[Federal Register Volume 89, Number 213 (Monday, November 4, 2024)]
[Notices]
[Pages 87681-87706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101470; File No. SR-NYSEARCA-2024-87]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Adopt New NYSE Arca Rule 8.800-E To Provide 
for the Listing and Trading of Commodity- and Digital Asset-Based 
Investment Interests and To List and Trade Shares of the Grayscale 
Digital Large Cap Fund LLC

October 29, 2024.
    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 15, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``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 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new NYSE Arca Rule 8.800-E to 
provide for the listing and trading of Commodity- and Digital Asset-
Based Investment Interests, which are securities issued by a trust, 
limited liability company, or other similar entity that holds specified 
commodities, digital assets, Derivative Securities Products, and/or 
cash. The Exchange also proposes to list and trade shares of the 
Grayscale Digital Large Cap Fund LLC (the ``Fund'') under proposed NYSE 
Arca Rule 8.800-E. 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.

[[Page 87682]]

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
    The Exchange proposes to adopt new NYSE Arca Rule 8.800-E to 
provide for the listing and trading of Commodity- and Digital Asset-
Based Investment Interests, which are securities issued by a trust, 
limited liability company, or other similar entity that holds specified 
commodities, digital assets, Derivative Securities Products, and/or 
cash. The Exchange also proposes to list and trade shares of the Fund 
under proposed NYSE Arca Rule 8.800-E.
Proposed Listing Rules
    Proposed Rule 8.800-E(a) provides that the Exchange will consider 
for trading, whether by listing or pursuant to unlisted trading 
privileges, Commodity- and/or Digital Asset-Based Investment Interests 
that meet the criteria of this rule. The Exchange will file separate 
proposals under Section 19(b) of the Securities Exchange Act of 1934 
before trading, either by listing or pursuant to unlisted trading 
privileges, Commodity- and/or Digital Asset-Based Investment Interests. 
All statements or representations contained in such rule filing 
regarding (a) the description of the index, portfolio, or reference 
asset, (b) limitations on index or portfolio holdings or reference 
assets, or (c) the applicability of Exchange listing rules specified in 
such rule filing will constitute continued listing requirements. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements. If an issue of 
Commodity- and/or Digital Asset-Based Investment Interests does not 
satisfy these requirements, the Exchange may halt trading in the 
securities and will initiate delisting proceedings pursuant to Rule 
5.5-E(m).
    Proposed Rule 8.800-E(b) provides that this rule is applicable only 
to Commodity- and/or Digital Asset-Based Investment Interests. Except 
to the extent inconsistent with this Rule, or unless the context 
otherwise requires, the provisions of the Bylaws and all other rules 
and procedures of the Board of Directors shall be applicable to the 
trading on the Exchange of such securities. Commodity- and/or Digital 
Asset-Based Investment Interests are included within the definition of 
``security'' or ``securities'' as such terms are used in the Bylaws and 
Rules of the Exchange.
    Proposed Rule 8.800-E(c)(1) defines a Commodity- and/or Digital 
Asset-Based Investment Interest as a security (a) that is issued by a 
trust, limited liability company, or other similar entity (the 
``Fund'') that holds (1) specified commodities and/or digital assets 
deposited with the Fund, or (2) specified commodities and/or digital 
assets and, in addition to such specified commodities and/or digital 
assets, Derivative Securities Products (as defined in NYSE Arca Rule 
1.1) deposited with the Fund and/or cash; (b) that is issued by such 
Fund in a specified aggregate minimum number in return for a deposit of 
a quantity of the underlying commodity(ies), digital asset(s), 
Derivative Securities Products, and/or cash; and (c) that, when 
aggregated in the same specified minimum number, may be redeemed at a 
holder's request by such Fund which will deliver to the redeeming 
holder the quantity of the underlying commodity(ies), digital asset(s), 
Derivative Securities Products, and/or cash.
    Proposed Rule 8.800-E(c)(2) provides that the term ``commodity,'' 
as used in this rule, includes commodities as defined in Section 1a(9) 
of the Commodity Exchange Act.
    Proposed Rule 8.800-E(c)(3) defines the term ``digital asset,'' for 
purposes of this rule, as any digital representation of value recorded 
on a cryptographically secured, distributed ledger (i.e., blockchain) 
or similar technology.
    Proposed Rule 8.800-E(d) provides that the Exchange may trade, 
either by listing or pursuant to unlisted trading privileges, 
Commodity- and/or Digital Asset-Based Investment Interests based on an 
underlying commodity(ies), digital asset(s), and/or Derivative 
Securities Products. Each issue of a Commodity- and/or Digital Asset-
Based Investment Interest shall be designated as a separate series and 
shall be identified by a unique symbol.
    Proposed Rule 8.800-E(e)(1) sets forth initial listing criteria for 
Commodity- and/or Digital Asset-Based Investment Interests. Proposed 
Rule 8.800-E(e)(1)(i) provides that the Exchange will establish a 
minimum number of Commodity- and/or Digital Asset-Based Investment 
Interests required to be outstanding at the time of commencement of 
trading on the Exchange. Proposed Rule 8.800-E(1)(ii) provides that 
there shall be no limitation on the percentage of a Fund's portfolio 
that may be invested in commodity and/or digital asset holdings, except 
that, in the aggregate, at least 90% of the weight of such holdings 
shall, on both an initial and continuing basis, consist of commodities 
and/or digital assets concerning which the Exchange is able to obtain 
information via the Intermarket Surveillance Group (``ISG'') from other 
members of the ISG or via a comprehensive surveillance sharing 
agreement (``CSSA'').
    Proposed Rule 8.800-E(e)(2) and subparagraphs (i) through (viii) 
thereunder set forth continued listing criteria for Commodity- and/or 
Digital Asset-Based Investment Interests. Proposed Rule 8.800-E(e)(2) 
provides that the Exchange will maintain surveillance procedures for 
securities listed under this rule and will consider the suspension of 
trading in, and will initiate delisting proceedings under NYSE Arca 
Rule 5.5-E(m) of, such series under any of the following circumstances:
    <bullet> if, following the initial twelve-month period following 
commencement of trading on the Exchange of Commodity- and/or Digital 
Asset-Based Investment Interests, the Fund has more than 60 days 
remaining until termination and there are fewer than 50 record and/or 
beneficial holders of Commodity- and/or Digital Asset-Based Investment 
Interests (proposed Rule 8.800-E(e)(2)(i));
    <bullet> if, following the initial twelve-month period following 
commencement of trading on the Exchange of Commodity- and/or Digital 
Asset-Based Investment Interests, the Fund has fewer than 50,000 
securities issued and outstanding (proposed Rule 8.800-E(e)(2)(ii));
    <bullet> if, following the initial twelve-month period following 
commencement of trading on the Exchange of Commodity- and/or Digital 
Asset-Based Investment Interests, the market value of all securities 
issued and outstanding is less than $1,000,000 (proposed Rule 8.800-
E(e)(2)(iii));
    <bullet> if the value of the underlying commodity(ies) and/or 
digital asset(s) is no longer calculated or available on at least a 15-
second delayed basis from a source unaffiliated with the sponsor, Fund, 
custodian or the Exchange (proposed Rule 8.800-E(e)(2)(iv));
    <bullet> if the Intra-Day Fund Value is no longer made available on 
at least a 15-second delayed basis (proposed Rule 8.800-E(e)(2)(v));
    <bullet> if any of the continued listing requirements set forth in 
this Rule 8.800-E are not continuously maintained (proposed Rule 8.800-
E(e)(2)(vi));

[[Page 87683]]

    <bullet> if the Exchange submits a rule filing pursuant to Section 
19(b) of the Securities Exchange Act of 1934 to permit the listing and 
trading of a series of Commodity- and/or Digital Asset-Based Investment 
Interests and any of the statements or representations regarding (a) 
the description of the index, portfolio, or reference asset, (b) 
limitations on index or portfolio holdings or reference assets, or (c) 
the applicability of Exchange listing rules specified in such rule 
filing are not continuously maintained (proposed Rule 8.800-
E(e)(2)(vii)); or
    <bullet> if such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable (proposed Rule 8.800-E(e)(2)(viii)).
    Proposed Rule 8.800-E(e)(3) and the subparagraphs thereunder set 
forth certain requirements specific to Commodity- and/or Digital Asset-
Based Investment Interests issued by a trust. Proposed Rule 8.800-
E(e)(3)(i) provides that the stated term of a trust shall be as stated 
in the trust prospectus; however, a trust may be terminated under such 
earlier circumstances as may be specified in the trust prospectus. In 
addition, a trust may terminate in accordance with the provisions of 
the trust prospectus, which may provide for termination if the value of 
the trust falls below a specified amount. Proposed Rule 8.800-
E(e)(3)(ii) provides for the following requirements on an initial and 
continued listing basis: (1) that the trustee of a trust must be a 
trust company or banking institution having substantial capital and 
surplus and the experience and facilities for handling corporate trust 
business, and that, in cases where, for any reason, an individual has 
been appointed as trustee, a qualified trust company or banking 
institution must be appointed co-trustee; and (2) that no change is to 
be made in the trustee of a listed issue without prior notice to and 
approval of the Exchange.
    Proposed Rule 8.800-E(f) provides that, upon termination of a Fund 
issuing securities pursuant to Rule 8.800-E, the Exchange requires that 
Commodity- and/or Digital Asset-Based Investment Interests issued in 
connection with the Fund be removed from Exchange listing.
    Proposed Rule 8.800-E(g) provides that voting rights shall be as 
set forth in the applicable prospectus of the Fund issuing Commodity- 
and/or Digital Asset-Based Investment Interests.
    Proposed Rule 8.800-E(h) provides that neither the Exchange nor any 
agent of the Exchange shall have any liability for damages, claims, 
losses or expenses caused by any errors, omissions, or delays in 
calculating or disseminating any underlying commodity value, the 
current value of the underlying commodity required to be deposited to 
the Fund in connection with issuance of Commodity- and/or Digital 
Asset-Based Investment Interests; resulting from any negligent act or 
omission by the Exchange, or any agent of the Exchange, or any act, 
condition or cause beyond the reasonable control of the Exchange, its 
agent, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission or delay in 
the reports of transactions in an underlying commodity.
    Proposed Rule 8.800-E(i) provides that an ETP Holder acting as a 
registered Market Maker in Commodity- and/or Digital Asset-Based 
Investment Units with no exposure to a non-U.S. currency or currencies 
must file with the Exchange in a manner prescribed by the Exchange and 
keep current a list identifying all accounts for trading that a Market 
Maker may have or over which it may exercise investment discretion in 
an underlying commodity, related commodity futures or options on 
commodity futures, or any other related commodity derivatives; an 
underlying digital asset, related digital asset futures or options on 
digital assets, or any other related digital asset derivatives; or an 
underlying series of Derivative Securities Products, related future or 
options on such Derivative Securities Products, or any other related 
derivatives of such Derivative Securities Products. An ETP Holder 
acting as a registered Market Maker in Commodity- and/or Digital Asset-
Based Investment Interests with exposure to one or more non-U.S. 
currencies (``Underlying FX'') also must file with the Exchange, in a 
manner prescribed by the Exchange, and keep current a list identifying 
all accounts for trading in Underlying FX and derivatives overlying 
Underlying FX which the Market Maker may have or over which it may 
exercise investment discretion, as well as a list of all commodity and 
commodity-related accounts referenced above. No Market Maker in 
Commodity- and/or Digital-Asset Based Investment Interests shall trade 
in a commodity, Underlying FX, or any related derivative in an account 
that the Market Maker (1) directly or indirectly controls trading 
activities or has a direct interest in the profits or losses thereof, 
(2) is required by this rule to disclose to the Exchange, and (3) has 
not reported to the Exchange.
    In addition to the existing obligations under Exchange rules 
regarding the production of books and records, the ETP Holder acting as 
a Market Maker in Commodity- and/or Digital Asset Based Investment 
Interests shall make available to the Exchange such books, records, or 
other information pertaining to transactions by such entity or 
registered or non-registered employee affiliated with such entity for 
its or their own accounts for trading the underlying physical 
commodity, related commodity futures or options on commodity futures, 
applicable Underlying FX, or any other related commodity or applicable 
Underlying FX derivatives, as may be requested by the Exchange.
    Finally, the Exchange proposes to include the following commentary 
to Rule 8.800-E. Proposed Commentary .01 provides that ETP Holders 
shall provide to all purchasers of newly issued Commodity- and/or 
Digital Asset-Based Investment Interests a prospectus for the series of 
Commodity- and/or Digital Asset-Based Investment Interests. Proposed 
Commentary .02 provides that transactions in Commodity- and/or Digital-
Asset Based Investment Interests will occur during the trading hours 
specified in NYSE Arca Rule 7.34-E.
    The Exchange also proposes to amend Rule 5.3-E to include 
Commodity- and/or Digital Asset-Based Investment Interests listed 
pursuant to proposed Rule 8.800-E among the derivative or special 
purpose securities that are subject to a limited set of corporate 
governance and disclosure policies and to amend Rule 5.3-E(e) to 
include Commodity- and/or Digital Asset-Based Investment Interests 
listed pursuant to proposed Rule 8.800-E among the derivative or 
special purpose securities to which the requirements concerning 
shareholder/annual meetings do not apply.
    Commodity- and/or Digital Asset-Based Investment Interests listed 
and traded pursuant to proposed Rule 8.800-E would be substantially 
similar to Commodity-Based Trust Shares listed and traded pursuant to 
current Rule 8.201-E, with two main differences. First, whereas 
Commodity-Based Trust Shares are issued by a trust, Commodity- and/or 
Digital Asset-Based Investment Interests could be issued, as a 
proposed, by a trust, limited liability company, or other similar 
entity. Second, whereas Commodity-Based Trust Shares are based on an 
underlying commodity only, the Exchange proposes that Commodity- and/or 
Digital Asset-Based Investment Interests could be

[[Page 87684]]

