2024-25529. Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Adopt New NYSE Arca Rule 8.800-E To Provide for the Listing and Trading of Commodity- and Digital Asset-Based Investment Interests and To List ...

Bitcoin Trading Platforms Included in the Digital Asset

Reference rate as of June 30, 2024	Volume (Bitcoin)	Market share (%)
Coinbase	37,581,691	30.39
( print page 87690)
LMAX Digital	9,763,031	7.90
Crypto.com	1,403,569	1.14
Total Bitcoin-U.S. Dollar trading pair	48,748,291	39.43

Ether Trading Platforms Included in the Digital Asset

Reference rate as of June 30, 2024	Volume (Ether)	Market share (%)
Coinbase	422,567,767	34.84
LMAX Digital	73,620,833	6.07
Crypto.com	34,980,599	2.88
Total Ether-U.S. Dollar trading pair	531,169,199	43.79

SOL Trading Platforms Included in the Digital Asset

Reference rate as of June 30, 2024	Volume (SOL)	Market share (%)
Coinbase	1,696,262,917	66.32
Kraken	405,019,540	15.83
LMAX Digital	25,673,612	1.00
Total SOL-U.S. Dollar trading pair	2,126,956,069	83.15

AVAX Trading Platforms Included in the Digital Asset

Reference rate as of June 30, 2024	Volume (AVAX)	Market share (%)
Coinbase	769,187,967	80.19
Kraken	79,459,277	8.28
Crypto.com	15,247,633	1.59
Total AVAX-U.S. Dollar trading pair	863,894,877	90.06

XRP Trading Platforms Included in the Digital Asset

Reference rate as of June 30, 2024	Volume (XRP)	Market share (%)
Bitstamp	106,620,277,322	35.85
Coinbase	72,598,818,507	24.41
Kraken	37,254,406,142	12.53
Total XRP-U.S. Dollar trading pair	216,473,501,971	72.79

The domicile, regulation, and legal compliance of the Digital Asset Trading Platforms included in the Digital Asset Reference Rates vary. Information regarding each Digital Asset Trading Platform may be found, where available, on the websites for such Digital Asset Trading Platforms, among other places.

The Index and the Digital Asset Reference Rates

Since July 1, 2022, the digital assets held by the Fund have consisted of the digital assets that make up the CoinDesk Large Cap Select Index (the “DLCS” or the “Index”), as rebalanced from time to time, subject to the Manager's discretion to exclude individual digital assets in certain rules-based circumstances as further described in the “Index Components Compared to Fund Components—Exclusion Criteria” below. The DLCS is designed and managed by the Index Provider.

The digital assets that make up the DLCS (the “Index Components”) are drawn from the universe (the “Index Universe”) of investable digital assets meeting the following criteria: (i) the digital asset must be ranked in the top 250 in the Index Provider's Digital Asset ( print page 87691) Classification Standard (“DACS”) report; (ii) custodian services for the digital asset must be available from Coinbase Custody, a division of Coinbase Global Inc., and must be accessible to U.S. investors; (iii) the digital asset must not be a stablecoin or categorized as a meme coin as determined by the Index Provider; and (iv) the digital asset must have been listed on a Constituent Trading Platform for a minimum of 30 days leading up to the Index Rebalancing Period (as defined below).

The Index Provider applies market capitalization, liquidity and data availability criteria to the digital assets in the Index Universe in order to arrive at between five and ten digital assets that, in the Index Provider's judgment, represent a diversified benchmark for the largest and most liquid digital assets in the digital asset market (the “Large Cap sector”), rather than exposure to all digital assets in the Index Universe. The respective weightings of the Index Components within the DLCS are determined by the Index Provider based on market capitalization criteria and are referred to as the “Index Weightings.” The process followed by the Index Provider to determine the Index Universe, the Index Components and their respective Index Weightings is referred to as the “DLCS Methodology.”

The Fund seeks to (i) provide large cap coverage of the digital asset market; (ii) minimize transaction costs through low turnover of the Fund's portfolio; and (iii) create a portfolio that could be replicated through direct purchases in the Digital Asset Market. Because Index Components target the Large Cap sector and are included in the DLCS in accordance with market capitalization and liquidity criteria, as of June 30, 2024, the DLCS covered approximately 83% of the market capitalization of the entire digital asset market, excluding stablecoins and meme coins, based on data provided by the Index Provider calculated using data from CoinMarketCap.com. Additionally, as of June 30, 2024, the DLCS covered approximately 92% of the market capitalization of the Index Universe.

The Fund Components consist of the Index Components except that the Manager may determine to exclude a particular Index Component in its discretion under certain rules-based circumstances (including to comply with the requirements of Rule 8.800-E). The weightings of each Fund Component (the “Weightings”) are generally expected to be the same as the Index Weightings except when the Manager determines to exclude one or more digital assets from the Fund Components, in which case the Weightings are generally expected to be calculated proportionally to the respective Index Weightings for the remaining Index Components. The Fund uses the DLCS Methodology, described further below, to construct its portfolio.

The Manager will ensure that the Fund's holdings are consistent with the requirements of Rule 8.800-E(c)(1), including by working with the Reference Rate Provider to modify the DLCS such that at least 90% of the Weightings will consist of commodities and/or digital assets concerning which the Exchange may obtain information via the ISG from other members of the ISG or via CSSA.^[27]

Eligibility and Weighting

Under the DLCS Methodology and subject to the below, a digital asset included in the Index Universe will generally be eligible for inclusion in the DLCS as an Index Component, and thus the Fund's portfolio as a Fund Component, if it satisfies market capitalization, liquidity and data availability metrics determined by the Index Provider. Digital assets will be included in the DLCS on a market capitalization-weighted basis. For example, a digital asset with a larger market capitalization will have a higher representation in the DLCS, and thus the Fund's portfolio (unless the Manager excludes the digital asset from the Fund). Market capitalization refers to a digital asset's market value, as determined by multiplying the number of tokens of such digital asset in circulation by the market price of a token of such digital asset. The market price per token of a Fund Component will be determined by reference to the applicable Digital Asset Reference Rate. The market capitalization of any digital assets not in the DLCS, and therefore not held by the Fund, will be determined based on data that the Index Provider obtains directly from trading platforms and other service providers. Because the Fund creates Shares in exchange for Fund Components on a daily basis, the market capitalization of each Fund Component is calculated, and its Weighting therefore fluctuates, daily in accordance with changes in the market price of such Fund Components.

The DLCS, and therefore the Fund, is rebalanced on a quarterly basis according to the DLCS Methodology during a period beginning 14 days before the second business day of each January, April, July, and October (each such period, an “Index Rebalancing Period”).

