketing
Fee”), (ii) fees to the Administrator, if any, (iii) fees to the XRP Custodians, (iv) fees to the Transfer Agent, (v) fees to the
Trustee, (vi) the fees and expenses related to any future listing, trading or quotation of the Shares on any listing exchange or quotation
system (including legal, marketing and audit fees and expenses), (vii) ordinary course legal fees and expenses but not litigation-related
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 Sponsor’s website and (xii) applicable
license fees (each, a “Sponsor-paid Expense” and together, the “Sponsor-paid Expenses”), provided that any expense
that qualifies as an Additional Trust Expense (as defined below) will be deemed to be an Additional Trust Expense and not a Sponsor-paid
Expense.
The Sponsor will not, however,
assume 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, any indemnification of the XRP Custodians, Administrator or other agents, service
providers or counterparties of the Trust, the fees and expenses related to the listing, 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”). Of the Sponsor-paid Expenses, ordinary course legal fees and expenses shall be subject to a cap of not in excess
of $100,000 per annum. In the Sponsor’s sole discretion, all or any portion of a Sponsor-paid Expense may be redesignated as an
Additional Trust Expense.
After the payment of the Sponsor
Fee to the Sponsor, the Sponsor may elect to convert some or all of the Sponsor Fee into cash by selling this XRP at market prices, in
the Sponsor’s sole discretion. Due to the variance in market prices for XRP, the rate at which the Sponsor converts XRP to cash
may differ from the rate at which the Sponsor Fee was initially paid in XRP.
The XRP Custodians assume
the transfer fees associated with the transfer of XRP to the Sponsor with respect to the Sponsor Fee, and any further expenses associated
with such transfer are assumed by the Sponsor. The Trust is not responsible for any fees and expenses incurred by the Sponsor to convert
XRP received in payment of the Sponsor Fee into cash.
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Pursuant to the Trust Agreement, the Sponsor or
its delegates will direct the XRP Custodians to transfer XRP from the Trust’s Cold Vault Balance as needed to pay the Sponsor Fee
and Additional Trust Expenses, if any. The Sponsor or its delegates will endeavor to transfer the smallest amount of XRP needed to pay
applicable expenses. The Sponsor, in arranging for payment of Additional Trust Expenses, may in its discretion direct that the Trust’s
XRP be exchanged for U.S. Dollars. Under such circumstances, the Trust will not utilize the XRP Custodians to arrange for the sale of
the Trust’s XRP to pay the Trust’s expenses and liabilities. Rather, the Sponsor will arrange for the Prime Broker or another
third-party digital asset trading platform to exchange the Trust’s XRP for U.S. dollars in such a situation.
Creation
and Redemption of Shares
The Trust creates and redeems
Shares on a continuous basis but only in blocks consisting of 10,000 Shares (a “Basket”) or multiples thereof on the NAV of
the date of the creation or redemption. Only Authorized Participants, which are registered broker-dealers who have entered into written
agreements with the Sponsor and the Administrator, can place orders.
Authorized Participants may
purchase Shares in cash by depositing cash in the Trust’s account with the Cash Custodian. This will cause the Sponsor, on behalf
of the Trust, to automatically instruct a designated third party, who may be an Authorized Participant or an affiliate of an Authorized
Participant, and with whom the Sponsor has entered into an agreement on behalf of the Trust (each such third party, an “XRP Counterparty”),
to (i) purchase the amount of XRP equivalent in value to the cash deposit amount associated with the order and (ii) deposit the resulting
XRP amount in the Trust’s accounts with the XRP Custodians, resulting in the Transfer Agent crediting the applicable amount of Shares
to the Authorized Participant. Authorized Participants may also purchase Shares in-kind. To purchase Shares in-kind, an Authorized Participant
delivers or arranges for the delivery by the Authorized Participant’s designee of, XRP to the Trust’s accounts with an XRP
Custodian in exchange for Shares.
