SEC Filing Document

Company: T. Rowe Price Active Crypto ETF
Ticker: 
CIK: 2089855
Filing Type: S-1
Document Type: S-1
Date Filed: 2025-10-22
Accession Number: 0001999371-25-015832
Exchange: 
SIC Code: 6221
SIC Description: Commodity Contracts Brokers & Dealers
URL: https://www.sec.gov/Archives/edgar/data/2089855/000199937125015832/activecrypto-s1_102225.htm

Chunk 25 of 56
Word Count: 1381
Character Count: 8932

Document Content:

upgrade known as “The Merge.” Unlike proof-of-work, in which miners expend computational resources to compete to propose blocks of transactions and be rewarded coins in proportion to the number of computational resources expended, in PoS, validators pledge or “stake” coins to compete to be randomly selected to validate transactions and be rewarded coins in proportion to the total amount of coins staked. Any malicious activity, such as proposing multiple blocks at the same validation time, voting on two different versions of the consensual chain or otherwise violating protocol rules, results in the forfeiture or “slashing” of a portion of the staked coins. Due to the absence of employed computation resources, PoS is viewed as more energy efficient than proof-of-work. In addition, PoS allows for the implementation of scaling solutions such as sharding, which parallelizes transaction registry and code execution in the network and aims to increase speeds and reduce fees.

Second Ethereum Upgrade. Since
the transition to PoS, Ethereum experienced the successful activation of two other upgrades: (i) the Shanghai/Capella (Shapella) upgrade,
activated in April 2023, which enabled ether withdrawals for validators participating in the network’s consensus and (ii) the Cancun/Deneb
(Dencun) upgrade, activated in March 2024, which activated proto-danksharding, a new technology that reduces the costs for second layer
solutions known as rollups to post data on Ethereum and thus significantly decreases transaction fees paid by users using these upper
layers to access the Ethereum ecosystem.

Third Ethereum Upgrade. As a
continuation to the Ethereum 2.0 transition, Ethereum underwent a third upgrade called Pectra, which was activated in May 2025. Pectra
activated a number of improvements to the network, including:

•	Staker Flexibility: Validators can now accumulate — holding balances from 32 to 2048 ETH and earning
compounding rewards. The prior distributing validator model (which sends rewards above 32 ETH to a withdrawal address) remains supported.

•	User Experience Enhancements: Self-custodied wallets can now delegate to smart contracts, enabling
new functionality such as sponsorship. While the activations of the first three upgrades in the Ethereum 2.0 roadmap have been successful and widely accepted
by the Ethereum community, the possibility exists that the full implementation of Ethereum 2.0 may never be achieved, or may never achieve
its goals. There is no guarantee that the Ethereum community will fully embrace forthcoming upgrades planned for Ethereum 2.0, and the
new protocol may never fully scale, which may have a negative impact on the market value of ether, and consequently the NAV of the Fund.

The Ethereum Network is still in the
process of developing and making significant decisions that will affect policies that govern the supply and issuance of ether as well
as other Ethereum Network protocols. For example, the Ethereum Network has previously reduced the quantity of ether rewarded per block
and may make further reductions and additional changes in the future. If the Ethereum Network does not successfully develop its policies
on supply and issuance, or does so in a manner that is not attractive to network participants, there may not be sufficient support for
such network, which could lead to a decline in the price of ether. Moreover, because crypto assets, including ether, have been in existence
for a short period of time and are continuing to develop, there may be additional risks in the future that are impossible to predict as
of the date of this prospectus.

Effective limits on ether supply through
the PoS mechanism and gas fee burning mechanism may impact ether prices

The rate at which new ether is issued
and put into circulation is expected to vary. The Ethereum Network has no formal cap on the total supply of ether. The Ethereum Network
does, however, feature several mechanisms that, individually and in aggregate, have the effect of limiting the total supply of ether outstanding.
These mechanisms are sometimes referred to collectively as the “Ethereum Triple Halving.”

