impact the Avalanche Network’s adoption or the price of AVAX. Any disruption of validation on the Avalanche Network could interfere with network operations and cause the Avalanche Network to be less attractive to users and application developers than competing blockchain networks, which could cause the price of AVAX to decrease. The Sponsor anticipates that it will engage in staking with respect to all of the Trust's AVAX at all times, except (i) as necessary to pay the Sponsor's Fee and the Sponsor's Staking Fee, (ii) as necessary to pay any additional Trust expenses, (iii) as necessary to satisfy existing and reasonably foreseen potential redemption requests (assuming the Trust is then permitted to operate an ongoing redemption program) as determined by the Sponsor, (iv) as necessary to reduce the AVAX obtained by the Trust as Native Staking Consideration to cash for distribution at regular intervals, (v) as necessary to reduce the AVAX obtained by the Trust as Native Staking Consideration to cash in connection with the Trust's liquidation, (vi) as necessary to take protective actions in respect of vulnerabilities in the source code or cryptography underlying the Avalanche Network and/or its proof-of-stake protocol, its staking smart contracts or its validator client software, (vii) if the Custodian discontinues its arrangements with the Trust and such discontinuance affects the Trust's AVAX, for so long as is reasonably necessary to re-establish those arrangements or to establish similar arrangements with other parties, (viii) if the Custodian discontinues its arrangements with the Staking Provider and such discontinuance affects the Trust's AVAX, for so long as is reasonably necessary to re- establish those arrangements or to establish similar arrangements with other parties, (ix) in the event of a change in applicable law or regulation, (x) as necessary to maintain a Liquidity Sleeve (as defined herein), (xi) as necessary pursuant to a “contingent liquidity arrangement” within the meaning of Section 6.02(12) of IRS Revenue Procedure 2025-31 or (xii) in accordance with any other exception that is expressly contemplated by an opinion, ruling or tax guidance that satisfies the Staking Condition. All AVAX received by the Trust in connection with the creation of new Shares, or as Native Staking Consideration, 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) will 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. If a malicious actor or botnet obtains control of a sufficient amount of the validating power on the Avalanche Network, or otherwise obtains control over the Avalanche Network through its influence over core developers or otherwise, such actor or botnet could manipulate the Avalanche Blockchain to adversely affect the value of the Shares or the ability of the Trust to operate. If a malicious actor or botnet (a collection of computers controlled by networked software coordinating the actions of the computers) obtains a sufficient amount of the validating power on the Avalanche Network, it may be
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