When such an Authorized Participant
redeems its Shares in cash, the Sponsor, on behalf of the Trust will direct an XRP Custodian to transfer XRP to an XRP Counterparty, who
will sell the XRP to be executed, in the Sponsor’s reasonable efforts, at the Pricing Benchmark price used to calculate the Trust’s
NAV, taking into account any spread, commissions, or other trading costs and deposit the cash proceeds of such sale in the Trust’s
account with the Cash Custodian for settlement with the Authorized Participant. Any slippage incurred (including, but not limited to,
any trading fees, spreads, or commissions), on a cash equivalent basis, will be the responsibility of the Authorized Participant and not
of the Trust or Sponsor. Authorized Participants may also redeem Shares in-kind. When such an Authorized Participant redeems Shares in-kind,
the Trust, through an XRP Custodian, will deliver XRP to the Authorized Participant or its designee in exchange for Shares.
Service
Providers of the Trust
The
sponsor
The Sponsor arranged for the
creation of the Trust and is responsible for the ongoing registration of the Shares for their public offering in the United States and
the listing of Shares on the Exchange. The Sponsor does not exercise day-to-day oversight over the Trustee, the XRP Custodians, or the
Pricing Benchmark Provider. The Sponsor develops a marketing plan for the Trust, prepares marketing materials regarding the Shares of
the Trust, and exercises the marketing plan of the Trust on an ongoing basis. The Sponsor agreed to pay all operating expenses (except
for litigation expenses and other extraordinary expenses) out of the Sponsor’s unified fee.
The Sponsor is a wholly owned
subsidiary of 21co Holdings Limited (formerly known as Amun Holdings Limited). The ultimate parent company of 21co Holdings Limited is
FalconX Holdings Limited (“FalconX”). At present, the primary business activities of 21co Holdings Limited and FalconX are,
with respect to 21co Holdings Limited, providing exchange traded products and technology services in the crypto space through its subsidiaries
and, with respect to FalconX, providing comprehensive access to global digital asset liquidity and a full range of trading services (including
through its affiliates).
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21Shares AG (collectively
with its affiliates, the “21Shares Group”), an affiliate of the Sponsor, has considerable experience issuing and operating
exchange-traded products that provide exposure to digital assets, operating such exchange-traded products since 2018. The Sponsor utilizes
a similar management team that the 21Shares Group has used in issuing and operating these exchange-traded products. As of December 31,
2025, the 21Shares Group oversees approximately $7.56 billion in assets under management and 67 digital asset-related exchange-traded
products across various jurisdictions. Additionally, since November 2025, the Sponsor serves as sub-adviser to 4 investment companies
registered under the 1940 Act.
The Sponsor is not under any
liability to the Trust, the Trustee or any Shareholder for any action taken or for refraining from the taking of any action in good faith
pursuant to the Trust Agreement, or for errors in judgment or for depreciation or loss incurred by reason of the sale of any XRP or other
assets held in trust hereunder; provided, however, that this provision will not protect the Sponsor against any liability to which it
would otherwise be subject by reason of its own gross negligence, bad faith, or willful misconduct. The Sponsor may rely in good faith
on any paper, order, notice, list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft, or any other document of any
kind prima facie properly executed and submitted to it by the Trustee, the Trustee’s counsel or by any other Person for any matters
arising hereunder. The Sponsor will in no event be deemed to have assumed or incurred any liability, duty, or obligation to any Shareholder
or to the Trustee other than as expressly provided for herein. The Trust will not incur the cost of that portion of any insurance which
insures any party against any liability, the indemnification of which is herein prohibited.
The Sponsor and its shareholders,
members, directors, officers, employees, affiliates and subsidiaries (each a “Sponsor Indemnified Party”) are indemnified
by the Trust against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims arising out of or in connection
with the performance of its obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust
Agreement, provided that (i) the Sponsor was acting on behalf of, or performing services for, the Trust and has determined, in good faith,
that such course of conduct was in the best interests of the Trust and such liability or loss was not the result of fraud, gross negligence,
bad faith, willful misconduct, or a material breach of this Trust Agreement on the part of the Sponsor and (ii) any such indemnification
will be recoverable only from the Trust Estate. Any amounts payable to a Sponsor Indemnified Party under the Trust Agreement may be payable
in advance or will be secured by a lien on the Trust. The Sponsor will not be under any obligation to appear in, prosecute or defend any
legal action that in its opinion may involve it in any expense or liability; provided, however, that the Sponsor may, in its discretion,
undertake any action that it may deem necessary or desirable in respect of the Trust Agreement and the rights and duties of the parties
hereto and the interests of the Shareholders and, in such event, the legal expenses and costs of any such action will be expenses and
costs of the Trust and the Sponsor will be entitled to be reimbursed therefor by the Trust. The obligations of the Trust to indemnify
the Sponsor Indemnified Parties will survive the termination of the Trust Agreement.