As a result of the Merge, where the
Ethereum Network moved from a proof-of-work to a PoS mechanism under Ethereum 2.0, the rate of issuance is greatly reduced. Under proof-of-work,
miners expend computational resources to compete to validate transactions and are rewarded coins in proportion to the amount of computational
resources expended, which resulted in comparably more new tokens rewarded. By contrast, under PoS, validators risk or “stake”
coins to compete to be randomly selected to validate transactions and are rewarded coins in proportion to the amount of coins staked,
which results in comparably fewer new tokens rewarded.

Ethereum’s move from proof-of-work
to PoS reduces issuance, and ether that is staked is non-transferable until withdrawn via the protocol’s exit/withdrawal queue,
which temporarily lowers immediately tradable (liquid) supply, though liquid-staking tokens can remain tradable. Additionally, the supply
of ether is limited as a result of the deflationary gas fee burning mechanism introduced by Ethereum Improvement Proposal (EIP) 1559 in
August 2021 to reform the Ethereum gas fee market. EIP 1559 split of fees into two components: the base fee (calculated depending on the
network activity involved) and the tip. When ether is issued to pay the base fee, it is removed from circulation, or “burnt,”
and the tip is paid to validators. As a result of this fee burning mechanism, the overall supply of ether decreases as more ether are
destroyed through the fee burn. Since the fee burning depends on the network activity, the more the transactions on the Ethereum Network,
the more ether is burned and the lower the issuance. This also has the effect of reducing the incentives for validators to validate transactions
with higher gas fees, since those validators would only receive the tip and not base fees. Frequently, the ether supply has been deflationary
over a 24-hour period as a result of the burn mechanism. Material declines in the issuance of ether may discourage existing and future
validators from serving as such, and adversely impact the Ethereum Network’s adoption or the price of ether. Any disruption of validation
on the Ethereum Network could interfere with network operations and cause the Ethereum Network to be less attractive to users and application
developers than competing blockchain networks, which could cause the price of ether to decrease.

The ongoing development of smart
contracts, including those relating to decentralized finance (DeFi) applications, may result in problems that could reduce the demand
for ether or cause a wider loss of confidence in the Ethereum Network, either of which could have an adverse impact on the value of ether

Smart contracts are programs that run
on the Ethereum Network and execute automatically when certain conditions are met. Since smart contracts typically cannot be stopped or
reversed, vulnerabilities in their programming can have damaging effects. For example, in 2016, a vulnerability in the smart contracts
underlying “The DAO” on Ethereum enabled a hacker to steal approximately $60 million in ether, leading to a major hard fork
and a 35% drop in ether’s price. Subsequent years saw additional smart contract issues, such as multi-signature wallet vulnerabilities
and bugs in ERC20 tokens, resulting in tens or hundreds of millions in losses or frozen funds. Major flaws have also caused disruptions
to platforms like MakerDAO and exploited bridges and DeFi protocols, with attackers syphoning billions of dollars in assets. Such incidents
highlight how problems in smart contract development or deployment can negatively impact the value of ether.

In some cases, smart contracts can
be controlled by one or more “admin keys” or users with special privileges, or “super users.” These users may
have the ability to unilaterally make changes to the smart contract, enable or disable features on the smart contract, change how the
smart contract receives external inputs and data or transmits ether or other crypto assets, and make other changes to the smart contract.
Furthermore, in some cases inadequate public information may be available about certain smart contracts or applications, and information
asymmetries may exist, even with respect to open-source smart contracts or applications; certain participants may have hidden informational
or technological advantages, making for an uneven playing field. There may be opportunities for bad actors to perpetrate fraudulent schemes
and engage in illicit activities and other misconduct, such as exit scams and rug pulls (orchestrated by developers and/or influencers
who promote a smart contract or application and, ultimately, escape with the money at an agreed time), or Ponzi or similar fraud schemes.