73892 Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 

23 15 U.S.C. 78s(b)(3)(A). 

24 17 CFR 240.19b–4(f). 

25 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

the ability of any exchange to charge 

unreasonable fees for connectivity. 

Notwithstanding the foregoing, the 

Exchange still believes that the 

proposed fee increase is reasonable, 

equitably allocated and not unfairly 

discriminatory, even for market 

participants that determine to connect 

directly to the Exchange for business 

purposes, as those business reasons 

should presumably result in revenue 

capable of covering the proposed fee. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed fee change will not impact 

intramarket competition because it will 

apply to all similarly situated TPHs 

equally (i.e., all market participants that 

choose to purchase the 10 Gbps physical 

port). Additionally, the Exchange does 

not believe its proposed pricing will 

impose a barrier to entry to smaller 

participants and notes that its proposed 

connectivity pricing is associated with 

relative usage of the various market 

participants. For example, market 

participants with modest capacity needs 

can continue to buy the less expensive 

1 Gbps physical port (which cost is not 

changing) or may choose to obtain 

access via a third-party reseller. While 

pricing may be increased for the larger 

capacity physical ports, such options 

provide far more capacity and are 

purchased by those that consume more 

resources from the network. 

Accordingly, the proposed connectivity 

fees do not favor certain categories of 

market participants in a manner that 

would impose a burden on competition; 

rather, the allocation reflects the 

network resources consumed by the 

various size of market participants— 

lowest bandwidth consuming members 

pay the least, and highest bandwidth 

consuming members pays the most. 

The Exchange’s proposed fee is also 

still lower than some fees for similar 

connectivity on other exchanges and 

therefore may stimulate intermarket 

competition by attracting additional 

firms to connect to the Exchange or at 

least should not deter interested 

participants from connecting directly to 

the Exchange. Further, if the changes 

proposed herein are unattractive to 

market participants, the Exchange can, 

and likely will, see a decline in 

connectivity via 10 Gbps physical ports 

as a result. The Exchange operates in a 

highly competitive market in which 

market participants can determine 

whether or not to connect directly to the 

Exchange based on the value received 

compared to the cost of doing so. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 23 and paragraph (f) of Rule 

19b–4 24 thereunder. At any time within 

60 days of the filing of the proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

C2–2023–022 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–C2–2023–022. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–C2–2023–022 and should be 

submitted on or before November 17, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–23706 Filed 10–26–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98780; File No. SR– 

NYSEARCA–2023–70] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change To List and Trade Shares 

of the Grayscale Ethereum Trust Under 

NYSE Arca Rule 8.201–E (CommodityBased Trust Shares) 

October 23, 2023. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on October 

10, 2023, NYSE Arca, Inc. (‘‘NYSE 

Arca’’ or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 


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4The Trust was previously named Ethereum 

Investment Trust, whose name was changed 

pursuant to a Certificate of Amendment to the 

Certificate of Trust of Ethereum Investment Trust 

filed with the Delaware Secretary of State on 

January 11, 2019. 

5Commodity-Based Trust Shares are securities 

issued by a trust that represent investors’ discrete 

identifiable and undivided beneficial ownership 

interest in the commodities deposited into the 

Trust. 

6The Shares are expected to be listed under the 

ticker symbol ‘‘ETH.’’ 

7On April 17, 2020, the Trust confidentially filed 

its draft registration statement on Form 10 under 

the ’34 Act) (File No. 377–03131) (the ‘‘Draft 

Registration Statement on Form 10’’). On June 16, 

2020, the Trust confidentially filed Amendment No. 

1 to the Draft Registration Statement on Form 10. 

The Jumpstart Our Business Startups Act (the 

‘‘JOBS Act’’), enacted on April 5, 2012, added 

Section 6(e) to the Securities Act of 1933 (the 

‘‘Securities Act’’ or ‘‘’33 Act’’). Section 6(e) of the 

Securities Act provides that an ‘‘emerging growth 

company’’ may confidentially submit to the 

Commission a draft registration statement for 

confidential, non-public review by the Commission 

staff prior to public filing, provided that the initial 

confidential submission and all amendments 

thereto shall be publicly filed not later than 21 days 

before the date on which the issuer conducts a road 

show, as such term is defined in Securities Act Rule 

433(h)(4). An emerging growth company is defined 

in Section 2(a)(19) of the Securities Act as an issuer 

with less than $1,000,000,000 total annual gross 

revenues during its most recently completed fiscal 

year. The Trust meets the definition of an emerging 

growth company and consequently submitted its 

Draft Registration Statement on Form 10 to the 

Commission on a confidential basis. On August 6, 

2020, the Trust filed its registration statement on 

Form 10 under the Securities Act (File No. 000– 

56193) (the ‘‘Registration Statement on Form 10’’). 

On October 2, 2020, the Trust filed Amendment No. 

1 to the Registration Statement on Form 10. On, 

October 5, 2020, the Registration Statement on 

Form 10 was automatically deemed effective. On 

March 5, 2021, February 25, 2022, and March 1, 

2023, the Trust filed its annual report on Form 10– 

K under the Securities Act (File No. 000–56193) 

(the ‘‘Annual Reports’’). On November 6, 2020, May 

7, 2021, August 6, 2021, November 5, 2021, May 6, 

2022, August 5, 2022, November 4, 2022, May 5, 

2023 and August 4, 2023, the Trust filed its 

quarterly reports on Form 10–Q under the 

Securities Act (File No. 000–56193) (the ‘‘Quarterly 

Reports’’). The descriptions of the Trust, the Shares, 

and ETH contained herein are based, in part, on the 

Annual Reports and Quarterly Reports. On January 

17, 2019, the Trust submitted to the Commission an 

amended Form D as a business trust. Shares of the 

Trust have been quoted on OTC Market’s OTCQX 

Best Marketplace under the symbol ‘‘ETHE’’ since 

June 20, 2019. On May 23, 2019 and March 20, 

2020, the Trust published annual reports for ETHE 

for the periods ended December 31, 2018 and 

December 31, 2019, respectively. On May 23, 2019, 

August 8, 2019, November 11, 2019, May 8, 2020, 

and August 6, 2020, the Trust published quarterly 

reports for ETHE for the periods ended March 31, 

2019, June 30, 2019, September 30, 2019, March 31, 

2020, and June 30, 2020, respectively. Reports 

published before October 5, 2020, the date on 

which the Trust’s Shares became registered 

pursuant to Section 12(g) of the Act, can be found 

on OTC Market’s website (https://

www.otcmarkets.com/stock/ETHE/disclosure), and 

reports published on or after October 5, 2020 can 

be found on OTC Market’s website and the 

Commission’s website (https://www.sec.gov/edgar/ 

browse/?CIK=1725210&owner=exclude). The Shares 

will be of the same class and will have the same 

rights as shares of ETHE. According to the Sponsor, 

freely tradeable shares of ETHE will remain freely 

tradeable Shares on the date of the listing of the 

Shares that are unregistered under the Securities 

Act. Restricted shares of ETHE will remain subject 

to private placement restrictions on such date, and 

the holders of such restricted shares will continue 

to hold those Shares subject to those restrictions 

until they become freely tradable Shares. 8As of September 28, 2023. 

9As of September 28, 2023. 

10According to the Annual Report, Digital 

Currency Group owns a minority interest in 

Coinbase, Inc., which is the parent company of the 

Custodian, representing less than 1.0% of its equity. 

11 ‘‘Incidental Rights’’ are rights to acquire, or 

otherwise establish dominion and control over, any 

virtual currency or other asset or right, which rights 

are incident to the Trust’s ownership of ETH and 

arise without any action of the Trust, or of the 

Sponsor or Trustee on behalf of the Trust. 

12 ‘‘IR Virtual Currency’’ is any virtual currency 

tokens, or other asset or right, acquired by the Trust 

through the exercise (subject to the applicable 

provisions of the Trust Agreement) of any 

Incidental Right. 

13 ‘‘Additional Trust Expenses’’ are any expenses 

incurred by the Trust in addition to the Sponsor’s 

Fee that are not Sponsor-paid Expenses, including, 

but not limited to, (i) taxes and governmental 

charges, (ii) expenses and costs of any extraordinary 

services performed by the Sponsor (or any other 

service provider) on behalf of the Trust to protect 

the Trust or the interests of shareholders (including 

in connection with any Incidental Rights, any IR 

Virtual Currency, or any other staking 

consideration), (iii) any indemnification of the 

Custodian or other agents, service providers or 

counterparties of the Trust, (iv) the fees and 

Continued 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to list and 

trade shares of the following under 

NYSE Arca Rule 8.201–E: Grayscale 

Ethereum Trust (ETH) (the ‘‘Trust’’).4

The proposed rule change is available 

on the Exchange’s website at 

www.nyse.com, at the principal office of 

the Exchange, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Under NYSE Arca Rule 8.201–E, the 

Exchange may propose to list and/or 

trade pursuant to unlisted trading 

privileges ‘‘Commodity-Based Trust 

Shares.’’ 5 The Exchange proposes to list 

and trade shares (‘‘Shares’’) 6 of the 

Trust pursuant to NYSE Arca Rule 

8.201–E.7

The Trust is the world’s largest 

Ethereum (‘‘ETH’’) investment fund by 

assets under management as of the date 

of this filing. The Trust has 

approximately $4.8 billion in assets 

under management 8 (representing 2.5% 

of all ETH in circulation), its Shares 

trade millions of dollars in daily volume 

and are held by more than a quarter of 

a million American investor accounts 

seeking exposure to ETH without the 

cost and complexity of purchasing the 

asset directly. However, because the 

Trust is not currently listed as an 

exchange-traded product (‘‘ETP’’), the 

value of the Shares has not been able to 

closely track the value of the Trust’s 

underlying ETH. The Sponsor thus 

believes that allowing Shares of the 

Trust to list and trade on the Exchange 

as an ETP (i.e., converting the Trust to 

a spot Ethereum ETP) would unlock 

over $1.6 billion of value 9 for the 

Trust’s shareholders and provide other 

investors with a safe and secure way to 

invest in ETH on a regulated national 

securities exchange. 

The sponsor of the Trust is Grayscale 

Investments, LLC (‘‘Sponsor’’), a 

Delaware limited liability company. The 

Sponsor is a wholly owned subsidiary 

of Digital Currency Group, Inc. (‘‘Digital 

Currency Group’’). The trustee for the 

Trust is Delaware Trust Company 

(‘‘Trustee’’). The custodian for the Trust 

is Coinbase Custody Trust Company, 

LLC (‘‘Custodian’’).10 The distribution 

and marketing agent for the Trust is 

Grayscale Securities, LLC (the 

‘‘Marketing Agent’’). The index provider 

for the Trust is CoinDesk Indices, Inc. 

(the ‘‘Index Provider’’). 

The Trust is a Delaware statutory 

trust, formed on December 13, 2017, 

that operates pursuant to a trust 

agreement between the Sponsor and the 

Trustee (‘‘Trust Agreement’’). The Trust 

has no fixed termination date. 

Operation of the Trust 

According to the Annual Report, the 

Trust’s assets consist solely of ETH, 

Incidental Rights,11 IR Virtual 

Currency,12 proceeds from the sale of 

ETH, Incidental Rights, and IR Virtual 

Currency pending use of such cash for 

payment of Additional Trust 

Expenses 13 or distribution to 


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expenses related to the listing, quotation or trading 

of the Shares on any Secondary Market (including 

legal, marketing and audit fees and expenses) to the 

extent exceeding $600,000 in any given fiscal year 

and (v) extraordinary legal fees and expenses, 

including any legal fees and expenses incurred in 

connection with litigation, regulatory enforcement 

or investigation matters. 

14The ‘‘Index Price’’ means the U.S. dollar value 

of an ETH derived from the Digital Asset Exchanges 

that are reflected in the Index, calculated at 4:00 

p.m., New York time, on each business day. For 

purposes of the Trust Agreement, the term ETH 

Index Price has the same meaning as the Index 

Price as defined herein. 

15The description of ETH and the Ethereum 

Network in this section was provided by the 

Sponsor and is based on the Annual Report. 

16A ‘‘Digital Asset Market’’ is a ‘‘Brokered 

Market,’’ ‘‘Dealer Market,’’ ‘‘Principal-to-Principal 

Market’’ or ‘‘Exchange Market,’’ as each such term 

is defined in the Financial Accounting Standards 

Board Accounting Standards Codification Master 

Glossary. The ‘‘Digital Asset Exchange Market’’ is 

the global exchange market for the trading of ETH, 

which consists of transactions on electronic Digital 

Asset Exchanges. A ‘‘Digital Asset Exchange’’ is an 

electronic marketplace where exchange participants 

may trade, buy and sell ETH based on bid-ask 

trading. The largest Digital Asset Exchanges are 

online and typically trade on a 24-hour basis, 

publishing transaction price and volume data. 

shareholders, and any rights of the Trust 

pursuant to any agreements, other than 

the Trust Agreement, to which the Trust 

is a party. Each Share represents a 

proportional interest, based on the total 

number of Shares outstanding, in each 

of the Trust’s assets as determined by 

reference to the Index Price,14 less the 

Trust’s expenses and other liabilities 

(which include accrued but unpaid fees 

and expenses). The Sponsor expects that 

the market price of the Shares will 

fluctuate over time in response to the 

market prices of ETH. In addition, 

because the Shares reflect the estimated 

accrued but unpaid expenses of the 

Trust, the number of ETH represented 

by a Share will gradually decrease over 

time as the Trust’s ETH are used to pay 

the Trust’s expenses. The Trust does not 

expect to take any Incidental Rights or 

IR Virtual Currency it may hold into 

account for purposes of determining the 

Trust’s ‘‘Digital Asset Holdings’’ (as 

described below) or the Digital Asset 

Holdings per Share. 

The activities of the Trust are limited 

to (i) issuing ‘‘Baskets’’ (as defined 

below) in exchange for ETH transferred 

to the Trust as consideration in 

connection with creations, (ii) 

transferring or selling ETH, Incidental 

Rights, IR Virtual Currency, or any other 

staking consideration as necessary to 

cover the ‘‘Sponsor’s Fee’’ and/or 

certain Trust expenses, (iii) transferring 

ETH in exchange for Baskets 

surrendered for redemption (subject to 

obtaining regulatory approval from the 

SEC and approval of the Sponsor), (iv) 

causing the Sponsor to sell ETH, 

Incidental Rights, IR Virtual Currency, 

or any other staking consideration on 

the termination of the Trust, (v) making 

distributions of Incidental Rights, IR 

Virtual Currency, and/or any other 

staking consideration, or cash from the 

sale thereof, and (vi) engaging in all 

administrative and security procedures 

necessary to accomplish such activities 

in accordance with the provisions of the 

Trust Agreement, the Custodian 

Agreement, the Index License 

Agreement, and the Participant 

Agreements. 

In addition, the Trust may engage in 

any lawful activity necessary or 

desirable in order to facilitate 

shareholders’ access to Incidental Rights 

or IR Virtual Currency, provided that 

such activities do not conflict with the 

terms of the Trust Agreement. The Trust 

will not be actively managed. It will not 

engage in any activities designed to 

obtain a profit from, or to ameliorate 

losses caused by, changes in the market 

prices of ETH. 

Investment Objective 

According to the Annual Report, and 

as further described below, the Trust’s 

investment objective is for the value of 

the Shares (based on ETH per Share) to 

reflect the value of the ETH held by the 

Trust, determined by reference to the 

Index Price, less the Trust’s expenses 

and other liabilities. While an 

investment in the Shares is not a direct 

investment in ETH, the Shares are 

designed to provide investors with a 

cost-effective and convenient way to 

gain investment exposure to ETH. A 

substantial direct investment in ETH 

may require expensive and sometimes 

complicated arrangements in 

connection with the acquisition, 

security and safekeeping of the ETH and 

may involve the payment of substantial 

fees to acquire such ETH from thirdparty facilitators through cash payments 

of U.S. dollars. Because the value of the 

Shares is correlated with the value of 

ETH held by the Trust, it is important 

to understand the investment attributes 

of, and the market for, ETH. 

ETH and the Ethereum Network 15

According to the Annual Report, 

Ethereum, or ETH, is a digital asset that 

is created and transmitted through the 

operations of the peer-to-peer 

‘‘Ethereum Network,’’ a decentralized 

network of computers that operates on 

cryptographic protocols. No single 

entity owns or operates the Ethereum 

Network, the infrastructure of which is 

collectively maintained by a 

decentralized user base. The Ethereum 

Network allows people to exchange 

tokens of value, called Ether, which are 

recorded on a public transaction ledger 

known as a blockchain. ETH can be 

used to pay for goods and services, 

including computational power on the 

Ethereum network, or it can be 

converted to fiat currencies, such as the 

U.S. dollar, at rates determined on 

‘‘Digital Asset Exchanges’’ 16 that trade 

ETH or in individual end-user-to-enduser transactions under a barter system. 