based on an underlying commodity or commodities, as well as digital 
assets and Derivative Securities Products.\4\ The Exchange believes 
this flexibility with respect to the structure of the entity issuing 
Commodity- and/or Digital Asset-Based Investment Interests and the 
holdings underlying such securities would benefit both issuers and the 
investing public and would facilitate the availability of a new type of 
exchange-traded product (``ETP'').
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    \4\ The Exchange notes that the requirement set forth in 
proposed Rule 8.800-E(c)(1) regarding digital asset holdings is 
based on a similar provision set forth in current Rule 8.600-E 
regarding Managed Fund Shares. See Rule 8.600-E, Commentary 
.01(d)(1).
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Grayscale Digital Large Cap Fund
    The Exchange proposes to list and trade shares (``Shares'') \5\ of 
the Fund pursuant to proposed NYSE Arca Rule 8.800-E.\6\
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    \5\ The Shares are expected to be listed under the ticker symbol 
``GDLC.''
    \6\ On May 13, 2021, the Fund filed its registration statement 
on Form 10 under the Securities Act (File No. 000-56284) (the 
``Registration Statement on Form 10''). On June 28, 2021, the Fund 
filed Amendment No. 1 to the Registration Statement on Form 10. On 
August 13, 2021, the Fund filed Amendment No. 2 to the Registration 
Statement on Form 10. On November 29, 2021, the Fund filed Amendment 
No. 3 to the Registration Statement on Form 10. On January 20, 2022, 
the Fund filed Amendment No. 4 to the Registration Statement on Form 
10. On February 4, 2022, the Fund filed Amendment No. 5 to the 
Registration Statement on Form 10. On July 12, 2021, the 
Registration Statement on Form 10 was automatically deemed 
effective. On September 27, 2021, September 1, 2022, September 1, 
2023, and September 6, 2024, the Fund filed its annual report on 
Form 10-K under the Securities Act (File No. 000-56284) (the 
``Annual Reports''). On November 5, 2021, February 10, 2022, May 6, 
2022, November 4, 2022, February 8, 2023, May 5, 2023, November 3, 
2023, February 7, 2024, and May 3, 2024, the Fund filed its 
quarterly reports on Form 10-Q under the Securities Act (File No. 
000-56284) (the ``Quarterly Reports''). The descriptions of the 
Fund, the Shares, and the digital assets contained herein are based, 
in part, on the Annual Reports and Quarterly Reports. On February 7, 
2018, the Fund submitted to the Commission a Form D as a limited 
liability company. Shares of the Fund have been quoted on OTC 
Market's OTCQX Best Marketplace under the symbol ``GDLC'' since 
October 14, 2019. On October 15, 2019 and September 23, 2020, the 
Fund published annual reports for GDLC for the periods ended June 
30, 2019 and June 30, 2020, respectively. On November 11, 2019, 
February 13, 2020, May 8, 2020, November 6, 2020, February 12, 2021, 
and May 13, 2021, the Fund published quarterly reports for GDLC for 
the periods ended September 30, 2019, December 31, 2019, March 31, 
2020, September 30, 2020, December 31, 2020, and March 31, 2021, 
respectively. Reports published before October 5, 2020, the date on 
which the Fund'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/GDLC/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=1729997 &owner=exclude). The Shares will be of the same class 
and will have the same rights as shares of GDLC. According to 
Grayscale Investments, LLC, freely tradeable shares of GDLC will 
remain freely tradeable Shares on the date of the listing of the 
Shares that are unregistered under the Securities Act. Restricted 
shares of GDLC 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 tradeable Shares.
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    The manager of the Fund is Grayscale Investments, LLC 
(``Manager''), a Delaware limited liability company. The Manager is a 
wholly owned indirect subsidiary of Digital Currency Group, Inc. 
(``Digital Currency Group''). The custodian for the Fund is Coinbase 
Custody Trust Company, LLC (``Custodian'').\7\ The administrator and 
transfer agent of the Fund will be BNY Mellon Asset Servicing, a 
division of The Bank of New York Mellon (the ``Transfer Agent''). The 
distribution and marketing agent for the Fund will be Foreside Fund 
Services, LLC (the ``Marketing Agent''). The index provider and digital 
asset reference rate provider for the Fund is CoinDesk Indices, Inc. 
(the ``Index Provider'' and the ``Reference Rate Provider'').
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    \7\ According 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.
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    The Fund is a Cayman Islands limited liability company, formed on 
January 25, 2018, that operates pursuant to a limited liability company 
agreement between the Manager and the Shareholders (``LLC Agreement''). 
The Fund has no fixed termination date.
    The Fund is one of the world's largest diversified crypto 
investment funds by assets under management as of the date of this 
filing. The Fund has approximately $490.8 million in assets under 
management,\8\ and its Shares have historically traded in the millions 
of dollars in daily volume and are held by more than a quarter of a 
million American investor accounts seeking exposure to the Fund's large 
cap digital assets (the ``Fund Components'') without the cost and 
complexity of purchasing any of the individual assets directly.\9\ As 
of the date of this filing, the Fund Component weightings are Bitcoin 
(75.46%), Ether (17.90%), Solana (SOL) (4.13%), XRP (1.86%) and 
Avalanche (AVAX) (0.65%).\10\ However, because the Fund is not 
currently listed as an ETP, the value of the Shares has not been able 
to closely track the value of the Fund's underlying Fund Components. 
The Manager thus believes that allowing Shares of the Fund to list and 
trade on the Exchange as an ETP (i.e., converting the Fund to a spot 
ETP) would unlock over $167 million of value \11\ for the Fund's 
shareholders and provide other investors with a safe and secure way to 
invest in the Fund Components on a regulated national securities 
exchange.
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    \8\ As of October 4, 2024.
    \9\ As of the date of this filing.
    \10\ The Manager will ensure that the Fund's holdings are 
consistent with the requirements of Rule 8.800-E(c)(1).
    \11\ As of October 4, 2024.
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Operation of the Fund
    According to the Annual Report, the Fund's assets consist solely of 
the Fund Components.\12\
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    \12\ The Fund will not obtain exposure to any Fund Component via 
futures, options on futures, or any other derivative. The Fund may 
from time to time come into possession of Forked Assets (as defined 
below) by virtue of its ownership of the Fund Components, generally 
through a fork in the respective Fund Component's blockchain, an 
airdrop offered to holders of the respective Fund Component or other 
similar event. ``Rights to Forked Assets'' 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 Fund's 
ownership of the Fund Components and arise without any action of the 
Fund, or of the Manager on behalf of the Fund. A ``Forked Asset'' is 
any virtual currency token, or other asset or right, acquired by the 
Fund through the exercise (subject to the applicable provisions of 
the LLC Agreement) of any Rights to Forked Assets. Although the Fund 
is permitted to take certain actions with respect to Forked Assets 
in accordance with its LLC Agreement, at this time the Fund will 
prospectively irrevocably abandon any Forked Assets. In the event 
the Fund seeks to change this position, the Exchange would file a 
subsequent proposed rule change with the Commission.
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    Each Share represents a proportional interest, based on the total 
number of Shares outstanding, in each of the digital assets held by the 
Fund, as determined by reference to the respective Digital Asset 
Reference Rates and weightings of each the Fund's digital asset 
holdings,\13\ less the Fund's expenses and other liabilities (which 
include accrued but unpaid fees and expenses). The Manager expects that 
the market price of the Shares will fluctuate over time in response to 
the market prices of the Fund Components. In addition, because the 
Shares reflect the estimated accrued but unpaid expenses of the Fund, 
except as otherwise affected by a rebalancing of the Fund's portfolio, 
the number of Fund Components represented by a Share is generally 
expected to gradually decrease

[[Page 87685]]

over time as the Fund Components are used to pay the Fund's expenses.
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    \13\ The ``Digital Asset Reference Rates'' are determined by 
reference to the Index Price or an Indicative Price. The 
``Indicative Price'' is a volume-weighted average price in U.S. 
dollars for a Fund Component as of 4:00 p.m., New York time, for the 
immediately preceding 60-minute period derived from data collected 
from Digital Asset Trading Platforms trading such Fund Component 
selected by the Reference Rate Provider. The ``Index Price'' for a 
Fund Component would be determined by the Reference Rate Provider by 
further cleansing and compiling the trade data used to determine the 
Indicative Price in such a manner as to algorithmically reduce the 
impact of anomalistic or manipulative trading.
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    The activities of the Fund are limited to (i) issuing ``Baskets'' 
(as defined below) in exchange for Fund Components and cash transferred 
to the Fund as consideration in connection with creations, (ii) 
transferring or selling Fund Components as necessary to cover the 
``Manager's Fee'' \14\ and/or any Additional Fund expenses, (iii) 
transferring Fund Components and cash in exchange for Baskets 
surrendered for redemption (subject to obtaining regulatory approval 
from the Commission and approval of the Manager), (iv) causing the 
Manager to sell Fund Components on the termination of the Fund, and (v) 
engaging in all administrative and security procedures necessary to 
accomplish such activities in accordance with the provisions of the LLC 
Agreement, the Custodian Agreement, the Index License Agreement, and 
the Participant Agreements (each as defined below).\15\
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    \14\ The Manager's Fee means a fee, payable in the Fund 
Components then held by the Fund in proportion to such Fund 
Components' respective weightings, which accrues daily in U.S. 
dollars at an annual rate of currently 2.5%, but which will be 
lowered in connection with the Fund becoming an ETP, of the NAV Fee 
Basis Amount of the Fund as of 4:00 p.m., New York time, on each 
day, provided that for a day that is not a business day, the 
calculation of the Manager's Fee will be based on the NAV Fee Basis 
Amount from the most recent business day, reduced by the accrued and 
unpaid Manager's Fee for such most recent business day and for each 
day after such most recent business day and prior to the relevant 
calculation date. The ``NAV Fee Basis Amount'' is calculated in the 
manner set forth under ``Valuation of Fund Components and 
Determination of NAV'' below.
    \15\ Neither the Fund, nor the Manager, nor the Custodian, nor 
any other person associated with the Fund will, directly or 
indirectly, engage in action where any portion of the Fund 
Components becomes subject to proof-of-stake validation or is used 
to earn additional Fund Components or generate income or other 
earnings.
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    The Fund will not be actively managed.\16\ The Fund will not take 
any actions to take advantage, or mitigate, the impacts of volatility 
in the prices of the Fund Components.
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    \16\ The Fund is a passive entity that is managed and 
administered by the Manager and does not have any officers, 
directors or employees. The Manager will retain limited discretion 
to exclude digital assets from the Fund Components only in certain 
rules-based circumstances, as further discussed below.
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Investment Objective
    According to the Annual Report, and as further described below, the 
Fund's investment objective is for the value of the Shares (based on 
net asset value (``NAV'') per Share) to reflect the value of the Fund 
Components held by the Fund, as determined by reference to their 
Digital Asset Reference Rates and weightings within the Fund, less the 
Fund's expenses and other liabilities.
    While an investment in the Shares is not a direct investment in the 
Fund Components, the Shares are designed to provide investors with a 
cost-effective and convenient way to gain investment exposure to the 
digital assets held by the Fund. Generally speaking, a substantial 
direct investment in the Fund Components may require expensive and 
sometimes complicated arrangements in connection with the acquisition, 
security and safekeeping of the Fund Components and may involve the 
payment of substantial fees to acquire such Fund Components from third-
party facilitators through cash payments of U.S. dollars. Because the 
value of the Shares is correlated with the value of Fund Components 
held by the Fund, it is important to understand the investment 
attributes of, and the market for, the Fund Components.
    The Fund uses the Digital Asset Reference Rate of each Fund 
Component to calculate its NAV, which is the aggregate value, expressed 
in U.S. dollars, of the Fund's assets, less the U.S. dollar value of 
the Fund's expenses and other liabilities calculated in the manner set 
forth under ``Valuation of Fund Components and Determination of NAV.'' 
``NAV per Share'' is calculated by dividing NAV by the number of Shares 
then outstanding.
Valuation of the Digital Assets and Determination of NAV
    The following is a description of the material terms of the LLC 
Agreement as it relates to valuation of the Fund digital assets and the 
NAV calculations.\17\
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    \17\ While the Manager uses the terminology ``NAV'' in this 
filing, the term used in the LLC Agreement is ``Digital Asset 
Holdings.''
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    At 4:00 p.m., New York time, on each business day or as soon 
thereafter as practicable, the Manager will evaluate the digital assets 
held by the Fund and calculate and publish the NAV of the Fund. To 
calculate the NAV, the Manager will:
    1. For each Fund Component then held by the Fund:
    a. Determine the Digital Asset Reference Rate for the Fund 
Component as of such business day;
    b. Multiply the Digital Asset Reference Rate by the aggregate 
number of tokens of the Fund Component held by the Fund as of 4:00 
p.m., New York time, on the immediately preceding business day;
    c. Add the U.S. dollar value of the number of tokens of the Fund 
Component receivable under pending creation orders, if any, as 
calculated by multiplying the applicable Fund Component Basket Amount 
\18\ by the applicable Digital Asset Reference Rate, and multiplying 
the result by the number of Baskets pending under such pending creation 
orders; and
---------------------------------------------------------------------------

    \18\ ``Fund Component Basket Amount'' means, as of any trade 
date, the amount of tokens of such Fund Component required to be 
delivered in connection with each Creation Basket, as determined by 
dividing the amount of tokens of such Fund Component held by the 
Fund at 4:00 p.m., New York time, on such trade date, after 
deducting the applicable Fund Component Aggregate Liability Amount 
(defined below), by the number of Shares outstanding at such time 
(the quotient so obtained calculated to one one-hundred-millionth 
(i.e., carried to the eighth decimal place)) and multiplying the 
quotient so obtained for the Fund Component by 100. ``Fund Component 
Aggregate Liability Amount'' means for any Fund Component and any 
trade date, an amount of tokens of such Fund Component equal to the 
sum of (x) all accrued but unpaid Fund Component Fee Amounts for 
such Fund Component as of 4:00 p.m., New York time, on such trade 
date and (y) the Fund Component Expense Amount as of 4:00 p.m., New 
York time, on such trade date.
---------------------------------------------------------------------------

    d. Subtract the U.S. dollar value of the number of tokens of the 
Fund Component to be distributed under pending redemption orders, if 
any, as calculated by multiplying the applicable Fund Component Basket 
Amount by the applicable Digital Asset Reference Rate, and multiplying 
the result by the number of Baskets pending under such pending 
redemption orders; \19\
---------------------------------------------------------------------------

    \19\ ``Baskets'' and ``Basket Amount'' have the meanings set 
forth in ``Creation and Redemption of Shares'' below.
---------------------------------------------------------------------------

    2. Calculate the sum of the resulting U.S. dollar values for all 
Fund Components then held by the Fund, as determined pursuant to 
paragraph 1 above;
    3. Add (i) the amount of U.S. dollars then held by the Fund plus 
(ii) the amount of any U.S. dollars to be received by the Fund in 
connection with any pending creations;
    4. Subtract the amount of any U.S. dollars to be distributed under 
pending redemption orders;
    5. Subtract the U.S. dollar amount of accrued and unpaid Additional 
Fund Expenses, if any; \20\
---------------------------------------------------------------------------

    \20\ ``Additional Fund Expenses'' are any expenses incurred by 
the Fund in addition to the Manager's Fee that are not Manager-paid 
expenses, including, but not limited to, (i) taxes and governmental 
charges, (ii) expenses and costs of any extraordinary services 
performed by the Manager (or any other service provider) on behalf 
of the Fund to protect the Fund or the interests of shareholders, 
(iii) any indemnification of the Custodian or other agents, service 
providers or counterparties of the Fund, (iv) the fees and expenses 
related to the listing, quotation or trading of the Shares on any 
marketplace or other alternative trading system, as determined by 
the Manager, on which the Shares may then be listed, quoted or 
traded, including but not limited to, NYSE Arca, Inc. (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.

---------------------------------------------------------------------------

[[Page 87686]]

    6. Subtract the U.S. dollar value of the accrued and unpaid 
Manager's Fee as of 4:00 p.m., New York time on the immediately 
preceding business day (the amount derived from steps 1 through 7, the 
``NAV Fee Basis Amount''); and
    7. Subtract the U.S. dollar value of the accrued and unpaid 
Manager's Fee that accrues for such business day, as calculated based 
on the NAV Fee Basis Amount for such business day.
    Notwithstanding the foregoing, in the event that the Manager 
determines that the primary methodology used to determine any of the 
Digital Asset Reference Rates is not an appropriate basis for valuation 
of the Fund's digital assets, the Manager will utilize the cascading 
set of rules as described in ``Fund Valuation of Fund Components'' 
below.
Background on Fund Components \21\
---------------------------------------------------------------------------

    \21\ The description of the Fund Components in this section, 
which reflects the Fund Components as of the date of this filing, 
was provided by the Manager and is based on the Annual Report.
---------------------------------------------------------------------------

Bitcoin and the Bitcoin Network
    Bitcoin is a digital asset that is created and transmitted through 
the operations of the peer-to-peer Bitcoin network, a decentralized 
network of computers that operates on cryptographic protocols. No 
single entity owns or operates the Bitcoin network, the infrastructure 
of which is collectively maintained by a decentralized user base. The 
Bitcoin network allows people to exchange tokens of value, called 
Bitcoin, which are recorded on a public transaction ledger known as a 
blockchain. Bitcoin can be used to pay for goods and services, or it 
can be converted to fiat currencies, such as the U.S. dollar, at rates 
determined on Digital Asset Markets that trade Bitcoin or in individual 
end-user-to-end-user transactions under a barter system.
    The Bitcoin network was initially contemplated in a white paper 
that also described Bitcoin and the operating software to govern the 
Bitcoin network. The white paper was purportedly authored by Satoshi 
Nakamoto. However, no individual with that name has been reliably 
identified as Bitcoin's creator, and the general consensus is that the 
name is a pseudonym for the actual inventor or inventors. The first 
Bitcoins were created in 2009 after Nakamoto released the Bitcoin 
network source code (the software and protocol that created and 
launched the Bitcoin network). The Bitcoin network has been under 
active development since that time by a group of engineers known as 
core developers. The core developers are able to access, and can alter, 
the Bitcoin network source code and, as a result, they are responsible 
for quasi-official releases of updates and other changes to the Bitcoin 
network's source code. The release of updates to the Bitcoin network's 
source code does not guarantee that the updates will be automatically 
adopted. Users and miners must accept any changes made to the Bitcoin 
source code by downloading the proposed modification of the Bitcoin 
network's source code. A modification of the Bitcoin network's source 
code is effective only with respect to the Bitcoin users and miners 
that download it. If a modification is accepted by only a percentage of 
users and miners, a division in the Bitcoin 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.''
    Core development of the Bitcoin network source code has 
increasingly focused on modifications of the Bitcoin network protocol 
to increase speed and scalability and also allow for non-financial, 
next generation uses. For example, following the recent activation of 
Segregated Witness on the Bitcoin network, an alpha version of the 
Lightning network was released. The Lightning network is an open-source 
decentralized network that enables instant off-blockchain transfers of 
the ownership of Bitcoin without the need of a trusted third party. The 
system utilizes bidirectional payment channels that consist of multi-
signature addresses. One on-blockchain transaction is needed to open a 
channel and another on-blockchain transaction can close the channel. 
Once a channel is open, value can be transferred instantly between 
counterparties who are engaging in real Bitcoin transactions without 
broadcasting them to the Bitcoin network. New transactions will replace 
previous transactions and the counterparties will store everything 
locally as long as the channel stays open to increase transaction 
throughput and reduce computational burden on the Bitcoin network. 
Other efforts include increased use of smart contracts and distributed 
registers built into, built atop or pegged alongside the Bitcoin 
blockchain. For example, the white paper for Blockstream, an 
organization that includes core developer Pieter Wuille, calls for the 
use of ``pegged sidechains'' to develop programming environments that 
are built within Bitcoin blockchain ledgers that can interact with and 
rely on the security of the Bitcoin network and the Bitcoin blockchain, 
while remaining independent from them. Open-source projects such as RSK 
are a manifestation of this concept and seek to create the first open-
source, smart contract platform built on the Bitcoin blockchain to 
enable automated, condition-based payments with increased speed and 
scalability. The Fund's activities will not directly relate to such 
projects, though such projects may utilize Bitcoin as tokens for the 
facilitation of their non-financial uses, thereby potentially 
increasing demand for Bitcoin and the utility of the Bitcoin network as 
a whole. Conversely, projects that operate and are built within the 
blockchain may increase the data flow on the Bitcoin network and could 
either ``bloat'' the size of the Bitcoin blockchain or slow 
confirmation times. At this time, such projects remain in early stages 
and have not been materially integrated into the Bitcoin blockchain or 
the Bitcoin network.
    The supply of new Bitcoin is mathematically controlled so that the 
number of Bitcoin grows at a limited rate pursuant to a pre-set 
schedule. The number of Bitcoin awarded for solving a new block is 
automatically halved after every 210,000 blocks are added to the 
blockchain. Currently, the fixed reward for solving a new block is 
3.125 Bitcoin per block and this is expected to decrease by half to 
become 1.5625 Bitcoin after the next 210,000 blocks have entered the 
Bitcoin Network, which is expected to be mid-2028. This deliberately 
controlled rate of Bitcoin creation means that the number of Bitcoin in 
existence will increase at a controlled rate until the number of 
Bitcoin in existence reaches the pre-determined 21 million Bitcoin. As 
of June 30, 2024, approximately 19.7 million Bitcoins were outstanding 
and the date when the 21 million Bitcoin limitation will be reached is 
estimated to be the year 2140.
Ether and the Ethereum Network
    Ether 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