the
trustee
CSC Delaware Trust Company,
a Delaware trust company, acts as the trustee of the Trust for the purpose of creating a Delaware statutory trust in accordance with the
DSTA. The Trustee is appointed to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement
of Section 3807(a) of the DSTA that the Trust have at least one trustee with a principal place of business in the State of Delaware.
As further discussed in the
Trust Agreement, the Trustee is not liable for the acts or omissions of the Sponsor, nor is the Trustee liable for supervising or monitoring
the performance and the duties and obligations of the Sponsor or the Trust under the Trust Agreement. The Trustee is not personally liable
under any circumstances, except for its own willful misconduct, bad faith, or gross negligence.
The Trustee or any officer,
affiliate, director, employee, or agent of the Trustee (each, an “Indemnified Person”) is entitled to indemnification from
the Sponsor or the Trust, to the fullest extent permitted by law, from and against any and all losses, claims, taxes, damages, reasonable
expenses, and liabilities (including liabilities under State or federal securities laws) of any kind and nature whatsoever (collectively,
“Expenses”), to the extent that such Expenses arise out of or are imposed upon or asserted against such Indemnified Persons
with respect to the creation, operation or termination of the Trust, the execution, delivery or performance of the Trust Agreement or
the transactions contemplated in the Trust Agreement; provided, however, that the Sponsor and the Trust are not required to indemnify
any Indemnified Person for any Expenses that are a result of the willful misconduct, bad faith or gross negligence of such Indemnified
Person.
The obligations of the Sponsor
and the Trust to indemnify the Indemnified Persons will survive the termination of the Trust Agreement.
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the
administrator
The Sponsor entered into a
Fund Administration and Accounting Agreement with BNY Mellon Asset Servicing, a division of The Bank of New York Mellon, to provide administration
and accounting services to the Trust. Pursuant to the terms of the Agreement and under the supervision and direction of the Sponsor and
the Trust, BNY Mellon Asset Servicing keeps the operational records of the Trust and prepares and files certain regulatory filings on
behalf of the Trust. BNY Mellon Asset Servicing may also perform other services for the Trust pursuant to the Agreement as mutually agreed
upon by the Sponsor, the Trust and BNY Mellon Asset Servicing from time to time. The Administrator’s fees are paid on behalf of
the Trust by the Sponsor.
THE
Transfer AGENT
The Bank of New York Mellon
serves as the Transfer Agent of the Trust pursuant to the terms and provisions of the Transfer Agency and Service Agreement (the “Transfer
Agency and Service Agreement”). The Transfer Agent: (1) facilitates the issuance and redemption of Shares of the Trust; (2) responds
to correspondence by Trust shareholders and others relating to its duties; (3) maintains shareholder accounts; and (4) makes periodic
reports to the Trust.
the
XRP Custodians
The Coinbase Custodian, BitGo
and Anchorage are the XRP Custodians for the Trust and hold all of the Trust’s XRP on the Trust’s behalf.
The XRP Custodians keep custody
of all the Trust’s XRP, other than which is maintained in the Trading Balance with the Prime Broker, in the Cold Vault Balance.