Furthermore, the Ethereum Network 

also allows users to write and 

implement smart contracts—that is, 

general-purpose code that executes on 

every computer in the network and can 

instruct the transmission of information 

and value based on a sophisticated set 

of logical conditions. Using smart 

contracts, users can create markets, store 

registries of debts or promises, represent 

the ownership of property, move funds 

in accordance with conditional 

instructions and create digital assets 

other than ETH on the Ethereum 

Network. Smart contract operations are 

executed on the Ethereum Blockchain in 

exchange for payment of ETH. The 

Ethereum Network is one of a number 

of projects intended to expand 

blockchain use beyond just a peer-topeer money system. 

The Ethereum Network went live on 

July 30, 2015. Unlike other digital 

assets, such as Bitcoin, which are solely 

created through a progressive mining 

process, 72.0 million ETH were created 

in connection with the launch of the 

Ethereum Network. At the time of the 

network launch, a non-profit called the 

Ethereum Foundation was the sole 

organization dedicated to protocol 

development. 

The Ethereum Network is 

decentralized in that it does not require 

governmental authorities or financial 

institution intermediaries to create, 

transmit, or determine the value of ETH. 

Rather, following the initial distribution 

of ETH, ETH is created, burned, and 

allocated by the Ethereum Network 

protocol through a process that is 

currently subject to an issuance and 

burn rate. The value of ETH is 

determined by the supply of and 

demand for ETH on the Digital Asset 

Exchanges or in private end-user-to-enduser transactions. 

New ETH are created and rewarded to 

the validators of a block in the Ethereum 

Blockchain for verifying transactions. 

The Ethereum Blockchain is effectively 

a decentralized database that includes 

all blocks that have been validated, and 

it is updated to include new blocks as 

they are validated. Each ETH 

transaction is broadcast to the Ethereum 

Network and, when included in a block, 


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17 DeFiLlama, ‘‘Ethereum Total Value Locked,’’ 

https://defillama.com/chain/Ethereum. 

recorded in the Ethereum Blockchain. 

As each new block records outstanding 

ETH transactions, and outstanding 

transactions are settled and validated 

through such recording, the Ethereum 

Blockchain represents a complete, 

transparent and unbroken history of all 

transactions of the Ethereum Network. 

Among other things, ETH is used to 

pay for transaction fees and 

computational services (i.e., smart 

contracts) on the Ethereum Network; 

users of the Ethereum Network pay for 

the computational power of the 

machines executing the requested 

operations with ETH. Requiring 

payment in ETH on the Ethereum 

Network incentivizes developers to 

write quality applications and increases 

the efficiency of the Ethereum Network 

because wasteful code costs more, while 

also ensuring that the Ethereum 

Network remains economically viable 

by compensating for contributed 

computational resources. 

Smart Contracts and Development on 

the Ethereum Network 

Smart contracts are programs that run 

on a blockchain that can execute 

automatically when certain conditions 

are met. Smart contracts facilitate the 

exchange of anything representative of 

value, such as money, information, 

property, or voting rights. Using smart 

contracts, users can send or receive 

digital assets, create markets, store 

registries of debts or promises, represent 

ownership of property or a company, 

move funds in accordance with 

conditional instructions and create new 

digital assets. 

Development on the Ethereum 

Network involves building more 

complex tools on top of smart contracts, 

such as decentralized apps (‘‘DApps’’); 

organizations that are autonomous, 

known as decentralized autonomous 

organizations (‘‘DAOs’’); and entirely 

new decentralized networks. For 

example, a company that distributes 

charitable donations on behalf of users 

could hold donated funds in smart 

contracts that are paid to charities only 

if the charity satisfies certain predefined conditions. 

Moreover, the Ethereum Network has 

also been used as a platform for creating 

new digital assets and conducting their 

associated initial coin offerings. As of 

June 30, 2023, a majority of digital 

assets were built on the Ethereum 

Network, with such assets representing 

a significant amount of the total market 

value of all digital assets. 

More recently, the Ethereum Network 

has been used for decentralized finance 

(‘‘DeFi’’) or open finance platforms, 

which seek to democratize access to 

financial services, such as borrowing, 

lending, custody, trading, derivatives 

and insurance, by removing third-party 

intermediaries. DeFi can allow users to 

lend and earn interest on their digital 

assets, exchange one digital asset for 

another and create derivative digital 

assets such as stablecoins, which are 

digital assets pegged to a reserve asset 

such as fiat currency. Over the course of 

2022, between $20 billion and $98 

billion worth of digital assets were 

locked up as collateral on DeFi 

platforms on the Ethereum Network.17

In addition, the Ethereum Network 

and other smart contract platforms have 

been used for creating non-fungible 

tokens, or ‘‘NFTs.’’ Unlike digital assets 

native to smart contract platforms that 

are fungible and enable the payment of 

fees for smart contract execution, NFTs 

allow for digital ownership of assets that 

convey certain rights to other digital or 

real-world assets. This new paradigm 

allows users to own rights to other 

assets through NFTs, which enable 

users to trade them with others on the 

Ethereum Network. For example, an 

NFT may convey rights to a digital asset 

that exists in an online game or a Dapp, 

and users can trade their NFT in the 

Dapp or game, and carry them to other 

digital experiences, creating an entirely 

new free-market, internet-native 

economy that can be monetized in the 

physical world. 

Overview of the Ethereum Network’s 

Operations 

In order to own, transfer, or use ETH 

directly on the Ethereum Network (as 

opposed to through an intermediary, 

such as a custodian), a person generally 

must have internet access to connect to 

the Ethereum Network. ETH 

transactions may be made directly 

between end-users without the need for 

a third-party intermediary. To prevent 

the possibility of double-spending ETH, 

a user must notify the Ethereum 

Network of the transaction by 

broadcasting the transaction data to its 

network peers. The Ethereum Network 

provides confirmation against doublespending by memorializing every 

transaction in the Ethereum Blockchain, 

which is publicly accessible and 

transparent. This memorialization and 

verification against double-spending is 

accomplished through the Ethereum 

Network validation process, which adds 

‘‘blocks’’ of data, including recent 

transaction information, to the 

Ethereum Blockchain. 

Summary of an ETH Transaction 

Prior to engaging in ETH transactions 

directly on the Ethereum Network, a 

user generally must first install on its 

computer or mobile device an Ethereum 

Network software program that will 

allow the user to generate a private and 

public key pair associated with an ETH 

address, commonly referred to as a 

‘‘wallet.’’ The Ethereum Network 

software program and the ETH address 

also enable the user to connect to the 

Ethereum Network and transfer ETH to, 

and receive ETH from, other users. 

Each Ethereum Network address, or 

wallet, is associated with a unique 

‘‘public key’’ and ‘‘private key’’ pair. To 

receive ETH, the ETH recipient must 

provide its public key to the party 

initiating the transfer. This activity is 

analogous to a recipient for a transaction 

in U.S. dollars providing a routing 

address in wire instructions to the payor 

so that cash may be wired to the 

recipient’s account. The payor approves 

the transfer to the address provided by 

the recipient by ‘‘signing’’ a transaction 

that consists of the recipient’s public 

key with the private key of the address 

from where the payor is transferring the 

ETH. The recipient, however, does not 

make public or provide to the sender its 

related private key. 

Neither the recipient nor the sender 

reveals their private keys in a 

transaction, because the private key 

authorizes transfer of the funds in that 

address to other users. Therefore, if a 

user loses his private key, the user may 

permanently lose access to the ETH 

contained in the associated address. 

Likewise, ETH is irretrievably lost if the 

private key associated with them is 

deleted and no backup has been made. 

When sending ETH, a user’s Ethereum 

Network software program must 

validate the transaction with the 

associated private key. In addition, 

since every computation on the 

Ethereum Network requires processing 

power, there is a transaction fee 

involved with the transfer that is paid 

by the payor. The resulting digitally 

validated transaction is sent by the 

user’s Ethereum Network software 

program to the Ethereum Network 

validators to allow transaction 

confirmation. 

Ethereum Network validators record 

and confirm transactions when they 

validate and add blocks of information 

to the Ethereum Blockchain. In proof-ofstake, validators compete to be 

randomly selected to validate 

transactions. When a validator is 

selected to validate a block, it creates 

that block, which includes data relating 

to (i) the verification of newly submitted 


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18CoinMarketCap, ‘‘Ethereum,’’ https://coin

marketcap.com/currencies/ethereum/. 

and accepted transactions and (ii) a 

reference to the prior block in the 

Ethereum Blockchain to which the new 

block is being added. The validator 

becomes aware of outstanding, 

unrecorded transactions through the 

data packet transmission and 

distribution discussed above. 

Upon the addition of a block included 

in the Ethereum Blockchain, the 

Ethereum Network software program of 

both the spending party and the 

receiving party will show confirmation 

of the transaction on the Ethereum 

Blockchain and reflect an adjustment to 

the ETH balance in each party’s 

Ethereum Network public key, 

completing the ETH transaction. Once a 

transaction is confirmed on the 

Ethereum Blockchain, it is irreversible. 

Some ETH transactions are conducted 

‘‘off-blockchain’’ and are therefore not 

recorded in the Ethereum Blockchain. 

Some ‘‘off-blockchain transactions’’ 

involve the transfer of control over, or 

ownership of, a specific digital wallet 

holding ETH or the reallocation of 

ownership of certain ETH in a pooledownership digital wallet, such as a 

digital wallet owned by a Digital Asset 

Exchange. In contrast to on-blockchain 

transactions, which are publicly 

recorded on the Ethereum Blockchain, 

information and data regarding offblockchain transactions are generally 

not publicly available. Therefore, offblockchain transactions are not truly 

ETH transactions in that they do not 

involve the transfer of transaction data 

on the Ethereum Network and do not 

reflect a movement of ETH between 

addresses recorded in the Ethereum 

Blockchain. For these reasons, offblockchain transactions are subject to 

risks, as any such transfer of ETH 

ownership is not protected by the 

protocol behind the Ethereum Network 

or recorded in, and validated through, 

the blockchain mechanism. 

Creation of New ETH 

Initial Creation of ETH 

Unlike other digital assets such as 

Bitcoin, which are solely created 

through a progressive mining process, 

72.0 million ETH were created in 

connection with the launch of the 

Ethereum Network. The initial 72.0 

million ETH were distributed as 

follows: 

Initial Distribution: 60.0 million ETH, 

or 83.33% of the supply, were sold to 

the public in a crowd sale conducted 

between July and August 2014 that 

raised approximately $18 million. 

Ethereum Foundation: 6.0 million 

ETH, or 8.33% of the supply, were 

distributed to the Ethereum Foundation 

for operational costs. 

Ethereum Developers: 3.0 million 

ETH, or 4.17% of the supply, were 

distributed to developers who 

contributed to the Ethereum Network. 

Developer Purchase Program: 3.0 

million ETH, or 4.17% of the supply, 

were distributed to members of the 

Ethereum Foundation to purchase at the 

initial crowd sale price. 

Following the launch of the Ethereum 

Network, ETH supply initially increased 

through a progressive mining process. 

Following the introduction of EIP–1559, 

described below, ETH supply and 

issuance rate varies based on factors 

such as recent use of the network. 

Proof-of-Work Mining Process 

Prior to September 2022, Ethereum 

operated using a proof-of-work 

consensus mechanism. Under proof-ofwork, in order to incentivize those who 

incurred the computational costs of 

securing the network by validating 

transactions, there was a reward given 

to the computer that was able to create 

the latest block on the chain. Every 12 

seconds, on average, a new block was 

added to the Ethereum Blockchain with 

the latest transactions processed by the 

network, and the computer that 

generated this block was awarded a 

variable amount of ETH, depending on 

use of the network at the time. In certain 

mining scenarios, referred to as an 

uncle/aunt reward, ETH was sometimes 

sent to another miner if they were also 

able to find a solution, but their block 

was not included. Due to the nature of 

the algorithm for block generation, this 

process (generating a ‘‘proof-of-work’’) 

was guaranteed to be random. The 

process by which a digital asset was 

‘‘mined’’ resulted in new blocks being 

added to such digital asset’s blockchain 

and new digital assets being issued to 

the miners. Prior to the Merge upgrade, 

described below, computers on the 

Ethereum Network engaged in a set of 

prescribed complex mathematical 

calculations in order to add a block to 

the Ethereum Blockchain and thereby 

confirm ETH transactions included in 

that block’s data. 

Proof-of-Stake Process 

In the second half of 2020, the 

Ethereum Network began the first of 

several stages of an upgrade that was 

initially known as ‘‘Ethereum 2.0’’ and 

eventually became known as the 

‘‘Merge’’ to transition the Ethereum 

Network from a proof-of-work 

consensus mechanism to a proof-ofstake consensus mechanism. The Merge 

was completed on September 15, 2022, 

and the Ethereum Network has operated 

on a proof-of-stake model since such 

time. 

Unlike proof-of-work, in which 

miners expend computational resources 

to compete to validate transactions and 

are rewarded coins in proportion to the 

amount of computational resources 

expended, in proof-of-stake, miners 

(sometimes called validators) risk or 

‘‘stake’’ coins to compete to be 

randomly selected to validate 

transactions and are rewarded coins in 

proportion to the amount of coins 

staked. Any malicious activity, such as 

validating multiple blocks, disagreeing 

with the eventual consensus, or 

otherwise violating protocol rules, 

results in the forfeiture or ‘‘slashing’’ of 

a portion of the staked coins. Proof-ofstake is viewed as more energy efficient 

and scalable than proof-of-work and is 

sometimes referred to as ‘‘virtual 

mining.’’ Every 12 seconds, 

approximately, a new block is added to 

the Ethereum Blockchain with the latest 

transactions processed by the network, 

and the validator that generated this 

block is awarded ETH. 

Limits on ETH Supply 

The rate at which new ETH are issued 

and put into circulation is expected to 

vary. Following the Merge, 

approximately 1,700 ETH are issued per 

day, though the issuance rate varies 

based on the number of validators on 

the network. In addition, the issuance of 

new ETH could be partially or 

completely offset by the burn 

mechanism introduced by the EIP–1559 

modification, under which ETH are 

removed from supply at a rate that 

varies with network usage. On occasion, 

the ETH supply has been deflationary 

over a 24-hour period as a result of the 

burn mechanism. The attributes of the 

new consensus algorithm are subject to 

change, but in sum, the new consensus 

algorithm and related modifications 

reduced total new ETH issuances and 

could turn the ETH supply deflationary 

over the long term. 

As of June 30, 2023, approximately 

120 million ETH were outstanding.18

Modifications to the ETH Protocol 

The Ethereum Network is an open 

source project with no official developer 

or group of developers that controls it. 

However, historically the Ethereum 

Network’s development has been 

overseen by the Ethereum Foundation 

and other core developers. The 

Ethereum Foundation and core 

developers are able to access and alter 

the Ethereum Network source code and, 


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19The Digital Asset Account is a segregated 

custody account controlled and secured by the 

Custodian to store private keys, which allows for 

the transfer of ownership or control of the Trust’s 

ETH on the Trust’s behalf. 

as a result, they are responsible for 

quasi-official releases of updates and 

other changes to the Ethereum 

Network’s source code. 

For example, in 2019, the Ethereum 

Network completed a network upgrade 

called Metropolis that was designed to 

enhance the usability of the Ethereum 

Network and was introduced in two 

stages. The first stage, called Byzantium, 

was implemented in October 2017. The 

purpose of Byzantium was to increase 

the network’s privacy, security, and 

scalability and reduce the block reward 

from 5.0 ETH to 3.0 ETH. The second 

stage, called Constantinople, was 

implemented in February 2019, along 

with another upgrade, called St. 

Petersburg. Another network upgrade, 

called Istanbul, was implemented in 

December 2019. The purpose of Istanbul 

was to make the network more resistant 

to denial of service attacks, enable 

greater ETH and Zcash interoperability 

as well as other Equihash-based proofof-work digital assets, and to increase 

the scalability and performance for 

solutions on zero-knowledge privacy 

technology like SNARKs and STARKs. 

The purpose of these upgrades was to 

prepare the Ethereum Network for the 

introduction of a proof-of-stake 

algorithm and reduce the block reward 

from 3.0 ETH to 2.0 ETH. In the second 

half of 2020, the Ethereum Network 

began the first of several stages of an 

upgrade culminating in the Merge. The 

Merge amended the Ethereum 

Network’s consensus mechanism to 

include proof-of-stake. Forthcoming 

upgrades will include sharding. The 

purpose of sharding is to increase 

scalability of a database, such as a 

blockchain, by splitting the data 

processing responsibility among many 

nodes, allowing for parallel processing 

and validation of transactions. This 

contrasts with the existing Ethereum 

Blockchain, which requires each node 

to process and validate every 

transaction. 

In 2021, the Ethereum network 

implemented the EIP–1559 upgrade. 

EIP–1559 changed the methodology 

used to calculate the fees paid to miners 

(now validators). This new methodology 

splits fees into two components: a base 

cost and priority fee. The base cost is 

now removed from circulation, or 

‘‘burnt’’, and the priority fee is paid to 

validators. EIP–1559 has reduced the 

total net issuance of ETH fees to 

validators. The release of updates to the 

Ethereum Network’s source code does 

not guarantee that the updates will be 

automatically adopted. Users and 

validators must accept any changes 

made to the Ethereum source code by 

downloading the proposed modification 

of the Ethereum Network’s source code. 

