Chicago Mercantile Exchange and the Intercontinental Exchange through which investors gain exposure to digital assets through the use of derivatives that are subject to counterparty and credit risks. • Safekeeping System . The Custodian has been appointed to control and secure the AVAX for the Trust using offline storage, or cold storage, mechanisms to secure the Trust’s private key “shards”. The hardware, software, administration and continued technological development that are used by the Custodian may not be available or cost-effective for many investors. The Trust differentiates itself from many competing digital asset financial vehicles in the following ways: • Custodian . The Custodian that holds the private key shards associated with the Trust’s AVAX is Coinbase Custody Trust Company, LLC. Other digital asset financial vehicles that use cold storage may not use a custodian to hold their private keys. • Cold Storage of Private Keys . The private key shards associated with the Trust’s AVAX are kept in cold storage, which means that the Trust’s AVAX are disconnected and/or deleted entirely from the internet. See “—Custody of the Trust’s AVAX” for more information relating to the storage and retrieval of the Trust’s private keys to and from cold storage. Other digital asset financial vehicles may not utilize cold storage or may utilize less effective cold storage-related hardware and security protocols. • Location of Private Vaults . Private key shards associated with the Trust’s AVAX are distributed geographically by the Custodian in secure vaults around the world, including in the United States. The locations of the secure vaults may change regularly and are kept confidential by the Custodian for security purposes. • Enhanced Security . Transfers from the Trust’s Vault Balance require certain security procedures, including but not limited to, multiple encrypted private key shards, usernames, passwords and 2-step verification. Multiple private key shards held by the Custodian must be combined to reconstitute the private key to sign any transaction in order to transfer the Trust’s AVAX. Private key shards are distributed geographically in secure vaults around the world, including in the United States. As a result, if any one secure vault is ever compromised, this event will have no impact on the ability of the Trust to access its assets, other than a possible delay in operations, while one or more of the other secure vaults is used instead. These security procedures are intended to remove single points of failure in the protection of the Trust’s AVAX. • Custodian Audits . The Custodian has agreed to allow the Trust and the Sponsor to take such steps as necessary to verify that satisfactory internal control systems and procedures are in place. • Directly Held AVAX. The Trust directly owns actual AVAX held through the Custodian. This may differ from other digital asset financial vehicles that provide AVAX exposure through other means, such as the use of financial or derivative instruments. • Sponsor’s Fee . The Sponsor’s Fee is a competitive factor that may influence the value of the Shares. Activities of the Trust The activities of the Trust are limited to (i) issuing Baskets in exchange for AVAX (or cash to acquire AVAX) transferred to the Trust as consideration in connection with the creations, (ii) transferring or selling AVAX as necessary to cover the Sponsor’s Fee, the Sponsor’s Staking Fee and/or any Additional Trust Expenses, (iii) transferring or disposing of AVAX to retire Baskets surrendered for redemption, (iv) causing the Sponsor to sell AVAX on the termination of the Trust, (v) making distributions of Incidental Rights and/or IR Virtual Currency or cash from the sale thereof (subject to NASDAQ obtaining regulatory approval from the SEC), as described in “— Incidental Rights and IR Virtual Currency” below, (vi) engaging in all administrative and security procedures necessary to accomplish such activities in accordance with the provisions of the Trust Agreement, the Prime Broker Agreement, the Index License Agreement, the Participant Agreements and the Liquidity Provider Agreements and (vii) engage in any form of Staking, but only if (and, then, only to the extent that) the Staking Condition has been satisfied with respect thereto.
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