For example, the realization of one or more of the following risks could materially adversely affect the value of the Shares: • Over the past several years, digital asset validating operations have evolved from individual users validating with computer processors, graphics processing units and first-generation application specific integrated circuit machines to “professionalized” validating operations using proprietary hardware or sophisticated machines. If the profit margins of digital asset validating operations are not sufficiently high, digital asset validators are more likely to immediately sell digital assets earned by validating, resulting in an increase in liquid supply of that digital asset, which would generally tend to reduce that digital asset’s market price. • A reduction in digital assets staked by validators on the Avalanche Network could increase the likelihood of a malicious actor or botnet obtaining control. See “—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.” • Validators have historically accepted relatively low transaction confirmation fees on most digital asset networks. If validators demand higher digital asset awards or transaction fees for recording transactions in the Blockchain or a software upgrade automatically charges fees for all transactions on the Avalanche Network, the cost of using AVAX may increase and the marketplace may be reluctant to accept AVAX as a means of payment. Alternatively, validators could collude in an anti-competitive manner to reject low digital asset awards or transaction fees on the Avalanche Network, which may reduce the attractiveness of the Avalanche Network. Higher transaction confirmation fees resulting through collusion or otherwise may adversely affect the attractiveness of the Avalanche Network, the value of AVAX and the value of the Shares. • To the extent that any validators cease to record transactions because the digital asset award or transaction fee is too low, such transactions will not be recorded on the Avalanche Network until a transaction is validated by a validator who is willing to accept a lower fee. Any widespread delays in the recording of transactions could result in a loss of confidence in the digital asset network. • If validators collectively increase reference gas prices, or if network conditions cause higher gas usage, some transactions may be delayed or dropped until users raise fees or resubmit. Any widespread delays in the recording of transactions could result in a loss of confidence in the digital asset network. • Digital asset validating operations can consume significant amounts of electricity, which may have a negative impact and give rise to public opinion against allowing, or government regulations restricting, the use of electricity for validating operations. Additionally, validators may be forced to cease operations during an electricity shortage or power outage. Proof-of-stake blockchains are a relatively recent innovation, and have not been subject to as widespread use or adoption over as long of a period of time as traditional proof-of-work blockchains. Certain digital assets, such as bitcoin, use a “proof-of-work” consensus algorithm. The genesis block on the Bitcoin blockchain was mined in 2009, and Bitcoin’s blockchain has been in operation since then. Many newer blockchains enabling smart contract functionality, including the current Ethereum Network following the completion of the Merge in 2022, use a newer consensus algorithm known as “proof-of-stake.” While their proponents believe that they may have certain advantages, the “proof-of-stake” consensus mechanisms and governance systems underlying many newer blockchain protocols, including the Avalanche Network, and their associated digital assets – including the AVAX held by the Trust – have not been tested at scale over as long of a period of time or subject to as widespread use or adoption as, for example, Bitcoin’s proof-of-work consensus mechanism has. This could lead to these blockchains, and their associated digital assets, having undetected vulnerabilities, structural design flaws, suboptimal incentive structures for network participants (e.g., validators), technical disruptions, or a wide variety of other problems, any of which could cause these blockchains not to function as intended, lead to outright failure to function entirely causing a total outage or disruption of network activity, or to suffer other operational problems or reputational damage, leading to a loss of users or adoption or a
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