A modification of the Ethereum 

Network’s source code is only effective 

with respect to the Ethereum users and 

validators that download it. If a 

modification is accepted only by a 

percentage of users and validators, a 

division in the Ethereum Network will 

occur such that one network will run 

the pre-modification source code and 

the other network will run the modified 

source code. Such a division is known 

as a ‘‘fork.’’ Consequently, as a practical 

matter, a modification to the source 

code becomes part of the Ethereum 

Network only if accepted by 

participants collectively having a 

majority of the validation power on the 

Ethereum Network. 

Core development of the Ethereum 

source code has increasingly focused on 

modifications of the Ethereum protocol 

to increase speed and scalability and 

also allow for financial and nonfinancial next generation uses. The 

Trust’s activities will not directly relate 

to such projects, though such projects 

may utilize ETH as tokens for the 

facilitation of their non-financial uses, 

thereby potentially increasing demand 

for ETH and the utility of the Ethereum 

Network as a whole. Conversely, 

projects that operate and are built 

within the Ethereum Blockchain may 

increase the data flow on the Ethereum 

Network and could either ‘‘bloat’’ the 

size of the Ethereum Blockchain or slow 

confirmation times. 

Custody of the Trust’s ETH 

Digital assets and digital asset 

transactions are recorded and validated 

on blockchains, the public transaction 

ledgers of a digital asset network. Each 

digital asset blockchain serves as a 

record of ownership for all of the units 

of such digital asset, even in the case of 

certain privacy-focused digital assets, 

where the transactions themselves are 

not publicly viewable. All digital assets 

recorded on a blockchain are associated 

with a public blockchain address, also 

referred to as a digital wallet. Digital 

assets held at a particular public 

blockchain address may be accessed and 

transferred using a corresponding 

private key. 

Key Generation 

Public addresses and their 

corresponding private keys are 

generated by the Custodian in secret key 

generation ceremonies at secure 

locations inside faraday cages, which 

are enclosures used to block 

electromagnetic fields and mitigate 

attacks. The Custodian uses quantum 

random number generators to generate 

the public and private key pairs. 

Once generated, private keys are 

encrypted, separated into ‘‘shards,’’ and 

then further encrypted. After the key 

generation ceremony, all materials used 

to generate private keys, including 

computers, are destroyed. All key 

generation ceremonies are performed 

offline. No party other than the 

Custodian has access to the private key 

shards of the Trust. 

Key Storage 

Private key shards are distributed 

geographically 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. 

The Digital Asset Account 19 uses 

offline storage, or ‘‘cold storage,’’ 

mechanisms to secure the Trust’s 

private keys. The term cold storage 

refers to a safeguarding method by 

which the private keys corresponding to 

digital assets are disconnected and/or 

deleted entirely from the internet. Cold 

storage of private keys may involve 

keeping such keys on a non-networked 

(or ‘‘airgapped’’) computer or electronic 

device or storing the private keys on a 

storage device (for example, a USB 

thumb drive) or printed medium (for 

example, papyrus, paper, or a metallic 

object). A digital wallet may receive 

deposits of digital assets but may not 

send digital assets without use of the 

digital assets’ corresponding private 

keys. In order to send digital assets from 

a digital wallet in which the private 

keys are kept in cold storage, either the 

private keys must be retrieved from cold 

storage and entered into an online, or 

‘‘hot,’’ digital asset software program to 

sign the transaction, or the unsigned 

transaction must be transferred to the 

cold server in which the private keys are 

held for signature by the private keys 

and then transferred back to the online 

digital asset software program. At that 

point, the user of the digital wallet can 

transfer its digital assets. 

Security Procedures 

The Custodian is the custodian of the 

Trust’s private keys in accordance with 

the terms and provisions of the 

Custodian Agreement. Transfers from 

the Digital Asset Account 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 


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Custodian must be combined to 

reconstitute the private key to sign any 

transaction in order to transfer the 

Trust’s assets. 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 

assets. 

Transfers of ETH to the Digital Asset 

Account will be available to the Trust 

once processed on the Blockchain. 

Subject to obtaining regulatory 

approval to operate a redemption 

program and authorization of the 

Sponsor, the process of accessing and 

withdrawing ETH from the Trust to 

redeem a Unit by an Authorized 

Participant will follow the same general 

procedure as transferring ETH to the 

Trust to create a Unit by an Authorized 

Participant, only in reverse. 

Digital Asset Holdings 

According to the Annual Report, the 

Trust’s assets consist solely of ETH, 

Incidental Rights, IR Virtual Currency, 

proceeds from the sale of ETH, 

Incidental Rights, and IR Virtual 

Currency pending use of such cash for 

payment of Additional Trust Expenses 

or distribution to the shareholders, and 

any rights of the Trust pursuant to any 

agreements, other than the Trust 

Agreement, to which the Trust is a 

party. Each Share represents a 

proportional interest, based on the total 

number of Shares outstanding, in each 

of the Trust’s assets as determined in 

the case of ETH by reference to the 

Index Price, less the Trust’s expenses 

and other liabilities (which include 

accrued but unpaid fees and expenses). 

The Sponsor expects that the market 

price of the Shares will fluctuate over 

time in response to the market prices of 

ETH. In addition, because the Shares 

reflect the estimated accrued but unpaid 

expenses of the Trust, the number of 

ETH represented by a Share will 

gradually decrease over time as the 

Trust’s ETH is used to pay the Trust’s 

expenses. The Trust does not expect to 

take any Incidental Rights or IR Virtual 

Currency it may hold into account for 

purposes of determining the Trust’s 

Digital Asset Holdings or the Digital 

Asset Holdings per Share. 

The Sponsor will evaluate the ETH 

held by the Trust and determine the 

Digital Asset Holdings of the Trust in 

accordance with the relevant provisions 

of the Trust Documents. The following 

is a description of the material terms of 

the Trust Documents as they relate to 

valuation of the Trust’s ETH and the 

Digital Asset Holdings calculations. 

On each business day at 4:00 p.m., 

New York time, or as soon thereafter as 

practicable (the ‘‘Evaluation Time’’), the 

Sponsor will evaluate the ETH held by 

the Trust and calculate and publish the 

Digital Asset Holdings of the Trust. To 

calculate the Digital Asset Holdings, the 

Sponsor will: 

1. Determine the Index Price as of 

such business day. 

2. Multiply the Index Price by the 

Trust’s aggregate number of ETH owned 

by the Trust as of 4:00 p.m., New York 

time, on the immediately preceding day, 

less the aggregate number of ETH 

payable as the accrued and unpaid 

Sponsor’s Fee as of 4:00 p.m., New York 

time, on the immediately preceding day. 

3. Add the U.S. dollar value of ETH, 

calculated using the Index Price, 

receivable under pending creation 

orders, if any, determined by 

multiplying the number of the Baskets 

represented by such creation orders by 

the Basket Amount and then 

multiplying such product by the Index 

Price. 

4. Subtract the U.S. dollar amount of 

accrued and unpaid Additional Trust 

Expenses, if any. 

5. Subtract the U.S. dollar value of the 

ETH, calculated using the Index Price, 

to be distributed under pending 

redemption orders, if any, determined 

by multiplying the number of Baskets to 

be redeemed represented by such 

redemption orders by the Basket 

Amount and then multiplying such 

product by the Index Price (the amount 

derived from steps 1 through 5 above, 

the ‘‘Digital Asset Holdings Fee Basis 

Amount’’). 

6. Subtract the U.S. dollar amount of 

the Sponsor’s Fee that accrues for such 

business day, as calculated based on the 

Digital Asset Holdings Fee Basis 

Amount for such business day. 

In the event that the Sponsor 

determines that the primary 

methodology used to determine the 

Index Price is not an appropriate basis 

for valuation of the Trust’s ETH, the 

Sponsor will utilize the cascading set of 

rules as described in ‘‘Trust Valuation of 

ETH’’ below. In addition, in the event 

that the Trust holds any Incidental 

Rights and/or IR Virtual Currency, the 

Sponsor may, at its discretion, include 

the value of such Incidental Rights and/ 

or IR Virtual Currency in the 

determination of the Digital Asset 

Holdings, provided that the Sponsor has 

determined in good faith a method for 

assigning an objective value to such 

Incidental Rights and/or IR Virtual 

Currency. At this time, the Trust does 

not expect to take any Incidental Rights 

or IR Virtual Currency it may hold into 

account for the purposes of determining 

the Digital Asset Holdings or the Digital 

Asset Holdings per Share. 

ETH Value 

Digital Asset Exchange Valuation 

According to the Annual Report, the 

value of ETH is determined by the value 

that various market participants place 

on ETH through their transactions. The 

most common means of determining the 

value of an ETH is by surveying one or 

more Digital Asset Exchanges where 

ETH is traded publicly (e.g., Coinbase 

Pro, Kraken, and LMAX Digital). 

Additionally, there are over-the-counter 

dealers or market makers that transact in 

ETH. 

Digital Asset Exchange Public Market 

Data 

On each online Digital Asset 

Exchange, ETH is traded with publicly 

disclosed valuations for each executed 

trade, measured by one or more fiat 

currencies such as the U.S. dollar or 

euro. Over-the-counter dealers or market 

makers do not typically disclose their 

trade data. 

As of June 30, 2023, the Digital Asset 

Exchanges included in the Index are 

Coinbase Pro, Kraken, and LMAX 

Digital. As further described below, the 

Sponsor and the Trust reasonably 

believe each of these Digital Asset 

Exchanges are in material compliance 

with applicable U.S. federal and state 

licensing requirements and maintain 

practices and policies designed to 

comply with know-your-customer 

(‘‘KYC’’), anti-money-laundering 

(‘‘AML’’) regulations. 

Coinbase Pro: A U.S.-based exchange 

registered as a money services business 

(‘‘MSB’’) with the U.S. Department of 

the Treasury’s Financial Crimes 

Enforcement Network (‘‘FinCEN’’) and 

licensed as a virtual currency business 

under the New York State Department 

of Financial Services (‘‘NYDFS’’) 

BitLicense program, as well as money 

transmitter in various U.S. states. 

Kraken: A U.S.-based exchange 

registered as an MSB with FinCEN and 

licensed as money transmitter in various 

U.S. states. Kraken does not hold a 

BitLicense. 

LMAX Digital: A U.K.-based exchange 

registered as a broker with the Financial 

Conduct Authority. LMAX Digital does 

not hold a BitLicense. 

Currently, there are several Digital 

Asset Exchanges operating worldwide, 


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20Market share is calculated using trading 

volume data (in ETH) provided by the Index 

Provider for certain Digital Asset Exchanges, 

including Coinbase Pro, Kraken, and LMAX Digital, 

as well as certain other large U.S.-dollar 

denominated Digital Asset Exchanges that are not 

included in the Index as of June 30, 2023, including 

Bitstamp, Binance.US (data included from April 1, 

2020), Bitfinex, Bittrex (data included from July 31, 

2018), Cboe Digital (data included from October 1, 

2020), FTX.US (data included from July 1, 2021 

through November 10, 2022), Gemini, HitBTC (data 

included from June 13, 2019 through March 31, 

2020), OKCoin (data included from December 25, 

2018 through December 31, 2022), and itBit (data 

included from December 27, 2018). 

21On January 19, 2020, the Index Provider 

removed itBit due to a lack of trading volume and 

added LMAX Digital to the Index based on the 

exchange meeting the liquidity thresholds as part of 

its scheduled quarterly review. Effective July 23, 

2022, the Index Provider removed Bitstamp from 

the Index due to the exchange’s failure to meet the 

minimum liquidity requirement, and added 

FTX.US as a Constituent Exchange based on its 

satisfaction of the minimum liquidity requirement 

as part of its scheduled quarterly review. Effective 

November 10, 2022, the Index Provider removed 

FTX.US from the Index due to FTX.US’s 

announcement that trading on the exchange may be 

halted, which would impact FTX.US’s ability to 

reliably publish trade prices and volumes on a realtime basis through APIs, and did not add any 

Constituent Exchanges as part of its review. 

Effective January 28, 2023, the Index Provider 

added Binance.US to the Index based on the 

exchange meeting the minimum liquidity 

requirement, and did not remove any Constituent 

Exchanges as part of its quarterly review. On June 

17, 2023, the Index Provider removed Binance.US 

from the Index, due to Binance.US’s announcement 

that the exchange was suspending U.S. dollar 

deposits and withdrawals and planned to delist its 

U.S. dollar trading pairs, and did not add any 

Constituent Exchanges as part of its review. 

22Exchanges with programmatic trading offer 

traders an application programming interface that 

permits trading by sending programmed commands 

to the exchange. 

and online Digital Asset Exchanges 

represent a substantial percentage of 

ETH buying and selling activity and 

provide the most data with respect to 

prevailing valuations of ETH. These 

exchanges include established 

exchanges such as exchanges included 

in the Index, which provide a number 

of options for buying and selling ETH. 

The below table reflects the trading 

volume in ETH and market share 20 of 

the ETH–U.S. dollar trading pair of each 

of the Digital Asset Exchanges included 

in the Index as of June 30, 2023,21 using 

data reported by the Index Provider 

from December 14, 2017 to June 30, 

2023: 

Digital asset exchanges included in the index as of June 30, 2023 Volume 

(ETH) 

Market 

share 

(%) 

Coinbase Pro ........................................................................................................................................................... 399,687,249 34.61 

Kraken ...................................................................................................................................................................... 132,211,166 11.45 

LMAX Digital ............................................................................................................................................................ 65,848,432 5.70 

Total ETH–U.S. dollar trading pair ................................................................................................................... 597,746,846 51.76 

The domicile, regulation, and legal 

compliance of the Digital Asset 

Exchanges included in the Index varies. 

Information regarding each Digital Asset 

Exchange may be found, where 

available, on the websites for such 

Digital Asset Exchanges, among other 

places. 

The Index and the Index Price 

The Index is a U.S. dollardenominated composite reference rate 

for the price of ETH. The Index is 

designed to (i) mitigate the effects of 

fraud, manipulation and other 

anomalous trading activity from 

impacting the ETH reference rate, (ii) 

provide a real-time, volume-weighted 

fair value of ETH and (iii) appropriately 

handle and adjust for non-market 

related events. 

The Index Price is determined by the 

Index Provider through a process in 

which trade data is cleansed and 

compiled in such a manner as to 

algorithmically reduce the impact of 

anomalistic or manipulative trading. 

This is accomplished by adjusting the 

weight of each data input based on price 

deviation relative to the observable set, 

as well as recent and long-term trading 

volume at each venue relative to the 

observable set. 

Constituent Exchange Selection 

According to the Annual Report, the 

Digital Asset Exchanges that are 

included in the Index are selected by 

the Index Provider utilizing a 

methodology that is guided by the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) principles for 

financial benchmarks. For an exchange 

to become a Digital Asset Exchange 

included in the Index (a ‘‘Constituent 

Exchange’’), it must satisfy the criteria 

listed below (the ‘‘Inclusion Criteria’’): 

• Sufficient USD liquidity relative to 

the size of the listed assets; 

• No evidence in the past 12 months 

of trading restrictions on individuals or 

entities that would otherwise meet the 

exchange’s eligibility requirements to 

trade; 

• No evidence in the past 12 months 

of undisclosed restrictions on deposits 

or withdrawals from user accounts; 

• Real-time price discovery; 

• Limited or no capital controls; 

• Transparent ownership including a 

publicly-owned ownership entity; 

• Publicly available language and 

policies addressing legal and regulatory 

compliance in the US, including KYC 

(Know Your Customer), AML (AntiMoney Laundering) and other policies 

designed to comply with relevant 

regulations that might apply to it; 

• Be a U.S.-domiciled exchange or a 

non-U.S. domiciled exchange that is 

able to service U.S. investors; 

• Offer programmatic spot trading of 

the trading 22 pair; and 

• Reliably publish trade prices and 

volumes on a real-time basis through 

Rest and Websocket APIs. 

A Digital Asset Exchange is removed 

as a Constituent Exchanges when it no 

longer satisfies the Inclusion Criteria. 

The Index Provider does not currently 

include data from over-the-counter 

markets or derivatives platforms among 

the Constituent Exchanges. According to 

the Annual Report, over-the-counter 

data is not currently included because 

of the potential for trades to include a 

significant premium or discount paid 

for larger liquidity, which creates an 

uneven comparison relative to more 

active markets. There is also a higher 

potential for over-the-counter 

transactions to not be arms-length, and 

thus not be representative of a true 

market price. ETH derivative markets 

are also not currently included as the 

markets remain relatively thin. The 

Index Provider will consider IOSCO 

principles for financial benchmarks and 

the management of trading venues of 

ETH derivatives and the aforementioned 

Inclusion Criteria when considering 

inclusion of over-the-counter or 

derivative platform data in the future. 