Inclusion of New Fund Components

In order for a new digital asset to qualify for inclusion in the DLCS, and thus the Fund's portfolio during a period during which the Manager reviews for rebalancing the Fund's portfolio in accordance with the policies and procedures set forth in the Annual Report (the “Fund Rebalancing Period”), it must be included in the Index Universe and be among the 20 highest ranked digital assets in the Index Universe by market capitalization. Such 20 digital assets are referred to as the “Selection Universe.” In order for a digital asset in the Selection Universe to be included in the Fund's portfolio during a Fund Rebalancing Period, such digital asset must (i) have a current market capitalization that is at least 1.2 times the median current market capitalization of the Selection Universe; (ii) have a median daily value traded (“MDVT”) for the Index Rebalancing Period that is at least 1.2 times the MDVT of the Selection Universe for the Index Rebalancing Period; (iii) trade on at least three Constituent Trading Platforms as of the first day of the Index Rebalancing Period; (iv) have been included in the Selection Universe during the Index Rebalancing Period (as defined below) for the prior quarter; (v) the inclusion of such new digital asset will not result in the Fund holding more than ten Fund Components; and (vi) such digital asset must have a minimum weight of 1.0% (collectively, the “Index Inclusion Criteria”). In the event that more than ten digital assets meet the Index Inclusion Criteria, the qualifying digital assets will be ranked by current market capitalizations. Those ranked below the top ten will be excluded.

The Index Provider may include a digital asset that does not meet the Index Inclusion Criteria in the DLCS if the Index Components no longer collectively meet the five constituent minimum, at which point the Index Provider would first relax the market capitalization and liquidity requirements included in the Index Inclusion Criteria to those included in the “Removal Criteria” described below and include the next largest digital assets by current market capitalization that met such requirements, until there were five Index Components. If after relaxing such requirements, there were still fewer than five Index Components, the Index Provider would further relax the requirements and include the next largest digital assets by current market ( print page 87692) capitalization until there were five Index Components.^[28]

Removal of Existing Fund Components

During each Index Rebalancing Period, a digital asset will be removed as an Index Component from the DLCS, and therefore removed from the Fund if it is also a Fund Component, if (i) it is not included in the Selection Universe; (ii) it fails to be listed on at least three Constituent Trading Platforms; (iii) it has a current market capitalization that is less than 1.0 times the median current market capitalization of the Selection Universe; (iv) it has an MDVT for the Index Rebalancing Period that is less than 1.0 times the MDVT of the Selection Universe for the Index Rebalancing Period; or (v) such digital asset has a weight of less than 0.8%, and if its removal would not result in the DLCS holding less than five Index Components (collectively, the “Removal Criteria”).^[29]

Outside of the quarterly Index Rebalancing Period, the Index Provider may remove a digital asset as an Index Component from the DLCS under extraordinary circumstances. For example, if an Index Component is determined to be a “security” under the federal securities laws by the Commission, a federal court or other U.S. government agency, or under such consideration by any U.S. government oversight agency, it would be removed from the DLCS at a date determined and announced by the Index Provider. In the event the Index Provider removes an Index Component outside of the quarterly rebalancing period, the Manager expects the Fund would rebalance and the relevant digital asset would be removed as a Fund Component as soon as practical.

Index Components Compared to Fund Components

The Fund Components consist of the Index Components except when the Manager determines to exclude a particular Index Component in view of one or more of the following criteria (the “Exclusion Criteria”), as determined in the sole discretion of the Manager:

• none or few of the Authorized Participants or service providers has the ability to trade or otherwise support the digital asset;
• the Manager believes, based on current guidance, that use or trading of the digital asset raises or potentially raises significant governmental, policy or regulatory concerns or is subject or likely subject to a specialized regulatory regime, such as the U.S. federal securities or commodities laws or similar laws in other significant jurisdictions; ^[30]

• the digital asset's underlying code contains, or may contain, significant flaws or vulnerabilities; or
• there is limited or no reliable information regarding, or concerns over the intentions of, the core developers of the digital asset.

The Weightings are generally expected to be the same as the Index Weightings except when one or more digital assets have been excluded from the Fund Components based on the Exclusion Criteria, in which case the Weightings are generally expected to be calculated proportionally to the respective Index Weightings for the remaining Index Components.

The Manager may exclude a digital asset or rebalance the Weighting of an existing Fund Component to the extent its inclusion as a Fund Component or projected Weighting would exceed a threshold that could, in the Manager's sole discretion, require the Fund to register as an investment company under the Investment Company Act or require the Manager to register as an investment adviser under the Investment Advisers Act.

The Manager will retain discretion to include or exclude individual digital assets from the Fund Components only in certain rules-based circumstances, as described above. Accordingly, the Manager believes that the Fund will be in compliance with Rule 10A-3 ^[31] under the Act, as provided by NYSE Arca Rule 5.3-E.

Constituent Trading Platform Selection

According to the Annual Report, the Constituent Trading Platforms used to derive Digital Asset Reference Rates are selected by the Reference Rate Provider utilizing a methodology that is guided by the International Organization of Securities Commissions (“IOSCO”) principles for financial benchmarks. For a trading platform to become a Constituent Trading Platform, it must satisfy the criteria listed below (the “Inclusion Criteria”):

• Sufficient USD or USDC liquidity relative to the size of the listed assets;
• No evidence in the past 12 months of trading restrictions on individuals or entities that would otherwise meet the trading platform's eligibility requirements to trade;
• No evidence in the past 12 months of undisclosed restrictions on deposits or withdrawals from user accounts;
• Real-time price discovery;
• Limited or no capital controls; ^[32]

• Transparent ownership including a publicly-owned ownership entity;
• Publicly available language and policies addressing legal and regulatory compliance in the US, including KYC, AML and other policies designed to comply with relevant regulations that might apply to it;
• Be an exchange that is licensed and able to service investors in one or more of the following jurisdictions: United States, United Kingdom; European Union; Hong Kong; or Singapore
• Offer programmatic spot trading of the trading pair and reliably publish trade prices and volumes on a real-time basis through Rest and Websocket APIs.^[33]

A Digital Asset Trading Platform is removed from the Constituent Trading Platform when it no longer satisfies the criteria for inclusion. The Reference Rate Provider does not currently include data from over-the-counter markets or derivatives platforms among the Constituent Trading Platforms. According to the Annual Report, over-the-counter data is not currently included because of the potential for trades to include a significant premium or discount paid for larger liquidity, which creates an uneven comparison ( print page 87693) relative to more active markets. There is also a higher potential for over-the-counter transactions to not be arms-length, and thus not be representative of a true market price. Digital asset derivative markets are also not currently included, as the markets remain relatively thin. While the Reference Rate Provider has no plans to include data from over-the-counter markets or derivative platforms at this time, the Reference Rate Provider will consider IOSCO principles for financial benchmarks, the management of trading venues of digital asset derivatives and the aforementioned Inclusion Criteria when considering whether to include over-the-counter or derivative platform data in the future.

The Reference Rate Provider and the Manager have entered into the index license agreement, dated as of February 1, 2022 (as amended, the “Index License Agreement”), governing the Manager's use of the Digital Asset Reference Rates that are Index Prices.^[34] Pursuant to the terms of the Index License Agreement, the Reference Rate Provider may adjust the calculation methodology for a Digital Asset Reference Rate without notice to, or consent of, the Fund or its shareholders. The Reference Rate Provider may decide to change the calculation methodology to maintain the integrity of the Index Price calculation should it identify or become aware of previously unknown variables or issues with the existing methodology that it believes could materially impact its performance and/or reliability. The Reference Rate Provider has sole discretion over the determination of Digital Asset Reference Rates and may change the methodologies for determining the Digital Asset Reference Rates from time to time. Shareholders will be notified of any material changes to the calculation methodology or the Digital Asset Reference Rates in the Fund's current reports and will be notified of all other changes that the Manager considers significant in the Fund's periodic or current reports. The Manager will determine the materiality of any changes to the Digital Asset Reference Rates on a case-by-case basis, in consultation with external counsel.

