would also be staked upon receipt by the Trust, unless one or more of the exceptions described in clauses (i)-(xii) above applies. Moreover, any staked AVAX which must be un-staked in order to fulfill a distribution in connection with a redemption (to the extent such distribution cannot be fulfilled utilizing the portion of the Trust’s AVAX that has not been staked, or through another mechanism to manage liquidity in connection with Redemption Orders contemplated by an opinion of a Tax Advisor, a Tax Ruling or Tax Guidance that satisfies the Staking Condition) would be un-staked only after the redemption request is approved by the Trust, the Sponsor executes an un-stake or withdrawal transaction through the Custodian, and such transaction is processed by the Avalanche Network. During the portion of any Uplisted Period during which the Staking Condition has been satisfied with respect to a particular form of Staking, the Trust Agreement imposes further requirements relating to recently released IRS guidance. The Sponsor also expects to satisfy the Staking Condition with respect to certain liquidity procedures prior to the commencement of the offering of the Shares, which it believes will ensure that it will satisfy existing and reasonably foreseen redemption requests. Specifically, the Sponsor intends to maintain a portion of unstaked AVAX in the Trust (the “Liquidity Sleeve”). Because the AVAX in the Liquidity Sleeve is freely transferable, there is no timing mismatch between settlement of Shares in primary market redemptions and the AVAX transfer time. The percentage of the Trust’s AVAX comprising the Liquidity Sleeve will be dynamic and subject to adjustment based on anticipated primary and secondary market activity of the Shares and the AVAX de-activation process. As of the date of this filing, the Sponsor generally seeks to stake as much of the Trust’s AVAX as is practicable (i.e., up to 100%) at all times, with the remainder of the Trust’s AVAX remaining unstaked in order to address the various exceptions and other considerations described herein, including the satisfaction of the Staking Condition. The Sponsor cannot provide an expected percentage of the Trust’s assets that will be held in the Liquidity Sleeve in the ordinary course as the size of the Liquidity Sleeve may be adjusted in order to address liquidity needs, anticipated redemption activity, and other considerations described herein and further described in the Trust’s staking policy. The Sponsor will make the Trust’s staking policy available to shareholders on the Sponsor’s website. The percentage of the Trust’s AVAX that is staked each day will be reported the following day at 4:00 p.m., New York time, on etfs.grayscale.com/gava. In the future and subject to the satisfaction of the Staking Condition thereto, the Sponsor, on behalf of the Trust, may be able to enter into short-term financing arrangements or implement other mechanisms to manage AVAX liquidity constraints. For example, in the future, the Sponsor may arrange for the Trust to enter into redemption orders involving the delivery of AVAX to a Liquidity Provider on a delayed basis (i.e., when the appropriate number of the Trust’s AVAX are or become freely transferable), after the Liquidity Provider has delivered cash to the Trust to settle the redemption order. Under a delayed delivery order, the Variable Fee payable by an Authorized Participant would be adjusted, based on the estimated length of time to AVAX delivery, to compensate the Liquidity Provider for agreeing to accept settlement on a delayed basis. No further adjustment to the Variable Fee would be made, and the Trust would not be required to further compensate the Liquidity Provider (or be entitled to compensation from the Liquidity Provider) if the actual date of AVAX delivery differed from the estimated delivery date. It is also possible that, in connection with future redemption orders, the Sponsor may make arrangements for the Trust to obtain liquid AVAX from the Custodian or another institutional liquidity provider in exchange for the Trust’s present or future delivery of a similar number of AVAX tokens, although the details of any such future arrangement are not presently known. These and other liquidity risk policies and procedures are intended to be consistent with NASDAQ’s generic listing standards. However, there can be no assurance that such arrangements would be available as intended or provide sufficient liquidity to satisfy redemption requests. Under the Staking Arrangements, any Staking Consideration earned accrues in accordance with the Avalanche Network’s rewards distribution mechanism to the Trust’s wallets administered by the Custodian. Periodically, the Trust will either (i) distribute AVAX received as Staking Consideration to the Trust’s beneficiaries (likely using a liquidating agent), (ii) sell that AVAX for cash and distribute the proceeds to the Trust’s beneficiaries, (iii) pay a portion of the Staking Consideration to the Sponsor (the “Sponsor’s Staking Fee”) as consideration for its facilitation of the Staking Arrangements or (iv) a combination of the foregoing, in the Sponsor’s sole discretion. The Sponsor has implemented a staking policy with respect to the Trust, which describes the frequency of, and conditions under which the Trust will make such distributions, if any, to the Trust’s beneficiaries. The Sponsor will make such staking policy available to shareholders on the Sponsor’s website. The Trust (through the Custodian) will maintain control and remain the record and beneficial owner of the staked tokens at all times, and the tokens will remain associated with the Trust’s wallet.
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