The Index Provider and the Sponsor 

have entered into an index license 

agreement, dated as of February 1, 2022 

(as amended, the ‘‘Index License 

Agreement’’), governing the Sponsor’s 


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23Upon entering into the Index License 

Agreement, the Sponsor and the Index Provider 

terminated the license agreement between the 

parties dated as of February 28, 2019. 

use of the Index Price.23 Pursuant to the 

terms of the Index License Agreement, 

the Index Provider may adjust the 

calculation methodology for the Index 

Price without notice to, or consent of, 

the Trust or its shareholders. The Index 

Provider may decide to change the 

calculation methodology to maintain the 

integrity of the Index Price calculation 

should it identify or become aware of 

previously unknown variables or issues 

with the existing methodology that it 

believes could materially impact its 

performance and/or reliability. The 

Index Provider has sole discretion over 

the determination of Index Price and 

may change the methodologies for 

determining the Index Price from time 

to time. Shareholders will be notified of 

any material changes to the calculation 

methodology or the Index Price in the 

Trust’s current reports and will be 

notified of all other changes that the 

Sponsor considers significant in the 

Trust’s periodic or current reports. The 

Trust will determine the materiality of 

any changes to the Index Price on a 

case-by-case basis, in consultation with 

external counsel. 

The Index Provider may change the 

trading venues that are used to calculate 

the Index or otherwise change the way 

in which the Index is calculated at any 

time. For example, the Index Provider 

has scheduled quarterly reviews in 

which it may add or remove Constituent 

Exchanges that satisfy or fail the 

Inclusion Criteria. The Index Provider 

does not have any obligation to consider 

the interests of the Sponsor, the Trust, 

the shareholders, or anyone else in 

connection with such changes. While 

the Index Provider is not required to 

publicize or explain the changes or to 

alert the Sponsor to such changes, it has 

historically notified the Trust of any 

material changes to the Constituent 

Exchanges, including any additions or 

removals of the Constituent Exchanges, 

in addition to issuing press releases in 

connection with the same. The Sponsor 

will notify investors of any such 

material event by filing a current report 

on Form 8–K. Although the Index 

methodology is designed to operate 

without any manual intervention, rare 

events would justify manual 

intervention. Intervention of this kind 

would be in response to non-marketrelated events, such as the halting of 

deposits or withdrawals of funds on a 

Digital Asset Exchange, the 

unannounced closure of operations on a 

Digital Asset Exchange, insolvency or 

the compromise of user funds. In the 

event that such an intervention is 

necessary, the Index Provider would 

issue a public announcement through 

its website, API and other established 

communication channels with its 

clients. 

Determination of the Index Price 

The Index applies an algorithm to the 

price of ETH on the Constituent 

Exchanges calculated on a per second 

basis over a 24-hour period. The Index’s 

algorithm is expected to reflect a fourpronged methodology to calculate the 

Index Price from the Constituent 

Exchanges: 

• Volume Weighting: Constituent 

Exchanges with greater liquidity receive 

a higher weighting in the Index, 

increasing the ability to execute against 

(i.e., replicate) the Index in the 

underlying spot markets. 

• Price-Variance Weighting: The 

Index Price reflects data points that are 

discretely weighted in proportion to 

their variance from the rest of the 

Constituent Exchanges. As the price at 

a particular exchange diverges from the 

prices at the rest of the Constituent 

Exchanges, its weight in the Index Price 

consequently decreases. 

• Inactivity Adjustment: The Index 

Price algorithm penalizes stale activity 

from any given Constituent Exchange. 

When a Constituent Exchange does not 

have recent trading data, its weighting 

in the Index Price is gradually reduced 

until it is de-weighted entirely. 

Similarly, once trading activity at a 

Constituent Exchange resumes, the 

corresponding weighting for that 

Constituent Exchange is gradually 

increased until it reaches the 

appropriate level. 

• Manipulation Resistance: In order 

to mitigate the effects of wash trading 

and order book spoofing, the Index only 

includes executed trades in its 

calculation. Additionally, the Index 

only includes Constituent Exchanges 

that charge trading fees to its users in 

order to attach a real, quantifiable cost 

to any manipulation attempts. 

The Index Provider re-evaluates the 

weighting algorithm on a periodic basis, 

but maintains discretion to change the 

way in which an Index Price is 

calculated based on its periodic review 

or in extreme circumstances. The exact 

methodology to calculate the Index 

Price is not publicly available. Still, the 

Index is designed to limit exposure to 

trading or price distortion of any 

individual Digital Asset Exchange that 

experiences periods of unusual activity 

or limited liquidity by discounting, in 

real-time, anomalous price movements 

at individual Digital Asset Exchanges. 

The Sponsor believes the Index 

Provider’s selection process for 

Constituent Exchanges as well as the 

methodology of the Index Price’s 

algorithm provides a more accurate 

picture of ETH price movements than a 

simple average of Digital Asset 

Exchange spot prices, and that the 

weighting of ETH prices on the 

Constituent Exchanges limits the 

inclusion of data that is influenced by 

temporary price dislocations that may 

result from technical problems, limited 

liquidity or fraudulent activity 

elsewhere in the ETH spot market. By 

referencing multiple trading venues and 

weighting them based on trade activity, 

the Sponsor believes that the impact of 

any potential fraud, manipulation or 

anomalous trading activity occurring on 

any single venue is reduced. 

If the Index Price becomes 

unavailable, or if the Sponsor 

determines in good faith that such Index 

Price does not reflect an accurate price 

for ETH, then the Sponsor will, on a 

best efforts basis, contact the Index 

Provider to obtain the Index Price 

directly from the Index Provider. If after 

such contact such Index Price remains 

unavailable or the Sponsor continues to 

believe in good faith that such Index 

Price does not reflect an accurate price 

for the relevant digital asset, then the 

Sponsor will employ a cascading set of 

rules to determine the Index Price, as 

described below in ‘‘Determination of 

the Index Price When Index Prices are 

Unavailable.’’ 

The Trust values its ETH for 

operational purposes by reference to the 

Index Price. The Index Price is the value 

of an ETH as represented by the Index, 

calculated at 4:00 p.m., New York time, 

on each business day. 

Illustrative Example 

For the purposes of illustration, 

outlined below are examples of how the 

attributes that impact weighting and 

adjustments in the aforementioned 

methodology may be utilized to generate 

the Index Price for a digital asset. In this 

example, the Constituent Exchanges for 

the Index Price for a digital asset are 

Coinbase Pro, Kraken, LMAX Digital, 

and Bitstamp. 

The Index Price algorithm, as 

described above, accounts for 

manipulation at the outset by only 

including data from executed trades on 

Constituent Exchanges that charge 

trading fees. Then, the below-listed 

elements may impact the weighting of 

the Constituent Exchanges on the Index 

price as follows: 

• Volume Weighting: Each 

Constituent Exchange will be weighted 

to appropriately reflect the trading 


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24The Sponsor updated these rules on January 11, 

2022. 

25According to the Annual Report, when a 

modification is introduced and a substantial 

majority of users and miners consent to the 

modification, the change is implemented and the 

network remains uninterrupted. However, if less 

than a substantial majority of users and miners 

consent to the proposed modification, and the 

modification is not compatible with the software 

prior to its modification, the consequence would be 

what is known as a ‘‘hard fork’’ of the Ethereum 

Network, with one group running the pre-modified 

software and the other running the modified 

software. The effect of such a fork would be the 

existence of two versions of ETH running in 

parallel, yet lacking interchangeability. For 

example, in July 2016, Ethereum ‘‘forked’’ into 

Ethereum and a new digital asset, Ethereum Classic, 

as a result of the Ethereum network community’s 

response to a significant security breach in which 

an anonymous hacker exploited a smart contract 

running on the Ethereum network to syphon 

approximately $60 million of ETH held by the 

DAO, a distributed autonomous organization, into 

a segregated account. In response to the hack, most 

participants in the Ethereum community elected to 

adopt a ‘‘fork’’ that effectively reversed the hack. 

However, a minority of users continued to develop 

the original blockchain, with the digital asset on 

that blockchain now referred to as Ethereum 

Classic, or ETC. ETC now trades on several Digital 

Asset Exchanges. In the event of a hard fork of the 

Ethereum Network, the Sponsor will, if permitted 

by the terms of the Trust Agreement, use its 

discretion to determine, in good faith, which peerto-peer network, among a group of incompatible 

forks of the Ethereum Network, is generally 

accepted as the Ethereum Network and should 

therefore be considered the appropriate network for 

the Trust’s purposes. The Sponsor will base its 

determination on a variety of then relevant factors, 

including, but not limited to, the Sponsor’s beliefs 

regarding expectations of the core developers of 

ETH, users, services, businesses, miners, and other 

constituencies, as well as the actual continued 

acceptance of, mining power on, and community 

engagement with, the Ethereum Network. There is 

no guarantee that the Sponsor will choose the 

digital asset that is ultimately the most valuable 

fork, and the Sponsor’s decision may adversely 

affect the value of the Shares as a result. The 

Sponsor may also disagree with shareholders, 

Continued 

volume share of the Constituent 

Exchange relative to all the Constituent 

Exchanges during this same period. For 

example, an average hourly weighting of 

67.06%, 14.57%, 11.88%, and 6.49% for 

Coinbase Pro, LMAX Digital, Kraken, 

and Bitstamp, respectively, would 

represent each Constituent Exchange’s 

share of trading volume during the same 

period. 

• Inactivity Adjustment: Assume that 

a Constituent Exchange represented a 

14% weighting on the Index Price of a 

digital asset, which is based on the persecond calculations of its trading 

volume and price-variance relative to 

the cohort of Constituent Exchanges 

included in such Index, and then went 

offline for approximately two hours. 

The index algorithm would 

automatically recognize inactivity and 

start de-weighting the Constituent 

Exchange at the 3-minute mark and 

continue to do so over a 7-minute 

period until its influence was effectively 

zero, 10-minutes after becoming 

inactive. As soon as trading activity 

resumed at the Constituent Exchange, 

the index algorithm would re-weight it 

to the appropriate weighting based on 

trading volume and price-variance 

relative to the cohort of Constituent 

Exchanges included in the Index. Due to 

the period of inactivity, it would reweight the Constituent Exchange 

activity to a weight lower than its 

original weighting—for example, to 

12%. 

• Price-Variance Weighting: Assume 

that for a one-hour period, the digital 

asset’s execution prices on one 

Constituent Exchange were trading more 

than 7% higher than the average 

execution prices on another Constituent 

Exchange. The algorithm will 

automatically detect the anomaly and 

reduce that specific Constituent 

Exchange’s weighting to 0% for that 

one-hour period, ensuring a reliable 

spot reference unaffected by the 

localized event. 

Determination of the Index Price When 

Index Prices Are Unavailable 

The Sponsor uses the following 

cascading set of rules to calculate the 

Index Price.24 For the avoidance of 

doubt, the Sponsor will employ the 

below rules sequentially and in the 

order as presented below, should one or 

more specific rule(s) fail. 

1. Index Price = The price set by the 

Index as of 4:00 p.m., New York time, 

on the valuation date. If the Index 

becomes unavailable, or if the Sponsor 

determines in good faith that the Index 

does not reflect an accurate price, then 

the Sponsor will, on a best efforts basis, 

contact the Index Provider to obtain the 

Index Price directly from the Index 

Provider. If after such contact the Index 

remains unavailable or the Sponsor 

continues to believe in good faith that 

the Index does not reflect an accurate 

price, then the Sponsor will employ the 

next rule to determine the Index Price. 

There are no predefined criteria to make 

a good faith assessment and it will be 

made by the Sponsor in its sole 

discretion. 

2. Index Price = The price set by Coin 

Metrics Real-Time Rate (the ‘‘Secondary 

Index’’) as of 4:00 p.m., New York time, 

on the valuation date (the ‘‘Secondary 

Index Price’’). The Secondary Index 

Price is a real-time reference rate price, 

calculated using trade data from 

constituent markets selected by Coin 

Metrics (the ‘‘Secondary Index 

Provider’’). The Secondary Index Price 

is calculated by applying weightedmedian techniques to such trade data 

where half the weight is derived from 

the trading volume on each constituent 

market and half is derived from inverse 

price variance, where a constituent 

market with high price variance as a 

result of outliers or market anomalies 

compared to other constituent markets 

is assigned a smaller weight. If the 

Secondary Index becomes unavailable, 

or if the Sponsor determines in good 

faith that the Secondary Index does not 

reflect an accurate price, then the 

Sponsor will, on a best efforts basis, 

contact the Secondary Index Provider to 

obtain the Secondary Index Price 

directly from the Secondary Index 

Provider. If after such contact the 

Secondary Index remains unavailable or 

the Sponsor continues to believe in 

good faith that the Secondary Index 

does not reflect an accurate price, then 

the Sponsor will employ the next rule 

to determine the Index Price. There are 

no predefined criteria to make a good 

faith assessment and it will be made by 

the Sponsor in its sole discretion. 

3. Index Price = The price set by the 

Trust’s principal market (the ‘‘Tertiary 

Pricing Option’’) as of 4:00 p.m., New 

York time, on the valuation date. The 

Tertiary Pricing Option is a spot price 

derived from the principal market’s 

public data feed that is believed to be 

consistently publishing pricing 

information as of 4:00 p.m., New York 

time, and is provided to the Sponsor via 

an application programming interface. If 

the Tertiary Pricing Option becomes 

unavailable, or if the Sponsor 

determines in good faith that the 

Tertiary Pricing Option does not reflect 

an accurate price, then the Sponsor will, 

on a best efforts basis, contact the 

Tertiary Pricing Provider to obtain the 

Tertiary Pricing Option directly from 

the Tertiary Pricing Provider. If after 

such contact the Tertiary Pricing Option 

remains unavailable after such contact 

or the Sponsor continues to believe in 

good faith that the Tertiary Pricing 

Option does not reflect an accurate 

price, then the Sponsor will employ the 

next rule to determine the Index Price. 

There are no predefined criteria to make 

a good faith assessment and it will be 

made by the Sponsor in its sole 

discretion. 

4. Index Price = The Sponsor will use 

its best judgment to determine a good 

faith estimate of the Index Price. There 

are no predefined criteria to make a 

good faith assessment and it will be 

made by the Sponsor in its sole 

discretion. 

In the event of a fork, the Index 

Provider may calculate the Index Price 

based on a digital asset that the Sponsor 

does not believe to be the appropriate 

asset that is held by the Trust.25 In this 


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security vendors, and the Index Provider on what 

is generally accepted as ETH and should therefore 

be considered ‘‘ETH’’ for the Trust’s purposes, 

which may also adversely affect the value of the 

Shares as a result. 

26The Sponsor will provide notice of any such 

changes in the Trust’s periodic or current reports 

and, where applicable, will file a proposed rule 

change with the Commission. 

27These ETFs included the Bitwise Ethereum 

Strategy ETF, Bitwise Bitcoin & Ether Equal Weight 

Strategy ETF, Hashdex Ether Strategy ETF, 

ProShares Ether Strategy ETF, ProShares Bitcoin & 

Ether Strategy ETF, ProShares Bitcoin & Ether Equal 

Weight Strategy ETF, Valkyrie Bitcoin & Ethereum 

Strategy ETF, VanEck Ethereum Strategy ETF, and 

Volatility Shares Ethereum Strategy ETF. 

28See, e.g., Chair Gary Gensler Public Statement, 

‘‘Remarks Before the Aspen Security Forum,’’ 

(August 3, 2021), stating that the Chair looked 

forward to the Commission’s review of Bitcoinbased ETF proposals registered under the ’40 Act, 

‘‘particularly if those are limited to [the] CMEtraded Bitcoin futures,’’ noting the ‘‘significant 

investor protection’’ offered by the ’40 Act, https:// 

www.sec.gov/news/public-statement/gensler-aspensecurity-forum-2021-08-03; Securities Exchange Act 

Release No. 93559 (November 12, 2021), 86 FR 

64539 (November 18, 2021) (SR–CboeBZX–2021– 

019) (Order Disapproving a Proposed Rule Change 

to List and Trade Shares of the VanEck Bitcoin 

Trust under BZX Rule 14.11(e)(4), CommodityBased Trust Shares) (‘‘VanEck Order’’) (denying the 

first spot bitcoin ETP registered under the ’33 Act 

following the first approval of a bitcoin futures ETF 

registered under the ‘40 Act, noting the differences 

in the standard of review that applies to such 

products); Securities Exchange Act Release No. 