[[Page 87687]]

known as a blockchain. Ether 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 Markets'' \22\ or in individual end-user-
to-end-user transactions under a barter system.
---------------------------------------------------------------------------

    \22\ A ``Digital Asset Market'' is a ``Brokered Market,'' 
``Dealer Market,'' ``Principal-to-Principal Market'' or ``Exchange 
Market'' (referred to as ``Trading Platform Markets'' in this 
proposal), as each such term is defined in the Financial Accounting 
Standards Board Accounting Standards Codification Master Glossary. 
The ``Digital Asset Trading Platform Market'' is the global trading 
platform market for the trading of digital assets, which consists of 
transactions on electronic Digital Asset Trading Platforms. A 
``Digital Asset Trading Platform'' is an electronic marketplace 
where trading platform participants may trade, buy and sell digital 
assets based on bid-ask trading. The largest Digital Asset Trading 
Platforms are online and typically trade on a 24-hour basis, 
publishing transaction price and volume data.
---------------------------------------------------------------------------

    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 Ether on the Ethereum Network. Smart contract 
operations are executed on the Ethereum blockchain in exchange for 
payment of Ether. The Ethereum Network is one of a number of projects 
intended to expand blockchain use beyond just a peer-to-peer money 
system.
    The Ethereum Network went live on July 30, 2015.
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 pre-defined 
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 March 31, 2024, 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 
2023, between $20 billion and $30 billion worth of digital assets were 
locked up as collateral on DeFi platforms on the Ethereum Network.\23\
---------------------------------------------------------------------------

    \23\ DeFiLlama, ``Ethereum Total Value Locked,'' https://defillama.com/chain/Ethereum.
---------------------------------------------------------------------------

SOL and the Solana Network
    The Solana protocol introduced the Proof-of-History (``PoH'') 
consensus mechanism as an alternative to Proof-of-Stake (``PoS'') 
blockchains like Ethereum and Proof-of-Work (``PoW'') blockchains like 
Bitcoin.\24\ PoH is a consensus mechanism that automatically orders on-
chain transactions by creating a historical record that proves an event 
has occurred at a specific moment in time. PoH is intended to provide a 
transaction processing speed and capacity advantage over traditional 
PoW and PoS networks, which rely on sequential production of blocks and 
can lead to delays caused by validator confirmations.
---------------------------------------------------------------------------

    \24\ Neither the Fund, nor the Manager, nor the Custodian, nor 
any other person associated with the Fund will, directly or 
indirectly, engage in action where any portion of the Fund's Fund 
Components becomes subject to proof-of-stake validation or is used 
to earn additional Fund Components or generate income or other 
earnings.
---------------------------------------------------------------------------

    The Solana protocol was first conceived by Anatoly Yakovenko in a 
2017 whitepaper. Development of the Solana network is overseen by the 
Solana Foundation, a Swiss non-profit organization, and Solana Labs, 
Inc., a Delaware corporation, which administered the original network 
launch and token distribution. Smart contract operations are executed 
on the Solana blockchain in exchange for payment of SOL.
XRP and the XRP Network
    XRP is a digital asset that was created by Chris Larsen, Jed 
McCaleb, Arthur Britto and David Schwartz (the ``XRP Creators'') in 
2012. Built out of the frustrations of Bitcoin's utility for payments, 
the XRP ledger (the ledger to which XRP is native) is designed to be a 
global real-time payment and settlement system. The XRP Creators 
developed this unique digital asset to solve the scalability concerns 
that they believed were inherent in the structure of Bitcoin. In 
particular, XRP was created to improve the efficiency of payments. To 
this end, the open source code (available at https://github.com/ripple/rippled/) was designed to maximize speed, scalability, and stability.
    For example, the XRP ledger can accommodate 4,400 transactions per 
second. This is, in part, because XRP is not mined like Bitcoin, but is 
designed for the ledgers to close in seconds based on a system of 
consensus. Further, because of the consensus methodology underlying the 
XRP design, network transaction fees are substantially lower than 
Bitcoin, typically less than $0.01.
    Given the unique qualities of XRP and the natural suitability of 
this digital asset to solve the friction experience with payments, the 
XRP Creators started a company, calling it Ripple, to further develop 
the ecosystem around XRP and build software solutions to address the 
friction in sending, processing, and sourcing liquidity for global 
payments. Thus, the company, Ripple, began as, and continues to be, a 
payments software company. Today, Ripple is focused on designing and 
deploying state-of-the-art and industry-leading software to enable 
banks and financial institutions to more easily effect cross-border 
payments. For maximum efficiency, Ripple's software can integrate XRP 
to solve liquidity and value transfer challenges.
AVAX and the Avalanche Network
    AVAX is a digital asset that is created and transmitted through the 
operations of the peer-to-peer Avalanche network, a decentralized 
network of computers that operates on cryptographic protocols. No 
single entity owns or operates the Avalanche network, the 
infrastructure of which is collectively

[[Page 87688]]

maintained by a decentralized user base. The Avalanche network allows 
people to exchange tokens of value, called AVAX, which are recorded on 
a public transaction ledger known as a blockchain. AVAX can be used to 
pay for goods and services, including computational power on the 
Avalanche network, or it can be converted to fiat currencies, such as 
the U.S. dollar, at rates determined on digital asset exchanges or in 
individual end-user-to-end-user transactions under a barter system. 
Furthermore, the Avalanche network was designed to allow 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 AVAX on the Avalanche network. Smart 
contract operations are executed on the Avalanche blockchain in 
exchange for payment of AVAX. Like the Ethereum Network, the Avalanche 
network is one of a number of projects intended to expand blockchain 
use beyond just a peer-to-peer money system.
    The Avalanche network uses a variation of a proof-of-stake 
consensus protocol. Unlike with other blockchains, whereby every 
validator node validates every transaction, each Avalanche validator is 
only required to validate what is known as the ``Primary Network.'' The 
Primary Network in turn secures the following three blockchains, which 
are each dedicated to a specific use and, together with the Primary 
Network, comprise the core Avalanche infrastructure: the Exchange (X) 
Chain, on which AVAX and other assets exist and are traded; the 
Platform (P) Chain, which coordinates validators and creates subnets 
(as defined below); and the Contract (C) Chain, which executes smart 
contracts.
    Whereas all validators are required to validate the Primary Network 
and the three blockchains described above, active validators of the 
Primary Network may additionally elect to validate certain non-core 
blockchains (i.e., blockchains that are not fundamental to or necessary 
for the Avalanche Network to operate) of the Avalanche Platform. 
Avalanche uses a dynamic set of validators to validate the non-core 
blockchains (each such set of validators, a ``subnet''). This 
integration functionality is intended to allow Avalanche users to 
tokenize and transact in any digital asset. Avalanche is reportedly one 
of the fastest networks when measured by transaction time-to-finality 
at relatively low transaction costs. The Avalanche Network was founded 
by Professor Emin G[uuml]n Sirer, a professor at Cornell University, 
and launched in September 2020.
Custody of the Fund Components
    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-preserving 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 thus mitigate against 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 Fund, including the Fund itself.
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'' 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 Fund's Fund 
Components on the Fund's behalf. The Digital Asset Account uses offline 
storage, or ``cold storage,'' mechanisms to secure the Fund'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 ``air-gapped'') 
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 Fund's private keys (which, 
as noted above, facilitate the transfer of ownership or control of the 
Fund Components) in accordance with the terms and provisions of the 
custodian agreement by and between the Custodian, the Manager and the 
Fund (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 Custodian 
must be combined to reconstitute the private key to sign any 
transaction in order to transfer the Fund's assets. Private key shards 
are distributed geographically in secure vaults around the world, 
including in the United States.

[[Page 87689]]

    As a result, if any one secure vault is ever compromised, this 
event will have no impact on the ability of the Fund 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 
Fund's assets.
    Transfers of Fund Components to the Digital Asset Account will be 
available to the Fund once processed on the relevant blockchain.
    Subject to obtaining regulatory approval to operate a redemption 
program and authorization of the Manager, the process of accessing and 
withdrawing Fund Components from the Fund to redeem a Basket by an 
Authorized Participant \25\ will follow the same general procedure as 
transferring Fund Components to the Fund to create a Basket by an 
Authorized Participant, only in reverse.
---------------------------------------------------------------------------

    \25\ ``Authorized Participant'' has the meaning set forth in 
``Creation and Redemption of Shares'' below.
---------------------------------------------------------------------------

    The Manager will maintain ownership and control of the Fund 
Components in a manner consistent with good delivery requirements for 
spot commodity transactions.
Fund Component Value
Digital Asset Trading Platform Valuation
    According to the Annual Report, the value of digital assets is 
determined by the value that various market participants place on 
digital assets through their transactions. The most common means of 
determining the value of a digital asset is by surveying one or more 
Digital Asset Trading Platforms where the digital asset is traded 
publicly and transparently (e.g., Coinbase, Kraken, LMAX Digital, 
Crypto.com, and Bitstamp). Additionally, there are over-the-counter 
dealers or market makers that transact in digital assets.
Digital Asset Trading Platform Public Market Data
    On each online Digital Asset Trading Platform, digital assets are 
traded with publicly disclosed valuations for each executed trade, 
measured by one or more fiat currencies such as the U.S. dollar or 
Euro, or by the digital asset Bitcoin. Over-the-counter dealers or 
market makers do not typically disclose their trade data.
    As of June 30, 2024, the Digital Asset Trading Platforms included 
in the Digital Asset Reference Rates were Coinbase, Kraken, LMAX 
Digital, Crypto.com, and Bitstamp. As further described below, the 
Manager and the Fund reasonably believe each of these Digital Asset 
Trading Platforms 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'') and anti-
money-laundering (``AML'') regulations.
    Bitstamp: A U.K.-based trading platform 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, as well as a money 
transmitter in various U.S. states.
    Coinbase: A U.S.-based trading platform registered as an MSB with 
FinCEN and licensed as a virtual currency business under the NYDFS 
BitLicense, as well as a money transmitter in various U.S. states.
    Crypto.com: A Singapore-based trading platform registered as an MSB 
with FinCEN and licensed as a money transmitter in various U.S. states. 
Crypto.com does not hold a BitLicense.
    Kraken: A U.S.-based trading platform registered as an MSB with 
FinCEN and licensed as a money transmitter in various U.S. states. 
Kraken does not hold a BitLicense.
    LMAX Digital: A U.K.-based trading platform registered as a broker 
with the Financial Conduct Authority. LMAX Digital does not hold a 
BitLicense.
    Currently, there are several Digital Asset Trading Platforms 
operating worldwide, and online Digital Asset Trading Platforms 
represent a substantial percentage of buying and selling activity and 
provide the most data with respect to prevailing valuations of the Fund 
Components. These trading platforms include established trading 
platforms such as those included in the Digital Asset Reference Rates, 
which provide a number of options for buying and selling the Fund 
Components. The below tables reflect the trading volume in each Fund 
Component and market share \26\ of the Fund Component-U.S. dollar 
trading pairs of each of the Digital Asset Trading Platforms included 
in the Digital Asset Reference Rates as of June 30, 2024 (collectively, 
``Constituent Trading Platforms''), using data reported by the 
Reference Rate Provider from February 1, 2018 (the inception of the 
Fund's operations) to June 30, 2024:
---------------------------------------------------------------------------

    \26\ Bitcoin market share is calculated using trading volume (in 
Bitcoins) for certain Digital Asset Trading Platforms, including 
Coinbase, LMAX Digital and Crypto.com, as well as certain other 
large U.S.-dollar denominated Digital Asset Trading Platforms that 
were not included in the Digital Asset Reference Rate as of June 30, 
2024, including Binance.US (data included from April 1, 2020 through 
July 14, 2023), Bitfinex, Bitflyer (data included from December 24, 
2018), Bitstamp, Bittrex (data included from July 31, 2018 through 
December 3, 2023), Bullish (data included from March 31,2024), Cboe 
Digital (data included from October 1, 2020 through December 31, 
2024), FTX.US (data included from April 1, 2022 through November 12, 
2022), Gemini, itBit, Kraken, LakeBTC (data included from from 
January 27, 2019 through May 6, 2021), HitBTC (data included from 
April 1, 2019 through March 31, 2020) and OKCoin (data included 
since inception through December 31, 2022). Ether market share is 
calculated using trading volume (in Ether) for certain Digital Asset 
Trading Platforms, including Coinbase, LMAX Digital and Crypto.com, 
as well as certain other large U.S.-dollar denominated Digital Asset 
Trading Platforms that were not included in the Digital Asset 
Reference Rate as of June 30, 2024, including Bitstamp, Binance.US 
(data included from April 1, 2020 through October 14, 2023), Bittrex 
(data included from July 31, 2018 through December 3, 2023), 
Bitfinex, Bitflyer (data included from November 13, 2022), Cboe 
Digital (data included from October 1, 2020 through December 31, 
2023), Gemini, HitBTC (data included from June 13, 2019 through 
March 31, 2020), itBit (data included from December 27, 2018), 
Kraken, OKCoin (data included from December 25, 2018 through 
December 31, 2022) and FTX.US (data included from July 1, 2021 
through November 12, 2022). SOL market share is calculated using 
trading volume (in SOL) provided by the Reference Rate Provider for 
certain Digital Asset Exchanges, including Coinbase, Kraken and LMAX 
Digital, as well as certain other large U.S. dollar-denominated 
Digital Asset Trading Platforms that were not included in the 
Digital Asset Reference Rate as of June 30, 2023, including 
Binance.US (data included from October 1, 2021 through June 13, 
2023), Bitfinex, Bitstamp (data included from January 1, 2023), 
Bittrex (data included from January 1, 2023 through December 3, 
2023), Crypto.com (data included from October 31, 2022), Gate.io 
(data included from January 1, 2023 through July 2, 2023), Gemini 
(data included from March 1, 2022), itBit (data included from 
November 6, 2022), OKCoin (data included from March 22, 2022 through 
December 8, 2022), and FTX.US (data included from October 1, 2021 
through November 10, 2022).