Reference Rate Provider may change the trading venues that are used to calculate a Digital Asset Reference Rate or otherwise change the way in which a Digital Asset Reference Rate is calculated at any time. For example, the Reference Rate Provider has scheduled quarterly reviews in which it may add or remove Constituent Trading Platforms that satisfy or fail the criteria described above. While the Reference Rate Provider is not required to publicize or explain the changes or to alert the Manager to such changes, it has historically notified the Fund (and other subscribers to the Index) of any material changes to the Constituent Trading Platforms, including any additions or removals of the Constituent Trading Platforms, in addition to issuing press releases in connection with the same in accordance with its index review and index change communication policies. The Manager will notify investors of any such material event by filing a current report on Form 8-K. Although the Digital Asset Reference Rate methodology is designed to operate without any manual intervention, rare events would justify manual intervention. Intervention of this kind would be in response to non-market-related events, such as the halting of deposits or withdrawals of funds on a Digital Asset Trading Platform, the unannounced closure of operations on a Digital Asset Trading Platform, insolvency or the compromise of user funds. In the event that such an intervention is necessary, the Reference Rate Provider would issue a public announcement through its website, API and other established communication channels with its clients.

Determination of Digital Asset Reference Rates

Since July 1, 2022, all of the Digital Asset Reference Rates have been Indicative Prices. The Indicative Price is calculated by multiplying the average price on each Constituent Trading Platform by the trading volume on such Constituent Trading Platform for the prior 60 minutes as of 4:00 p.m., New York time, multiplied by the Constituent Trading Platform's weighting based on trading volume relative to the other Constituent Trading Platforms included in the Reference Rate. Each Constituent Trading Platform is weighted relative to its share of trading volume to the trading volume of all Constituent Trading Platform, meaning that price inputs from Constituent Trading Platforms with higher trading volumes will be weighted more heavily in calculating the Indicative Price than price inputs from Constituent Trading Platforms with lower trading volumes. Price and volume inputs are weighted as received with no further adjustments made to the weighting of each trading platform based on market anomalies observed on a Constituent Trading Platform or otherwise.

For purposes of illustration, outlined below is an example using a limited number of trades.

Venue	Average price	Volume	Notional	Weight (%)	Indicative price contribution
Trading Platform 1	999.12	800	799,296	53.33	532.60
Trading Platform 2	997.23	500	498,615	33.33	332.25
Trading Platform 3	996.65	200	199,330	13.33	132.82
Indicative Price		1,500	1,497,241		997.67

The Index Provider may also use Index Prices as the reference rate for an Index Component in the future, and if it does so, then the Manager will use an Index Price for the relevant Fund Component. When a Digital Asset Reference Rate is an Index Price, the Reference Rate Provider applies an algorithm to the trade data used to determine the Indicative Price. Each Digital Asset Reference Rate's algorithm is expected to reflect a four-pronged methodology to calculate the Index Price from the Constituent Trading Platforms:

• Volume Weighting: Constituent Trading Platforms with greater liquidity receive a higher weighting in each Digital Asset Reference Rate, increasing the ability to execute against ( i.e., replicate) such Digital Asset Reference Rate in the underlying spot markets.
• Price-Variance Weighting: Each Digital Asset Reference Rate reflects data points that are discretely weighted in proportion to their variance from the rest of the Constituent Trading ( print page 87694) Platforms. As the price at a Constituent Trading Platform diverges from the prices at the rest of the Constituent Trading Platforms, its weight in the Digital Asset Reference Rate consequently decreases.
• Inactivity Adjustment: Each Digital Asset Reference Rate algorithm penalizes stale activity from any given Constituent Trading Platform. When a Constituent Trading Platform does not have recent trading data, its weighting in the Reference Rate is gradually reduced until it is de-weighted entirely. Similarly, once trading activity at a Constituent Trading Platform resumes, the corresponding weighting for that Constituent Trading Platform is gradually increased until it reaches the appropriate level.
• Manipulation Resistance: In order to mitigate the effects of wash trading and order book spoofing, the Digital Asset Reference Rate only includes executed trades in its calculation. Additionally, each Digital Asset Reference Rate only includes Constituent Trading Platforms that charge trading fees in order to attach a real, quantifiable cost to any manipulation attempts.

The Reference Rate Provider re-evaluates the weighting algorithm on a periodic basis, but maintains discretion to change the way in which an Index Price is calculated based on its periodic review or in extreme circumstances. The exact methodology to calculate each Index Price is not publicly available. Still, each Index is designed to limit exposure to trading or price distortion of any individual Digital Asset Trading Platform that experiences periods of unusual activity or limited liquidity by discounting, in real-time, anomalous price movements at individual Digital Asset Trading Platforms.

For the purposes of illustration, outlined below are examples of how the attributes that impact weighting and adjustments in the aforementioned methodology may be utilized to generate an Index Price for a digital asset. The Index Price algorithm, as described above, accounts for manipulation at the outset by only including data from executed trades on Constituent Trading Platforms that charge trading fees. Then, the below-listed elements may impact the weighting of the Constituent Trading Platforms on the Index Price as follows:

• Volume Weighting: Each Constituent Trading Platform will be weighted to appropriately reflect the trading volume share of the Constituent Trading Platform relative to all the Constituent Trading Platforms during this same period. For example, assume the Constituent Trading Platforms used to calculate the Index Price of the digital asset are Coinbase, Kraken, LMAX Digital, and Bitstamp. An average hourly weighting of 67.06%, 14.57%, 11.88%, and 6.49% for Coinbase, Kraken, LMAX Digital, and Bitstamp, respectively, would represent each Constituent Trading Platform's share of trading volume during the same period.
• Inactivity Adjustment: Assume that a Constituent Trading Platform represented a 14% weighting on the Index Price of the digital asset, which is based on the per-second calculations of its trading volume and price-variance relative to the cohort of Constituent Trading Platforms included in such Index, and then went offline for approximately two hours. The index algorithm would automatically recognize inactivity and start de-weighting the Constituent Trading Platform at the 3-minute mark and continue to do so over a 7-minute period until its influence was effectively zero, 10 minutes after becoming inactive. As soon as trading activity resumed at the Constituent Trading Platform, the index algorithm would re-weight it to the appropriate weighting based on trading volume and price-variance relative to the cohort of Constituent Trading Platforms included in the Index. Due to the period of inactivity, it would re-weight the Constituent Trading Platform activity to a weight lower than its original weighting—for example, to 12%.
• Price-Variance Weighting: The price-variance weighting adjustment is a relative measure of each Constituent Trading Platform versus the cohort of trading platform. The further the price at a trading platform is from the mean price of the cohort, the less influence that trading platform's price will have on the algorithm that produces the Index Price, as the trading platform data is discretely weighted in proportion to their variance from the rest of the trading platforms on a per-second basis and there is no minimum threshold the variance must meet for this adjustment to take place. For example, assume that for a one-hour period, the digital asset's execution prices on one Constituent Trading Platform were trading more than 7% higher than the average execution prices on another Constituent Trading Platform. The algorithm will automatically detect the anomaly (price variance) and reduce that specific Constituent Trading Platform's weighting during that one-hour period, ensuring a reliable spot reference price that is unaffected by the localized event and that is reflective of broader market activity.