The XRP Custodians keep a substantial portion of the private keys associated with the Trust’s XRP in “cold storage”
or similarly secure technology. Cold storage is a safeguarding method with multiple layers of protections and protocols, by which the
private key(s) corresponding to the Trust’s XRP is (are) generated and stored in an offline manner. Private keys are generated in
offline computers that are not connected to the internet so that they are resistant to being hacked. By contrast, in hot storage, the
private keys are held online, where they are more accessible, leading to more efficient transfers, though they are potentially more vulnerable
to being hacked. While the XRP Custodians will generally keep a substantial portion of the Trust’s XRP in cold storage on an ongoing
basis, it is possible that, from time to time, portions of the Trust’s XRP will be held outside of cold storage temporarily in the
Trading Balance maintained by the Prime Broker as part of trade facilitation in connection with creations and redemptions of Baskets,
to sell XRP including to pay Trust expenses, or to pay the Sponsor Fee, as necessary. The Trust’s XRP held in the Cold Vault Balance
by the XRP Custodians are held in segregated wallets and therefore are not commingled with the XRP Custodians’ assets or the assets
of each such XRP Custodian’s other customers.
Cold storage of private keys
may involve keeping such keys on a non-networked computer or electronic device or storing the public key and private keys on a storage
device or printed medium and deleting the keys from all computers. The XRP Custodians may receive deposits of XRP but may not send XRP
without use of the corresponding private keys. To send XRP when the private keys are kept in cold storage, unsigned transactions must
be physically transferred to the offline cold storage facility and signed using a software/hardware utility with the corresponding offline
keys. At that point, the XRP Custodians can upload the fully signed transaction to an online network and transfer the XRP. Such private
keys are stored in cold storage facilities within the United States and Europe, exact locations of which are not disclosed for security
reasons. A limited number of employees at the XRP Custodians are involved in private key management operations, and the XRP Custodians
have each represented that no single individual has access to full private keys.
The XRP Custodians’
internal audit team performs periodic internal audits over custody operations, and the XRP Custodians have represented that Systems and
Organizational Control (“SOC”) attestations covering private key management controls are also performed on the XRP Custodians
by an external provider.
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The XRP Custodians maintain
a commercial crime insurance policy, which is intended to cover the loss of client assets held in cold storage, including from employee
collusion or fraud, physical loss including theft, damage of key material, security breach or hack, and fraudulent transfer. The insurance
maintained by the XRP Custodians is shared among all the XRP Custodians’ customers, is not specific to the Trust or to customers
holding XRP with the XRP Custodians and may not be available or sufficient to protect the Trust from all possible losses or sources of
losses.
XRP held in the Trust’s
account with the XRP Custodians is the property of the Trust. The Trust, the Sponsor and the service providers will not loan or pledge
the Trust’s assets nor will the Trust’s assets serve as collateral for any loan or similar arrangement. The Trust will not
utilize leverage, derivatives, or any similar arrangements in seeking to meet its investment objective.
In the event of a fork, the
Custodial Services Agreements provide that the XRP Custodians may temporarily suspend services, and may, in their sole discretion, determine
whether or not to support (or cease supporting) either branch of the forked protocol entirely, provided that the XRP Custodians shall
use commercially reasonable efforts to avoid ceasing to support both branches of such forked protocol and will support, at a minimum,
the original digital asset. The Custodial Services Agreement provides that, other than as set forth therein, and provided that the XRP
Custodians shall make commercially reasonable efforts to assist the Trust to retrieve and/or obtain any assets related to a fork, airdrop
or similar event, the XRP Custodians shall have no liability, obligation or responsibility whatsoever arising out of or relating to the
operation of the underlying software protocols relating to the XRP network or an unsupported branch of a forked protocol and, accordingly,
the Trust acknowledges and assumes the risk of the same. The Custodial Services Agreements further provide that, unless specifically communicated
by the relevant XRP Custodian and its affiliates through a written public statement on their website, such XRP Custodian does not support
airdrops, metacoins, colored coins, side chains, or other derivative, enhanced or forked protocols, tokens or coins, which supplement
or interact with XRP.
Under the Trust Agreement,
the Sponsor has the right, in its sole discretion, to determine what action to take in connection with the Trust’s entitlement to
or ownership of Incidental Rights or any IR Virtual Currency, and Trust may take any lawful action necessary or desirable in connection
with the Trust’s ownership of Incidental Rights, including the acquisition of IR Virtual Currency, as determined by the Sponsor
in the Sponsor’s sole discretion, unless such action would adversely affect the status of the Trust as a grantor trust for U.S.
federal income tax purposes or otherwise be prohibited by this Trust Agreement.