94620 (April 6, 2022), 87 FR 21676 (April 12, 2022) 

(SR–NYSEArca–2021–53) (Order Granting Approval 

of a Proposed Rule Change, as Modified by 

Amendment No. 2, to List and Trade Shares of the 

Teucrium Bitcoin Futures Fund under NYSE ARCA 

Rule 8.200–E, Commentary .02 (Trust Issued 

Receipts)) (‘‘Teucrium Order’’) (approving the first 

bitcoin futures ETP registered under the ’33 Act, 

stating that ‘‘With respect to the proposed ETP, the 

underlying bitcoin assets are CME bitcoin futures 

contracts. The relevant analysis, therefore, is 

whether Arca has a comprehensive surveillance 

sharing agreement with a regulated market of 

significant size related to CME bitcoin futures 

contracts. As discussed below, taking into 

consideration the direct relationship between the 

regulated market with which Arca has a 

surveillance-sharing agreement and the assets held 

by the proposed ETP, as well as developments with 

respect to the CME bitcoin futures market— 

including the launch of exchange-traded funds 

registered under the Investment Company Act of 

1940 (‘‘1940 Act’’) that hold CME bitcoin futures 

(‘‘Bitcoin Futures ETFs’’)—the Commission 

concludes that the Exchange has the requisite 

surveillance-sharing agreement.’’). 

event, the Sponsor has full discretion to 

use a different index provider or 

calculate the Index Price itself using its 

best judgment. 

The Sponsor may, in its sole 

discretion, select a different index 

provider, select a different index price 

provided by the Index Provider, 

calculate the Index Price by using the 

cascading set of rules set forth above, or 

change the cascading set of rules set 

forth above at any time.26

The Impact of the Approval of ETH 

Futures ETFs on Spot ETH ETPs Like 

the Trust 

On October 2, 2023, the date of this 

filing, the first ETH-based exchangetraded funds (‘‘ETFs’’) were approved 

by the Commission for trading.27 The 

ETFs hold ETH futures contracts that 

trade on the CME and settle using the 

CME CF Ethereum Reference Rate 

(‘‘ERR’’), which is priced based on the 

spot ETH markets Coinbase, Kraken, 

LMAX, Bitstamp, Gemini, and itBit, 

essentially the same spot markets that 

are included in the Index that the Trust 

uses to value its ETH holdings. Given 

that the Commission has approved ETFs 

that offer exposure to ETH futures, 

which themselves are priced based on 

the underlying spot ETH market, the 

Sponsor believes that the Commission 

must also approve ETPs that offer 

exposure to spot ETH, like the Trust. 

In the context of other digital assetbased ETF and ETP proposals for 

Bitcoin, the Commission has sought to 

justify treating futures-based ETFs 

differently from spot-based ETFs 

because of (i) distinctions between the 

regulations under which the two 

products would be registered (the 

Investment Company Act of 1940 (the 

‘‘ ’40 Act’’) for digital-asset futures ETFs 

and ’33 Act for spot digital-asset ETPs) 

and (ii) the existence of regulation and 

surveillance-sharing over the CME 

digital-asset futures market through the 

Intermarket Surveillance Group (‘‘ISG’’), 

as compared to the spot market for those 

digital assets.28 The Sponsor believes 

that this reasoning is unsupported for 

the following reasons. 

The ’40 Act Offers No More Investor 

Protections Than the ’33 Act in the 

Context of ETH-Based ETF and ETP 

Proposals 

While the ’40 Act has certain added 

investor protections that the ’33 Act 

does not require, these protections do 

not seek to allay harms arising from 

underlying assets or markets of assets 

that ETFs hold, such as the potential for 

fraud or manipulation in such markets. 

In other words, the Sponsor does not 

believe that the application of the ’40 

Act supports the purported 

justifications the Commission has made 

in denying other spot digital asset ETPs. 

Instead, the ’40 Act seeks to remedy 

certain abusive practices in the 

management of investment companies 

such as ETFs, and thus places certain 

restrictions on ETFs and ETF sponsors. 

The ’40 Act explicitly lists out the types 

of abuses it seeks to prevent, and places 

certain restrictions related to 

accounting, borrowing, custody, fees, 

and independent boards, among others. 

Notably, none of these restrictions 

address an ETF’s underlying assets, 

whether ETH futures or spot ETH, or the 

markets from which such assets’ pricing 

is derived, whether the CME ETH 

futures market or spot ETH markets. As 

a result, the Sponsor believes that the 

distinction between registration of ETH 

futures ETFs under the ’40 Act and the 

registration of spot ETH ETPs under the 

’33 Act is one without a difference in 

the context of ETH-based ETP 

proposals. 

Surveillance-Sharing With the CME 

ETH Futures Market Is Sufficient To 

Protect Against Fraud and Manipulation 

in the Underlying Spot ETH Market 

The Sponsor believes that, because 

the CME ETH futures market is priced 

based on the underlying spot ETH 

market, any fraud or manipulation in 

the spot market would necessarily affect 

the price of ETH futures, thereby 

affecting the net asset value of an ETP 

holding spot ETH or an ETF holding 

ETH futures, as well as the price 

investors pay for such product’s shares. 

Accordingly, either CME surveillance 

can detect spot-market fraud that affects 

both futures ETFs and spot ETPs, or that 

surveillance cannot do so for either type 

of product. Having approved ETH 

futures ETFs in part on the basis of such 

surveillance, the Commission has 

clearly determined that CME 

surveillance can detect spot-market 

fraud that would affect spot ETPs, and 

the Sponsor thus believes that it must 

also approve spot ETH ETPs on that 

basis. 

* * * * * 

In summary, the Sponsor believes that 

the distinctions between the ’40 Act and 

the ’33 Act, and the surveillance-sharing 

available for the CME ETH futures 

market versus the spot ETH market, are 

not meaningful in the context of ETHbased ETF and ETP proposals, and that 

such reasoning cannot be a basis for the 

Commission treating ETH futures ETFs 

differently from spot ETH ETPs like the 

Trust. The Sponsor believes that the 

Commission’s approval of ETH futures 

ETFs means it must also approve spot 

ETH ETPs like the Trust. 

The Structure and Operation of the 

Trust Protects Investors and Satisfies 

Commission Requirements for ETHBased Exchange Traded Products 

Even if the Commission had not 

approved ETH futures ETFs, the 

Sponsor still believes the Commission 

should approve the listing and trading 

of Shares of the Trust. In the context of 

prior spot digital asset ETP proposal 

disapproval orders for Bitcoin, the 

Commission expressed concerns about 


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29See Securities Exchange Act Release Nos. 

83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) 

(SR–BatsBZX–2016–30) (Order Setting Aside 

Action by Delegated Authority and Disapproving a 

Proposed Rule Change, as Modified by 

Amendments No. 1 and 2, To List and Trade Shares 

of the Winklevoss Bitcoin Trust) (the ‘‘Winklevoss 

Order’’); 87267 (October 9, 2019), 84 FR 55382 

(October 16, 2019) (SR–NYSEArca–2019–01) (Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, Relating to the Listing and 

Trading of Shares of the Bitwise Bitcoin ETF Trust 

Under NYSE Arca Rule 8.201–E) (the ‘‘Bitwise 

Order’’); 88284 (February 26, 2020), 85 FR 12595 

(March 3, 2020) (SR–NYSEArca–2019–39) (Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, to Amend NYSE Arca Rule 

8.201–E (Commodity-Based Trust Shares) and to 

List and Trade Shares of the United States Bitcoin 

and Treasury Investment Trust Under NYSE Arca 

Rule 8.201–E) (the ‘‘Wilshire Phoenix Order’’); 

83904 (August 22, 2018), 83 FR 43934 (August 28, 

2018) (SR–NYSEArca–2017–139) (Order 

Disapproving a Proposed Rule Change to List and 

Trade the Shares of the ProShares Bitcoin ETF and 

the ProShares Short Bitcoin ETF) (the ‘‘ProShares 

Order’’); 83912 (August 22, 2018), 83 FR 43912 

(August 28, 2018) (SR–NYSEArca–2018–02) (Order 

Disapproving a Proposed Rule Change Relating to 

Listing and Trading of the Direxion Daily Bitcoin 

Bear 1X Shares, Direxion Daily Bitcoin 1.25X Bull 

Shares, Direxion Daily Bitcoin 1.5X Bull Shares, 

Direxion Daily Bitcoin 2X Bull Shares, and Direxion 

Daily Bitcoin 2X Bear Shares Under NYSE Arca 

Rule 8.200–E) (the ‘‘Direxion Order’’); 83913 

(August 22, 2018), 83 FR 43923 (August 28, 2018) 

(SR–CboeBZX–2018–01) (Order Disapproving a 

Proposed Rule Change to List and Trade the Shares 

of the GraniteShares Bitcoin ETF and the 

GraniteShares Short Bitcoin ETF) (the 

‘‘GraniteShares Order’’) (together, the ‘‘Prior Spot 

Digital Asset ETP Disapproval Orders’’). 

30See Bitwise Order, 84 FR at 55383 (discussing 

analysis of the Bitcoin spot market that asserts that 

95% of the spot market is dominated by fake and 

non-economic activity, such as wash trades), 55391 

(discussing possible sources of fraud and 

manipulation in the bitcoin spot market). See also 

Winklevoss Order, 83 FR at 37585–86 (discussing 

pending litigation against a Bitcoin trading platform 

for fraudulent conduct relating to Tether); Bitwise 

Order, 84 FR at 55391 n.140, 55402 & n.331 (same); 

Winklevoss Order, 83 FR at 37584–86 (discussing 

potential types of manipulation in the Bitcoin spot 

market). The Commission has also noted that fraud 

and manipulation in the Bitcoin spot market could 

persist for a significant duration. See, e.g., Bitwise 

Order, 84 FR at 55405 & n.379. 

31See generally Bitwise Order. 

32See Winklevoss Order, 84 FR at 37580, 37582– 

91; Bitwise Order, 84 FR at 55383, 55385–406; 

Wilshire Phoenix Order, 85 FR at 12597. 

33See Winklevoss Order, 84 FR at 37582; 

Wilshire Phoenix Order, 85 FR at 12597. 

34SEC, ‘‘Investor Bulletin: Exchange-Traded 

Funds (ETFs),’’ August 2012, https://www.sec.gov/ 

investor/alerts/etfs.pdf. 

35Commodity Futures Trading Commission 

(‘‘CFTC’’), ‘‘History of the CFTC,’’ https://

www.cftc.gov/About/HistoryoftheCFTC/history_

precftc.html. 

the underlying Digital Asset Market due 

to the potential for fraud and 

manipulation and has outlined the 

reasons why such ETP proposals have 

been unable to satisfy these concerns.29

For purposes of the Trust’s ETH-based 

ETP proposal, the Sponsor anticipates 

that the Commission may have the same 

concerns and addresses each of these in 

turn below. 

In the Prior Spot Digital Asset ETP 

Disapproval Orders, the Commission 

outlined that a proposal relating to a 

digital asset-based ETP could satisfy its 

concerns regarding potential for fraud 

and manipulation by demonstrating: 

(1) Inherent Resistance to Fraud and 

Manipulation: that the underlying 

commodity market is inherently 

resistant to fraud and manipulation; 

(2) Other Means to Prevent Fraud and 

Manipulation: that there are other 

means to prevent fraudulent and 

manipulative acts and practices that are 

sufficient; or 

(3) Surveillance Sharing: that the 

listing exchange has entered into a 

surveillance sharing agreement with a 

regulated market of significant size 

relating to the underlying or reference 

assets. 

As described below, the Sponsor 

believes the structure and operation of 

the Trust are designed to prevent 

fraudulent and manipulative acts and 

practices, to protect investors and the 

public interest, and to respond to the 

specific concerns that the Commission 

may have with respect to potential fraud 

and manipulation in the context of an 

ETH-based ETP. 

How the Trust Meets Standards in the 

Prior Spot Digital Asset ETP 

Disapproval Orders 

1. Resistance to or Prevention of Fraud 

and Manipulation 

In the Prior Spot Digital Asset ETP 

Disapproval Orders, the Commission 

disagreed with the proposition that a 

digital asset’s fungibility, 

transportability and exchange 

tradability combine to provide unique 

protections against, and allow such 

digital asset to be uniquely resistant to, 

attempts at price manipulation. The 

Commission reached its conclusion 

based on concessions by one issuer that 

95% of the reported trading in the 

digital asset, Bitcoin, is ‘‘fake’’ or noneconomic, effectively admitting that the 

properties of Bitcoin do not make it 

inherently resistant to manipulation. 

Such issuer’s concessions were further 

compounded by evidence of potential 

and actual fraud and manipulation in 

the historical trading of Bitcoin on 

certain marketplaces such as (1) ‘‘wash’’ 

trading, (2) trading based on material, 

non-public information, including the 

dissemination of false and misleading 

information, (3) manipulative activity 

involving Tether, and (4) fraud and 

manipulation.30

The Sponsor acknowledges the 

possibility that fraud and manipulation 

may exist in commodity markets and 

that digital asset trading, such as ETH, 

on any given exchange may be no more 

uniquely resistant to fraud and 

manipulation than other commodity 

markets.31 However, the Sponsor 

believes that the fundamental features of 

digital assets, including fungibility, 

transportability and exchange 

tradability offer novel protections 

beyond those that exist in traditional 

commodity markets or equity markets 

when combined with other means, as 

discussed further below. 

2. Other Means To Prevent Fraud and 

Manipulation 

The Commission has recognized that 

a listing exchange could demonstrate 

that other means to prevent fraudulent 

and manipulative acts and practices are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.32 In evaluating the 

effectiveness of this type of resistance, 

the Commission does not apply a 

‘‘cannot be manipulated’’ standard. 

Instead, the Commission requires that 

such resistance to fraud and 

manipulation be novel and beyond 

those protections that exist in 

traditional commodity markets or equity 

markets for which the Commission has 

long required surveillance-sharing 

agreements in the context of listing 

derivative securities products.33

The Sponsor believes the Index 

represents a novel means to prevent 

fraud and manipulation from impacting 

a reference price for ETH and that it 

offers protections beyond those that 

exist in traditional commodity markets 

or equity markets. The Index operates 

materially similarly to CoinDesk Bitcoin 

Price Index (XBX). Specifically, digital 

assets, such as ETH, are novel and exist 

outside traditional commodity markets. 

It therefore stands to reason that the 

methods by which they trade will be 

novel and that the market for digital 

assets like ETH will have different 

attributes than traditional commodity 

markets. Digital assets like ETH were 

only introduced within the past decade, 

twenty years after the first U.S. ETFs 

were offered 34 and 150 years after the 

first futures were offered.35 In contrast 

to older commodities such as gold, 

silver, platinum, palladium or copper, 

which the Commission has noted all 

had at least one significant, regulated 

market for trading futures on the 

underlying commodity at the time 

commodity trust ETPs were approved 

for listing and trading, the first trading 

in digital assets like ETH took place 

entirely in an open, transparent and 

online setting where other commodities 

cannot trade. 


ddrumheller on DSK120RN23PROD with NOTICES1
73904 Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 

36 ‘‘U.S.-Compliant Exchanges’’ are exchanges in 

the Digital Asset Exchange Market that are 

compliant with applicable U.S. federal and state 

licensing requirements and practices regarding 

AML and KYC regulations. All Constituent 

Exchanges are U.S.-Compliant Exchanges. ‘‘NonU.S.-Compliant Exchanges’’ are all other exchanges 

in the Digital Asset Exchange Market. As of June 30, 

2023, the U.S.-Compliant Exchanges that the Index 

Provider considered for inclusion in the Index were 

Coinbase Pro, Kraken and LMAX Digital. From 

these U.S.-Compliant Exchanges, the Index Provider 

then applies additional Inclusion Criteria to 

determine the Constituent Exchange. Effective July 

23, 2022, the Index Provider removed Bitstamp 

from the Index due to the exchange’s failure to meet 

the minimum liquidity requirement and added 

FTX.US as a Constituent Exchange based on its 

satisfaction of the minimum liquidity requirement 

as part of its scheduled quarterly review. Effective 

November 10, 2022, the Index Provider removed 

FTX.US from the Index due to FTX.US’s 

announcement that trading on the exchange may be 

halted, which would impact FTX.US’s ability to 

reliably publish trade prices and volumes on a realtime basis through APIs, and did not add any 

Constituent Exchanges as part of its review. 

Effective January 28, 2023, the Index Provider 

added Binance.US to the Index based on the 

exchange meeting the minimum liquidity 

requirement, and did not remove any Constituent 

Exchanges as part of its quarterly review. On June 

17, 2023, the Index Provider removed Binance.US 

from the Index, due to Binance.US’s announcement 

that the exchange was suspending U.S. dollar 

deposits and withdrawals and planned to delist its 

U.S. dollar trading pairs, and did not add any 

Constituent Exchanges as part of its review. 

37According to the Sponsor, the more exchanges 

included in the Index, the more ability there is for 

traders and market makers to trade against the 

Index by arbitraging price differences. For example, 

in the event of variances between ETH prices on 

Constituent Exchanges and non-Constituent 

Exchanges, arbitrage trading opportunities would 

exist. These discrepancies generally consolidate 

over time, as price differences across exchanges are 

realized and capitalized upon by traders and market 

makers. 

38See, e.g., ‘‘DFS Takes Action to Deter Fraud and 

Manipulation in Virtual Currency Markets,’’ 

available at: https://www.dfs.ny.gov/about/press/ 

pr1802071.htm. 