Determination of Digital Asset Reference Rates When Indicative Prices and Index Prices Are Unavailable

If the Digital Asset Reference Rate for a Fund Component becomes unavailable, or if the Manager determines in good faith that such Digital Asset Reference Rate does not reflect an accurate price for such Fund Component, then the Manager will, on a best efforts basis, contact the Reference Rate Provider to obtain the Digital Asset Reference Rate directly from the Digital Asset Reference Rate Provider.

If after such contact such Digital Asset Reference Rate remains unavailable or the Manager continues to believe in good faith that such Digital Asset Reference Rate does not reflect an accurate price for the relevant digital asset, the Manager uses the following cascading set of rules to calculate the Digital Asset Reference Rates for that Fund Component.^[35] For the avoidance of doubt, the Manager will employ the below rules sequentially and in the order as presented below, should one or more specific rule(s) fail:

1. Digital Asset Reference Rate = The price set by the relevant Indicative Price or Index Price as of 4:00 p.m., New York time, on the valuation date.^[36] If the relevant Indicative Price or Index Price becomes unavailable, or if the Manager determines in good faith that such Indicative Price or Index Price does not reflect an accurate digital asset price, then the Manager will, on a best efforts basis, contact the Reference Rate Provider to obtain the Digital Asset Reference Rate directly from the Reference Rate Provider. If after such contact such Indicative Price or Index Price remains unavailable or the Manager continues to believe in good faith that such Indicative Price or Index Price does not reflect an accurate price for the relevant digital asset, then the Manager will employ the next rule to determine the Digital Asset Reference Rate. There are no predefined criteria to make a good faith assessment and it will be made by the Manager in its sole discretion.

2. Digital Asset Reference Rate = The price set by Coin Metrics Real-Time Rate as of 4:00 p.m., New York time, on the valuation date (the “Secondary Digital Asset Reference Rate”). The Secondary Reference Rate is a real-time reference rate price, calculated using ( print page 87695) trade data from constituent markets selected by Coin Metrics, Inc. (the “Secondary Reference Rate Provider”). The Secondary Digital Asset Reference Rate is calculated by applying weighted-median techniques to such trade data where half the weight is derived from the trading volume on each constituent market and half is derived from inverse price variance, where a constituent market with high price variance as a result of outliers or market anomalies compared to other constituent markets is assigned a smaller weight. If the Secondary Digital Asset Reference Rate for the relevant Fund Component becomes unavailable, or if the Manager determines in good faith that the Secondary Digital Asset Reference Rate does not reflect an accurate price for such Fund Component, then the Manager will, on a best efforts basis, contact the Secondary Reference Rate Provider to obtain the Secondary Digital Asset Reference Rate directly from the Secondary Reference Rate Provider. If after such contact the Secondary Digital Asset Reference Rate remains unavailable or the Manager continues to believe in good faith that the Secondary Digital Asset Reference Rate does not reflect an accurate price for such Fund Component, then the Manager will employ the next rule to determine the Digital Asset Reference Rate. There are no predefined criteria to make a good faith assessment and it will be made by the Manager in its sole discretion.

3. Digital Asset Reference Rate = The price set by the Fund's principal market (as defined in the Annual Report) (the “Tertiary Pricing Option”) as of 4:00 p.m., New York time, on the valuation date. The Tertiary Pricing Option is a spot price derived from the relevant principal market's public data feed that is believed to be consistently publishing pricing information as of 4:00 p.m., New York time, and is provided to the Manager via an application programming interface. If the Tertiary Pricing Option becomes unavailable, or if the Manager determines in good faith that the Tertiary Pricing Option does not reflect an accurate price for such Fund Component, then the Manager will, on a best efforts basis, contact the Tertiary Pricing Provider to obtain the Tertiary Pricing Option directly from the Tertiary Pricing Provider. If after such contact the Tertiary Pricing Option remains unavailable after such contact or the Manager continues to believe in good faith that the Tertiary Pricing Option does not reflect an accurate price for such Fund Component, then the Manager will employ the next rule to determine the Digital Asset Reference Rate. There are no predefined criteria to make a good faith assessment and it will be made by the Manager in its sole discretion.

4. Digital Asset Reference Rate = The Manager will use its best judgment to determine a good faith estimate of the Digital Asset Reference Rate. There are no predefined criteria to make a good faith assessment and it will be made by the Manager in its sole discretion.

In the event of a fork, the Reference Rate Provider may calculate the Digital Asset Reference Rate based on a digital asset that the Manager does not believe to be the appropriate asset that is held by the Fund.^[37] In this event, the Manager has full discretion to use a different reference rate provider or calculate the Digital Asset Reference Rate itself using its best judgment.

The Manager may, in its sole discretion, select a different reference rate provider, select a different indicative or index price provided by the Reference Rate Provider, or calculate the Indicative Price or Index Price by using the cascading set of rules set forth above.^[38]

The Structure and Operation of the Fund Protects Investors and Satisfies Commission Requirements for Digital Asset-Based Exchange Traded Products

On January 10, 2024, the Commission approved the listing and trading of shares of the Grayscale Bitcoin Trust (BTC) and Bitwise Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares); the Hashdex Bitcoin ETF under NYSE Arca Rule 8.500-E (Trust Units); the iShares Bitcoin Trust and Valkyrie Bitcoin Fund under Nasdaq Rule 5711(d) (Commodity-Based Trust Shares); and the ARK 21Shares Bitcoin ETF, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust, the WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund, and Franklin Bitcoin ETF under BZX Rule 14.11(e)(4) (Commodity-Based Trust Shares) (collectively, the “Bitcoin ETPs”).^[39] In the Bitcoin ETP Approval Order, the Commission found that the proposed rule changes to list the Bitcoin ETPs demonstrated that there were “sufficient `other means' of preventing fraud and manipulation,” including that:

[B]ased on the record before the Commission and the improved quality of the correlation analysis in the record, including the Commission's own analysis, the Commission is able to conclude that fraud or manipulation that impacts prices in spot bitcoin markets would likely similarly impact CME bitcoin futures prices. And because the CME's surveillance can assist in detecting those impacts on CME bitcoin futures prices, the Exchanges' comprehensive surveillance-sharing agreement with the CME—a U.S. regulated market whose bitcoin futures market is consistently highly correlated to spot bitcoin, albeit not of “significant size” related to spot bitcoin—can be reasonably expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the [Bitcoin ETPs].^[40]