         Bitcoin Trading Platforms Included in the Digital Asset
------------------------------------------------------------------------
                                                           Market share
  Reference rate as of June 30, 2024    Volume (Bitcoin)        (%)
------------------------------------------------------------------------
Coinbase.............................         37,581,691           30.39

[[Page 87690]]

 
LMAX Digital.........................          9,763,031            7.90
Crypto.com...........................          1,403,569            1.14
                                      ----------------------------------
    Total Bitcoin-U.S. Dollar trading         48,748,291           39.43
     pair............................
------------------------------------------------------------------------


          Ether Trading Platforms Included in the Digital Asset
------------------------------------------------------------------------
                                                           Market share
  Reference rate as of June 30, 2024     Volume (Ether)         (%)
------------------------------------------------------------------------
Coinbase.............................        422,567,767           34.84
LMAX Digital.........................         73,620,833            6.07
Crypto.com...........................         34,980,599            2.88
                                      ----------------------------------
    Total Ether-U.S. Dollar trading          531,169,199           43.79
     pair............................
------------------------------------------------------------------------


           SOL Trading Platforms Included in the Digital Asset
------------------------------------------------------------------------
                                                           Market share
  Reference rate as of June 30, 2024      Volume (SOL)          (%)
------------------------------------------------------------------------
Coinbase.............................      1,696,262,917           66.32
Kraken...............................        405,019,540           15.83
LMAX Digital.........................         25,673,612            1.00
                                      ----------------------------------
    Total SOL-U.S. Dollar trading          2,126,956,069           83.15
     pair............................
------------------------------------------------------------------------


          AVAX Trading Platforms Included in the Digital Asset
------------------------------------------------------------------------
                                                           Market share
  Reference rate as of June 30, 2024     Volume (AVAX)          (%)
------------------------------------------------------------------------
Coinbase.............................        769,187,967           80.19
Kraken...............................         79,459,277            8.28
Crypto.com...........................         15,247,633            1.59
                                      ----------------------------------
    Total AVAX-U.S. Dollar trading           863,894,877           90.06
     pair............................
------------------------------------------------------------------------


           XRP Trading Platforms Included in the Digital Asset
------------------------------------------------------------------------
                                                           Market share
  Reference rate as of June 30, 2024      Volume (XRP)          (%)
------------------------------------------------------------------------
Bitstamp.............................    106,620,277,322           35.85
Coinbase.............................     72,598,818,507           24.41
Kraken...............................     37,254,406,142           12.53
                                      ----------------------------------
    Total XRP-U.S. Dollar trading        216,473,501,971           72.79
     pair............................
------------------------------------------------------------------------

    The domicile, regulation, and legal compliance of the Digital Asset 
Trading Platforms included in the Digital Asset Reference Rates vary. 
Information regarding each Digital Asset Trading Platform may be found, 
where available, on the websites for such Digital Asset Trading 
Platforms, among other places.
The Index and the Digital Asset Reference Rates
    Since July 1, 2022, the digital assets held by the Fund have 
consisted of the digital assets that make up the CoinDesk Large Cap 
Select Index (the ``DLCS'' or the ``Index''), as rebalanced from time 
to time, subject to the Manager's discretion to exclude individual 
digital assets in certain rules-based circumstances as further 
described in the ``Index Components Compared to Fund Components--
Exclusion Criteria'' below. The DLCS is designed and managed by the 
Index Provider.
    The digital assets that make up the DLCS (the ``Index Components'') 
are drawn from the universe (the ``Index Universe'') of investable 
digital assets meeting the following criteria: (i) the digital asset 
must be ranked in the top 250 in the Index Provider's Digital Asset

[[Page 87691]]

Classification Standard (``DACS'') report; (ii) custodian services for 
the digital asset must be available from Coinbase Custody, a division 
of Coinbase Global Inc., and must be accessible to U.S. investors; 
(iii) the digital asset must not be a stablecoin or categorized as a 
meme coin as determined by the Index Provider; and (iv) the digital 
asset must have been listed on a Constituent Trading Platform for a 
minimum of 30 days leading up to the Index Rebalancing Period (as 
defined below).
    The Index Provider applies market capitalization, liquidity and 
data availability criteria to the digital assets in the Index Universe 
in order to arrive at between five and ten digital assets that, in the 
Index Provider's judgment, represent a diversified benchmark for the 
largest and most liquid digital assets in the digital asset market (the 
``Large Cap sector''), rather than exposure to all digital assets in 
the Index Universe. The respective weightings of the Index Components 
within the DLCS are determined by the Index Provider based on market 
capitalization criteria and are referred to as the ``Index 
Weightings.'' The process followed by the Index Provider to determine 
the Index Universe, the Index Components and their respective Index 
Weightings is referred to as the ``DLCS Methodology.''
    The Fund seeks to (i) provide large cap coverage of the digital 
asset market; (ii) minimize transaction costs through low turnover of 
the Fund's portfolio; and (iii) create a portfolio that could be 
replicated through direct purchases in the Digital Asset Market. 
Because Index Components target the Large Cap sector and are included 
in the DLCS in accordance with market capitalization and liquidity 
criteria, as of June 30, 2024, the DLCS covered approximately 83% of 
the market capitalization of the entire digital asset market, excluding 
stablecoins and meme coins, based on data provided by the Index 
Provider calculated using data from CoinMarketCap.com. Additionally, as 
of June 30, 2024, the DLCS covered approximately 92% of the market 
capitalization of the Index Universe.
    The Fund Components consist of the Index Components except that the 
Manager may determine to exclude a particular Index Component in its 
discretion under certain rules-based circumstances (including to comply 
with the requirements of Rule 8.800-E). The weightings of each Fund 
Component (the ``Weightings'') are generally expected to be the same as 
the Index Weightings except when the Manager determines to exclude one 
or more digital assets from the Fund Components, in which case the 
Weightings are generally expected to be calculated proportionally to 
the respective Index Weightings for the remaining Index Components. The 
Fund uses the DLCS Methodology, described further below, to construct 
its portfolio.
    The Manager will ensure that the Fund's holdings are consistent 
with the requirements of Rule 8.800-E(c)(1), including by working with 
the Reference Rate Provider to modify the DLCS such that at least 90% 
of the Weightings will consist of commodities and/or digital assets 
concerning which the Exchange may obtain information via the ISG from 
other members of the ISG or via CSSA.\27\
---------------------------------------------------------------------------

    \27\ The Manager notes that, as of the date of this filing, the 
Fund Components that meet this standard are Bitcoin and Ether, which 
make up approximately 76% and 18% of the Index, respectively.
---------------------------------------------------------------------------

Eligibility and Weighting
    Under the DLCS Methodology and subject to the below, a digital 
asset included in the Index Universe will generally be eligible for 
inclusion in the DLCS as an Index Component, and thus the Fund's 
portfolio as a Fund Component, if it satisfies market capitalization, 
liquidity and data availability metrics determined by the Index 
Provider. Digital assets will be included in the DLCS on a market 
capitalization-weighted basis. For example, a digital asset with a 
larger market capitalization will have a higher representation in the 
DLCS, and thus the Fund's portfolio (unless the Manager excludes the 
digital asset from the Fund). Market capitalization refers to a digital 
asset's market value, as determined by multiplying the number of tokens 
of such digital asset in circulation by the market price of a token of 
such digital asset. The market price per token of a Fund Component will 
be determined by reference to the applicable Digital Asset Reference 
Rate. The market capitalization of any digital assets not in the DLCS, 
and therefore not held by the Fund, will be determined based on data 
that the Index Provider obtains directly from trading platforms and 
other service providers. Because the Fund creates Shares in exchange 
for Fund Components on a daily basis, the market capitalization of each 
Fund Component is calculated, and its Weighting therefore fluctuates, 
daily in accordance with changes in the market price of such Fund 
Components.
    The DLCS, and therefore the Fund, is rebalanced on a quarterly 
basis according to the DLCS Methodology during a period beginning 14 
days before the second business day of each January, April, July, and 
October (each such period, an ``Index Rebalancing Period'').
Inclusion of New Fund Components
    In order for a new digital asset to qualify for inclusion in the 
DLCS, and thus the Fund's portfolio during a period during which the 
Manager reviews for rebalancing the Fund's portfolio in accordance with 
the policies and procedures set forth in the Annual Report (the ``Fund 
Rebalancing Period''), it must be included in the Index Universe and be 
among the 20 highest ranked digital assets in the Index Universe by 
market capitalization. Such 20 digital assets are referred to as the 
``Selection Universe.'' In order for a digital asset in the Selection 
Universe to be included in the Fund's portfolio during a Fund 
Rebalancing Period, such digital asset must (i) have a current market 
capitalization that is at least 1.2 times the median current market 
capitalization of the Selection Universe; (ii) have a median daily 
value traded (``MDVT'') for the Index Rebalancing Period that is at 
least 1.2 times the MDVT of the Selection Universe for the Index 
Rebalancing Period; (iii) trade on at least three Constituent Trading 
Platforms as of the first day of the Index Rebalancing Period; (iv) 
have been included in the Selection Universe during the Index 
Rebalancing Period (as defined below) for the prior quarter; (v) the 
inclusion of such new digital asset will not result in the Fund holding 
more than ten Fund Components; and (vi) such digital asset must have a 
minimum weight of 1.0% (collectively, the ``Index Inclusion 
Criteria''). In the event that more than ten digital assets meet the 
Index Inclusion Criteria, the qualifying digital assets will be ranked 
by current market capitalizations. Those ranked below the top ten will 
be excluded.
    The Index Provider may include a digital asset that does not meet 
the Index Inclusion Criteria in the DLCS if the Index Components no 
longer collectively meet the five constituent minimum, at which point 
the Index Provider would first relax the market capitalization and 
liquidity requirements included in the Index Inclusion Criteria to 
those included in the ``Removal Criteria'' described below and include 
the next largest digital assets by current market capitalization that 
met such requirements, until there were five Index Components. If after 
relaxing such requirements, there were still fewer than five Index 
Components, the Index Provider would further relax the requirements and 
include the next largest digital assets by current market

[[Page 87692]]

capitalization until there were five Index Components.\28\
---------------------------------------------------------------------------

    \28\ The Manager has not previously sought to include a new Fund 
Component that does not meet the Index Inclusion Criteria.
---------------------------------------------------------------------------

Removal of Existing Fund Components
    During each Index Rebalancing Period, a digital asset will be 
removed as an Index Component from the DLCS, and therefore removed from 
the Fund if it is also a Fund Component, if (i) it is not included in 
the Selection Universe; (ii) it fails to be listed on at least three 
Constituent Trading Platforms; (iii) it has a current market 
capitalization that is less than 1.0 times the median current market 
capitalization of the Selection Universe; (iv) it has an MDVT for the 
Index Rebalancing Period that is less than 1.0 times the MDVT of the 
Selection Universe for the Index Rebalancing Period; or (v) such 
digital asset has a weight of less than 0.8%, and if its removal would 
not result in the DLCS holding less than five Index Components 
(collectively, the ``Removal Criteria'').\29\
---------------------------------------------------------------------------

    \29\ For example, if a digital asset was not included in the 
Selection Universe, failed to meet the thresholds in market 
capitalization and liquidity described above, or had a weight in the 
Index of less than 0.8%, such digital asset would be removed from 
the DLCS. However, if its removal would result in the DLCS holding 
less than five Index Components, it would not be removed.
---------------------------------------------------------------------------

    Outside of the quarterly Index Rebalancing Period, the Index 
Provider may remove a digital asset as an Index Component from the DLCS 
under extraordinary circumstances. For example, if an Index Component 
is determined to be a ``security'' under the federal securities laws by 
the Commission, a federal court or other U.S. government agency, or 
under such consideration by any U.S. government oversight agency, it 
would be removed from the DLCS at a date determined and announced by 
the Index Provider. In the event the Index Provider removes an Index 
Component outside of the quarterly rebalancing period, the Manager 
expects the Fund would rebalance and the relevant digital asset would 
be removed as a Fund Component as soon as practical.
Index Components Compared to Fund Components
    The Fund Components consist of the Index Components except when the 
Manager determines to exclude a particular Index Component in view of 
one or more of the following criteria (the ``Exclusion Criteria''), as 
determined in the sole discretion of the Manager:
    <bullet> none or few of the Authorized Participants or service 
providers has the ability to trade or otherwise support the digital 
asset;
    <bullet> the Manager believes, based on current guidance, that use 
or trading of the digital asset raises or potentially raises 
significant governmental, policy or regulatory concerns or is subject 
or likely subject to a specialized regulatory regime, such as the U.S. 
federal securities or commodities laws or similar laws in other 
significant jurisdictions; \30\
---------------------------------------------------------------------------

    \30\ The Manager will determine whether a particular digital 
asset that is included or eligible for inclusion in the Fund is a 
security for purposes of the federal securities laws by considering 
a number of factors, including the various definitions of 
``security'' under the federal securities laws and federal court 
decisions interpreting elements of these definitions, such as the 
U.S. Supreme Court's decisions in the Howey and Reves cases, as well 
as reports, orders, press releases, public statements and speeches 
by the Commission and its staff providing guidance on when a digital 
asset may be a security for purposes of the federal securities laws. 
The Manager does not intend to permit the Fund to hold any digital 
asset that the Manager determines is a security under the federal 
securities laws, whether that determination is initially made by the 
Manager itself, or because a federal court upholds an allegation 
that a digital asset is a security.
---------------------------------------------------------------------------

    <bullet> the digital asset's underlying code contains, or may 
contain, significant flaws or vulnerabilities; or
    <bullet> there is limited or no reliable information regarding, or 
concerns over the intentions of, the core developers of the digital 
asset.
    The Weightings are generally expected to be the same as the Index 
Weightings except when one or more digital assets have been excluded 
from the Fund Components based on the Exclusion Criteria, in which case 
the Weightings are generally expected to be calculated proportionally 
to the respective Index Weightings for the remaining Index Components.
    The Manager may exclude a digital asset or rebalance the Weighting 
of an existing Fund Component to the extent its inclusion as a Fund 
Component or projected Weighting would exceed a threshold that could, 
in the Manager's sole discretion, require the Fund to register as an 
investment company under the Investment Company Act or require the 
Manager to register as an investment adviser under the Investment 
Advisers Act.
    The Manager will retain discretion to include or exclude individual 
digital assets from the Fund Components only in certain rules-based 
circumstances, as described above. Accordingly, the Manager believes 
that the Fund will be in compliance with Rule 10A-3 \31\ under the Act, 
as provided by NYSE Arca Rule 5.3-E.
---------------------------------------------------------------------------

    \31\ With respect to the application of Rule 10A-3 (17 CFR 
240.10A-3) under the Act, the Fund relies on the exemption contained 
in Rule 10A-3(c)(7).
---------------------------------------------------------------------------

Constituent Trading Platform Selection
    According to the Annual Report, the Constituent Trading Platforms 
used to derive Digital Asset Reference Rates are selected by the 
Reference Rate Provider utilizing a methodology that is guided by the 
International Organization of Securities Commissions (``IOSCO'') 
principles for financial benchmarks. For a trading platform to become a 
Constituent Trading Platform, it must satisfy the criteria listed below 
(the ``Inclusion Criteria''):
    <bullet> Sufficient USD or USDC liquidity relative to the size of 
the listed assets;
    <bullet> No evidence in the past 12 months of trading restrictions 
on individuals or entities that would otherwise meet the trading 
platform's eligibility requirements to trade;
    <bullet> No evidence in the past 12 months of undisclosed 
restrictions on deposits or withdrawals from user accounts;
    <bullet> Real-time price discovery;
    <bullet> Limited or no capital controls; \32\
---------------------------------------------------------------------------

    \32\ ``Capital controls'' in this context means governmental 
sanctions that would limit the movement of capital into, or out of, 
the jurisdiction in which such Digital Asset Trading Platforms 
operate.
---------------------------------------------------------------------------

    <bullet> Transparent ownership including a publicly-owned ownership 
entity;
    <bullet> Publicly available language and policies addressing legal 
and regulatory compliance in the US, including KYC, AML and other 
policies designed to comply with relevant regulations that might apply 
to it;
    <bullet> Be an exchange that is licensed and able to service 
investors in one or more of the following jurisdictions: United States, 
United Kingdom; European Union; Hong Kong; or Singapore
    <bullet> 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.\33\
---------------------------------------------------------------------------

    \33\ Trading platforms with programmatic trading offer traders 
an application programming interface that permits trading by sending 
programmed commands to the trading platform.
---------------------------------------------------------------------------

    A Digital Asset Trading Platform is removed from the Constituent 
Trading Platform when it no longer satisfies the criteria for 
inclusion. The Reference Rate Provider does not currently include data 
from over-the-counter markets or derivatives platforms among the 
Constituent Trading Platforms. 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

[[Page 87693]]

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. Digital asset derivative markets 
are also not currently included, as the markets remain relatively thin. 
While the Reference Rate Provider has no plans to include data from 
over-the-counter markets or derivative platforms at this time, the 
Reference Rate Provider will consider IOSCO principles for financial 
benchmarks, the management of trading venues of digital asset 
derivatives and the aforementioned Inclusion Criteria when considering 
whether to include over-the-counter or derivative platform data in the 
future.
    The Reference Rate Provider and the Manager have entered into the 
index license agreement, dated as of February 1, 2022 (as amended, the 
``Index License Agreement''), governing the Manager's use of the 
Digital Asset Reference Rates that are Index Prices.\34\ Pursuant to 
the terms of the Index License Agreement, the Reference Rate Provider 
may adjust the calculation methodology for a Digital Asset Reference 
Rate without notice to, or consent of, the Fund or its shareholders. 
The Reference Rate 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 Reference Rate Provider 
has sole discretion over the determination of Digital Asset Reference 
Rates and may change the methodologies for determining the Digital 
Asset Reference Rates from time to time. Shareholders will be notified 
of any material changes to the calculation methodology or the Digital 
Asset Reference Rates in the Fund's current reports and will be 
notified of all other changes that the Manager considers significant in 
the Fund's periodic or current reports. The Manager will determine the 
materiality of any changes to the Digital Asset Reference Rates on a 
case-by-case basis, in consultation with external counsel.
---------------------------------------------------------------------------

