As of the date of this prospectus and pursuant to the Staking Arrangements, the Custodian and the Staking Provider are entitled to receive a portion of the gross Native Staking Consideration generated under the Staking Arrangements, reflecting the Custodian’s fee and the Staking Provider’s share of such Staking Consideration, with the remainder received by the Trust. The allocation of gross Native Staking Consideration between the Custodian and the Staking Provider shall reflect an arm’s length allocation that is independent of the expenses of both the Staking Provider and Custodian, and may be stated as a percentage of the gross Native Staking Consideration. In addition, pursuant to the Trust Agreement and as consideration for the Sponsor’s facilitation of Staking, the Sponsor is permitted to receive a fee equal to a portion of the Native Staking Consideration, which accrues daily in U.S. dollars in an amount calculated as a per annum percentage of any Native Staking Consideration received by the Trust, as may be directed by the Sponsor in its sole discretion. The Sponsor’s Staking Fee would be payable to the Sponsor daily in arrears. As of the date hereof, the Sponsor’s Staking Fee, the Custodian’s fee and the Staking Provider’s share of such Staking Consideration comprises an aggregate of 23% of the gross Staking Consideration generated under the Staking Arrangements. The Trust will receive and retain the remainder of such gross Staking Consideration. See “Description of the Shares—Staking—Staking Arrangements and Provider-Facilitated Staking Model” for more information. Security and Controls The Trust’s Custodian has multiple layers of security protocols designed to protect the Trust’s assets from unauthorized access or transfer, which remain in place when the Trust’s AVAX is staked. The Trust’s AVAX is staked from the Trust’s wallets and is not transferred to any other wallet to be staked. The Avalanche protocol limits the activities of the Staking Provider to executing only those activities specified by the protocol, such as staking, un-staking and performing validation activities and does not enable the Staking Provider to unilaterally transfer staked assets to any wallet not specified by the Sponsor. Accordingly, the Staking Provider does not have any powers to move the Trust’s staked AVAX other than at the direction of the Sponsor. In particular, the Staking Provider is not authorized to leverage or rehypothecate the Trust’s AVAX tokens. The Staking Provider is also not able to change the designated wallet addresses on the Avalanche Network to which staked AVAX is to be withdrawn or to which Staking Consideration shall be sent. In addition, the Staking Arrangements do not alter the Trust’s custody environment or security procedures. The controls currently in place between the Sponsor and the Custodian also govern the activities related to staking and un-staking AVAX, as outlined in the Staking Arrangements. See “Description of the Shares—Staking—Security and Controls” and “Risk Factors—Risk Factors Related to Staking” for more information. The foregoing description of the Staking Arrangements does not purport to be complete and is qualified in its entirety by reference to the full text of the Staking Addendum to the Custodial Services Agreement between the Trust and the Custodian, a copy of which is attached as an exhibit to the registration statement of which this prospectus forms a part. Avalanche History AVAX is a digital asset that is created and transmitted through the operations of the peer-to-peer Avalanche Network, a decentralized network of computers that operates on cryptographic protocols. No single entity owns or operates the Avalanche Network, the infrastructure of which is collectively maintained by a decentralized user base. The Avalanche Network allows people to exchange tokens of value, called AVAX, which are recorded on a public transaction ledger known as a blockchain. AVAX can be used to pay for goods and services, including computational power on the Avalanche Network, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on Digital Asset Trading Platforms (as defined herein) or in individual end-user-to-end-user transactions under a barter system. Furthermore, the Avalanche Network was designed to allow users to write and implement smart contracts—that is, general-purpose code that executes redundantly across the network and can instruct the transmission of information and value based on a sophisticated set of logical conditions. Using smart contracts, users can create markets, store registries of debts or promises, represent the ownership of property, move funds in accordance with conditional instructions and create digital assets other than AVAX on the Avalanche Network. Smart contract operations are executed on the Avalanche blockchain in exchange for payment of AVAX.
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