Similarly, on May 23, 2024, the Commission approved the listing and trading of shares of the Grayscale Ethereum Trust and the Bitwise Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares); the iShares Ethereum Trust under Nasdaq Rule 5711(d) (Commodity-Based Trust Shares); and the VanEck Ethereum Trust, ARK 21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum Fund, and the Franklin Ethereum ETF under BZX Rule 14.11(e)(4) (Commodity-Based Trust Shares) (collectively, the “Ether ETPs”).^[41] In the Ether ETP Approval Order, the Commission found that the proposed rule changes to list the Ether ETPs demonstrated that there were ( print page 87696) “sufficient `other means' of preventing fraud and manipulation,” including that:

[B]ased on the record before the Commission and the correlation analyses in the record, including the Commission's own analysis, the Commission is able to conclude that fraud or manipulation that impacts prices in spot ether markets would likely similarly impact CME ether futures prices. And because the CME's surveillance can assist in detecting those impacts on CME ether futures prices, the Exchanges' comprehensive surveillance-sharing agreement with the CME—a U.S.-regulated market whose ether futures market is consistently highly correlated to spot ether, albeit not of “significant size” related to spot ether—can be reasonably expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the [Ether ETPs].^[42]

The Fund is structured and will operate in a manner materially the same as the Bitcoin ETPs and Ether ETPs and the Fund Components primarily consist of Bitcoin and Ether. Accordingly, the Manager believes that, for the reasons set forth in the Bitcoin ETP Approval Order and Ether ETP Approval Order, listing and trading Shares of the Fund would be consistent with the requirements of the Act.^[43]

The Manager acknowledges that the Fund Components currently include minority positions in digital assets that are not Bitcoin or Ether ( i.e., SOL, XRP, and AVAX). The Manager also represents that, consistent with proposed Rule 8.800-E(c)(1), no more than 10% of the weight of its digital asset holdings will consist of digital assets concerning which the Exchange may not be able to obtain information via the ISG or via a CSSA. In the context of prior spot digital asset ETP proposal disapproval orders for Bitcoin and Ether, the Commission expressed concerns about the underlying Digital Asset Market due to the potential for fraud and manipulation and has outlined the reasons why such ETP proposals have been unable to satisfy these concerns.^[44] For purposes of the Fund's proposal, the Manager anticipates that the Commission may have the same concerns about the non-Bitcoin and Ether assets and addresses each of these in turn below.

In the Prior Spot Digital Asset ETP Disapproval Orders, the Commission outlined that a proposal relating to a digital asset-based ETP could satisfy its concerns regarding potential for fraud and manipulation by demonstrating:

(1) Inherent Resistance to Fraud and Manipulation: that the underlying commodity market is inherently resistant to fraud and manipulation;

(2) Other Means to Prevent Fraud and Manipulation: that there are other means to prevent fraudulent and manipulative acts and practices that are sufficient; or

(3) Surveillance Sharing: that the listing exchange has entered into a surveillance sharing agreement with a regulated market of significant size relating to the underlying or reference assets.

As described below, the Manager believes the structure and operation of the Fund are designed to prevent fraudulent and manipulative acts and practices, to protect investors and the public interest, and to respond to concerns that the Commission may have with respect to potential fraud and manipulation in the context of a Digital Asset-based ETP.

How the Fund Meets Standards in the Prior Spot Digital Asset ETP Disapproval Orders

1. Resistance to or Prevention of Fraud and Manipulation

In the Prior Spot Digital Asset ETP Disapproval Orders, the Commission disagreed with the proposition that a digital asset's fungibility, transportability and exchange tradability combine to provide unique protections against, and allow such digital asset to be uniquely resistant to, attempts at price manipulation. The Commission reached its conclusion based on concessions by one issuer that 95% of the reported trading in the digital asset, Bitcoin, is “fake” or non-economic, effectively admitting that the properties of Bitcoin do not make it inherently resistant to manipulation. Such issuer's concessions were further compounded by evidence of potential and actual fraud and manipulation in the historical trading of Bitcoin on certain marketplaces such as (1) “wash” trading, (2) trading based on material, non-public information, including the dissemination of false and misleading information, (3) manipulative activity involving Tether, and (4) fraud and manipulation.^[45]

The Manager acknowledges the possibility that fraud and manipulation may exist in commodity markets and that digital asset trading, such as certain of the Fund Components, on any given trading platform may be no more uniquely resistant to fraud and manipulation than other commodity markets.^[46] However, the Manager believes that the fundamental features of digital assets, including fungibility, transportability and exchange tradability offer novel protections beyond those that exist in traditional commodity markets or equity markets when combined with other means, as discussed further below.

( print page 87697)

2. Other Means To Prevent Fraud and Manipulation

The Commission has recognized that a listing exchange could demonstrate that other means to prevent fraudulent and manipulative acts and practices are sufficient to justify dispensing with the requisite surveillance-sharing agreement.^[47] In evaluating the effectiveness of this type of resistance, the Commission does not apply a “cannot be manipulated” standard. Instead, the Commission requires that such resistance to fraud and manipulation be novel and beyond those protections that exist in traditional commodity markets or equity markets for which the Commission has long required surveillance-sharing agreements in the context of listing derivative securities products.^[48]

The Manager believes the Fund's use of the Index and Digital Asset Reference Rates represents a novel means to prevent fraud and manipulation from impacting a reference price for the Fund Components and that it offers protections beyond those that exist in traditional commodity markets or equity markets. Specifically, digital assets, such as the Fund Components, are novel and exist outside traditional commodity markets. It therefore stands to reason that the methods by which they trade will be novel and that the market for digital assets like the Fund Components will have different attributes than traditional commodity markets. Digital assets like the Fund Components were only introduced within the past decade, twenty years after the first U.S. exchange-traded funds (“ETFs”) were offered ^[49] and 150 years after the first futures were offered.^[50] In contrast to older commodities such as gold, silver, platinum, palladium or copper, which the Commission has noted all had at least one significant, regulated market for trading futures on the underlying commodity at the time commodity trust ETPs were approved for listing and trading, the first trading in digital assets like the Fund Components took place entirely in an open, transparent and online setting where other commodities cannot trade.

The Fund has priced its Shares consistently for approximately two years based on the Index and its use of the Digital Asset Reference Rates. The Manager believes the Fund's use of the Index and Digital Asset Reference Rates specifically addresses the Commission's concerns in that they serve as an alternative means to prevent fraud and manipulation. Specifically, the Index and its use of the Digital Asset Reference Rates can (i) mitigate the effects of fraud, manipulation and other anomalous trading activity on the Fund Components' reference rates, (ii) provide a real-time, volume-weighted fair value of the Fund Components and (iii) appropriately handle and adjust for non-market related events.

As described in more detail below, the Manager believes that the Index and its use of Digital Asset Reference Rates accomplishes those objectives in the following ways:

1. The Digital Asset Reference Rates track the Digital Asset Trading Platform Market prices through trading activity at “U.S.-Compliant Trading Platforms”; ^[51]

2. The Digital Asset Reference Rates are constructed and maintained by an expert third-party index provider, allowing for prudent handling of non-market-related events; and

3. The Digital Asset Reference Rates mitigate the impact of instances of fraud, manipulation and other anomalous trading activity concentrated on any one specific trading platform through a cross-trading platform composite reference rate over a 60-minute period.

