loss in value of the associated digital assets, including the Trust’s assets. Over the long term, there can be no assurance that the proof-of-stake blockchain on which the Trust’s assets rely will achieve widespread scale or adoption or perform successfully; any failure to do so could negatively impact the value of the Trust’s assets. 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 Network to adversely affect the value of the Shares or the ability of the Trust to operate. The Avalanche Network is currently vulnerable to several types of attacks, including: • “33% attack” where, if a validator or group of validators were to gain control of more than 33% of the total staked AVAX on the Avalanche Network, a malicious actor could temporarily impede or delay transaction confirmation or even cause a temporary fork in the blockchain. • “50% attack” where, if a validator or group of validators acting in concert were to gain control of more than 50% of the total staked AVAX on the Avalanche Network, a malicious actor would be able to gain full control of the Avalanche Network and the ability to manipulate the blockchain on a forward-looking basis, including censoring transactions following the achievement of threshold, double-spending and fraudulent block propagation, while the attacker maintains the threshold. In theory, the minority non- attackers might reach social consensus to reject blocks proposed by the malicious majority attacker, reducing the attacker’s ability to engage in malicious activity, but there can be no assurance this would happen or that non-attackers would be able to coordinate effectively. • “>66% attack” where, if a validator or group of validators acting in concert were to gain control of more than 66% of the total staked AVAX on the Avalanche Network, a malicious actor could permanently and irreversibly manipulate the Avalanche Network, including censorship, double-spending and fraudulent transaction propagation, both on a forward-and backward-looking basis. The attacker could unilaterally finalize their preferred chain without the votes of any other stakers, and could also reverse past finalized transactions. The Avalanche Network’s proof-of-stake consensus mechanism requires a 2/3 supermajority of validators who have staked AVAX to vote in favor in order to finalize transactions and add transactions to the Avalanche Network. For example, in August 2020, the Ethereum Classic Network was the target of two double-spend attacks by an unknown actor or actors that gained more than 50% of the processing power of the Ethereum Classic Network. The attack resulted in reorganizations of the Ethereum Classic blockchain that allowed the attacker or attackers to reverse previously recorded transactions in excess of over $5.0 million and $1.0 million. In addition, in May 2019, the Bitcoin Cash network experienced a >50% attack when two large mining pools reversed a series of transactions in order to stop an unknown miner from taking advantage of a flaw in a recent Bitcoin Cash protocol upgrade. Although this particular attack was arguably benevolent, the fact that such coordinated activity was able to occur may negatively impact perceptions of the Bitcoin Cash network. Although the two attacks described above took place on proof-of-work based networks, it is possible that a similar attack may occur on the Avalanche Network, which could negatively impact the value of AVAX and the value of the Shares. Although there are no known reports of malicious control of the Avalanche Network, if groups of coordinating or connected AVAX holders that together have more than 50% of outstanding AVAX, were to stake that AVAX and run validators, they could exert authority over the validation of AVAX transactions. This risk is heightened if such amount of the validating power on the network falls within the jurisdiction of a single governmental authority. If network participants, including the core developers and the administrators of validating pools, do not act to ensure greater decentralization of AVAX, the feasibility of a malicious actor obtaining control of the validating power on the Avalanche Network will increase, which may adversely affect the value of AVAX and the value of the Shares. A malicious actor may also obtain control over the Avalanche Network through its influence over core developers by gaining direct control over a core developer or an otherwise influential programmer. To the extent that the AVAX ecosystem does not grow, the possibility that a malicious actor may be able to maliciously influence the Avalanche Network in this manner will remain heightened. Moreover, it is possible that a group of AVAX holders that together control more than 50% of outstanding AVAX are in fact part of the initial or current core
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