39See ‘‘New York’s Final ‘‘BitLicense’’ Rule: 

Overview and Changes from July 2014 Proposal,’’ 

June 5, 2015, Davis Polk, available at: https://

www.davispolk.com/files/new_yorks_final_

bitlicense_rule_overview_changes_july_2014_

proposal.pdf. 

40As of the date of filing, one of the three 

Constituent Exchanges, Coinbase Pro, is regulated 

by NYDFS. 

41See BSA Requirements for MSBs, FinCEN 

website: https://www.fincen.gov/bsarequirementsmsbs. 

42 ‘‘U.S. CFTC Chief Behnam Reinforces View of 

Ether as Commodity,’’ Coindesk (Mar. 28, 2023), 

https://www.coindesk.com/policy/2023/03/28/uscftc-chief-behnam-reinforces-view-of-ether-ascommodity/; CME Group, https://

www.cmegroup.com/markets/cryptocurrencies/ 

ether/ether.html?gad=1&gclid=

EAIaIQobChMI44KBmu7ygAMVavvj

Bx2P4g5yEAAYASAAEgJSZfD_BwE&gclsrc=aw.ds. 

43See Bitwise Order, 84 FR at 55392; Wilshire 

Phoenix Order, 85 FR at 12603. 

The Trust has priced its Shares 

consistently for more than six years 

based on the Index. The Sponsor 

believes the Trust’s use of the Index 

specifically addresses the Commission’s 

concerns in that the Index serves as an 

alternative means to prevent fraud and 

manipulation. Specifically, the Index 

can (i) mitigate the effects of fraud, 

manipulation and other anomalous 

trading activity on the ETH reference 

rate, (ii) provide a real-time, volumeweighted fair value of ETH and (iii) 

appropriately handle and adjust for nonmarket related events. 

As described in more detail below, 

the Sponsor believes that the Index 

accomplishes those objectives in the 

following ways: 

1. The Index tracks the Digital Asset 

Exchange Market price through trading 

activity at ‘‘U.S.-Compliant 

Exchanges’’; 36

2. The Index mitigates the impact of 

instances of fraud, manipulation and 

other anomalous trading activity in realtime through systematic adjustments; 

3. The Index is constructed and 

maintained by an expert third-party 

index provider, allowing for prudent 

handling of non-market-related events; 

and 

4. The Index mitigates the impact of 

instances of fraud, manipulation and 

other anomalous trading activity 

concentrated on any one specific 

exchange through a cross-exchange 

composite index rate. 

1. The Index tracks the Digital Asset 

Exchange Market price through trading 

activity at ‘‘U.S.-Compliant Exchanges.’’ 

To reduce the risk of fraud, 

manipulation, and other anomalous 

trading activity from impacting the 

Index, only U.S.-Compliant Exchanges 

are eligible to be included in the Index. 

The Index maintains a minimum 

number of three exchanges and a 

maximum number of five exchanges to 

track the Digital Asset Exchange Market 

while offering replicability for traders 

and market makers.37

U.S.-Compliant Exchanges possess 

safeguards that protect against fraud and 

manipulation. For example, U.S.- 

Compliant Exchanges regulated by the 

NYDFS under the BitLicense program 

have regulatory requirements to 

implement measures designed to 

effectively detect, prevent, and respond 

to fraud, attempted fraud, market 

manipulation, and similar wrongdoing, 

and to monitor, control, investigate and 

report back to the NYDFS regarding any 

wrongdoing.38 These exchanges also 

have the following obligations: 39

• Submission of audited financial 

statements including income 

statements, statements of assets/ 

liabilities, insurance, and banking; 

• Compliance with capitalization 

requirements set at NYDFS’s discretion; 

• Prohibitions against the sale or 

encumbrance to protect full reserves of 

custodian assets; 

• Fingerprints and photographs of 

employees with access to customer 

funds; 

• Retention of a qualified Chief 

Information Security Officer and annual 

penetration testing/audits; 

• Documented business continuity 

and disaster recovery plan, 

independently tested annually; and 

• Participation in an independent 

exam by NYDFS. 

Other U.S.-Compliant Exchanges have 

voluntarily implemented measures to 

protect against common forms of market 

manipulation.40

Furthermore, all U.S.-Compliant 

Exchanges are considered MSBs that are 

subject to FinCEN’s federal and state 

reporting requirements that provide 

additional safeguards. For example, 

unscrupulous traders may be less likely 

to engage in fraudulent or manipulative 

acts and practices on exchanges that (1) 

report suspicious activity to FinCEN as 

money services businesses, (2) report to 

state regulators as money transmitters, 

and/or (3) require customer 

identification through KYC procedures. 

U.S.-Compliant Exchanges are required 

to: 41

• Identify people with ownership 

stakes or controlling roles in the MSB; 

• Establish a formal Anti-Money 

Laundering (AML) policy in place with 

documentation, training, independent 

review, and a named compliance officer; 

• Implement strict customer 

identification and verification policies 

and procedures; 

• File Suspicious Activity Reports 

(SARs) for suspicious customer 

transactions; 

• File Currency Transaction Reports 

(CTRs) for cash-in or cash-out 

transactions greater than $10,000; and 

• Maintain a five-year record of 

currency exchanges greater than $1,000 

and money transfers greater than $3,000. 

Lastly, because of ETH’s classification 

as a commodity, the CFTC has authority 

to police fraud and manipulation on 

U.S.-Compliant Exchanges.42

The Sponsor acknowledges that there 

are substantial differences between 

FinCEN and New York state regulations 

and the Commission’s regulation of the 

national securities exchanges.43 The 

Sponsor does not believe the inclusion 

of U.S.-Compliant Exchanges is in and 

of itself sufficient to prove that the 

Index is an alternative means to prevent 

fraud and manipulation such that 

surveillance sharing agreements are not 

required, but does believe that the 

inclusion of only U.S.-Compliant 

Exchanges in the Index is one 

significant way in which the Index is 


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Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 73905 

44To the extent any such intervention has a 

material impact on the Trust, the Sponsor will also 

issue a public announcement. 

45All Digital Asset Exchanges that were included 

in the Index throughout the period were considered 

in this analysis. 

46Prior to February 1, 2022, the Trust valued its 

ETH for operational purposes by reference to the 

volume-weighted average Index Price (the ‘‘Old 

Index Price’’). The Old Index Price was calculated 

by applying a weighting algorithm to the price and 

trading volume data for the immediately preceding 

24-hour period as of 4:00 p.m., New York time, 

derived from the Constituent Exchanges reflected in 

the Index on such trade date, and overlaying an 

averaging mechanism to the price produced. Thus, 

whereas the Old Index Price reflected the price of 

an ETH at 4:00 p.m., New York time, calculated by 

taking the average of each price of an ETH produced 

by the Index over the preceding 24-hour period, the 

Index Price now is the price of an ETH at 4:00 p.m., 

New York time, calculated based on the price and 

trading volume data of the Digital Asset Exchanges 

included in the Index over the preceding 24-hour 

period. The Index Price differs from the Old Index 

Price only in that it does not use an additional 

averaging mechanism; the Index Price otherwise 

uses the same methodology as the Old Index Price, 

and there has been no change to the Index used to 

determine the Index Price or the criteria used to 

select the Constituent Exchanges. 

protected from the potential impacts of 

fraud and manipulation. 

2. The Index mitigates the impact of 

instances of fraud, manipulation, and 

other anomalous trading activity in realtime through systematic adjustments. 

The Index is calculated once every 

second according to a systematic 

methodology that relies on observed 

trading activity on the Constituent 

Exchanges. While the precise 

methodology underlying the Index is 

currently proprietary, the key elements 

of the Index are outlined below: 

• Volume Weighting: Constituent 

Exchanges with greater liquidity receive 

a higher weighting in the Index, 

increasing the ability to execute against 

(i.e., replicate) the Index in the 

underlying spot markets. 

• Price-Variance Weighting: The 

Index reflects data points that are 

discretely weighted in proportion to 

their variance from the rest of the 

Constituent Exchanges. As the price at 

a Constituent Exchange diverges from 

the prices at the rest of the Constituent 

Exchanges, its weight in the Index 

consequently decreases. 

• Inactivity Adjustment: The Index 

algorithm penalizes stale activity from 

any given Constituent Exchange. When 

a Constituent Exchange does not have 

recent trading data, its weighting in the 

Index is gradually reduced, until it is 

de-weighted entirely. Similarly, once 

trading activity at the Constituent 

Exchange resumes, the corresponding 

weighting for that Constituent Exchange 

is gradually increased until it reaches 

the appropriate level. 

• Manipulation Resistance: In order 

to mitigate the effects of wash trading 

and order book spoofing, the Index only 

includes executed trades in its 

calculation. Additionally, the Index 

only includes Constituent Exchanges 

that charge trading fees to its users in 

order to attach a real, quantifiable cost 

to any manipulation attempts. 

3. The Index is constructed and 

maintained by an expert third-party 

index provider, allowing for prudent 

handling of non-market-related events. 

The Index Provider reviews and 

periodically updates which exchanges 

are included in the Index by utilizing a 

methodology that is guided by the 

IOSCO principles for financial 

benchmarks. 

According to the Index methodology, 

for an exchange to become a Constituent 

Exchange, it must satisfy the following 

Inclusion Criteria: 

• Sufficient USD liquidity relative to 

the size of the listed assets; 

• No evidence in the past 12 months 

of trading restrictions on individuals or 

entities that would otherwise meet the 

exchange’s eligibility requirements to 

trade; 

• No evidence in the past 12 months 

of undisclosed restrictions on deposits 

or withdrawals from user accounts; 

• Real-time price discovery; 

• Limited or no capital controls; 

• Transparent ownership including a 

publicly-owned ownership entity; 

• Publicly available language and 

policies addressing legal and regulatory 

compliance in the US, including KYC 

(Know Your Customer), AML (AntiMoney Laundering) and other policies 

designed to comply with relevant 

regulations that might apply to it; 

• Be a U.S.-domiciled exchange or a 

non-U.S. domiciled exchange that is 

able to service U.S. investors; 

• Offer programmatic spot trading of 

the trading pair; and 

• Reliably publish trade prices and 

volumes on a real-time basis through 

Rest and Websocket APIs. 

Although the Index methodology is 

designed to operate without any human 

interference, rare events would justify 

manual intervention. Manual 

intervention would only be in response 

to ‘‘non-market-related events’’ (e.g., 

halting of deposits or withdrawals of 

funds, unannounced closure of 

exchange operations, insolvency, 

compromise of user funds, etc.). In the 

event that such an intervention is 

necessary, the Index Provider would 

issue a public announcement through 

its website, API and other established 

communication channels with its 

clients.44

4. The Index mitigates the impact of 

instances of fraud, manipulation and 

other anomalous trading activity 

concentrated on any one specific 

exchange through a cross-exchange 

composite index rate. 

The Index is based on the price and 

volume data of multiple U.S.-Compliant 

Exchanges that satisfy the Index 

Provider’s Inclusion Criteria. By 

referencing multiple trading venues and 

weighting them based on trade activity, 

the impact of any potential fraud, 

manipulation, or anomalous trading 

activity occurring on any single venue is 

reduced. Specifically, the effects of 

fraud, manipulation, or anomalous 

trading activity occurring on any single 

venue are de-weighted and 

consequently diluted by non-anomalous 

trading activity from other Constituent 

Exchanges. 

Although the Index is designed to 

accurately capture the market price of 

ETH, third parties may be able to 

purchase and sell ETH on public or 

private markets included or not 

included among the Constituent 

Exchanges, and such transactions may 

take place at prices materially higher or 

lower than the Index Price. For 

example, based on data provided by the 

Index Provider, on any given day during 

the twelve months ended June 30, 2023, 

the maximum differential between the 

4:00 p.m., New York time spot price of 

any single Digital Asset Exchange 

included in the Index and the Index 

Price was 2.76% and the average of the 

maximum differentials of the 4:00 p.m., 

New York time spot price of each Digital 

Asset Exchange included in the Index 

and the Index Price was 0.82%. During 

this same period, the average 

differential between the 4:00 p.m., New 

York time spot prices of all the Digital 

Asset Exchanges included in the Index 

and the Index Price was 0.01%.45

Since inception of the Trust, the Trust 

has consistently priced its Shares at 4:00 

p.m., New York time based on the Index 

Price.46 While that pricing would be 

known to the market, the Sponsor 

believes that, even if efforts to 

manipulate the price of ETH at 4:00 

p.m., E.T. were successful on any 

exchange, such activity would have had 

a negligible effect on the pricing of the 

Trust, due to the controls embedded in 

the structure of the Index. 

Accordingly, the Sponsor believes 

that the Index has proven its ability to 

(i) mitigate the effects of fraud, 

manipulation and other anomalous 

trading activity on the ETH reference 

rate, (ii) provide a real-time, volumeweighted fair value of ETH and (iii) 

appropriately handle and adjust for nonmarket related events. For these reasons, 

the Sponsor believes that the Index 


ddrumheller on DSK120RN23PROD with NOTICES1
73906 Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 

47See Winklevoss Order, 83 FR at 37593–94; 

Bitwise Order, 84 FR at 55383, 55410; Wilshire 

Phoenix Order, 85 FR at 12609. 

48See Winklevoss Order, 83 FR at 37594. 

49See Winklevoss Order, 83 FR at 37594; Bitwise 

Order, 84 FR at 55410; ProShares Order, 83 FR at 

43936; GraniteShares Order, 83 FR at 43925; 

Direxion Order, 83 FR at 43914; Wilshire Phoenix 

Order, 85 FR at 12609. 

50See Winklevoss Order, 83 FR at 37594. This 

definition is illustrative and not exclusive. There 

could be other types of ‘‘significant markets’’ and 

‘‘markets of significant size,’’ but this definition is 

an example that will provide guidance to market 

participants. 

51See Bitwise Order, 84 FR at 55411; Wilshire 

Phoenix Order, 85 FR at 12612. 

52See Memorandum to File from Neel Maitra, 

Senior Special Counsel (Fintech & Crypto 

Specialist), Division of Trading and Markets, U.S. 

Securities and Exchange Commission re: Meeting 

with Representatives from Fidelity Digital Assets, et 

al. and attachment (SR–CboeBZX–2021–039) 

(September 8, 2021), available at: https://

www.sec.gov/comments/sr-cboebzx-2021-039/ 

srcboebzx2021039-250110.pdf; Letter from Bitwise 

Asset Management, Inc. re: File Number SR– 

NYSEArca–2021–89 (February 25, 2022), available 

at: https://www.sec.gov/comments/sr-nysearca2021-89/srnysearca202189-20117902-270822.pdf; 

Letter from Wilson Sonsini Goodrich and Rosati, 

P.C. and Chapman and Cutler LLP, on behalf of 

Bitwise Asset Management, Inc. re: File No. SR– 

NYSEArca–2021–89 (March 7, 2022), available at: 

https://www.sec.gov/comments/sr-nysearca-2021- 

89/srnysearca202189-20118794-271630.pdf. 

53 Grayscale Investments, LLC v. Securities and 

Exchange Commission, No. 22–1142, Commission 

Reply Br. 27. 

54These spot markets include Binance.US, 

Coinbase Pro, Bitfinex, Kraken, Bitstamp, BitFlyer, 

Poloniex, Bittrex, and itBit. 

represents an effective alternative means 

to prevent fraud and manipulation and 

the Trust’s reliance on the Index 

addresses the Commission’s concerns 

with respect to potential fraud and 

manipulation. 

3. A Significant, Regulated and 

Surveilled Market Exists and Is Closely 

Connected With Spot Market for ETH 

In the Prior Spot Digital Asset ETP 

Disapproval Orders, the Commission 

described both the need for and the 

definition of a surveilled market of 

significant size for commodity-trust 

ETPs like the Trust to date.47

Specifically, the Commission explained 

that: 

for the commodity-trust ETPs approved to 

date for listing and trading, there has been in 

every case at least one significant, regulated 

market for trading futures on the underlying 

commodity—whether gold, silver, platinum, 

palladium, or copper—and the ETP listing 

exchange has entered into surveillancesharing agreements with, or held Intermarket 

Surveillance Group membership in common 

with, that market.48

Further, the Commission stated that 

its interpretation of the term ‘‘market of 

significant size’’ depends on the 

interrelationship between the market 

with which the listing exchange has a 

surveillance-sharing agreement and the 

proposed ETP.49 Accordingly, the terms 

‘‘significant market’’ and ‘‘market of 

significant size’’ could mean: 

a market (or group of markets) as to which 

(a) there is a reasonable likelihood that a 

person attempting to manipulate the ETP 

would also have to trade on that market to 

successfully manipulate the ETP, so that a 

surveillance-sharing agreement would assist 

in detecting and deterring misconduct, and 

(b) it is unlikely that trading in the ETP 

would be the predominant influence on 

prices in that market.50

In the context of the Prior Spot Digital 

Asset ETP Disapproval Orders 

specifically, the Commission has stated 

that establishing a lead-lag relationship 

between the futures market and the spot 

market is central to understanding 

whether it is reasonably likely that a 

would-be manipulator of the ETP would 

need to trade on the futures market to 

successfully manipulate prices on those 

spot platforms that feed into the 

proposed ETP’s pricing mechanism 

such that a surveillance-sharing 

agreement would assist the ETP listing 

market in detecting and deterring 

misconduct.51 In particular, if the spot 

market leads the futures market, this 

would indicate that it would not be 

necessary to trade on the futures market 

to manipulate the proposed ETP, even if 

arbitrage worked efficiently, because the 

futures price would move to meet the 

spot price. 