1. The Digital Asset Reference Rates Track the Digital Asset Trading Platform Market Price Through Trading Activity at “U.S.-Compliant Trading Platforms”

To reduce the risk of fraud, manipulation, and other anomalous trading activity from impacting the Digital Asset Reference Rates, only U.S.-Compliant Trading Platforms are eligible to be included in the Digital Asset Reference Rates.

The Digital Asset Reference Rates maintain a minimum of two and a maximum of three trading platforms to track the Digital Asset Trading Platform Market while offering replicability for traders and market makers.^[52]

U.S.-Compliant Trading Platforms possess safeguards that protect against fraud and manipulation. For example, U.S.-Compliant Trading Platforms regulated by the NYDFS under the BitLicense program have regulatory requirements to implement measures designed to effectively detect, prevent, and respond to fraud, attempted fraud, market manipulation, and similar wrongdoing, and to monitor, control, investigate and report back to the NYDFS regarding any wrongdoing.^[53] These trading platforms also have the following obligations: ^[54]

• Submission of audited financial statements including income statements, statements of assets/liabilities, insurance, and banking;
• Compliance with capitalization requirements set at NYDFS's discretion;
• Prohibitions against the sale or encumbrance to protect full reserves of custodian assets;
• Fingerprints and photographs of employees with access to customer funds;
• Retention of a qualified Chief Information Security Officer and annual penetration testing/audits;
• Documented business continuity and disaster recovery plan, independently tested annually; and
• Participation in an independent exam by NYDFS.

Other U.S.-Compliant Trading Platforms have voluntarily implemented measures to protect against common forms of market manipulation.^[55]

Furthermore, all U.S.-Compliant Trading Platforms are considered MSBs ( print page 87698) that are subject to FinCEN's federal and state reporting requirements that provide additional safeguards. For example, unscrupulous traders may be less likely to engage in fraudulent or manipulative acts and practices on trading platforms that (1) report suspicious activity to FinCEN as money services businesses, (2) report to state regulators as money transmitters, and/or (3) require customer identification through KYC procedures. U.S.-Compliant Trading Platforms are required to: ^[56]

• Identify people with ownership stakes or controlling roles in the MSB;
• Establish a formal Anti-Money Laundering (AML) policy in place with documentation, training, independent review, and a named compliance officer;
• Implement strict customer identification and verification policies and procedures;
• File Suspicious Activity Reports (SARs) for suspicious customer transactions;
• File Currency Transaction Reports (CTRs) for cash-in or cash-out transactions greater than $10,000; and
• Maintain a five-year record of currency exchanges greater than $1,000 and money transfers greater than $3,000.

Lastly, because of Bitcoin's and Ether's classifications as commodities, the CFTC has authority to police fraud and manipulation on U.S.-Compliant Trading Platforms that trade those digital assets.^[57]

The Manager acknowledges that there are substantial differences between FinCEN and New York state regulations and the Commission's regulation of the national securities exchanges.^[58] The Manager does not believe the inclusion of U.S.-Compliant Trading Platforms is in and of itself sufficient to prove that the Digital Asset Reference Rates are an alternative means to prevent fraud and manipulation such that surveillance sharing agreements are not required, but does believe that the inclusion of only U.S.-Compliant Trading Platforms in the Digital Asset Reference Rates is one significant way in which the Digital Asset Reference Rates are protected from the potential impacts of fraud and manipulation.

2. The Digital Asset Reference Rates Are Constructed and Maintained by an Expert Third-Party Index Provider, Allowing for Prudent Handling of Non-Market-Related Events

The Reference Rate Provider reviews and periodically updates which trading platforms are included in the Digital Asset Reference Rates by utilizing a methodology that is guided by the IOSCO principles for financial benchmarks.

According to the Reference Rate Provider's methodology, for a trading platform to become a Constituent Trading Platform, it must satisfy the following Inclusion Criteria:

• Sufficient USD or USDC liquidity relative to the size of the listed assets;
• No evidence in the past 12 months of trading restrictions on individuals or entities that would otherwise meet the trading platform's eligibility requirements to trade;
• No evidence in the past 12 months of undisclosed restrictions on deposits or withdrawals from user accounts;
• Real-time price discovery;
• Limited or no capital controls;
• Transparent ownership including a publicly-owned ownership entity;
• Publicly available language and policies addressing legal and regulatory compliance in the US, including KYC, AML and other policies designed to comply with relevant regulations that might apply to it;
• Be an exchange that is licensed and able to service investors in one or more of the following jurisdictions: United States, United Kingdom; European Union; Hong Kong; or Singapore
• Offer programmatic spot trading of the trading pair and reliably publish trade prices and volumes on a real-time basis through Rest and Websocket APIs.

Although the Reference Rate Provider's methodology is designed to operate without any human interference, rare events would justify manual intervention. Manual intervention would only be in response to “non-market-related events” ( e.g., halting of deposits or withdrawals of funds, unannounced closure of trading platform operations, insolvency, compromise of user funds, etc.). In the event that such an intervention is necessary, the Reference Rate Provider would issue a public announcement through its website, API and other established communication channels with its clients.^[59]

3. The Digital Asset References Rates Mitigate the Impact of Instances of Fraud, Manipulation and Other Anomalous Trading Activity Concentrated on Any One Specific Trading Platform Through a Cross-Trading Platform Composite Reference Rate Over a 60-Minute Period

The Digital Asset Reference Rates are based on the price and volume data of multiple U.S.-Compliant Trading Platforms over a 60-minute period that satisfy the Reference Rate Provider's Inclusion Criteria. By referencing multiple trading venues and weighting them based on trade activity, the impact of any potential fraud, manipulation, or anomalous trading activity occurring on any single venue is reduced. Specifically, the effects of fraud, manipulation, or anomalous trading activity occurring on any single venue are de-weighted and consequently diluted by non-anomalous trading activity from other Constituent Trading Platforms.

Although each Digital Asset Reference Rate is designed to accurately capture the market price of the digital asset it tracks, third parties may be able to purchase and sell such digital assets on public or private markets not included among the constituent Digital Asset Trading Platforms of such Digital Asset Reference Rate, and such transactions may take place at prices materially higher or lower than the Digital Asset Reference Rate. Moreover, there may be variances in the prices of digital assets on the various Digital Asset Trading Platforms, including as a result of differences in fee structures or administrative procedures on different Digital Asset Trading Platforms.