With respect to any fork,
airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights or IR Virtual Currency. In the
event the Trust seeks to change this position, an application would need to be filed with the SEC by the Exchange seeking approval to
amend its listing rules.
Under the Custodial Services
Agreements, the XRP Custodians’ liability is limited. With respect to the Coinbase Custody Agreement, the Coinbase Custodian’s
liability is as follows, among others: (i) the Coinbase Custodian’s aggregate liability with respect to any breach of its obligations
under the Coinbase Custody Agreement shall not exceed the aggregate amount of fees paid by the Trust to the Coinbase Custodian in respect
of the services relating to custody, trade execution, lending or post-trade credit (if applicable), and other services (collectively,
the “Prime Broker Services”) in the 12 months prior to the event giving rise to such liability; (ii) the Coinbase Custodian’s
aggregate liability under the Coinbase Custody Agreement shall not exceed the greater of (A) the aggregate fees paid by the Trust to the
Coinbase Custodian in respect of the custodial services in the 12 months prior to the event giving rise to the Coinbase Custodian’s
liability, and (B) the value of the supported XRP on deposit in the Trust’s custodial account(s) giving rise to the Coinbase Custodian’s
liability at the time of the event giving rise to the Coinbase Custodian’s liability; (iii) the Coinbase Custodian’s aggregate
liability in respect of each cold storage address shall not exceed $100 million; (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 of or should have known of the possibility thereof; and (v) in no event shall the Coinbase Custodian or its affiliates have any liability
to the Trust or any third party with respect to any breach of its obligations under the Coinbase Custody Agreement, express or implied,
which does not result solely from its gross negligence, fraud or willful misconduct. The Coinbase Custodian is not liable for delays,
suspension of operations, failure in performance, or interruption of service which result directly or indirectly from any 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 XRP 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.
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With respect to the BitGo
Custody Agreement, BitGo, in its capacity as an XRP Custodian (the “BitGo Custodian”) 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 the BitGo Custodian 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 the
BitGo Custodian’s fraud, willful misconduct, or gross negligence. In situations of gross negligence, the BitGo Custodian’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 the BitGo Custodian for direct damages is capped at the fees paid or payable to them under the BitGo Custody 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, in its capacity as an XRP Custodian (the “Anchorage Custodian”) 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, the Anchorage Custodian 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, the Anchorage Custodian is not liable for (i) losses which arise from its compliance with applicable laws,
including sanctions laws administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury
(the “U.S. Treasury Department”); or (ii) special, indirect or consequential damages, or lost profits or loss of business
arising in connection with the Anchorage Custody Agreement. In addition, the Anchorage Custodian is not liable for any losses which arise
as a result of the non-return of digital assets that the Trust has delegated to the Anchorage Custodian or a third party for on-chain
services, such as staking, voting, vesting, and signaling, unless such losses occur as a result of the Anchorage Custodian’s fraud
or intentional misconduct.
The XRP Custodians are not
liable for delays, suspension of operations, failure in performance, or interruption of service which result directly or indirectly from
any cause or condition beyond the reasonable control of the XRP Custodians. Under the Custodial Services Agreements, except in the case
of their gross negligence, fraud, willful misconduct, breach of the BitGo Custody Agreement in the case of the BitGo Custodian, the XRP
Custodians shall not have any liability for any damage or interruptions caused by any computer viruses, spyware, scareware, Trojan horses,
worms or other malware that may affect the Trust’s computer or other equipment, or any phishing, spoofing or other attack.
The XRP Custodians may terminate
the Custodial Services Agreement for any reason upon providing the applicable notice to the Trust, or immediately for Cause (as defined
in the applicable Custodial Services Agreement), including, among others, if the Trust materially breaches the Prime Broker Agreement
and such breach remains uncured, in the case of the Coinbase Custodian, or undergoes a bankruptcy event, as applicable.
The Trust’s Transfer
Agent will facilitate the settlement of Shares in response to the placement of creation orders and redemption orders from Authorized Participants.