While studies have found that the 

CME futures market does lead the spot 

market in the context of Bitcoin,52 as 

explained in the Sponsor’s briefs and 

argument in its prevailing case before 

the D.C. Circuit Court of Appeals 

regarding its Bitcoin-based ETP 

proposal, the lead/lag question is 

irrelevant. If a would-be manipulator 

were to attempt to manipulate either a 

spot ETP or futures ETP by trading 

futures on the CME, then a surveillancesharing agreement with the CME would 

provide access to information 

concerning that activity.53 If, on the 

other hand, a would-be manipulator 

were to attempt to manipulate either a 

spot ETP or a futures ETP by trading on 

the spot market, then a surveillancesharing agreement with the CME would 

also be able to provide access to 

information concerning that activity. If 

that were not true, the Commission 

could not have approved the Bitcoin 

futures ETPs. Given that the 

Commission has approved Bitcoin 

futures ETPs, the Commission must 

have concluded that the CME is capable 

of detecting manipulation attempts in 

the spot bitcoin market. And given that 

the Commission has now approved ETH 

futures ETFs, it must have concluded 

that the CME is capable of detecting 

manipulation attempts in the spot ETH 

market as well. Accordingly, the 

Sponsor believes that disapproval of the 

instant proposal on such grounds would 

be arbitrary given that Shares of the 

Trust would be just as protected from 

fraud as shares of previously approved 

ETH futures ETPs. 

Regardless of the irrelevance of the 

lead/lag relationship and the mixed 

findings regarding the lead/lag 

relationship between the CME futures 

and spot markets in the context of 

Bitcoin, the Sponsor believes that the 

CME futures market represents a large, 

surveilled and regulated market and 

meets the Commission’s definition of a 

‘‘significant market.’’ For example, from 

November 1, 2019 to August 31, 2023, 

the CME futures market trading volume 

was over $373 billion, compared to $701 

billion in trading volume across the 

Constituent Exchanges included in the 

Index. With over 50% of the Index 

trading volume, the CME futures market 

represents significant coverage of U.S.- 

Compliant Exchanges in the Ether 

market. In addition, the CME futures 

market trading volume from November 

1, 2019 to August 31, 2023 was 

approximately 43% of the trading 

volume of the U.S. dollar-denominated 

spot markets referenced in the Bitwise 

Order.54

Given the size of the CME futures 

markets, the Sponsor believes such 

markets meet the Commission’s 

definition of ‘‘significant market’’ 

because there is a reasonable likelihood 

that a person attempting to manipulate 

the ETP would also have to trade on that 

market to successfully manipulate the 

ETP, since arbitrage between the 

derivative and spot markets would tend 

to counter an attempt to manipulate the 

spot market alone. As a result, the 

Exchange’s ability to obtain information 

regarding trading in the Shares and 

futures from markets and other entities 

that are members of the Intermarket 

Trading Group (‘‘ISG’’), including the 

CME, would assist the Exchange in 

detecting and deterring misconduct. 

The Sponsor also believes it is 

unlikely that the ETP would become the 

predominant influence on prices in the 

market. While future inflows to the 

proposed Trust cannot be predicted, to 

provide comparable data, the Sponsor 

examined the change in market 

capitalization of ETH with net inflows 

into the Trust, which currently trades 

on OTC Markets and is largest and most 

liquid ETH investment product in the 


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55To further illustrate the size and liquidity of the 

Trust, as of September 6, 2023, compared with 

global commodity ETPs, the Trust would rank 24th 

in assets under management and 83rd in notional 

trading volume for the preceding 30 days. 

world.55 From November 1, 2019 to 

August 31, 2023, the market 

capitalization of ETH grew from $20 

billion to $198 billion, a $178 billion 

increase. Over the same period, the 

Trust experienced $1.2 billion of 

inflows. The cumulative inflow into the 

Trust over the stated time period was 

only 0.6% of the aggregate growth of 

ETH’s market capitalization. 

Additionally, the Trust experienced 

approximately $70.2 billion of trading 

volume from November 1, 2019 to 

August 31, 2023, only 19% of the CME 

futures market and 10% of the Index 

over the same period. 

* * * * * 

In summary, the Sponsor believes that 

the foregoing addresses concerns the 

Commission may have with respect to 

ETH-based ETPs, based on the 

Commission’s articulated concerns with 

respect to potential fraud and 

manipulation in Bitcoin-based ETPs. 

Specifically, the Sponsor believes that, 

although ETH is not itself inherently 

resistant to fraud and manipulation, the 

Index represents an effective means to 

prevent fraudulent and manipulative 

acts and practices. As discussed above, 

the Trust has used the Index to price the 

Shares for more than six years, and the 

Index has proven its ability to (i) 

mitigate the effects of fraud, 

manipulation and other anomalous 

trading activity on the ETH reference 

rate, (ii) provide a real-time, volumeweighted fair value of ETH and (iii) 

appropriately handle and adjust for nonmarket related events. The Sponsor also 

believes that the CME futures market is 

a significant, surveilled and regulated 

market that is closely connected with 

the spot market for ETH and fulfills the 

requirements for surveillance sharing 

given the Exchange’s ability to obtain 

information from markets and other 

entities that are members of the ISG to 

assist in detecting and deterring 

misconduct. 

Creation of Shares 

According to the Annual Report, the 

Trust will issue Shares to Authorized 

Participants from time to time, but only 

in one or more Baskets (with a Basket 

being a block of 100 Shares). The Trust 

will not issue fractions of a Basket. The 

creation of Baskets will be made only in 

exchange for the delivery to the Trust, 

or the distribution by the Trust, of the 

number of whole and fractional ETH 

represented by each Basket being 

created, which is determined by 

dividing (x) the number of ETH owned 

by the Trust at 4:00 p.m., E.T., on the 

trade date of a creation order, after 

deducting the number of ETH 

representing the U.S. dollar value of 

accrued but unpaid fees and expenses of 

the Trust (converted using the Index 

Price at such time, and carried to the 

eighth decimal place), by (y) the number 

of Shares outstanding at such time (with 

the quotient so obtained calculated to 

one one-hundred-millionth of one ETH 

(i.e., carried to the eighth decimal 

place)), and multiplying such quotient 

by 100 (the ‘‘Basket Amount’’). All 

questions as to the calculation of the 

Basket Amount will be conclusively 

determined by the Sponsor and will be 

final and binding on all persons 

interested in the Trust. The Basket 

Amount multiplied by the number of 

Baskets being created is the ‘‘Total 

Basket Amount.’’ The number of ETH 

represented by a Share will gradually 

decrease over time as the Trust’s ETH 

are used to pay the Trust’s expenses. As 

of June 30, 2023, each Share represented 

approximately 0.0097 of one ETH. 

Authorized Participants are the only 

persons that may place orders to create 

Baskets. Each Authorized Participant 

must (i) be a registered broker-dealer, 

(ii) enter into an agreement with the 

Sponsor and the Liquidity Provider (as 

defined below), if applicable, that 

provides the procedures for the creation 

and redemption of Baskets and for the 

delivery of ETH required for Creation 

Baskets and Redemption Baskets (each, 

a ‘‘Participant Agreement’’) and (iii) in 

the case of creation or redemption inkind, own an ETH wallet address that is 

known to the Custodian as belonging to 

the Authorized Participant. An 

Authorized Participant may act for its 

own account or as agent for brokerdealers, custodians and other securities 

market participants that wish to create 

or redeem Baskets. Shareholders who 

are not Authorized Participants will 

only be able to redeem their Shares 

through an Authorized Participant. 

Although the creation of Baskets 

requires the delivery to the Trust of the 

Total Basket Amount, an Authorized 

Participant may deposit cash, which 

will facilitate the purchase or sale of 

ETH on behalf of the Authorized 

Participant through one or more eligible 

companies (each, a ‘‘Liquidity 

Provider’’) that have entered into a 

Participant Agreement with the 

Sponsor, the Administrator, the 

Marketing Agent, and the relevant 

Authorized Participant. 

The Participant Agreement provides 

the procedures for the creation of 

Baskets and for the delivery of the 

whole and fractional ETH required for 

such creations. The Participant 

Agreement and the related procedures 

attached thereto may be amended by the 

Sponsor and the relevant Authorized 

Participant. Under the Participant 

Agreement, the Sponsor has agreed to 

indemnify each Authorized Participant 

against certain liabilities, including 

liabilities under the Securities Act. 

Authorized Participants do not pay a 

transaction fee to the Trust in 

connection with the creation of Baskets, 

but there may be transaction fees 

associated with the validation of the 

transfer of ETH by the Ethereum 

Network. Authorized Participants who 

deposit ETH with the Trust in exchange 

for Baskets will receive no fees, 

commissions or other form of 

compensation or inducement of any 

kind from either the Sponsor or the 

Trust, and no such person has any 

obligation or responsibility to the 

Sponsor or the Trust to effect any sale 

or resale of Shares. 

Creation Procedures 

On any business day, an Authorized 

Participant may place an order with the 

Administrator to create one or more 

Baskets. Orders for creations may be 

placed either ‘‘in-kind’’ or ‘‘in-cash.’’ 

Orders for creation in-kind must be 

placed with the Administrator no later 

than 3:59:59 p.m., New York time, and 

no later than 4:59:59 p.m., New York 

time, for creations in-cash (in each case, 

the ‘‘Order Cutoff Time’’). 

In-kind creations will take place as 

follows, where ‘‘T’’ is the trade date and 

each day in the sequence must be a 

business day: 


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73908 Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 

T T+1 

• The Authorized Participant places a creation order with the Administrator.

• The Marketing Agent accepts (or rejects) the creation order, which is 

communicated to the Authorized Participant by the Administrator.

• The Total Basket Amount is determined as soon as practicable after 

4:00 p.m., New York time.

• The Authorized Participant transfers the Total Basket Amount to the 

Custodian no later than 4:00 p.m., New York time. 

• Once the Total Basket Amount is received by the Custodian, the Administrator directs the Transfer Agent to credit the number of Baskets created to the Authorized Participant’s DTC account. 

In-cash creations will take place as 

follows, where ‘‘T’’ is the trade date and 

each day in the sequence must be a 

business day: 

T¥1 T T+1 

• The Authorized Participant places a creation 

order with the Administrator.

• The Marketing Agent accepts (or rejects) the 

creation order, which is communicated to the 

Authorized Participant by the Administrator.

• The Authorized Participant sends 110% of 

the U.S. dollar value of the number of baskets ordered pursuant to such creation 

order, as calculated using the Index Price as 

of the order date (the ‘‘Cash Collateral 

Amount’’) to the Administrator.

• The Sponsor notifies the Liquidity Provider 

of the creation order and the Liquidity Provider may begin purchasing ETH to deliver 

the Total Basket Amount.

• The Total Basket Amount is determined as 

soon as practicable after 4:00 p.m., New 

York time.

• The Liquidity Provider delivers the Total 

Basket Amount to the Custodian no later 

than 4:00 p.m., New York time. 

• Once the Total Basket Amount is received 

by the Custodian, the Administrator directs 

the Transfer Agent to credit the number of 

Baskets created to the Authorized Participant’s DTC account. 

• The Administrator sends the Liquidity Provider cash equal to the U.S. dollar value of 

the Total Basket Amount, as determined on 

the trade date, plus the Variable Fee, and 

returns the remaining amount of the Cash 

Collateral Amount (if any) to the Authorized 

Participant. 

Redemption of Shares 

The Trust may redeem Shares from 

time to time but only in Baskets. A 

Basket equals a block of 100 Shares. The 

number of outstanding Shares is 

expected to decrease from time to time 

as a result of the redemption of Baskets. 

The redemption of Baskets requires the 

distribution by the Trust of the number 

of ETH represented by the Baskets being 

redeemed. The redemption of a Basket 

will be made only in exchange for the 

distribution by the Trust of the number 

of whole and fractional ETH represented 

by each Basket being redeemed, the 

number of which is determined by 

dividing (x) the number of ETH owned 

by the Trust at 4:00 p.m., New York 

time, on the relevant trade date of a 

redemption order, after deducting the 

number of ETH representing the U.S. 

dollar value of accrued but unpaid fees 

and expenses of the Trust (converted 

using the Index Price at such time, and 

carried to the eighth decimal place) by 

(y) the number of Shares outstanding at 

such time (with the quotient so obtained 

calculated to one one-hundredmillionth of one ETH (i.e., carried to the 

eighth decimal place)), and multiplying 

such quotient by 100. 

Authorized Participants are the only 

persons that may place orders to redeem 

Baskets. Shareholders who are not 

Authorized Participants will be able to 

redeem their Shares only through an 

Authorized Participant. 

Each Participant Agreement provides 

the procedures for the redemption of 

Baskets and for the delivery of the 

whole and fractional ETH required for 

such redemption. The Participant 

Agreement and the related procedures 

attached thereto may be amended by the 

Sponsor and the relevant Authorized 

Participant. 

Authorized Participants do not pay a 

transaction fee to the Trust in 

connection with the redemption of 

Baskets, but there may be transaction 

fees associated with the validation of 

the transfer of ETH by the Ethereum 

Network. 

Redemption Procedures 

The Trust will also redeem Shares on 

a continuous basis but only in Baskets 

of 100 Shares. The procedures by which 

an Authorized Participant can redeem 

one or more Baskets mirror the 

procedures for the creation of Baskets. 

On any business day, an Authorized 

Participant may place an order with the 

Administrator to redeem one or more 

Baskets. Redemption orders must be 

placed with the Administrator no later 

than the Order Cutoff Time. 

In-kind redemptions will take place as 

follows, where ‘‘T’’ is the trade date and 

each day in the sequence must be a 

business day: 

T T+2 

• The Authorized Participant places a redemption order with the Administrator.

• The Marketing Agent accepts (or rejects) the redemption order, 

which is communicated to the Authorized Participant by the Administrator.

• The Total Basket Amount is determined as soon as practicable after 

4:00 p.m., New York time.

• The Authorized Participant delivers Baskets from its DTC account to 

the Transfer Agent no later than 4:00 p.m., New York time. 

• Once the Baskets are received by the Transfer Agent, the Custodian 

transfers the Total Basket Amount to the Authorized Participant and 

the Transfer Agent cancels the Shares. 


ddrumheller on DSK120RN23PROD with NOTICES1
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56The bid-ask price of the Trust is determined 

using the highest bid and lowest offer on the 

Consolidated Tape as of the time of calculation of 

the closing day Digital Asset Holdings. 

57The IIV on a per Share basis disseminated 

during the Core Trading Session should not be 

viewed as a real-time update of the Digital Asset 

Holdings, which is calculated once a day. 

In-cash redemptions will take place as 

follows, where ‘‘T’’ is the trade date and 

each day in the sequence must be a 

business day: 

T¥1 T T+2 

• The Authorized Participant places a redemption order with the Administrator.

• The Marketing Agent accepts (or rejects) the 

redemption order, which is communicated to 

the Authorized Participant by the Administrator.

• The Sponsor notifies the Liquidity Provider 

of the redemption order and the Liquidity 

Provider may begin selling ETH to deliver 

the Total Basket Amount.

• The Total Basket Amount is determined as 

soon as practicable after 4:00 p.m., New 

York time.

• The Authorized Participant delivers Baskets 

to be redeemed to the Transfer Agent no 

later than 4:00 p.m., New York time. 

• The Liquidity Provider deposits with the Administrator cash equal to the U.S. dollar 

value of the Total Basket Amount, as determined on the trade date. 

• Once the Baskets are received by the 

Transfer Agent and the Administrator sends 

the above-mentioned cash equal to the U.S. 

dollar value of the Total Basket Amount less 

the Transaction Fee, the Variable Fee and 

all other charges and fees payable in connection with the redemption order to the Authorized Participant, the Transfer Agent cancels the Shares. 

• The Custodian sends the Liquidity Provider 

the number of ETH equal to the Total Basket Amount and the Administrator sends the 

Variable Fee to the Liquidity Provider. 

Suspension of Orders 

The creation or redemption of Shares 

may be suspended generally, or refused 

with respect to particular requested 

creations or redemptions, during any 

period when the transfer books of the 

Transfer Agent are closed or if 

circumstances outside the control of the 

Sponsor or its delegates make it for all 

practical purposes not feasible to 

process creation orders or redemption 

orders. The Administrator may reject an 

order or, after accepting an order, may 

cancel such order by rejecting the Total 

Basket Amount if: (i) such order is not 

presented in proper form as described in 

the Participant Agreement, (ii) the 

transfer of the Total Basket Amount 

comes from an account other than an 

ETH wallet address that is known to the 

Custodian as belonging to the 

Authorized Participant or (iii) the 

fulfillment of the order, in the opinion 

of counsel, might be unlawful, among 

other reasons. None of the Sponsor or its 

delegates will be liable for the 

suspension, rejection or acceptance of 

any creation order or redemption order. 