For example, based on data provided by the Reference Rate Provider, on any given day during the twelve months ended June 30, 2024, the maximum differential between the 4:00 p.m., New York time spot price of Bitcoin on any single Digital Asset Trading Platform included in the Digital Asset Reference Rate was 1.47% and the average of the maximum differentials of the 4:00 p.m., New York time spot price of each Digital Asset Trading Platform included in the Digital Asset Reference Rate was 1.33%. During this same period, the average differential between the 4:00 p.m., New York time spot prices of all the Digital Asset Trading Platforms included in the Digital Asset Reference Rate was 0.01%. Further, on any given day during the twelve months ended June 30, 2024, the maximum differential between the 4:00 p.m., New York time spot price of Ether on any single Digital Asset Trading Platform included in the Digital Asset ( print page 87699) Reference Rate was 2.80% and the average of the maximum differentials of the 4:00 p.m., New York time spot price of each Digital Asset Trading Platform included in the Digital Asset Reference Rate was 2.46%. During this same period, the average differential between the 4:00 p.m., New York time spot prices of all the Digital Asset Trading Platforms included in the Digital Asset Reference Rate was 0.02%. All Digital Asset Trading Platforms that were included in the relevant Digital Asset Reference Rate throughout the period were considered in this analysis.^[60]

For approximately two years, the Fund has consistently priced its Shares at 4:00 p.m., New York time based on the Index and its use of the Digital Asset Reference Rates. While that pricing would be known to the market, the Manager believes that, even if efforts to manipulate the price of the Fund Components at 4:00 p.m., E.T. were successful on any trading platform, such activity would have had a limited effect on the pricing of the Fund, due to the controls embedded in the structure of the Index and its use of the Digital Asset Reference Rates.

Accordingly, the Manager believes that the Index and it use of the Digital Asset Reference Rates have proven their ability to (i) mitigate the effects of fraud, manipulation and other anomalous trading activity on the Fund Components reference rates, (ii) provide a real-time, volume-weighted fair value of the Fund Components and (iii) appropriately handle and adjust for non-market related events. For these reasons, the Manager believes that the Index represents an effective alternative means to prevent fraud and manipulation and the Fund's reliance on the Index and its use of the Digital Asset Reference Rates addresses the Commission's concerns with respect to potential fraud and manipulation.

Creation and Redemption of Shares

Authorized Participants may submit orders to create or redeem Shares under procedures for “Cash Orders.”

The Authorized Participants will deliver only cash to create Shares and will receive only cash when redeeming Shares. Further, Authorized Participants will not directly or indirectly purchase, hold, deliver, or receive the Fund Components as part of the creation or redemption process or otherwise direct the Fund or a third party with respect to purchasing, holding, delivering, or receiving the Fund Components as part of the creation or redemption process.

The Fund will create Shares by receiving the Fund Components from a third party that is not the Authorized Participant and the Fund, or an affiliate of the Fund (and in any event not the Authorized Participant), is responsible for selecting the third party to deliver the Fund Components. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the delivery of the Fund Components to the Fund or acting at the direction of the Authorized Participant with respect to the delivery of the Fund Components to the Fund. The Fund will redeem Shares by delivering the Fund Components to a third party that is not the Authorized Participant and the Fund, or an affiliate of the Fund (and in any event not the Authorized Participant), is responsible for selecting the third party to receive the Fund Components. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the receipt of the Fund Components from the Fund or acting at the direction of the Authorized Participant with respect to the receipt of the Fund Components from the Fund.

Cash Orders are made through the participation of a Liquidity Provider ^[61] who obtains or receives the Fund Components in exchange for cash, and are facilitated by the Transfer Agent and Grayscale Investments, LLC, acting in its capacity as the Liquidity Engager. Liquidity Providers are not party to the Participant Agreements (as defined below) and are engaged separately by the Liquidity Engager.

According to the Registration Statement, the Fund creates Baskets (as described below) of Shares only upon receipt of the Fund Components and redeems Shares only by distributing the Fund Components. “Authorized Participants” are the only persons that may place orders to create and redeem Baskets. Each Authorized Participant must (i) be a registered broker-dealer and (ii) enter into an agreement with the Manager and Transfer Agent that provides the procedures for the creation and redemption of Baskets and for the delivery of the Fund Components required for the creation and redemption of Baskets via a Liquidity Provider (each, a “Participant Agreement”). An Authorized Participant may act for its own account or as agent for broker-dealers, custodians and other securities market participants that wish to create or redeem Baskets. Shareholders who are not Authorized Participants will only be able to create or redeem their Shares through an Authorized Participant.

The Fund issues Shares to and redeems Shares from Authorized Participants on an ongoing basis, but only in one or more “Baskets” (with a Basket being a block of 10,000 Shares). The Fund will not issue fractions of a Basket.

The creation and redemption of Baskets will be made only in exchange for the delivery to the Fund, or the distribution by the Fund, of the number of whole and fractional Fund Components represented by each Basket being created or redeemed, which is determined by dividing (x) the number of the Fund Components owned by the Fund at 4:00 p.m., New York time, on the trade date of a creation or redemption order, after deducting the number of Fund Components representing the U.S. dollar value of accrued but unpaid fees and expenses of the Fund (converted using the Digital Asset Reference Rates at such time, and carried to the eighth decimal place), by (y) the number of Shares outstanding at such time (with the quotient so obtained calculated to one one-hundred-millionth of the Fund Components ( i.e., carried to the eighth decimal place)), and multiplying such quotient by 10,000 (the “Basket Amount”). The U.S. dollar value of a Basket is calculated by multiplying the Basket Amount by the Digital Asset Reference Rates as of the trade date (the “Basket NAV”). The Basket NAV multiplied by the number of Baskets being created or redeemed is referred to as the “Total Basket NAV.” All questions as to the calculation of the Basket Amount will be conclusively determined by the Manager and will be final and binding on all persons interested in the Fund. The number the Fund Components represented by a Share will gradually decrease over time ( print page 87700) as the Fund Components are used to pay the Fund's expenses. Each Share represented approximately 0.0004 of one Bitcoin, 0.0023 of one Ether, 0.0085 of one SOL, 0.0072 of one AVAX, and 1.0537 of one XRP as of June 30, 2024.

The creation of Baskets requires the delivery to the Fund of the Total Basket Amount and the redemption of Baskets requires the distribution by the Fund of the Total Basket Amount.

Although the Fund creates Baskets only upon the receipt of the Fund Components, and redeems Baskets only by distributing the Fund Components, an Authorized Participant will submit Cash Orders, pursuant to which the Authorized Participant will deposit cash with, or accept cash from, the Transfer Agent in connection with the creation and redemption of Baskets.

Cash Orders will be facilitated by the Transfer Agent and Liquidity Engager, acting other than in its capacity as Manager. On an order-by-order basis, the Liquidity Engager will engage one or more Liquidity Providers to obtain or receive the Fund Components in exchange for cash in connection with such order, as described in more detail below.

Unless the Manager requires that a Cash Order be effected at actual execution prices (an “Actual Execution Cash Order”),^[62] each Authorized Participant that submits a Cash Order to create or redeem Baskets (a “Variable Fee Cash Order”) ^[63] will pay a fee (the “Variable Fee”) based on the Total Basket NAV, and any price differential of the Fund Components between the trade date and the settlement date will be borne solely by the Liquidity Provider until such Fund Components have been received or liquidated by the Fund. The Variable Fee is intended to cover all of a Liquidity Provider's expenses in connection with the creation or redemption order, including any trading platform fees that the Liquidity Provider incurs in connection with buying or selling the Fund Components. The amount may be changed by the Manager in its sole discretion at any time, and Liquidity Providers will communicate to the Manager in advance the Variable Fee they would be willing to accept in connection with a Variable Fee Cash Order, based on market conditions and other factors existing at the time of such Variable Fee Cash Order.