The Trust generally does not intend to hold cash or cash equivalents. However, there may be situations where the Trust will unexpectedly
hold cash on a temporary basis, including in connection with the settlement of creation and redemption transactions. The Trust’s
cash and cash equivalents are held at its account at the Cash Custodian, pursuant to the Cash Custody Agreement.
The Sponsor may, in its sole
discretion, add or terminate Custodians at any time. The Sponsor may, in its sole discretion, change the Custodians for the Trust’s
XRP holdings, but it will have no obligation whatsoever to do so or to seek any terms for the Trust from other such XRP Custodians. Should
the Sponsor choose to add or terminate an XRP Custodian, the Trust will notify Shareholders in a prospectus supplement and/or a current
report on Form 8-K or in its annual or quarterly reports, and, in any case within four business days of such termination or addition.
the
prime broker
Pursuant to the Prime Broker
Agreement, a portion of the Trust’s XRP holdings and cash holdings from time to time may be held with the Prime Broker, an affiliate
of one of the XRP Custodians, in the Trading Balance, in connection with the creation and redemption of Shares via cash transactions or
to pay for Trust Expenses not assumed by the Sponsor in consideration for the Sponsor Fee. The amount of XRP that may be held in the Trading
Balance is 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.
8
The Sponsor may, in its sole
discretion, add or terminate prime brokers at any time. The Sponsor may, in its sole discretion, change the prime broker for the Trust,
but it will have no obligation whatsoever to do so or to seek any terms for the Trust from other such prime brokers.
These periodic holdings held
in the Trading Balance with the Prime Broker represent an omnibus claim on the Prime Broker’s XRP held on behalf of clients; these
holdings exist across a combination of omnibus hot wallets, omnibus cold wallets or in accounts in the Prime Broker’s name on a
trading venue (including third-party venues and the Prime Broker’s own execution venue) where the Prime Broker executes orders to
buy and sell XRP on behalf of clients (each such venue, a “Connected Trading Venue”). The Prime Broker is not required to
hold any of the XRP in the Trust’s Trading Balance in cold storage or to hold any such XRP in segregation, and neither the Trust
nor the Sponsor can control the method by which the Prime Broker holds the XRP credited to the Trust’s Trading Balance. Within the
Trust’s Trading Balance, the Prime Broker Agreement provides that the Trust does not have an identifiable claim to any particular
XRP (and cash). Instead, the Trust’s Trading Balance represents an entitlement to a pro rata share of the XRP (and cash) the Prime
Broker holds on behalf of customers who hold similar entitlements against the Prime Broker. In this way, the Trust’s Trading Balance
represents an omnibus claim on the Prime Broker’s XRP (and cash) held on behalf of the Prime Broker’s customers.
Within such omnibus hot and
cold wallets and accounts, the Prime Broker has represented to the Sponsor that it keeps the majority of assets in cold wallets, to promote
security, while the balance of assets is kept in hot wallets to facilitate rapid withdrawals. However, the Sponsor has no control over,
and for security reasons the Prime Broker does not disclose to the Sponsor, the percentage of XRP that the Prime Broker holds for customers
holding similar entitlements as the Trust which are kept in omnibus cold wallets, as compared to omnibus hot wallets or omnibus accounts
in the Prime Broker’s name on a trading venue. The Prime Broker has represented to the Sponsor that the percentage of assets maintained
in cold versus hot storage is determined by ongoing risk analysis and market dynamics, in which the Prime Broker attempts to balance anticipated
liquidity needs for its customers as a class against the anticipated greater security of cold storage.
The Prime Broker is not required
by the Prime Broker Agreement to hold any of the XRP in the Trust’s Trading Balance in cold storage or to hold any such XRP in segregation,
and neither the Trust nor the Sponsor can control the method by which the Prime Broker holds the XRP credited to the Trust’s Trading
Balance.
To the extent the Trust sells
XRP through the Prime Broker, the Trust’s orders will be executed at Connected Trading Venues that have been approved in accordance
with the Prime Broker’s due diligence and risk assessment process. The Prime Broker has represented that its due diligence on Connected
Trading Venues include reviews conducted by the legal, compliance, security, privacy and finance and credit-risk teams. The Connected
Trading Venues, which are subject to change from time to time, currently include Bitstamp, LMAX, Kraken, the exchange operated by the
Prime Broker, as well as four additional non-bank market makers (“NBMMs”). The Prime Broker has represented to the Trust that
it is unable to name the NBMMs due to confidentiality restrictions.