    \34\ Upon entering into the Index License Agreement, the Manager 
and the Reference Rate Provider terminated the license agreement 
between the parties dated as of February 28, 2019.
---------------------------------------------------------------------------

    Reference Rate Provider may change the trading venues that are used 
to calculate a Digital Asset Reference Rate or otherwise change the way 
in which a Digital Asset Reference Rate is calculated at any time. For 
example, the Reference Rate Provider has scheduled quarterly reviews in 
which it may add or remove Constituent Trading Platforms that satisfy 
or fail the criteria described above. While the Reference Rate Provider 
is not required to publicize or explain the changes or to alert the 
Manager to such changes, it has historically notified the Fund (and 
other subscribers to the Index) of any material changes to the 
Constituent Trading Platforms, including any additions or removals of 
the Constituent Trading Platforms, in addition to issuing press 
releases in connection with the same in accordance with its index 
review and index change communication policies. The Manager will notify 
investors of any such material event by filing a current report on Form 
8-K. Although the Digital Asset Reference Rate 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-market-related events, such as the halting of deposits or 
withdrawals of funds on a Digital Asset Trading Platform, the 
unannounced closure of operations on a Digital Asset Trading Platform, 
insolvency or the compromise of user funds. In the event that such an 
intervention is necessary, the Reference Rate Provider would issue a 
public announcement through its website, API and other established 
communication channels with its clients.
Determination of Digital Asset Reference Rates
    Since July 1, 2022, all of the Digital Asset Reference Rates have 
been Indicative Prices. The Indicative Price is calculated by 
multiplying the average price on each Constituent Trading Platform by 
the trading volume on such Constituent Trading Platform for the prior 
60 minutes as of 4:00 p.m., New York time, multiplied by the 
Constituent Trading Platform's weighting based on trading volume 
relative to the other Constituent Trading Platforms included in the 
Reference Rate. Each Constituent Trading Platform is weighted relative 
to its share of trading volume to the trading volume of all Constituent 
Trading Platform, meaning that price inputs from Constituent Trading 
Platforms with higher trading volumes will be weighted more heavily in 
calculating the Indicative Price than price inputs from Constituent 
Trading Platforms with lower trading volumes. Price and volume inputs 
are weighted as received with no further adjustments made to the 
weighting of each trading platform based on market anomalies observed 
on a Constituent Trading Platform or otherwise.
    For purposes of illustration, outlined below is an example using a 
limited number of trades.

----------------------------------------------------------------------------------------------------------------
                                                                                                    Indicative
              Venue                Average price      Volume         Notional       Weight  (%)        price
                                                                                                   contribution
----------------------------------------------------------------------------------------------------------------
Trading Platform 1..............          999.12             800         799,296           53.33          532.60
Trading Platform 2..............          997.23             500         498,615           33.33          332.25
Trading Platform 3..............          996.65             200         199,330           13.33          132.82
                                 -------------------------------------------------------------------------------
Indicative Price................  ..............           1,500       1,497,241  ..............          997.67
----------------------------------------------------------------------------------------------------------------

    The Index Provider may also use Index Prices as the reference rate 
for an Index Component in the future, and if it does so, then the 
Manager will use an Index Price for the relevant Fund Component. When a 
Digital Asset Reference Rate is an Index Price, the Reference Rate 
Provider applies an algorithm to the trade data used to determine the 
Indicative Price. Each Digital Asset Reference Rate's algorithm is 
expected to reflect a four-pronged methodology to calculate the Index 
Price from the Constituent Trading Platforms:
    <bullet> Volume Weighting: Constituent Trading Platforms with 
greater liquidity receive a higher weighting in each Digital Asset 
Reference Rate, increasing the ability to execute against (i.e., 
replicate) such Digital Asset Reference Rate in the underlying spot 
markets.
    <bullet> Price-Variance Weighting: Each Digital Asset Reference 
Rate reflects data points that are discretely weighted in proportion to 
their variance from the rest of the Constituent Trading

[[Page 87694]]

Platforms. As the price at a Constituent Trading Platform diverges from 
the prices at the rest of the Constituent Trading Platforms, its weight 
in the Digital Asset Reference Rate consequently decreases.
    <bullet> Inactivity Adjustment: Each Digital Asset Reference Rate 
algorithm penalizes stale activity from any given Constituent Trading 
Platform. When a Constituent Trading Platform does not have recent 
trading data, its weighting in the Reference Rate is gradually reduced 
until it is de-weighted entirely. Similarly, once trading activity at a 
Constituent Trading Platform resumes, the corresponding weighting for 
that Constituent Trading Platform is gradually increased until it 
reaches the appropriate level.
    <bullet> Manipulation Resistance: In order to mitigate the effects 
of wash trading and order book spoofing, the Digital Asset Reference 
Rate only includes executed trades in its calculation. Additionally, 
each Digital Asset Reference Rate only includes Constituent Trading 
Platforms that charge trading fees in order to attach a real, 
quantifiable cost to any manipulation attempts.
    The Reference Rate 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 each Index Price is 
not publicly available. Still, each Index is designed to limit exposure 
to trading or price distortion of any individual Digital Asset Trading 
Platform that experiences periods of unusual activity or limited 
liquidity by discounting, in real-time, anomalous price movements at 
individual Digital Asset Trading Platforms.
    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 an Index Price 
for a digital asset. The Index Price algorithm, as described above, 
accounts for manipulation at the outset by only including data from 
executed trades on Constituent Trading Platforms that charge trading 
fees. Then, the below-listed elements may impact the weighting of the 
Constituent Trading Platforms on the Index Price as follows:
    <bullet> Volume Weighting: Each Constituent Trading Platform will 
be weighted to appropriately reflect the trading volume share of the 
Constituent Trading Platform relative to all the Constituent Trading 
Platforms during this same period. For example, assume the Constituent 
Trading Platforms used to calculate the Index Price of the digital 
asset are Coinbase, Kraken, LMAX Digital, and Bitstamp. An average 
hourly weighting of 67.06%, 14.57%, 11.88%, and 6.49% for Coinbase, 
Kraken, LMAX Digital, and Bitstamp, respectively, would represent each 
Constituent Trading Platform's share of trading volume during the same 
period.
    <bullet> Inactivity Adjustment: Assume that a Constituent Trading 
Platform represented a 14% weighting on the Index Price of the digital 
asset, which is based on the per-second calculations of its trading 
volume and price-variance relative to the cohort of Constituent Trading 
Platforms 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 Trading 
Platform 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 Trading Platform, the index algorithm would re-weight it to 
the appropriate weighting based on trading volume and price-variance 
relative to the cohort of Constituent Trading Platforms included in the 
Index. Due to the period of inactivity, it would re-weight the 
Constituent Trading Platform activity to a weight lower than its 
original weighting--for example, to 12%.
    <bullet> Price-Variance Weighting: The price-variance weighting 
adjustment is a relative measure of each Constituent Trading Platform 
versus the cohort of trading platform. The further the price at a 
trading platform is from the mean price of the cohort, the less 
influence that trading platform's price will have on the algorithm that 
produces the Index Price, as the trading platform data is discretely 
weighted in proportion to their variance from the rest of the trading 
platforms on a per-second basis and there is no minimum threshold the 
variance must meet for this adjustment to take place. For example, 
assume that for a one-hour period, the digital asset's execution prices 
on one Constituent Trading Platform were trading more than 7% higher 
than the average execution prices on another Constituent Trading 
Platform. The algorithm will automatically detect the anomaly (price 
variance) and reduce that specific Constituent Trading Platform's 
weighting during that one-hour period, ensuring a reliable spot 
reference price that is unaffected by the localized event and that is 
reflective of broader market activity.
Determination of Digital Asset Reference Rates When Indicative Prices 
and Index Prices Are Unavailable
    If the Digital Asset Reference Rate for a Fund Component becomes 
unavailable, or if the Manager determines in good faith that such 
Digital Asset Reference Rate does not reflect an accurate price for 
such Fund Component, then the Manager will, on a best efforts basis, 
contact the Reference Rate Provider to obtain the Digital Asset 
Reference Rate directly from the Digital Asset Reference Rate Provider.
    If after such contact such Digital Asset Reference Rate remains 
unavailable or the Manager continues to believe in good faith that such 
Digital Asset Reference Rate does not reflect an accurate price for the 
relevant digital asset, the Manager uses the following cascading set of 
rules to calculate the Digital Asset Reference Rates for that Fund 
Component.\35\ For the avoidance of doubt, the Manager will employ the 
below rules sequentially and in the order as presented below, should 
one or more specific rule(s) fail:
---------------------------------------------------------------------------

    \35\ The Manager updated these rules on January 11, 2022.
---------------------------------------------------------------------------

    1. Digital Asset Reference Rate = The price set by the relevant 
Indicative Price or Index Price as of 4:00 p.m., New York time, on the 
valuation date.\36\ If the relevant Indicative Price or Index Price 
becomes unavailable, or if the Manager determines in good faith that 
such Indicative Price or Index Price does not reflect an accurate 
digital asset price, then the Manager will, on a best efforts basis, 
contact the Reference Rate Provider to obtain the Digital Asset 
Reference Rate directly from the Reference Rate Provider. If after such 
contact such Indicative Price or Index Price remains unavailable or the 
Manager continues to believe in good faith that such Indicative Price 
or Index Price does not reflect an accurate price for the relevant 
digital asset, then the Manager will employ the next rule to determine 
the Digital Asset Reference Rate. There are no predefined criteria to 
make a good faith assessment and it will be made by the Manager in its 
sole discretion.
---------------------------------------------------------------------------

    \36\ The valuation date is any day for which the value of the 
Fund Components in the Fund may be calculated utilizing the Digital 
Asset Reference Rates.
---------------------------------------------------------------------------

    2. Digital Asset Reference Rate = The price set by Coin Metrics 
Real-Time Rate as of 4:00 p.m., New York time, on the valuation date 
(the ``Secondary Digital Asset Reference Rate''). The Secondary 
Reference Rate is a real-time reference rate price, calculated using

[[Page 87695]]

trade data from constituent markets selected by Coin Metrics, Inc. (the 
``Secondary Reference Rate Provider''). The Secondary Digital Asset 
Reference Rate is calculated by applying weighted-median 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 Digital Asset 
Reference Rate for the relevant Fund Component becomes unavailable, or 
if the Manager determines in good faith that the Secondary Digital 
Asset Reference Rate does not reflect an accurate price for such Fund 
Component, then the Manager will, on a best efforts basis, contact the 
Secondary Reference Rate Provider to obtain the Secondary Digital Asset 
Reference Rate directly from the Secondary Reference Rate Provider. If 
after such contact the Secondary Digital Asset Reference Rate remains 
unavailable or the Manager continues to believe in good faith that the 
Secondary Digital Asset Reference Rate does not reflect an accurate 
price for such Fund Component, then the Manager will employ the next 
rule to determine the Digital Asset Reference Rate. There are no 
predefined criteria to make a good faith assessment and it will be made 
by the Manager in its sole discretion.
    3. Digital Asset Reference Rate = The price set by the Fund's 
principal market (as defined in the Annual Report) (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 
relevant 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 Manager via an application programming 
interface. If the Tertiary Pricing Option becomes unavailable, or if 
the Manager determines in good faith that the Tertiary Pricing Option 
does not reflect an accurate price for such Fund Component, then the 
Manager 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 Manager continues 
to believe in good faith that the Tertiary Pricing Option does not 
reflect an accurate price for such Fund Component, then the Manager 
will employ the next rule to determine the Digital Asset Reference 
Rate. There are no predefined criteria to make a good faith assessment 
and it will be made by the Manager in its sole discretion.
    4. Digital Asset Reference Rate = The Manager will use its best 
judgment to determine a good faith estimate of the Digital Asset 
Reference Rate. There are no predefined criteria to make a good faith 
assessment and it will be made by the Manager in its sole discretion.
    In the event of a fork, the Reference Rate Provider may calculate 
the Digital Asset Reference Rate based on a digital asset that the 
Manager does not believe to be the appropriate asset that is held by 
the Fund.\37\ In this event, the Manager has full discretion to use a 
different reference rate provider or calculate the Digital Asset 
Reference Rate itself using its best judgment.
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    \37\ According to the Annual Report, when a modification is 
introduced and a substantial majority of users and validators 
consent to the modification, the change is implemented and the 
network remains uninterrupted. However, if less than a substantial 
majority of users and validators 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'', 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 a digital 
asset running in parallel, yet lacking interchangeability, such as 
in July 2016 when Ether ``forked'' into Ether and a new digital 
asset, Ether Classic.
---------------------------------------------------------------------------

    The Manager may, in its sole discretion, select a different 
reference rate provider, select a different indicative or index price 
provided by the Reference Rate Provider, or calculate the Indicative 
Price or Index Price by using the cascading set of rules set forth 
above.\38\
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    \38\ The Manager will provide notice of any such changes in the 
Fund's periodic or current reports and, if the Manager makes such a 
change other than on an ad hoc or temporary basis, the Exchange will 
file a proposed rule change under Section 19(b) with the Commission.
---------------------------------------------------------------------------

The Structure and Operation of the Fund Protects Investors and 
Satisfies Commission Requirements for Digital Asset-Based Exchange 
Traded Products
    On January 10, 2024, the Commission approved the listing and 
trading of shares of the Grayscale Bitcoin Trust (BTC) and Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares); the Hashdex Bitcoin ETF under NYSE Arca Rule 8.500-E (Trust 
Units); the iShares Bitcoin Trust and Valkyrie Bitcoin Fund under 
Nasdaq Rule 5711(d) (Commodity-Based Trust Shares); and the ARK 
21Shares Bitcoin ETF, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust, 
the WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund, and 
Franklin Bitcoin ETF under BZX Rule 14.11(e)(4) (Commodity-Based Trust 
Shares) (collectively, the ``Bitcoin ETPs'').\39\ In the Bitcoin ETP 
Approval Order, the Commission found that the proposed rule changes to 
list the Bitcoin ETPs demonstrated that there were ``sufficient `other 
means' of preventing fraud and manipulation,'' including that:
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    \39\ Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-
NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-
CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-
CboeBZX-2023-072) (Order Granting Accelerated Approval of Proposed 
Rule Changes, as Modified by Amendments Thereto, to List and Trade 
Bitcoin-Based Commodity-Based Trust Shares and Trust Units) (the 
``Bitcoin ETP Approval Order'').

    [B]ased on the record before the Commission and the improved 
quality of the correlation analysis in the record, including the 
Commission's own analysis, the Commission is able to conclude that 
fraud or manipulation that impacts prices in spot bitcoin markets 
would likely similarly impact CME bitcoin futures prices. And 
because the CME's surveillance can assist in detecting those impacts 
on CME bitcoin futures prices, the Exchanges' comprehensive 
surveillance-sharing agreement with the CME--a U.S. regulated market 
whose bitcoin futures market is consistently highly correlated to 
spot bitcoin, albeit not of ``significant size'' related to spot 
bitcoin--can be reasonably expected to assist in surveilling for 
fraudulent and manipulative acts and practices in the specific 
context of the [Bitcoin ETPs].\40\
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    \40\ Bitcoin ETP Approval Order, 89 FR 3009-11.

    Similarly, on May 23, 2024, the Commission approved the listing and 
trading of shares of the Grayscale Ethereum Trust and the Bitwise 
Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares); the iShares Ethereum Trust under Nasdaq Rule 5711(d) 
(Commodity-Based Trust Shares); and the VanEck Ethereum Trust, ARK 
21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum 
Fund, and the Franklin Ethereum ETF under BZX Rule 14.11(e)(4) 
(Commodity-Based Trust Shares) (collectively, the ``Ether ETPs'').\41\ 
In the Ether ETP Approval Order, the Commission found that the proposed 
rule changes to list the Ether ETPs demonstrated that there were

[[Page 87696]]

``sufficient `other means' of preventing fraud and manipulation,'' 
including that:
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    \41\ Securities Exchange Act Release No. 100224 (May 23, 2024), 
89 FR 46937 (May 30, 2024) (SR-NYSEARCA-2023-70; SR-NYSEARCA-2024-
31; SRNASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-
CboeBZX-2023-087; SR-CboeBZX-2023-095; SR-CboeBZX-2024-018) (Order 
Granting Accelerated Approval of Proposed Rule Changes, as Modified 
by Amendments Thereto, to List and Trade Shares of Ether-Based 
Exchange-Traded Products) (the ``Ether ETP Approval Order'').

