GRAYSCALE ETHEREUM TRUST Item 8.01. Other Events.
Appointment of Chief Executive Officer
On
Acquisition of Index Provider
On
Updates to the Trust's risk factor disclosure:
Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no fiduciary duties to the Trust and its shareholders other than as provided in the Trust Agreement, which may permit them to favor their own interests to the detriment of the Trust and its shareholders.
The Sponsor will manage the affairs of the Trust. Conflicts of interest may arise among the Sponsor and its affiliates, including the Index Provider and the Authorized Participants, on the one hand, and the Trust and its shareholders, on the other hand. As a result of these conflicts, the Sponsor may favor its own interests and the interests of its affiliates over the Trust and its shareholders. These potential conflicts include, among others, the following:
• The Sponsor has no fiduciary duties to, and is allowed to take into account
the interests of parties other than, the Trust and its shareholders in
resolving conflicts of interest, provided the Sponsor does not act in bad
faith;
• The Trust has agreed to indemnify the Sponsor and its affiliates pursuant to
the Trust Agreement;
• The Sponsor is responsible for allocating its own limited resources among
different clients and potential future business ventures, to each of which
it owes fiduciary duties;
• The Sponsor and its staff also service affiliates of the Sponsor, including
several other digital asset investment vehicles, and their respective
clients and cannot devote all of its, or their, respective time or resources
to the management of the affairs of the Trust;
• The Sponsor, its affiliates and their officers and employees are not
prohibited from engaging in other businesses or activities, including those
that might be in direct competition with the Trust;
• Affiliates of the Sponsor have substantial direct investments in ETH that
they are permitted to manage taking into account their own interests without
regard to the interests of the Trust or its shareholders, and any increases,
decreases or other changes in such investments could affect the Index Price
and, in turn, the price of the Shares;
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• There is an absence of arm's-length negotiation with respect to certain
terms of the Trust, and, where applicable, there has been no independent due
diligence conducted with respect to the Trust;
• Several employees of the Sponsor and the Sponsor's parent company, Digital
Currency Group, Inc. , are FINRA -registered representatives who maintain
their licenses through Genesis;
• Digital Currency Group, Inc. is (i) the sole member and parent company of
the Sponsor and Genesis, the only acting Authorized Participant as of the
date of this Annual Report, (ii) the indirect parent company of the Index
Provider, (iii) a minority interest holder in Coinbase , which operates
Coinbase Pro, one of the Digital Asset Exchanges included in the Index, and
which is also the parent company of the Custodian, representing less than
1.0% of its equity and (iv) a minority interest holder in Kraken, one of the
Digital Asset Exchanges included in the Index, representing less than 1.0%
of its equity;
• Digital Currency Group, Inc. has investments in a large number of digital
assets and companies involved in the digital asset ecosystem, including
exchanges and custodians. Digital Currency Group, Inc.'s positions on
changes that should be adopted in the Ethereum Network could be adverse to
positions that would benefit the Trust or its shareholders. Additionally,
before or after a hard fork on the Ethereum Network, Digital Currency Group,
Inc.'s position regarding which fork among a group of incompatible forks of
the Ethereum Network should be considered the "true" Ethereum Network could
be adverse to positions that would most benefit the Trust;
• Digital Currency Group, Inc. has been vocal in the past about its support
for digital assets other than ETH. Any investments in, or public positions
taken on, digital assets other than ETH by Digital Currency Group, Inc.
could have an adverse impact on the price of ETH. For example, Digital
Currency Group, Inc. has investments in Ethereum Classic and the Sponsor
directs up to one-third of the annual fee of Grayscale Ethereum Classic
Trust, an affiliate of the Trust that the Sponsor also sponsors, towards the
Ethereum Classic Cooperative ("ECC"), whose initiatives support development,
marketing, and community activities of the Ethereum Classic network. An
officer and an employee of the Sponsor also serve on the board of ECC;
• The Sponsor decides whether to retain separate counsel, accountants or
others to perform services for the Trust;
• The Sponsor and Genesis, which acts as Authorized Participant and
distributor and marketer for the Shares, are affiliated parties that share a
common parent company, Digital Currency Group, Inc. ;
• While the Index does not currently utilize data from over-the-counter
markets or derivatives platforms, it may decide to include pricing from such
markets or platforms in the future, which could include Genesis; and
• The Sponsor may appoint an agent to act on behalf of the shareholders,
including in connection with the distribution of any Incidental Rights
and/or IR Virtual Currency, which agent may be the Sponsor or an affiliate
of the Sponsor.
By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust Agreement.
The Index Provider, which calculates the Index Price, is an affiliate of the Sponsor and the Trust.
On
The Index Provider selects the exchanges that are included in the Index and also developed the methodology and algorithm that provide the Index Price based on the exchanges included in the Index. The Index Provider formally re-evaluates the weighting algorithm used by the Index quarterly and may decide to change the way in which the Index is calculated based on this periodic review or in other extreme circumstances.
Under the rules governing the calculation of the Index Price, if the Sponsor determines in good faith that the Index does not reflect an accurate ETH price, then the Sponsor will employ an alternative method to determine the Index Price. Because such a determination could reflect negatively upon the Index Provider, lead to a decrease in the Index Provider's revenue or otherwise adversely affect the
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Index Provider, and because of their affiliation, the Index Provider may be incentivized to resolve any questions regarding, or changes to, the manner in which the Index is constructed and in which the Index Price is calculated in a way that favors the Sponsor.
In addition, although the Index does not currently include data from over-the-counter markets or derivatives platforms, the Index Provider may decide to include pricing from such markets or platforms in the future, which could include data from the affiliated Authorized Participant or Distributor and Marketer. Any impact on the accuracy or perceived accuracy of the Index Price could have a negative impact on the value of the Shares.
Updates to the Trust's conflicts of interest disclosures:
The Index Provider
In addition, Genesis, the only Authorized Participant as of the date hereof, licenses and uses a trading software platform provided by the Index Provider to operate its ETH trading desk and to facilitate Genesis's actions as an Authorized Participant. Although the Index Provider does not currently utilize data from over-the-counter markets or derivative platforms, per the terms of the license, the Index Provider is entitled to use the over-the-counter trading data from Genesis in the Index.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits Exhibit No. Description 99.1 Press Release Announcing Appointment ofMichael Sonnenshein as CEO of Grayscale
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