Pursuant to the Prime Broker
Agreement, the Trust may engage in purchases or sales of XRP by placing orders with the Prime Broker. The Prime Broker will route orders
placed by the Sponsor through the Prime Broker’s execution platform (the “Trading Platform”) to a Connected Trading
Venue where the order will be executed. Each order placed by the Sponsor will be sent, processed and settled at each Connected Trading
Venue to which it is routed. The Prime Broker Agreement provides that the Prime Broker is subject to certain conflicts of interest, including:
(i) the Trust’s orders may be routed to the Prime Broker’s own execution venue where the Trust’s orders may be executed
against other customers of the Prime Broker or with Coinbase acting as principal; (ii) the beneficial identity of the counterparty purchaser
or seller with respect to the Trust’s orders may be unknown and therefore may inadvertently be another client of the Prime Broker;
(iii) the Prime Broker does not engage in front-running, but is aware of the Trust’s orders or imminent orders and may execute a
trade for its own inventory (or the account of an affiliate) while in possession of that knowledge; and (iv) the Prime Broker may act
in a principal capacity with respect to certain orders. As a result of these and other conflicts, when acting as principal, the Prime
Broker may have an incentive to favor its own interests and the interests of its affiliates over the Trust’s interests.
Subject to the foregoing,
and to certain policies and procedures that the Prime Broker Agreement requires the Prime Broker to have in place to mitigate conflicts
of interest when executing the Trust’s orders, the Prime Broker Agreement provides that the Prime Broker shall have no liability,
obligation, or responsibility whatsoever for the selection or performance of any Connected Trading Venue, and that other Connected Trading
Venues and/or trading venues not used by Coinbase may offer better prices and/or lower costs than the Connected Trading Venue used to
execute the Trust’s orders.
9
Once the Sponsor, on behalf
of the Trust, places an order to purchase or sell XRP on the Trading Platform in connection with the creation or redemption of Shares
via a cash transaction, the associated XRP or cash used to fund or fill the order, if any, will be placed on hold and will generally not
be eligible for other use or withdrawal from the Trust’s Trading Balance. The Trust’s Vault Balance may be used directly to
fund orders. With each Connected Trading Venue, the Prime Broker shall establish an account in the Prime Broker’s name, or in its
name for the benefit of clients, to trade on behalf of its clients, including the Trust, and the Trust will not, by virtue of the Trading
Balance the Trust maintains with the Prime Broker, have a direct legal relationship, or account with, any Connected Trading Venue.
The Prime Broker may terminate
the Prime Broker Agreement in its entirety for any reason and without Cause (as defined below) by providing at least ninety (90) days’
prior written notice to the Trust. The Trust may terminate the Prime Broker Agreement in its entirety for any reason and without Cause
by providing at least 30 (thirty) days’ prior written notice to the Prime Broker; provided, however, the Trust’s termination
of the Prime Broker Agreement shall not be effective until the Trust has fully satisfied its obligations the Prime Broker Agreement.
The Prime Broker and the XRP
Custodians may, in their sole discretion, suspend, restrict or terminate the Trust’s prime broker services, including by suspending,
restricting or closing any account of the Trust covered under the Prime Broker Agreement for Cause, at any time and with prior notice
to the Trust.