    [B]ased on the record before the Commission and the correlation 
analyses in the record, including the Commission's own analysis, the 
Commission is able to conclude that fraud or manipulation that 
impacts prices in spot ether markets would likely similarly impact 
CME ether futures prices. And because the CME's surveillance can 
assist in detecting those impacts on CME ether futures prices, the 
Exchanges' comprehensive surveillance-sharing agreement with the 
CME--a U.S.-regulated market whose ether futures market is 
consistently highly correlated to spot ether, albeit not of 
``significant size'' related to spot ether--can be reasonably 
expected to assist in surveilling for fraudulent and manipulative 
acts and practices in the specific context of the [Ether ETPs].\42\
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    \42\ Ether ETP Approval Order, 89 FR 46941.

    The Fund is structured and will operate in a manner materially the 
same as the Bitcoin ETPs and Ether ETPs and the Fund Components 
primarily consist of Bitcoin and Ether. Accordingly, the Manager 
believes that, for the reasons set forth in the Bitcoin ETP Approval 
Order and Ether ETP Approval Order, listing and trading Shares of the 
Fund would be consistent with the requirements of the Act.\43\
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    \43\ In particular, Grayscale Bitcoin Trust (BTC) (``GBTC'') and 
Grayscale Ethereum Trust (ETH) (``ETHE''), affiliates of the Fund 
that are structured substantially similarly to the Fund, currently 
list their shares on the Exchange under NYSE Arca Rule 8.201-E. The 
Fund will have the same service providers as GBTC and ETHE.
---------------------------------------------------------------------------

    The Manager acknowledges that the Fund Components currently include 
minority positions in digital assets that are not Bitcoin or Ether 
(i.e., SOL, XRP, and AVAX). The Manager also represents that, 
consistent with proposed Rule 8.800-E(c)(1), no more than 10% of the 
weight of its digital asset holdings will consist of digital assets 
concerning which the Exchange may not be able to obtain information via 
the ISG or via a CSSA. In the context of prior spot digital asset ETP 
proposal disapproval orders for Bitcoin and Ether, the Commission 
expressed concerns about 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.\44\ For 
purposes of the Fund's proposal, the Manager anticipates that the 
Commission may have the same concerns about the non-Bitcoin and Ether 
assets and addresses each of these in turn below.
---------------------------------------------------------------------------

    \44\ See 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 Fund) (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 Fund 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'').
---------------------------------------------------------------------------

    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 Manager believes the structure and 
operation of the Fund are designed to prevent fraudulent and 
manipulative acts and practices, to protect investors and the public 
interest, and to respond to concerns that the Commission may have with 
respect to potential fraud and manipulation in the context of a Digital 
Asset-based ETP.
How the Fund 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 non-
economic, 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.\45\
---------------------------------------------------------------------------

    \45\ See Bitwise Order, 84 FR 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 37585-86 
(discussing pending litigation against a Bitcoin trading platform 
for fraudulent conduct relating to Tether); Bitwise Order, 84 FR 
55391 n.140, 55402 & n.331 (same); Winklevoss Order, 83 FR 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 55405 & n.379.
---------------------------------------------------------------------------

    The Manager acknowledges the possibility that fraud and 
manipulation may exist in commodity markets and that digital asset 
trading, such as certain of the Fund Components, on any given trading 
platform may be no more uniquely resistant to fraud and manipulation 
than other commodity markets.\46\ However, the Manager 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.
---------------------------------------------------------------------------

    \46\ See generally Bitwise Order.

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[[Page 87697]]

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.\47\ 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.\48\
---------------------------------------------------------------------------

    \47\ See Winklevoss Order, 84 FR 37580, 37582-91; Bitwise Order, 
84 FR 55383, 55385-406; Wilshire Phoenix Order, 85 FR 12597.
    \48\ See Winklevoss Order, 84 FR 37582; Wilshire Phoenix Order, 
85 FR 12597.
---------------------------------------------------------------------------

    The Manager believes the Fund's use of the Index and Digital Asset 
Reference Rates represents a novel means to prevent fraud and 
manipulation from impacting a reference price for the Fund Components 
and that it offers protections beyond those that exist in traditional 
commodity markets or equity markets. Specifically, digital assets, such 
as the Fund Components, 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 the Fund Components will have different attributes than 
traditional commodity markets. Digital assets like the Fund Components 
were only introduced within the past decade, twenty years after the 
first U.S. exchange-traded funds (``ETFs'') were offered \49\ and 150 
years after the first futures were offered.\50\ 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 the Fund Components took place entirely 
in an open, transparent and online setting where other commodities 
cannot trade.
---------------------------------------------------------------------------

    \49\ SEC, ``Investor Bulletin: Exchange-Traded Funds (ETFs),'' 
August 2012, https://www.sec.gov/investor/alerts/etfs.pdf.
    \50\ Commodity Futures Trading Commission (``CFTC''), ``History 
of the CFTC,'' https://www.cftc.gov/About/HistoryoftheCFTC/history_precftc.html.
---------------------------------------------------------------------------

    The Fund has priced its Shares consistently for approximately two 
years based on the Index and its use of the Digital Asset Reference 
Rates. The Manager believes the Fund's use of the Index and Digital 
Asset Reference Rates specifically addresses the Commission's concerns 
in that they serve as an alternative means to prevent fraud and 
manipulation. Specifically, the Index and its use of the Digital Asset 
Reference Rates can (i) mitigate the effects of fraud, manipulation and 
other anomalous trading activity on the Fund Components' reference 
rates, (ii) provide a real-time, volume-weighted fair value of the Fund 
Components and (iii) appropriately handle and adjust for non-market 
related events.
    As described in more detail below, the Manager believes that the 
Index and its use of Digital Asset Reference Rates accomplishes those 
objectives in the following ways:
    1. The Digital Asset Reference Rates track the Digital Asset 
Trading Platform Market prices through trading activity at ``U.S.-
Compliant Trading Platforms''; \51\
---------------------------------------------------------------------------

    \51\ ``U.S.-Compliant Trading Platforms'' are trading platforms 
in the Digital Asset Trading Platform Market that are compliant with 
applicable U.S. federal and state licensing requirements and 
practices regarding AML and KYC regulations. All Constituent Trading 
Platforms are U.S.-Compliant Trading Platforms. ``Non-U.S.-Compliant 
Trading Platforms'' are all other trading platforms in the Digital 
Asset Trading Platform Market. From these U.S.-Compliant Trading 
Platforms, the Reference Rate Provider then applies additional 
Inclusion Criteria to determine the Constituent Trading Platforms. 
As of June 30, 2024, the U.S.-Compliant Trading Platforms that the 
Reference Rate Provider considered for inclusion in the Digital 
Asset Reference Rates were Coinbase, Kraken, LMAX Digital and 
Crypto.com.
---------------------------------------------------------------------------

    2. The Digital Asset Reference Rates are constructed and maintained 
by an expert third-party index provider, allowing for prudent handling 
of non-market-related events; and
    3. The Digital Asset Reference Rates mitigate the impact of 
instances of fraud, manipulation and other anomalous trading activity 
concentrated on any one specific trading platform through a cross-
trading platform composite reference rate over a 60-minute period.
1. The Digital Asset Reference Rates Track the Digital Asset Trading 
Platform Market Price Through Trading Activity at ``U.S.-Compliant 
Trading Platforms''
    To reduce the risk of fraud, manipulation, and other anomalous 
trading activity from impacting the Digital Asset Reference Rates, only 
U.S.-Compliant Trading Platforms are eligible to be included in the 
Digital Asset Reference Rates.
    The Digital Asset Reference Rates maintain a minimum of two and a 
maximum of three trading platforms to track the Digital Asset Trading 
Platform Market while offering replicability for traders and market 
makers.\52\
---------------------------------------------------------------------------

    \52\ According to the Manager, the more trading platforms 
included in the Digital Asset Reference Rate, the more ability there 
is for traders and market makers to trade against the Digital Asset 
Reference Rate by arbitraging price differences. For example, in the 
event of variances between Fund Component prices on Constituent 
Trading Platforms and non-Constituent Trading Platforms, arbitrage 
trading opportunities would exist. These discrepancies generally 
consolidate over time, as price differences across trading platforms 
are realized and capitalized upon by traders and market makers.
---------------------------------------------------------------------------

    U.S.-Compliant Trading Platforms possess safeguards that protect 
against fraud and manipulation. For example, U.S.-Compliant Trading 
Platforms 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.\53\ 
These trading platforms also have the following obligations: \54\
---------------------------------------------------------------------------

    \53\ See, 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.
    \54\ See ``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.
---------------------------------------------------------------------------

    <bullet> Submission of audited financial statements including 
income statements, statements of assets/liabilities, insurance, and 
banking;
    <bullet> Compliance with capitalization requirements set at NYDFS's 
discretion;
    <bullet> Prohibitions against the sale or encumbrance to protect 
full reserves of custodian assets;
    <bullet> Fingerprints and photographs of employees with access to 
customer funds;
    <bullet> Retention of a qualified Chief Information Security 
Officer and annual penetration testing/audits;
    <bullet> Documented business continuity and disaster recovery plan, 
independently tested annually; and
    <bullet> Participation in an independent exam by NYDFS.
    Other U.S.-Compliant Trading Platforms have voluntarily implemented 
measures to protect against common forms of market manipulation.\55\
---------------------------------------------------------------------------

    \55\ As of the date of this filing, two of the five Constituent 
Trading Platforms, Coinbase, is regulated by NYDFS.
---------------------------------------------------------------------------

    Furthermore, all U.S.-Compliant Trading Platforms are considered 
MSBs

[[Page 87698]]

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 trading platforms 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 Trading Platforms are required to: \56\
---------------------------------------------------------------------------

    \56\ See BSA Requirements for MSBs, FinCEN website: https://www.fincen.gov/bsarequirements-msbs.
---------------------------------------------------------------------------

    <bullet> Identify people with ownership stakes or controlling roles 
in the MSB;
    <bullet> Establish a formal Anti-Money Laundering (AML) policy in 
place with documentation, training, independent review, and a named 
compliance officer;
    <bullet> Implement strict customer identification and verification 
policies and procedures;
    <bullet> File Suspicious Activity Reports (SARs) for suspicious 
customer transactions;
    <bullet> File Currency Transaction Reports (CTRs) for cash-in or 
cash-out transactions greater than $10,000; and
    <bullet> Maintain a five-year record of currency exchanges greater 
than $1,000 and money transfers greater than $3,000.
    Lastly, because of Bitcoin's and Ether's classifications as 
commodities, the CFTC has authority to police fraud and manipulation on 
U.S.-Compliant Trading Platforms that trade those digital assets.\57\
---------------------------------------------------------------------------

    \57\ ``U.S. CFTC Chief Behnam Reinforces View of Ether as 
Commodity,'' CoinDesk (Mar. 28, 2023), https://www.coindesk.com/policy/2023/03/28/us-cftc-chief-behnam-reinforces-view-of-ether-as-commodity/; CME Group, https://www.cmegroup.com/markets/cryptocurrencies/ether/ether.html?gad=1&gclid=EAIaIQobChMI44KBmu7ygAMVavvjBx2P4g5yEAAYASAAEgJSZfD_BwE&gclsrc=aw.ds.
---------------------------------------------------------------------------

    The Manager acknowledges that there are substantial differences 
between FinCEN and New York state regulations and the Commission's 
regulation of the national securities exchanges.\58\ The Manager does 
not believe the inclusion of U.S.-Compliant Trading Platforms is in and 
of itself sufficient to prove that the Digital Asset Reference Rates 
are 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 Trading Platforms in the Digital 
Asset Reference Rates is one significant way in which the Digital Asset 
Reference Rates are protected from the potential impacts of fraud and 
manipulation.
---------------------------------------------------------------------------

    \58\ See Bitwise Order, 84 FR 55392; Wilshire Phoenix Order, 85 
FR 12603.
---------------------------------------------------------------------------

2. The Digital Asset Reference Rates Are Constructed and Maintained by 
an Expert Third-Party Index Provider, Allowing for Prudent Handling of 
Non-Market-Related Events
    The Reference Rate Provider reviews and periodically updates which 
trading platforms are included in the Digital Asset Reference Rates by 
utilizing a methodology that is guided by the IOSCO principles for 
financial benchmarks.
    According to the Reference Rate Provider's methodology, for a 
trading platform to become a Constituent Trading Platform, it must 
satisfy the following Inclusion Criteria:
    <bullet> Sufficient USD or USDC liquidity relative to the size of 
the listed assets;
    <bullet> No evidence in the past 12 months of trading restrictions 
on individuals or entities that would otherwise meet the trading 
platform's eligibility requirements to trade;
    <bullet> No evidence in the past 12 months of undisclosed 
restrictions on deposits or withdrawals from user accounts;
    <bullet> Real-time price discovery;
    <bullet> Limited or no capital controls;
    <bullet> Transparent ownership including a publicly-owned ownership 
entity;
    <bullet> Publicly available language and policies addressing legal 
and regulatory compliance in the US, including KYC, AML and other 
policies designed to comply with relevant regulations that might apply 
to it;
    <bullet> Be an exchange that is licensed and able to service 
investors in one or more of the following jurisdictions: United States, 
United Kingdom; European Union; Hong Kong; or Singapore
    <bullet> 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 Reference Rate Provider's 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 trading platform operations, 
insolvency, compromise of user funds, etc.). In the event that such an 
intervention is necessary, the Reference Rate Provider would issue a 
public announcement through its website, API and other established 
communication channels with its clients.\59\
---------------------------------------------------------------------------

    \59\ To the extent any such intervention has a material impact 
on the Fund, the Manager will also issue a public announcement.
---------------------------------------------------------------------------

3. The Digital Asset References Rates Mitigate the Impact of Instances 
of Fraud, Manipulation and Other Anomalous Trading Activity 
Concentrated on Any One Specific Trading Platform Through a Cross-
Trading Platform Composite Reference Rate Over a 60-Minute Period
    The Digital Asset Reference Rates are based on the price and volume 
data of multiple U.S.-Compliant Trading Platforms over a 60-minute 
period that satisfy the Reference Rate 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 
Trading Platforms.
    Although each Digital Asset Reference Rate is designed to 
accurately capture the market price of the digital asset it tracks, 
third parties may be able to purchase and sell such digital assets on 
public or private markets not included among the constituent Digital 
Asset Trading Platforms of such Digital Asset Reference Rate, and such 
transactions may take place at prices materially higher or lower than 
the Digital Asset Reference Rate. Moreover, there may be variances in 
the prices of digital assets on the various Digital Asset Trading 
Platforms, including as a result of differences in fee structures or 
administrative procedures on different Digital Asset Trading Platforms.
    For example, based on data provided by the Reference Rate Provider, 
on any given day during the twelve months ended June 30, 2024, the 
maximum differential between the 4:00 p.m., New York time spot price of 
Bitcoin on any single Digital Asset Trading Platform included in the 
Digital Asset Reference Rate was 1.47% and the average of the maximum 
differentials of the 4:00 p.m., New York time spot price of each 
Digital Asset Trading Platform included in the Digital Asset Reference 
Rate was 1.33%. During this same period, the average differential 
between the 4:00 p.m., New York time spot prices of all the Digital 
Asset Trading Platforms included in the Digital Asset Reference Rate 
was 0.01%. Further, on any given day during the twelve months ended 
June 30, 2024, the maximum differential between the 4:00 p.m., New York 
time spot price of Ether on any single Digital Asset Trading Platform 
included in the Digital Asset

[[Page 87699]]

Reference Rate was 2.80% and the average of the maximum differentials 
of the 4:00 p.m., New York time spot price of each Digital Asset 
Trading Platform included in the Digital Asset Reference Rate was 
2.46%. During this same period, the average differential between the 
4:00 p.m., New York time spot prices of all the Digital Asset Trading 
Platforms included in the Digital Asset Reference Rate was 0.02%. All 
Digital Asset Trading Platforms that were included in the relevant 
Digital Asset Reference Rate throughout the period were considered in 
this analysis.\60\
---------------------------------------------------------------------------

    \60\ All Digital Asset Trading Platforms that were included in 
the Digital Asset Reference Rates throughout the period were 
considered in this analysis.
---------------------------------------------------------------------------