In particular, upon the Trust’s receipt 

of any Incidental Rights and/or IR 

Virtual Currency in connection with a 

fork, airdrop or similar event, the 

Sponsor may suspend redemptions until 

it is able to cause the Trust to sell or 

distribute such Incidental Rights and/or 

IR Virtual Currency. 

Availability of Information 

The Trust’s website (https://

grayscale.com/products/grayscaleethereum-trust/) will include 

quantitative information on a per Share 

basis updated on a daily basis, 

including, (i) the current Digital Asset 

Holdings per Share daily and the prior 

business day’s Digital Asset Holdings 

per Share and the reported closing price 

of the Shares; (ii) the mid-point of the 

bid-ask price 56 as of the time the Digital 

Asset Holdings per Share is calculated 

(‘‘Bid-Ask Price’’) and a calculation of 

the premium or discount of such price 

against such Digital Asset Holdings per 

Share; and (iii) data in chart format 

displaying the frequency distribution of 

discounts and premiums of the daily 

Bid-Ask Price against the Digital Asset 

Holdings per Share, within appropriate 

ranges, for each of the four previous 

calendar quarters (or for as long as the 

Trust has been trading as an ETP if 

shorter). In addition, on each business 

day the Trust’s website will provide 

pricing information for the Shares. 

One or more major market data 

vendors, will provide an intra-day 

indicative value (‘‘IIV’’) per Share 

updated every 15 seconds, as calculated 

by the Exchange or a third party 

financial data provider during the 

Exchange’s Core Trading Session (9:30 

a.m. to 4:00 p.m., E.T.).57 The IIV will 

be calculated using the same 

methodology as the Digital Asset 

Holdings per Share of the Trust (as 

described above), specifically by using 

the prior day’s closing Digital Asset 

Holdings per Share as a base and 

updating that value during the NYSE 

Arca Core Trading Session to reflect 

changes in the value of the Trust’s 

Digital Asset Holdings during the 

trading day. 

The IIV disseminated during the 

NYSE Arca Core Trading Session should 

not be viewed as an actual real-time 

update of the Digital Asset Holdings per 

Share, which will be calculated only 

once at the end of each trading day. The 

IIV will be widely disseminated on a per 

Share basis every 15 seconds during the 

NYSE Arca Core Trading Session by one 

or more major market data vendors. In 

addition, the IIV will be available 

through on-line information services. 

The Digital Asset Holdings for the 

Trust will be calculated by the Sponsor 

once a day and will be disseminated 

daily to all market participants at the 

same time. To the extent that the 

Sponsor has utilized the cascading set of 

rules described in ‘‘Index Price’’ above, 

the Trust’s website will note the 

valuation methodology used and the 

price per ETH resulting from such 

calculation. Quotation and last-sale 

information regarding the Shares will be 

disseminated through the facilities of 

the Consolidated Tape Association 

(‘‘CTA’’). 

Quotation and last sale information 

for ETH will be widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters. In addition, real-time price 

(and volume) data for ETH is available 

by subscription from Reuters and 

Bloomberg. The spot price of ETH is 

available on a 24-hour basis from major 

market data vendors, including 

Bloomberg and Reuters. Information 

relating to trading, including price and 


ddrumheller on DSK120RN23PROD with NOTICES1
73910 Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 

58 17 CFR 240.10A–3. 

59See NYSE Arca Rule 7.12–E. 

60FINRA conducts cross-market surveillances on 

behalf of the Exchange pursuant to a regulatory 

services agreement. The Exchange is responsible for 

FINRA’s performance under this regulatory services 

agreement. 

61For a list of the current members of ISG, see 

www.isgportal.org. The Exchange notes that not all 

components of the Trust may trade on markets that 

are members of ISG or with which the Exchange has 

in place a CSSA. 

volume information, in ETH will be 

available from major market data 

vendors and from the exchanges on 

which ETH are traded. The normal 

trading hours for Digital Asset 

Exchanges are 24-hours per day, 365- 

days per year. 

On each business day, the Sponsor 

will publish the Index Price, the Trust’s 

Digital Asset Holdings, and the Digital 

Asset Holdings per Share on the Trust’s 

website as soon as practicable after its 

determination. If the Digital Asset 

Holdings and Digital Asset Holdings per 

Share have been calculated using a price 

per ETH other than the Index Price for 

such Evaluation Time, the publication 

on the Trust’s website will note the 

valuation methodology used and the 

price per ETH resulting from such 

calculation. 

The Trust will provide website 

disclosure of its Digital Asset Holdings 

daily. The website disclosure of the 

Trust’s Digital Asset Holdings will occur 

at the same time as the disclosure by the 

Sponsor of the Digital Asset Holdings to 

Authorized Participants so that all 

market participants are provided such 

portfolio information at the same time. 

Therefore, the same portfolio 

information will be provided on the 

public website as well as in electronic 

files provided to Authorized 

Participants. Accordingly, each investor 

will have access to the current Digital 

Asset Holdings of the Trust through the 

Trust’s website, as well as from one or 

more major market data vendors. 

The value of the Index, as well as 

additional information regarding the 

Index, will be available on a continuous 

basis at https://www.coindesk.com/ 

indices. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. Shares will trade on 

the NYSE Arca Marketplace from 4:00 

a.m. to 8:00 p.m., E.T. in accordance 

with NYSE Arca Rule 7.34–E (Early, 

Core, and Late Trading Sessions). The 

Exchange has appropriate rules to 

facilitate transactions in the Shares 

during all trading sessions. As provided 

in NYSE Arca Rule 7.6–E, the minimum 

price variation (‘‘MPV’’) for quoting and 

entry of orders in equity securities 

traded on the NYSE Arca Marketplace is 

$0.01, with the exception of securities 

that are priced less than $1.00, for 

which the MPV for order entry is 

$0.0001. 

The Shares will conform to the initial 

and continued listing criteria under 

NYSE Arca Rule 8.201–E. The trading of 

the Shares will be subject to NYSE Arca 

Rule 8.201–E(g), which sets forth certain 

restrictions on Equity Trading Permit 

Holders (‘‘ETP Holders’’) acting as 

registered Market Makers in 

Commodity-Based Trust Shares to 

facilitate surveillance. The Exchange 

represents that, for initial and continued 

listing, the Trust will be in compliance 

with Rule 10A–3 58 under the Act, as 

provided by NYSE Arca Rule 5.3–E. A 

minimum of 100,000 Shares of the Trust 

will be outstanding at the 

commencement of trading on the 

Exchange. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Trust.59 Trading in Shares of the 

Trust will be halted if the circuit breaker 

parameters in NYSE Arca Rule 7.12–E 

have been reached. Trading also may be 

halted because of market conditions or 

for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. 

The Exchange may halt trading during 

the day in which an interruption to the 

dissemination of the IIV or the value of 

the Index occurs. If the interruption to 

the dissemination of the IIV or the value 

of the Index persists past the trading day 

in which it occurred, the Exchange will 

halt trading no later than the beginning 

of the trading day following the 

interruption. In addition, if the 

Exchange becomes aware that the 

Digital Asset Holdings per Share is not 

disseminated to all market participants 

at the same time, it will halt trading in 

the Shares until such time as the Digital 

Asset Holdings per Share is available to 

all market participants. 

Surveillance 

The Exchange represents that trading 

in the Shares of the Trust will be subject 

to the existing trading surveillances 

administered by the Exchange, as well 

as cross-market surveillances 

administered by FINRA on behalf of the 

Exchange, which are designed to detect 

violations of Exchange rules and 

applicable federal securities laws.60 The 

Exchange represents that these 

procedures are adequate to properly 

monitor Exchange trading of the Shares 

in all trading sessions and to deter and 

detect violations of Exchange rules and 

federal securities laws applicable to 

trading on the Exchange. 

The surveillances referred to above 

generally focus on detecting securities 

trading outside their normal patterns, 

which could be indicative of 

manipulative or other violative activity. 

When such situations are detected, 

surveillance analysis follows and 

investigations are opened, where 

appropriate, to review the behavior of 

all relevant parties for all relevant 

trading violations. 

The Exchange or FINRA, on behalf of 

the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares with other markets 

and other entities that are members of 

the ISG, and the Exchange or FINRA, on 

behalf of the Exchange, or both, may 

obtain trading information regarding 

trading in the Shares from such markets 

and other entities. In addition, the 

Exchange may obtain information 

regarding trading in the Shares from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement 

(‘‘CSSA’’).61 The Exchange is also able 

to obtain information regarding trading 

in the Shares in connection with such 

ETP Holders’ proprietary or customer 

trades which they effect through ETP 

Holders on any relevant market. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

All statements and representations 

made in this filing regarding (a) the 

description of the portfolios of the 

Trust, (b) limitations on portfolio 

holdings or reference assets, or (c) the 

applicability of Exchange listing rules 

specified in this rule filing shall 

constitute continued listing 

requirements for listing the Shares on 

the Exchange. 

The Sponsor has represented to the 

Exchange that it will advise the 

Exchange of any failure by the Trust to 

comply with the continued listing 

requirements, and, pursuant to its 

obligations under Section 19(g)(1) of the 

Act, the Exchange will monitor for 

compliance with the continued listing 

requirements. If the Trust is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

NYSE Arca Rule 5.5–E(m). 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 73911 

62 15 U.S.C. 78f(b)(5). 

Information Bulletin 

Prior to the commencement of 

trading, the Exchange will inform its 

ETP Holders in an ‘‘Information 

Bulletin’’ of the special characteristics 

and risks associated with trading the 

Shares. Specifically, the Information 

Bulletin will discuss the following: (1) 

the procedures for creations of Shares in 

Baskets; (2) NYSE Arca Rule 9.2–E(a), 

which imposes a duty of due diligence 

on its ETP Holders to learn the essential 

facts relating to every customer prior to 

trading the Shares; (3) information 

regarding how the value of the Index 

and the IIV are disseminated; (4) the 

possibility that trading spreads and the 

resulting premium or discount on the 

Shares may widen during the Opening 

and Late Trading Sessions, when an 

updated IIV will not be calculated or 

publicly disseminated; and (5) trading 

information. The Exchange notes that 

investors purchasing Shares directly 

from the Trust will receive a prospectus. 

In addition, the Information Bulletin 

will reference that the Trust is subject 

to various fees and expenses as 

described in the Annual Report. The 

Information Bulletin will disclose that 

information about the Shares of the 

Trust is publicly available on the Trust’s 

website. 

The Information Bulletin will also 

discuss any relief, if granted, by the 

Commission or the staff from any rules 

under the Act. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 62 that an 

exchange have rules that are designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to, and perfect the 

mechanism of a free and open market 

and, in general, to protect investors and 

the public interest. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed and traded on the Exchange 

pursuant to the initial and continued 

listing criteria in NYSE Arca Rule 

8.201–E. The Exchange has in place 

surveillance procedures that are 

adequate to properly monitor trading in 

the Shares in all trading sessions and to 

deter and detect violations of Exchange 

rules and applicable federal securities 

laws. The Exchange or FINRA, on behalf 

of the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares with other markets 

that are members of the ISG, and the 

Exchange or FINRA, on behalf of the 

Exchange, or both, may obtain trading 

information regarding trading in the 

Shares from such markets. In addition, 

the Exchange may obtain information 

regarding trading in the Shares from 

markets that are members of ISG or with 

which the Exchange has in place a 

CSSA. Also, pursuant to NYSE Arca 

Rule 8.201–E(g), the Exchange is able to 

obtain information regarding trading in 

the Shares and the underlying ETH or 

any ETH derivative through ETP 

Holders acting as registered Market 

Makers, in connection with such ETP 

Holders’ proprietary or customer trades 

through ETP Holders which they effect 

on any relevant market. 

The proposed rule change is also 

designed to prevent fraudulent and 

manipulative acts and practices 

because, although the Digital Asset 

Exchange Market is not inherently 

resistant to fraud and manipulation, the 

Index serves as a means sufficient to 

mitigate the impact of instances of fraud 

and manipulation on a reference price 

for ETH. Specifically, the Index 

provides a better benchmark for the 

price of ETH than the Digital Asset 

Exchange Market price because it (1) 

tracks the Digital Asset Exchange 

Market price through trading activity at 

U.S.-Compliant Exchanges; (2) mitigates 

the impact of instances of fraud, 

manipulation and other anomalous 

trading activity in real-time through 

systematic adjustments; (3) is 

constructed and maintained by an 

expert third-party index provider, 

allowing for prudent handling of nonmarket-related events; and (4) mitigates 

the impact of instances of fraud, 

manipulation and other anomalous 

trading activity concentrated on any one 

specific exchange through a crossexchange composite index rate. The 

Trust has used the Index to price the 

Shares for more than four years, and the 

Index has proven its ability to (i) 

mitigate the effects of fraud, 

manipulation and other anomalous 

trading activity from impacting the ETH 

reference rate, (ii) provide a real-time, 

volume-weighted fair value of ETH and 

(iii) appropriately handle and adjust for 

non-market related events, such that 

efforts to manipulate the price of ETH 

would have had a negligible effect on 

the pricing of the Trust, due to the 

controls embedded in the structure of 

the Index. In addition, certain of the 

Index’s Constituent Exchanges also have 

or have begun to implement market 

surveillance infrastructure to further 

detect, prevent, and respond to fraud, 

attempted fraud, and similar 

wrongdoing, including market 

manipulation. The proposed rule 

change is also designed to prevent 

fraudulent and manipulative acts and 

practices based on the existence of the 

CME futures market as a large, 

surveilled and regulated market that is 

closely connected with the spot market 

for ETH and through which the 

Exchange could obtain information to 

assist in detecting and deterring 

potential fraud or manipulation. 

The proposed rule change is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest in that there is a 

considerable amount of ETH price and 

market information available on public 

websites and through professional and 

subscription services. Investors may 

obtain, on a 24-hour basis, ETH pricing 

information based on the spot price for 

ETH from various financial information 

service providers. The closing price and 

settlement prices of ETH are readily 

available from the Digital Asset 

Exchanges and other publicly available 

websites. In addition, such prices are 

published in public sources, or on-line 

information services such as Bloomberg 

and Reuters. The Digital Asset Holdings 

per Share will be calculated daily and 

made available to all market 

participants at the same time. The Trust 

will provide website disclosure of its 

Digital Asset Holdings daily. One or 

more major market data vendors will 

disseminate for the Trust on a daily 

basis information with respect to the 

most recent Digital Asset Holdings per 

Share and Shares outstanding. In 

addition, if the Exchange becomes 

aware that the Digital Asset Holdings 

per Share is not disseminated to all 

market participants at the same time, it 

will halt trading in the Shares until such 

time as the Digital Asset Holdings is 

available to all market participants. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the CTA. The IIV will be widely 

disseminated on a per Share basis every 

15 seconds during the NYSE Arca Core 

Trading Session (normally 9:30 a.m., 

E.T., to 4:00 p.m., E.T.) by one or more 

major market data vendors. The 

Exchange represents that the Exchange 

may halt trading during the day in 

which an interruption to the 

dissemination of the IIV or the value of 

the Index occurs. If the interruption to 

the dissemination of the IIV or the value 

of the Index persists past the trading day 

in which it occurred, the Exchange will 

halt trading no later than the beginning 


ddrumheller on DSK120RN23PROD with NOTICES1
73912 Federal Register / Vol. 88, No. 207 / Friday, October 27, 2023 / Notices 

63 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

of the trading day following the 

interruption. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of an additional type of exchange-traded 

product that will enhance competition 

among market participants, to the 

benefit of investors and the marketplace. 

As noted above, the Exchange has in 

place surveillance procedures relating to 

trading in the Shares and may obtain 

information via ISG from other 

exchanges that are members of ISG or 

with which the Exchange has entered 

into a CSSA. In addition, as noted 

above, investors will have ready access 

to information regarding the Trust’s 

Digital Asset Holdings, IIV, and 

quotation and last sale information for 

the Shares. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange notes that the proposed rule 

change will facilitate the listing and 

trading of an additional type of 

exchange-traded product, and the first 

such product based on ETH, which will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) by order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSEARCA–2023–70 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NYSEARCA–2023–70. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSEARCA–2023–70 and should be 

submitted on or before November 17, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.63

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–23703 Filed 10–26–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98787; File No. SR– 

CboeEDGX–2023–064] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Its 

Fees Schedule Related to Physical 

Port Fees 

October 23, 2023. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

13, 2023, Cboe EDGX Exchange, Inc. 

(the ‘‘Exchange’’ or ‘‘EDGX Options’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX Options’’) 

proposes to amend its Fees Schedule. 

The text of the proposed rule change is 

provided in Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

options/regulation/rule_filings/edgx/), 

at the Exchange’s Office of the 

Secretary, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 


ddrumheller on DSK120RN23PROD with NOTICES1