hold cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Treasury, and repurchase agreements secured by such obligations or cash, which serve as reserves backing USDC stablecoins. While USDC is designed to maintain a stable value at 1 U.S. dollar at all times, on March 10, 2023, the value of USDC fell below $1.00 (and remained below for multiple days) after Circle Internet Financial disclosed that $3.3 billion of the USDC reserves were held at Silicon Valley Bank, which had entered FDIC receivership earlier that day. Popular stablecoins are reliant on the U.S. banking system and U.S. treasuries, and the failure of either to function normally could impede the function of stablecoins or lead to outsized redemption requests, and therefore could adversely affect the value of the Shares. Given the role that stablecoins play in global digital asset markets, their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the market for AVAX. Because a large portion of the digital asset market still depends on stablecoins such as Tether and USDC, there is a risk that a disorderly de- pegging or a run on Tether or USDC could lead to dramatic market volatility in, and/or materially and adversely affect the prices of, digital assets more broadly. Volatility in stablecoins, operational issues with stablecoins (for example, technical issues that prevent settlement), concerns about the sufficiency of any reserves that support stablecoins, or regulatory concerns about stablecoin issuers or intermediaries, such as Bitcoin spot markets, that support stablecoins, could impact individuals’ willingness to trade on trading venues that rely on stablecoins and could impact the price of AVAX, and in turn, an investment in the Shares. The price of AVAX may become closely correlated with other asset classes. Returns from investing in AVAX have at times diverged from and/or have not been correlated with those associated with other asset classes, but there can be no assurance that there will be any such divergence, either generally or with respect to any particular asset class, or that price movements will not be correlated. In addition, there is no assurance that AVAX will maintain its value in the long, intermediate, short, or any other term. In the event that the price of AVAX declines, the value of the Shares is likely to decline proportionately. Components of the Avalanche protocol were only conceived in 2018 and the Avalanche protocol, which only launched in 2020, or its Avalanche Layer 1 mechanisms may not function as intended, which could have an adverse impact on the value of AVAX and an investment in the Shares. Components of the Avalanche protocol were first conceived in a 2018 document by the pseudonymous “Team Rocket.” Development of the Avalanche Network, which only launched in 2020, was overseen by Ava Labs Inc. (“Ava Labs”), a Delaware corporation headquartered in New York, which was founded by Cornell University Professor Emin Gun Sirer and graduate student MaoFan Yin to formalize the Avalanche Protocol. The Avalanche Network is composed of the “Primary Network,” which is comprised of three blockchains—the Exchange (X) Chain, the Platform (P) Chain, and the Contract (C) Chain—which each have a specific use. Avalanche Network users can create tokens and transact on other, non-core blockchains (each such blockchain, an “Avalanche Layer 1”) for specific applications and use cases. Avalanche, the architecture of the Primary Network, and Avalanche Layer 1s are new blockchain technologies that are not widely used. Avalanche, the architecture of the Primary Network, or Avalanche Layer 1s may not function as intended. For example, there may be flaws in the cryptography underlying the Avalanche Network, including flaws that affect functionality of the Avalanche Network or make the network vulnerable to attack. The development of the Avalanche Network is ongoing and any further disruption could have a material adverse effect on the value of AVAX and an investment in the Shares. Risk Factors Related to the Trust and the Shares The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose a challenge to the safekeeping of the Trust’s AVAX and to the operations of the Trust. The Trust relies on the Custodian and the Prime Broker (together, the “Custodial Entities”), the Authorized Participants and other third-party service providers to perform certain functions essential to managing the affairs of the Trust. In addition, Liquidity Providers are relied upon to facilitate the purchase and sale of AVAX in connection with creations and redemptions of Shares in cash (“Cash Orders”), and the Transfer Agent and Grayscale
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