    For approximately two years, the Fund has consistently priced its 
Shares at 4:00 p.m., New York time based on the Index and its use of 
the Digital Asset Reference Rates. While that pricing would be known to 
the market, the Manager believes that, even if efforts to manipulate 
the price of the Fund Components at 4:00 p.m., E.T. were successful on 
any trading platform, such activity would have had a limited effect on 
the pricing of the Fund, due to the controls embedded in the structure 
of the Index and its use of the Digital Asset Reference Rates.
    Accordingly, the Manager believes that the Index and it use of the 
Digital Asset Reference Rates have proven their ability to (i) mitigate 
the effects of fraud, manipulation and other anomalous trading activity 
on the Fund Components reference rates, (ii) provide a real-time, 
volume-weighted fair value of the Fund Components and (iii) 
appropriately handle and adjust for non-market related events. For 
these reasons, the Manager believes that the Index represents an 
effective alternative means to prevent fraud and manipulation and the 
Fund's reliance on the Index and its use of the Digital Asset Reference 
Rates addresses the Commission's concerns with respect to potential 
fraud and manipulation.
Creation and Redemption of Shares
    Authorized Participants may submit orders to create or redeem 
Shares under procedures for ``Cash Orders.''
    The Authorized Participants will deliver only cash to create Shares 
and will receive only cash when redeeming Shares. Further, Authorized 
Participants will not directly or indirectly purchase, hold, deliver, 
or receive the Fund Components as part of the creation or redemption 
process or otherwise direct the Fund or a third party with respect to 
purchasing, holding, delivering, or receiving the Fund Components as 
part of the creation or redemption process.
    The Fund will create Shares by receiving the Fund Components from a 
third party that is not the Authorized Participant and the Fund, or an 
affiliate of the Fund (and in any event not the Authorized 
Participant), is responsible for selecting the third party to deliver 
the Fund Components. Further, the third party will not be acting as an 
agent of the Authorized Participant with respect to the delivery of the 
Fund Components to the Fund or acting at the direction of the 
Authorized Participant with respect to the delivery of the Fund 
Components to the Fund. The Fund will redeem Shares by delivering the 
Fund Components to a third party that is not the Authorized Participant 
and the Fund, or an affiliate of the Fund (and in any event not the 
Authorized Participant), is responsible for selecting the third party 
to receive the Fund Components. Further, the third party will not be 
acting as an agent of the Authorized Participant with respect to the 
receipt of the Fund Components from the Fund or acting at the direction 
of the Authorized Participant with respect to the receipt of the Fund 
Components from the Fund.
    Cash Orders are made through the participation of a Liquidity 
Provider \61\ who obtains or receives the Fund Components in exchange 
for cash, and are facilitated by the Transfer Agent and Grayscale 
Investments, LLC, acting in its capacity as the Liquidity Engager. 
Liquidity Providers are not party to the Participant Agreements (as 
defined below) and are engaged separately by the Liquidity Engager.
---------------------------------------------------------------------------

    \61\ A ``Liquidity Provider'' means one or more eligible 
companies that facilitate the purchase and sale of the Fund 
Components in connection with creations or redemptions pursuant to 
Cash Orders. The Liquidity Providers with which Grayscale 
Investments, LLC, acting other than in its capacity as the Manager 
(in such other capacity, the ``Liquidity Engager'') will engage in 
Fund Component transactions are third parties that are not 
affiliated with the Manager or the Fund and are not acting as agents 
of the Fund, the Manager, or any Authorized Participant, and all 
transactions will be done on an arms-length basis. Except for the 
contractual relationships between each Liquidity Provider and 
Grayscale Investments, LLC in its capacity as the Liquidity Engager, 
there is no contractual relationship between each Liquidity Provider 
and the Fund, the Manager, or any Authorized Participant. When 
seeking to buy Fund Components in connection with creations or sell 
Fund Components in connection with redemptions, the Liquidity 
Engager will seek to obtain commercially reasonable prices and terms 
from the approved Liquidity Providers. Once agreed upon, the 
transaction will generally occur on an ``over-the-counter'' basis.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund creates Baskets 
(as described below) of Shares only upon receipt of the Fund Components 
and redeems Shares only by distributing the Fund Components. 
``Authorized Participants'' are the only persons that may place orders 
to create and redeem Baskets. Each Authorized Participant must (i) be a 
registered broker-dealer and (ii) enter into an agreement with the 
Manager and Transfer Agent that provides the procedures for the 
creation and redemption of Baskets and for the delivery of the Fund 
Components required for the creation and redemption of Baskets via a 
Liquidity Provider (each, a ``Participant Agreement''). An Authorized 
Participant may act for its own account or as agent for broker-dealers, 
custodians and other securities market participants that wish to create 
or redeem Baskets. Shareholders who are not Authorized Participants 
will only be able to create or redeem their Shares through an 
Authorized Participant.
    The Fund issues Shares to and redeems Shares from Authorized 
Participants on an ongoing basis, but only in one or more ``Baskets'' 
(with a Basket being a block of 10,000 Shares). The Fund will not issue 
fractions of a Basket.
    The creation and redemption of Baskets will be made only in 
exchange for the delivery to the Fund, or the distribution by the Fund, 
of the number of whole and fractional Fund Components represented by 
each Basket being created or redeemed, which is determined by dividing 
(x) the number of the Fund Components owned by the Fund at 4:00 p.m., 
New York time, on the trade date of a creation or redemption order, 
after deducting the number of Fund Components representing the U.S. 
dollar value of accrued but unpaid fees and expenses of the Fund 
(converted using the Digital Asset Reference Rates 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 the Fund Components (i.e., carried to the 
eighth decimal place)), and multiplying such quotient by 10,000 (the 
``Basket Amount''). The U.S. dollar value of a Basket is calculated by 
multiplying the Basket Amount by the Digital Asset Reference Rates as 
of the trade date (the ``Basket NAV''). The Basket NAV multiplied by 
the number of Baskets being created or redeemed is referred to as the 
``Total Basket NAV.'' All questions as to the calculation of the Basket 
Amount will be conclusively determined by the Manager and will be final 
and binding on all persons interested in the Fund. The number the Fund 
Components represented by a Share will gradually decrease over time

[[Page 87700]]

as the Fund Components are used to pay the Fund's expenses. Each Share 
represented approximately 0.0004 of one Bitcoin, 0.0023 of one Ether, 
0.0085 of one SOL, 0.0072 of one AVAX, and 1.0537 of one XRP as of June 
30, 2024.
    The creation of Baskets requires the delivery to the Fund of the 
Total Basket Amount and the redemption of Baskets requires the 
distribution by the Fund of the Total Basket Amount.
    Although the Fund creates Baskets only upon the receipt of the Fund 
Components, and redeems Baskets only by distributing the Fund 
Components, an Authorized Participant will submit Cash Orders, pursuant 
to which the Authorized Participant will deposit cash with, or accept 
cash from, the Transfer Agent in connection with the creation and 
redemption of Baskets.
    Cash Orders will be facilitated by the Transfer Agent and Liquidity 
Engager, acting other than in its capacity as Manager. On an order-by-
order basis, the Liquidity Engager will engage one or more Liquidity 
Providers to obtain or receive the Fund Components in exchange for cash 
in connection with such order, as described in more detail below.
    Unless the Manager requires that a Cash Order be effected at actual 
execution prices (an ``Actual Execution Cash Order''),\62\ each 
Authorized Participant that submits a Cash Order to create or redeem 
Baskets (a ``Variable Fee Cash Order'') \63\ will pay a fee (the 
``Variable Fee'') based on the Total Basket NAV, and any price 
differential of the Fund Components between the trade date and the 
settlement date will be borne solely by the Liquidity Provider until 
such Fund Components have been received or liquidated by the Fund. The 
Variable Fee is intended to cover all of a Liquidity Provider's 
expenses in connection with the creation or redemption order, including 
any trading platform fees that the Liquidity Provider incurs in 
connection with buying or selling the Fund Components. The amount may 
be changed by the Manager in its sole discretion at any time, and 
Liquidity Providers will communicate to the Manager in advance the 
Variable Fee they would be willing to accept in connection with a 
Variable Fee Cash Order, based on market conditions and other factors 
existing at the time of such Variable Fee Cash Order.
---------------------------------------------------------------------------

    \62\ With respect to a creation or redemption pursuant to an 
Actual Execution Cash Order, as between the Fund and an Authorized 
Participant, the Authorized Participant is responsible for the 
dollar cost of the difference between the Fund Components' price 
utilized in calculating Total Basket NAV on the trade date and the 
price at which the Fund acquires or disposes of the Fund Components 
on the settlement date. If the price realized in acquiring or 
disposing of the corresponding Total Basket Amount is higher than 
the Total Basket NAV, the Authorized Participant will bear the 
dollar cost of such difference, in the case of a creation, by 
delivering cash in the amount of such shortfall (the ``Additional 
Creation Cash'') to the Cash Account or, in the case of a 
redemption, with the amount of cash to be delivered to the 
Authorized Participant being reduced by the amount of such 
difference (the ``Redemption Cash Shortfall''). If the price 
realized in acquiring the corresponding Total Basket Amount is lower 
than the Total Basket NAV, the Authorized Participant will benefit 
from such difference, with the Fund promptly returning cash in the 
amount of such excess (the ``Excess Creation Cash'') to the 
Authorized Participant.
    \63\ Unless the Manager determines otherwise in its sole 
discretion based on market conditions and other factors existing at 
the time of such Cash Order, all creations and redemptions pursuant 
to Cash Orders are expected to be executed as Variable Fee Cash 
Orders, and any price differential of Fund Components between the 
trade date and the settlement date will be borne solely by the 
Liquidity Provider until such Fund Components have been received by 
the Fund.
---------------------------------------------------------------------------

    Alternatively, the Manager may require that a Cash Order be 
effected as an Actual Execution Cash Order, in its sole discretion 
based on market conditions and other factors existing at the time of 
such Cash Order, and under such circumstances, any price differential 
of the Fund Components between the trade date and the settlement date 
will be borne solely by the Authorized Participant until such Fund 
Components have been received or liquidated by the Fund.
    In the case of creations, to transfer the Total Basket Amount to 
the Fund's Digital Asset Account, the Liquidity Provider will transfer 
the Fund Components to one of the public key addresses associated with 
the Digital Asset Account and as provided by the Manager. In the case 
of redemptions, the same procedure is conducted, but in reverse, using 
the public key addresses associated with the wallet of the Liquidity 
Provider and as provided by such party. All such transactions will be 
conducted on the blockchain and parties acknowledge and agree that such 
transfers may be irreversible if done incorrectly.
    Authorized Participants do not pay a transaction fee to the Fund in 
connection with the creation or redemption of Baskets, but there may be 
transaction fees associated with the validation of the transfer of the 
Fund Components by the online, end-user-to-end-user network hosting a 
public transaction ledger, known as a Blockchain, and the source code 
comprising the basis for the cryptographic and algorithmic protocols 
governing such network, which will be paid by the Custodian in the case 
of redemptions and the Authorized Participant or the Liquidity Provider 
in the case of creations. Service providers may charge Authorized 
Participants administrative fees for order placement and other services 
related to creation of Baskets. As discussed above, Authorized 
Participants will also pay the Variable Fee in connection with Variable 
Fee Cash Orders. Under certain circumstances Authorized Participants 
may also be required to deposit additional cash in the Cash Account, or 
be entitled to receive excess cash from the Cash Account, in connection 
with creations and redemptions pursuant to Actual Execution Cash 
Orders. Authorized Participants will receive no fees, commissions or 
other form of compensation or inducement of any kind from either the 
Manager or the Fund and no such person has any obligation or 
responsibility to the Manager or the Fund to effect any sale or resale 
of Shares.
Creation Procedures
    On any business day, an Authorized Participant may place an order 
with the Transfer Agent to create one or more Baskets.
    Cash Orders for creation must be placed with the Transfer Agent no 
later than 1:59:59 p.m., New York time.
    The Manager may in its sole discretion limit the number of Shares 
created pursuant to Cash Orders on any specified day without notice to 
the Authorized Participants and may direct the Marketing Agent to 
reject any Cash Orders in excess of such capped amount. In exercising 
its discretion to limit the number of Shares created pursuant to Cash 
Orders, the Manager expects to take into consideration a number of 
factors, including the availability of Liquidity Providers to 
facilitate Cash Orders and the cost of processing Cash Orders.
    Creations under Cash Orders will take place as follows, where ``T'' 
is the trade date and each day in the sequence must be a business day. 
Before a creation order is placed, the Manager determines if such 
creation order will be a Variable Fee Cash Order or an Actual Execution 
Cash Order, which determination is communicated to the Authorized 
Participant.

[[Page 87701]]



----------------------------------------------------------------------------------------------------------------
                                                           Settlement date (T+1, or T+2, as established at the
                     Trade date (T)                                      time of order placement)
----------------------------------------------------------------------------------------------------------------
<bullet> The Authorized Participant places a creation    <bullet> The Authorized Participant delivers to the
 order with the Transfer Agent.                           Cash Account: *
                                                         (x) in the case of a Variable Fee Cash Order, the Total
                                                          Basket NAV, plus any Variable Fee; or
                                                         (y) in the case of an Actual Execution Cash Order, the
                                                          Total Basket NAV, plus any Additional Creation Cash,
                                                          less any Excess Creation Cash, if applicable (such
                                                          amount, as applicable, the ``Required Creation
                                                          Cash'').
<bullet> The Marketing Agent accepts (or rejects) the    <bullet> The Liquidity Provider transfers the Total
 creation order, which is communicated to the             Basket Amount to the Fund's Vault Balance.
 Authorized Participant by the Transfer Agent.
<bullet> The Manager notifies the Liquidity Provider of  <bullet> Once the Fund is in simultaneous possession of
 the creation order.                                      (x) the Total Basket Amount and (y) the Required
                                                          Creation Cash, the Fund issues the aggregate number of
                                                          Shares corresponding to the Baskets ordered by the
                                                          Authorized Participant, which the Transfer Agent holds
                                                          for the benefit of the Authorized Participant.
<bullet> The Manager determines the Total Basket NAV     <bullet> Cash equal to the Required Creation Cash is
 and any Variable Fee and Additional Creation Cash as     delivered to the Liquidity Provider from the Cash
 soon as practicable after 4:00 p.m., New York time.      Account.
                                                         <bullet> The Transfer Agent delivers Shares to the
                                                          Authorized Participant by crediting the number of
                                                          Baskets created to the Authorized Participant's DTC
                                                          account.
----------------------------------------------------------------------------------------------------------------
* The ``Cash Account'' means the account maintained by the Transfer Agent for purposes of receiving cash from,
  and distributing cash to, Authorized Participants in connection with creations and redemptions pursuant to
  Cash Orders. For the avoidance of doubt, the Fund shall have no interest (beneficial, equitable or otherwise)
  in the Cash Account or any cash held therein.

Redemption Procedures
    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 a redemption order 
specifying the number of Baskets to be redeemed.
    The redemption of Shares pursuant to Cash Orders will only take 
place if approved by the Manager in writing, in its sole discretion and 
on a case-by-case basis. In exercising its discretion to approve the 
redemption of Shares pursuant to Cash Orders, the Manager expects to 
take into consideration a number of factors, including the availability 
of Liquidity Providers to facilitate Cash Orders and the cost of 
processing Cash Orders.
    Cash Orders for redemption must be placed no later than 1:59:59 
p.m., New York time on each business day. The Authorized Participants 
may only redeem Baskets and cannot redeem any Shares in an amount less 
than a Basket.
    Redemptions under Cash Orders will take place as follows, where 
``T'' is the trade date and each day in the sequence must be a business 
day. Before a redemption order is placed, the Manager determines if 
such redemption order will be a Variable Fee Cash Order or an Actual 
Execution Cash Order, which determination is communicated to the 
Authorized Participant.