the
cash Custodian
The Cash Custodian is The
Bank of New York Mellon. The Cash Custodian’s services are governed under the Custody Agreement between The Bank of New York Mellon
and the Trust. In performing its duties under the Custody Agreement, BNY Mellon is required to exercise the standard of care and diligence
that a professional custodian for exchange-traded funds would observe in these affairs considering the prevailing rules, practices, procedures,
and circumstances in the relevant market and to perform its duties without negligence, fraud, bad faith, willful misconduct, or reckless
disregard of its duties under the Custody Agreement. Under the Custody Agreement, BNY Mellon is not liable for any losses, damages, costs,
charges, expenses, or liabilities (including reasonable counsel fees and expenses) (collectively, “Losses”) except to the
extent caused by BNY Mellon’s own bad faith, negligence, willful misconduct, or reckless disregard of its duties under the Custody
Agreement. The Trust will indemnify and hold harmless BNY Mellon from and against all Losses, incurred by BNY Mellon arising out
of or relating to BNY Mellon’s performance under the Custody Agreement, except to the extent resulting from BNY Mellon’s failure
to perform its obligations under the Custody Agreement in accordance with the agreement’s standard of care. The Sponsor may, in
its sole discretion, add or terminate cash custodians at any time.
the
marketing agent
Foreside Global Services,
LLC (the “Marketing Agent”) is responsible for reviewing and approving the marketing materials prepared by the Sponsor for
compliance with applicable SEC and Financial Industry Regulatory Authority (“FINRA”) advertising laws, rules, and regulations.
authorized
participants
Creation Baskets are created
or redeemed only by Authorized Participants. Each Authorized Participant must be a registered broker-dealer, a participant in DTC, and
have entered into an agreement with the Sponsor and Administrator (the “Authorized Participant Agreement”). The Authorized
Participant Agreement provides the procedures for the creation and redemption of Creation Baskets and for the delivery of the XRP required
for such creations and redemptions. By executing an Authorized Participant Agreement, an Authorized Participant becomes part of the group
of parties eligible to purchase Creation Baskets from, and put Creation Baskets for redemption to, the Trust. The Authorized Participant
Agreement may provide for in-kind Basket creations and redemptions. An Authorized Participant is under no obligation to create or redeem
Creation Baskets or to offer to the public Shares of any Creation Baskets it does create. The Authorized Participant Agreement and the
related procedures attached thereto may be amended by the Trust, without the consent of any Shareholder or Authorized Participant. Additional
Authorized Participants may be added at any time, subject to the discretion of the Sponsor.
Taxation
of the trust
The Sponsor and the Trustee
will treat the Trust as a “grantor trust” for U.S. federal income tax purposes.
As a grantor trust, the Trust
can undertake only certain types of activities. For example, generally, the Trust cannot vary its investment portfolio to take advantage
of market fluctuations. The Trust may receive income from investment activities that do not require such decision-making.
The Trust intends to operate
so that it will qualify to be treated for U.S. federal income tax purposes as a grantor trust. In the opinion of Dechert LLP, although
not free from doubt due to the lack of directly governing authority, the Trust should be classified as a “grantor trust” for
U.S. federal income tax purposes (and the following discussion assumes such classification).
The opinion of Dechert LLP
is based on various assumptions and representations relating to the Trust’s organization, operation, assets, activities, and income,
including that all such assumptions representations on which the opinion is based and all other factual information set forth in the relevant
documents, records, and instruments are true and correct, that all actions described in this offering are completed in a timely fashion
and that the Trust will at all times operate in accordance with the method of operation described in the Trust’s organizational
documents and this offering.
10
The
opinion of Dechert LLP is not binding on the Internal Revenue Service (the “IRS”) or any court. Accordingly, there can be
no assurance that the IRS will agree with the conclusions herein and it is possible that the IRS or another tax authority could assert
a position contrary to one or all of those conclusions and that a court could sustain that contrary position. Neither the Sponsor nor
the Trustee will request a ruling from the IRS with respect to the classification of the Trust for U.S. federal income tax purposes or
with respect to any other matter. If the IRS were to assert successfully that the Trust is not classified as a “grantor trust,”
the Trust would likely be classified as a partnership for U.S. federal income tax purposes, which may affect the timing and other tax
consequences to the Shareholders. Under such circumstances, the Trust might be classified as a publicly traded partnership that would
be taxable as a corporation for U.S. federal income tax purposes, in which case the Trust would be taxed in the same manner as a corporation
on its taxable income and distributions to Shareholders out of the earnings and profits of the Trust would be taxed to Shareholders as
ordinary dividend income. However, due to the uncertain treatment of digital assets for U.S. federal income tax purposes, there can be
no assurance in this regard.