Alternatively, the Manager may require that a Cash Order be effected as an Actual Execution Cash Order, in its sole discretion based on market conditions and other factors existing at the time of such Cash Order, and under such circumstances, any price differential of the Fund Components between the trade date and the settlement date will be borne solely by the Authorized Participant until such Fund Components have been received or liquidated by the Fund.

In the case of creations, to transfer the Total Basket Amount to the Fund's Digital Asset Account, the Liquidity Provider will transfer the Fund Components to one of the public key addresses associated with the Digital Asset Account and as provided by the Manager. In the case of redemptions, the same procedure is conducted, but in reverse, using the public key addresses associated with the wallet of the Liquidity Provider and as provided by such party. All such transactions will be conducted on the blockchain and parties acknowledge and agree that such transfers may be irreversible if done incorrectly.

Authorized Participants do not pay a transaction fee to the Fund in connection with the creation or redemption of Baskets, but there may be transaction fees associated with the validation of the transfer of the Fund Components by the online, end-user-to-end-user network hosting a public transaction ledger, known as a Blockchain, and the source code comprising the basis for the cryptographic and algorithmic protocols governing such network, which will be paid by the Custodian in the case of redemptions and the Authorized Participant or the Liquidity Provider in the case of creations. Service providers may charge Authorized Participants administrative fees for order placement and other services related to creation of Baskets. As discussed above, Authorized Participants will also pay the Variable Fee in connection with Variable Fee Cash Orders. Under certain circumstances Authorized Participants may also be required to deposit additional cash in the Cash Account, or be entitled to receive excess cash from the Cash Account, in connection with creations and redemptions pursuant to Actual Execution Cash Orders. Authorized Participants will receive no fees, commissions or other form of compensation or inducement of any kind from either the Manager or the Fund and no such person has any obligation or responsibility to the Manager or the Fund to effect any sale or resale of Shares.

Creation Procedures

On any business day, an Authorized Participant may place an order with the Transfer Agent to create one or more Baskets.

Cash Orders for creation must be placed with the Transfer Agent no later than 1:59:59 p.m., New York time.

The Manager may in its sole discretion limit the number of Shares created pursuant to Cash Orders on any specified day without notice to the Authorized Participants and may direct the Marketing Agent to reject any Cash Orders in excess of such capped amount. In exercising its discretion to limit the number of Shares created pursuant to Cash Orders, the Manager expects to take into consideration a number of factors, including the availability of Liquidity Providers to facilitate Cash Orders and the cost of processing Cash Orders.

Creations under Cash Orders will take place as follows, where “T” is the trade date and each day in the sequence must be a business day. Before a creation order is placed, the Manager determines if such creation order will be a Variable Fee Cash Order or an Actual Execution Cash Order, which determination is communicated to the Authorized Participant. ( print page 87701)

Trade date (T)	Settlement date (T+1, or T+2, as established at the time of order placement)
• The Authorized Participant places a creation order with the Transfer Agent	• The Authorized Participant delivers to the Cash Account: * (x) in the case of a Variable Fee Cash Order, the Total Basket NAV, plus any Variable Fee; or (y) in the case of an Actual Execution Cash Order, the Total Basket NAV, plus any Additional Creation Cash, less any Excess Creation Cash, if applicable (such amount, as applicable, the “Required Creation Cash”).
• The Marketing Agent accepts (or rejects) the creation order, which is communicated to the Authorized Participant by the Transfer Agent	• The Liquidity Provider transfers the Total Basket Amount to the Fund's Vault Balance.
• The Manager notifies the Liquidity Provider of the creation order	• Once the Fund is in simultaneous possession of (x) the Total Basket Amount and (y) the Required Creation Cash, the Fund issues the aggregate number of Shares corresponding to the Baskets ordered by the Authorized Participant, which the Transfer Agent holds for the benefit of the Authorized Participant.
• The Manager determines the Total Basket NAV and any Variable Fee and Additional Creation Cash as soon as practicable after 4:00 p.m., New York time	• Cash equal to the Required Creation Cash is delivered to the Liquidity Provider from the Cash Account.
	• The Transfer Agent delivers Shares to the Authorized Participant by crediting the number of Baskets created to the Authorized Participant's DTC account.
* The “Cash Account” means the account maintained by the Transfer Agent for purposes of receiving cash from, and distributing cash to, Authorized Participants in connection with creations and redemptions pursuant to Cash Orders. For the avoidance of doubt, the Fund shall have no interest (beneficial, equitable or otherwise) in the Cash Account or any cash held therein.

Redemption Procedures

The procedures by which an Authorized Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets. On any business day, an Authorized Participant may place a redemption order specifying the number of Baskets to be redeemed.

The redemption of Shares pursuant to Cash Orders will only take place if approved by the Manager in writing, in its sole discretion and on a case-by-case basis. In exercising its discretion to approve the redemption of Shares pursuant to Cash Orders, the Manager expects to take into consideration a number of factors, including the availability of Liquidity Providers to facilitate Cash Orders and the cost of processing Cash Orders.

Cash Orders for redemption must be placed no later than 1:59:59 p.m., New York time on each business day. The Authorized Participants may only redeem Baskets and cannot redeem any Shares in an amount less than a Basket.

Redemptions under Cash Orders will take place as follows, where “T” is the trade date and each day in the sequence must be a business day. Before a redemption order is placed, the Manager determines if such redemption order will be a Variable Fee Cash Order or an Actual Execution Cash Order, which determination is communicated to the Authorized Participant.

Trade date (T)	Settlement date (T+1 (or T+2 on case-by-case basis, as approved by Manager))
• The Authorized Participant places a redemption order with the Transfer Agent	• The Authorized Participant delivers Baskets to be redeemed from its DTC account to the Transfer Agent.
• The Marketing Agent accepts (or rejects) the redemption order, which is communicated to the Authorized Participant by the Transfer Agent	• The Liquidity Provider delivers to the Cash Account: (x) in the case of a Variable Fee Cash Order, the Total Basket NAV less any Variable Fee; or (y) in the case of an Actual Execution Cash Order, the actual proceeds to the Fund from the liquidation of the Total Basket Amount (such amount, as applicable, the “Required Redemption Cash”).
• The Manager notifies the Liquidity Provider of the redemption order	• Once the Fund is in simultaneous possession of (x) the Total Basket Amount and (y) the Required Redemption Cash, the Transfer Agent cancels the Shares comprising the number of Baskets redeemed by the Authorized Participant.
• The Manager determines the Total Basket NAV and, in the case of a Variable Fee Cash Order, any Variable Fee, as soon as practicable after 4:00 p.m., New York time	• The Custodian sends the Liquidity Provider the Total Basket Amount, and cash equal to the Required Redemption Cash is delivered to the Authorized Participant from the Cash Account.