----------------------------------------------------------------------------------------------------------------
                                                         Settlement date  (T+1 (or T+2 on case[dash]by[dash]case
                     Trade date (T)                                  basis, as approved by Manager))
----------------------------------------------------------------------------------------------------------------
<bullet> The Authorized Participant places a redemption  <bullet> The Authorized Participant delivers Baskets to
 order with the Transfer Agent.                           be redeemed from its DTC account to the Transfer
                                                          Agent.
<bullet> The Marketing Agent accepts (or rejects) the    <bullet> The Liquidity Provider delivers to the Cash
 redemption order, which is communicated to the           Account:
 Authorized Participant by the Transfer Agent.           (x) in the case of a Variable Fee Cash Order, the Total
                                                          Basket NAV less any Variable Fee; or
                                                         (y) in the case of an Actual Execution Cash Order, the
                                                          actual proceeds to the Fund from the liquidation of
                                                          the Total Basket Amount (such amount, as applicable,
                                                          the ``Required Redemption Cash'').
<bullet> The Manager notifies the Liquidity Provider of  <bullet> Once the Fund is in simultaneous possession of
 the redemption order.                                    (x) the Total Basket Amount and (y) the Required
                                                          Redemption Cash, the Transfer Agent cancels the Shares
                                                          comprising the number of Baskets redeemed by the
                                                          Authorized Participant.
<bullet> The Manager determines the Total Basket NAV     <bullet> The Custodian sends the Liquidity Provider the
 and, in the case of a Variable Fee Cash Order, any       Total Basket Amount, and cash equal to the Required
 Variable Fee, as soon as practicable after 4:00 p.m.,    Redemption Cash is delivered to the Authorized
 New York time.                                           Participant from the Cash Account.
----------------------------------------------------------------------------------------------------------------

Suspension or Rejection of Orders and Total Basket Amount
    The creation or redemption of Shares may be suspended 
generally,\64\ 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 Manager or its delegates make it for all practicable purposes 
not feasible to process creation orders or redemption orders or for any 
other reason at any time or from time to time.\65\ The

[[Page 87702]]

Transfer Agent may reject an order or, after accepting an order, may 
cancel such order 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 a wallet address that is 
known to the Custodian as belonging to a Liquidity Provider or (iii) 
the fulfillment of the order, in the opinion of counsel, might be 
unlawful, among other reasons. None of the Manager or its delegates 
will be liable for the suspension, rejection or acceptance of any 
creation order or redemption order.
---------------------------------------------------------------------------

    \64\ The Manager will notify the Exchange in the event that the 
creation or redemption of Shares will be suspended generally and 
will follow the Exchange's ``Immediate Release Policy.''
    \65\ Extenuating circumstances outside of the control of the 
Manager and its delegates or that could cause the transfer books of 
the Transfer Agent to be closed are outlined in the Participant 
Agreement and include, for example, public service or utility 
problems, power outages resulting in telephone, telecopy and 
computer failures, acts of God such as fires, floods or extreme 
weather conditions, market conditions or activities causing trading 
halts, systems failures involving computer or other information 
systems, including any failures or outages of the Ethereum Network, 
affecting the Authorized Participant, the Manager, the Fund, the 
Transfer Agent, the Marketing Agent and the Custodian and similar 
extraordinary events.
---------------------------------------------------------------------------

Availability of Information
    The Fund's website (https://grayscale.com/crypto-products/grayscale-digital-large-cap-fund/) will include quantitative 
information on a per Share basis updated on a daily basis, including, 
(i) the current NAV per Share daily and the prior business day's NAV 
per Share and the reported closing price of the Shares; (ii) the mid-
point of the bid-ask price \66\ as of the time the NAV per Share is 
calculated (``Bid-Ask Price'') and a calculation of the premium or 
discount of such price against such NAV per Share; and (iii) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid-Ask Price against the NAV per Share, within 
appropriate ranges, for each of the four previous calendar quarters (or 
for as long as the Fund has been trading as an ETP if shorter). In 
addition, on each business day the Fund's website will provide pricing 
information for the Shares and disclosed the Fund's holdings, 
including: (i) the name of each Fund Component; (ii) the quantify of 
each Fund Component; and (iii) the weighting of each Fund Component.
---------------------------------------------------------------------------

    \66\ The bid-ask price of the Fund is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day NAV.
---------------------------------------------------------------------------

    One or more major market data vendors will provide the Intra-Day 
Fund Value (``IFV'') 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.).\67\ The 
IFV will be calculated using the same methodology as the NAV per Share 
of the Fund (as described above), specifically by using the prior day's 
closing NAV per Share as a base and updating that value during the NYSE 
Arca Core Trading Session to reflect changes in the value of the Fund's 
NAV during the trading day.
---------------------------------------------------------------------------

    \67\ The IFV on a per Share basis disseminated during the NYSE 
Arca Core Trading Session should not be viewed as a real-time update 
of the NAV, which is calculated once a day.
---------------------------------------------------------------------------

    The IFV disseminated during the NYSE Arca Core Trading Session 
should not be viewed as an actual real-time update of the NAV per 
Share, which will be calculated only once at the end of each trading 
day. The IFV 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 IFV will be available through on-
line information services.
    The NAV for the Fund will be calculated by the Manager once a day 
and will be disseminated daily to all market participants at the same 
time. To the extent that the Manager has utilized the cascading set of 
rules described in ``Index Price'' above, the Fund's website will note 
the valuation methodology used and the price per Fund Components 
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 the Fund Components 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 the Fund Components is available by subscription from 
Reuters and Bloomberg. The spot price of the Fund Components is 
available on a 24-hour basis from major market data vendors, including 
Bloomberg and Reuters. Information relating to trading, including price 
and volume information, will be available from major market data 
vendors and from the trading platforms on which the Fund Components are 
traded. The normal trading hours for Digital Asset Trading Platforms 
are 24-hours per day, 365-days per year.
    On each business day, the Manager will publish the Digital Asset 
Reference Rates, the Fund's NAV, and the NAV per Share on the Fund's 
website as soon as practicable after its determination. If the NAV and 
NAV per Share have been calculated using a price per Fund Components 
other than the Digital Asset Reference Rates for such Evaluation Time, 
the publication on the Fund's website will note the valuation 
methodology used and the price per Fund Components resulting from such 
calculation.
    The Fund will provide website disclosure of its NAV daily. The 
website disclosure of the Fund's NAV will occur at the same time as the 
disclosure by the Manager of the NAV 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 NAV of the Fund through the Fund'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 such as the DLCS Methodology, is publicly available on a 
continuous basis.
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 8.800-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.800-E(i), 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 Fund will be in compliance with Rule 10A-3 \68\ 
under the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 
100,000 Shares of the Fund will be outstanding at the commencement of 
trading on the Exchange.
---------------------------------------------------------------------------

    \68\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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

[[Page 87703]]

the Fund.\69\ Trading in Shares of the Fund 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.
---------------------------------------------------------------------------

    \69\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IFV or the value of the Index 
occurs. If the interruption to the dissemination of the IFV 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 NYSE 
Arca Core Trading Session on the trading day following the 
interruption. In addition, if the Exchange becomes aware that the NAV 
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 NAV per 
Share is available to all market participants.
Surveillance
    The Exchange represents that trading in the Shares of the Fund 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.\70\ 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.
---------------------------------------------------------------------------

    \70\ FINRA 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.
---------------------------------------------------------------------------

    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 CSSA.\71\ 
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.
---------------------------------------------------------------------------

    \71\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all Fund Components 
may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA, but that, consistent with proposed 
Rule 8.800-E(c)(1), at least 90% of the Fund's commodity and/or 
digital asset holdings will consist of commodities and/or digital 
assets for which the Exchange may obtain information via the ISG 
from other members or affiliates of the ISG or for which the 
principal market is a market with which the Exchange has a CSSA.
---------------------------------------------------------------------------

    Under proposed Rule 8.800-E(i), an ETP Holder acting as a 
registered Market Maker in the Shares is required to provide the 
Exchange with information relating to its accounts for trading in any 
underlying commodity, related futures or options on futures, or any 
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E 
requires an ETP Holder acting as a registered Market Maker, and its 
affiliates, in the Shares to establish, maintain and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
any material nonpublic information with respect to such products, any 
components of the related products, any physical asset or commodity 
underlying the product, applicable currencies, underlying indexes, 
related futures or options on futures, and any related derivative 
instruments (including the Shares). As a general matter, the Exchange 
has regulatory jurisdiction over its ETP Holders and their associated 
persons, which include any person or entity controlling an ETP Holder. 
To the extent the Exchange may be found to lack jurisdiction over a 
subsidiary or affiliate of an ETP Holder that does business only in 
commodities or futures contracts and that subsidiary or affiliate is a 
member of another regulatory organization, the Exchange could obtain 
information regarding the activities of such subsidiary or affiliate 
through a surveillance sharing agreement with that regulatory 
organization.
    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 Fund, (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 Manager has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund 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 Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
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 Digital 
Asset Reference Rates and the IFV 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 IFV will not be calculated or publicly disseminated; and (5) 
trading information. The Exchange notes that investors purchasing 
Shares directly from the Fund will receive a prospectus.
    In addition, the Information Bulletin will reference that the Fund 
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 Fund is publicly available on the Fund'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 Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\72\ in general, and furthers the 
objectives of Section 6(b)(5)

[[Page 87704]]

of the Act,\73\ in particular, in that it is 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 a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78f(b).
    \73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.800-E is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Commodity- and/or 
Digital Asset-Based Investment Interests provide specific initial and 
continued listing criteria required to be met by such securities.
    Proposed Rule 8.800-E(a) provides that the Exchange will file 
separate proposals under Rule 19(b) of the Act before the listing and 
trading of Commodity- and/or Digital Asset-Based Investment Interests. 
All statements or representations contained in such rule filing 
regarding (a) the description of the index, portfolio, or reference 
asset, (b) limitations on index or portfolio holdings or reference 
assets, or (c) the applicability of Exchange listing rules specified in 
such rule filing will constitute continued listing requirements. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements. If an issue of 
Commodity- and/or Digital Asset-Based Investment Interests does not 
satisfy these requirements, the Exchange may halt trading in the 
securities and will initiate delisting proceedings pursuant to Rule 
5.5-E(m).
    Proposed Rule 8.800-E(e) sets forth initial and continued listing 
criteria applicable to Commodity- and/or Digital Asset-Based Investment 
Interests. Proposed Rule 8.800-E(e)(1)(i) provides that, for each 
series of Commodity- and/or Digital Asset-Based Investment Interests, 
the Exchange will establish a minimum number of Commodity- and/or 
Digital Asset-Based Investment Interests required to be outstanding at 
the time of commencement of trading on the Exchange. Proposed Rule 
8.800-E(e)(1)(ii) provides that in the aggregate, at least 90% of the 
weight of the commodity and/or digital asset holdings of a series of 
Commodity- and/or Digital Asset-Based Investment Interests shall, on 
both an initial and continuing basis, consist of commodities and/or 
digital assets for which the Exchange may obtain information pursuant 
to its ISG membership or for which the principal market is a market 
with which the Exchange has a CSSA. In addition, proposed Rule 8.800-
E(e)(2) provides that the Exchange will maintain surveillance 
procedures for securities listed under proposed Rule 8.800-E and sets 
forth the circumstances under which the Exchange would consider the 
suspension of trading in and delisting under Rule 5.5-E(m) of a series 
of Commodity- and/or Digital Asset-Based Investment Interests.
    With respect to proposed Rule 8.800-E, the Exchange believes that 
the proposed rule change is designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest 
because Commodity- and/or Digital Asset-Based Investment Interests 
listed and traded pursuant to proposed Rule 8.800-E would be 
substantially similar to Commodity-Based Trust Shares listed and traded 
pursuant to current Rule 8.201-E. Commodity- and/or Digital Asset-Based 
Investment Interests differ from Commodity-Based Trust Shares only in 
that Commodity- and/or Digital Asset-Based Investment Interests could 
be issued, as a proposed, by a trust, limited liability company, or 
other similar entity (rather than only by a trust), and in that 
Commodity- and/or Digital Asset-Based Investment Interests could be 
based, as proposed, on underlying commodities, digital assets (provided 
that at least 90% of commodity and/or digital asset holdings are those 
concerning which the Exchange may obtain information via the ISG from 
other members of the ISG or via CSSA), and/or Derivative Securities 
Products. The Exchange believes this additional flexibility with 
respect to the structure of the entity issuing Commodity- and/or 
Digital Asset-Based Investment Interests and the holdings underlying 
such securities would remove impediments to and perfect the mechanism 
of a free and open market, as well as promote competition, by promoting 
the listing and trading of a new type of ETP, to the benefit of all 
market participants. The Exchange further believes that the proposed 
requirement that at least 90% of any commodity and/or digital asset 
holdings are those concerning which the Exchange may obtain information 
via the ISG from other members of the ISG or via a CSSA would remove 
impediments to and perfect the mechanism of a free and open market, as 
well as protect investors and the public interest, because it would 
offer flexibility to issuers of series of Commodity- and/or Digital 
Asset-Based Investment Interests, to the benefit of investors, while 
facilitating information sharing among market participants regarding 
the vast majority of any commodities and/or digital assets underlying 
series of Commodity- and/or Digital Asset-Based Investment Interests. 
As noted above, this requirement is based on a similar provision 
approved by the Commission in Commentary .01(d)(1) to Rule 8.600-E 
regarding Managed Fund Shares.
    The Exchange also believes that the proposed addition of Commodity- 
and/or Digital Asset-Based Investment Interests to the enumerated 
derivative and special purpose securities that are subject to the 
provisions of Rule 5.3-E (Corporate Governance and Disclosure Policies) 
and Rule 5.3-E(e) (Shareholder/Annual Meetings) would promote just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
holding Commodity- and/or Digital Asset-Based Investment Interests to 
the same requirements currently applicable to other similar derivative 
and special purpose securities such as those listed pursuant to Rule 
8.201-E.
    With respect to the proposed listing and trading of Shares of the 
Fund, 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 8.800-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 and Fund Component derivatives from 
such markets. In addition, the Exchange may obtain information 
regarding trading in the Shares and Fund Component derivatives from 
markets that are members of ISG or with which the Exchange has in place 
a CSSA. Also, pursuant to NYSE Arca Rule 8.800-E(i), the Exchange is 
able to obtain information regarding Market Maker accounts for trading 
in the Shares and the underlying Fund Components or any Fund Component 
derivatives through ETP Holders acting as registered Market Makers, in 
connection with such ETP Holders' proprietary or

[[Page 87705]]

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 
Trading Platform Market is not inherently resistant to fraud and 
manipulation, the Index and its use of the Digital Asset Reference 
Rates serves as a means sufficient to mitigate the impact of instances 
of fraud and manipulation on a reference price for the Fund Components. 
Specifically, the Index and its use of the Digital Asset Reference 
Rates provides a better benchmark for the price of the Fund Components 
than the Digital Asset Trading Platform Market price because (1) the 
Digital Asset Reference Rates track the Digital Asset Trading Platform 
Market price through trading activity at U.S.-Compliant Trading 
Platforms; (2) is the Digital Asset Reference Rates are constructed and 
maintained by an expert third-party index provider, allowing for 
prudent handling of non-market-related events; and (3) the Digital 
Asset Reference Rates mitigate the impact of instances of fraud, 
manipulation and other anomalous trading activity concentrated on any 
one specific trading platform through a cross-trading platform 
composite reference rate over a 60-minute period. The Fund has relied 
on the Index and its use of the Digital Asset Reference Rates to price 
the Shares for approximately two years, and the Index and its use of 
the Digital Asset Reference Rates has proven its ability to (i) 
mitigate the effects of fraud, manipulation and other anomalous trading 
activity from impacting the Fund Components' reference rates, (ii) 
provide a real-time, volume-weighted fair value of the Fund Components 
and (iii) appropriately handle and adjust for non-market related 
events, such that efforts to manipulate the price of the Fund 
Components would have had a negligible effect on the pricing of the 
Fund, due to the controls embedded in the structure of the Index. In 
addition, certain of the Digital Asset Reference Rates' Constituent 
Trading Platforms 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 because, as noted above, 
fraud or manipulation that impacts prices in spot Bitcoin markets or 
spot Ether markets would likely similarly impact CME Bitcoin futures 
and CME Ether futures prices, and the Exchange could obtain information 
from the CME to assist in detecting and deterring potential fraud or 
manipulation with respect to certain Fund Components.
    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 price and market information 
available on public websites and through professional and subscription 
services for the Fund Components. Investors may obtain, on a 24-hour 
basis, Fund Component pricing information based on the spot price for 
the Fund Components from various financial information service 
providers. The closing price and settlement prices of the Fund 
Components are readily available from the Digital Asset Trading 
Platforms 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 NAV per Share will be calculated 
daily and made available to all market participants at the same time. 
The Fund will provide website disclosure of its NAV daily. One or more 
major market data vendors will disseminate for the Fund on a daily 
basis information with respect to the most recent NAV per Share and 
Shares outstanding. In addition, if the Exchange becomes aware that the 
NAV 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 
NAV is available to all market participants. Quotation and last-sale 
information regarding the Shares will be disseminated through the 
facilities of the CTA. The IFV 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 IFV or the value of the Index occurs. If the interruption to the 
dissemination of the IFV 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 NYSE Arca Core Trading Session on 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 for at least 90% of the Fund's 
commodity and/or digital asset holdings. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
NAV, IFV, 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 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:

[[Page 87706]]

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6210170e074f010d0f0f070c1611221107014c050d14"><span class="__cf_email__" data-cfemail="7e0c0b121b531d1113131b100a0d3e0d1b1d50191108">[email protected]</span></a>. Please include 
file number SR-NYSEARCA-2024-87 on the subject line.

Paper Comments

<bullet> 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-2024-87. 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-2024-87 and should 
be submitted on or before November 25, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
---------------------------------------------------------------------------

    \74\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25529 Filed 11-1-24; 8:45 am]
BILLING CODE 8011-01-P


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