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 28 of 56
Word Count: 1499
Character Count: 9493

Document Content:

Arbitrum network experienced outages due to failures in its primary node responsible for submitting transactions to Ethereum. Further, smart contracts deployed on one Layer 2 solution may not be interoperable with smart contracts deployed on other Layer 2 solutions. In particular, the advent of Layer 2 solutions risks fracturing liquidity of DeFi DApps on a smart contract platform’s mainchain by splitting such liquidity among multiple, non-interoperable Layer 2 solutions, which could limit their use case or reduce efficiency. As Layer 2 solutions grow in popularity and total value locked, these types of difficulties may lead to transactional congestion or forfeiture of value held on the Ethereum Network, which in turn could have an adverse impact on the value of ether. Liquid staking applications pose centralization concerns, and a single liquid staking application has reportedly controlled around or in excess of 33% of the total staked ether on the Ethereum Network

Validators must deposit 32 ether to
activate a unique validator key pair that is used to sign block proposals and attestations on behalf of its stake (i.e., participate in
the PoS consensus mechanism). For every 32 ether deposit that is staked, a unique validator key pair is generated. This validator key
pair is only used in validation processes (block proposal and attestation, and the staking associated therewith), and is separate from
the public-private key pair generated in respect of the blockchain address on the Ethereum Network which is used to hold the ether. An
application built on the Ethereum Network, or a single node operator, can manage many validator key pairs. For example, Lido, an application
that provides a so-called “liquid staking” solution that permits holders of ether to deposit them with Lido, which stakes
the ether while issuing the holder a transferrable token, is reported by some sources to have or have had up to 275,000 validator key
pairs (each representing 32 staked ether) divided across over 30 node operators. At times, Lido has reportedly controlled around or in
excess of 33% of the total staked ether on the Ethereum Network. This poses centralization concerns. If Lido, or a bad actor with a similar
sized stake, were to attempt to interfere with transaction finality or block confirmations, it could negatively affect the use and adoption
of the Ethereum Network, the value of ether, and thus the value of the Shares.

Risks Associated with the Use of
Stablecoins

Stablecoins are crypto assets designed
to have a stable value over time and are often pegged to a fiat currency, such as the U.S. dollar, at a certain value. Although the prices
of stablecoins are intended to be stable, in many cases their prices fluctuate, sometimes significantly. This volatility has in the past
impacted the prices of certain crypto assets, and has at times caused certain stablecoins to lose their “peg” to the underlying
fiat currency. Stablecoins are a relatively new development, and it is impossible to know all of the risks that they could pose to participants
in the crypto asset markets. In addition, some have argued that some stablecoins, particularly Tether, are issued without sufficient backing
in a way that could cause artificial rather than genuine demand for crypto assets, raising their prices. In February 2021, the New York
Attorney General entered into an agreement with Tether’s operators, requiring them to cease any further trading activity with New
York persons and pay $18.5 million in penalties for false and misleading statements made regarding the assets backing Tether. In October
2021, the CFTC announced a settlement with Tether’s operators in which they agreed to pay $42.5 million in fines to settle charges
that, among others, Tether’s claims that it maintained sufficient U.S. dollar reserves to back every Tether stablecoin in circulation
with the “equivalent amount of corresponding fiat currency” held by Tether were untrue.

USDC is a reserve-backed stablecoin
issued by Circle Internet Financial that is commonly used as a method of payment in crypto asset markets. The issuer of USDC uses the
Circle Reserve Fund to hold cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by
the U.S. Treasury, and repurchase agreements secured by such obligations or cash, which serve as reserves backing USDC stablecoins. While
USDC is designed to maintain a stable value at 1 U.S. dollar at all times, on March 10, 2023, the value of USDC fell below $1.00 (and
remained below for multiple days) after Circle Internet Financial disclosed that $3.3 billion of the USDC reserves were held at Silicon
Valley Bank, which had entered Federal Deposit Insurance Corporation (FDIC) receivership earlier that day. Popular stablecoins are reliant
on the U.S. banking system and U.S. treasuries, and the failure of either to function normally could impede the function of stablecoins
or lead to outsized redemption requests, and therefore could adversely affect the value of the Shares.

The Fund may only use
stablecoins that are not securities. If the status of the stablecoin changes while being held in the portfolio, the Fund may need to
liquidate the holding under sub-optimal conditions. Some stablecoins have been asserted to be securities under the federal
securities laws. For example, the District Court for the Southern District of New York denied defendants’ motion to dismiss an
SEC complaint asserting that the stablecoin UST, a U.S. dollar stablecoin issued by Terra, is a security. Further public concern
about the possible security status of stablecoins manifested in November 2023, when the financial technology company PayPal
disclosed in a filing that it had received a subpoena from the SEC relating to the PayPal USD stablecoin that requested the
production of documents. In September 2024, the SEC announced settled charges against TrueCoin LLC and TrustToken Inc. for their
fraudulent and unregistered sales of investment contracts involving TrueUSD, a purported stablecoin. The SEC’s complaint
alleges that from November 2020 until April 2023, TrueCoin and TrustToken engaged in the unregistered offer and sale of investment
contracts in the form of the crypto asset TUSD and profit-making opportunities with respect to TrueUSD on TrueFi. The complaint
further alleges that TrueCoin and TrustToken falsely marketed the investment opportunity as safe and trustworthy by claiming that
TUSD was fully backed by U.S. dollars or their equivalent, when in fact a substantial portion of the assets purportedly backing TUSD
had been invested in a speculative and risky offshore investment fund to earn additional returns for the defendants.

In July 2025, the U.S. Congress passed
the GENIUS Act. The GENIUS Act establishes a federal regulatory framework for stablecoins, which is the first significant federal crypto
asset legislation in the United States, and contains a prohibition on the offering of yield by issuers of stablecoin.

An allocation to stablecoins in the
Fund’s portfolio could impact performance in the same way cash and cash equivalents, i.e. may be a cash drag.

Risks Associated with the Fund’s
Holdings in Cash and Cash Equivalents

Cash creations and redemptions may
impact the efficiency of the arbitrage mechanism compared to in-kind creations and redemptions

The use of cash creations and redemptions,
as opposed to in-kind creations and redemptions, could cause delays in trade execution due to potential operational issues arising from
implementing a cash creation and redemption model, which involves more operational steps (and therefore execution risk) than an in-kind
creation and redemption model. Such delays could cause the execution price associated with such trades to materially deviate from the
Benchmark price. Even though Authorized Participants are responsible for the dollar cost of such difference in prices, Authorized Participants
could default on their obligations to the Fund, or such potential risks and costs could lead Authorized Participants, who would otherwise
be willing to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies between the price of
the Shares and the price of the underlying portfolio holdings, to elect to not participate in the Fund’s Share creation and redemption
processes. This may adversely affect the arbitrage mechanism intended to keep the price of the Shares closely linked to the price of the
Fund’s portfolio holdings, and as a result, the price of the Shares may fall or otherwise diverge from NAV. If the arbitrage mechanism
is not effective, purchases or sales of Shares on the secondary market could occur at a premium or discount to NAV, which could harm Shareholders
by causing them buy Shares at a price higher than the value of the underlying portfolio holdings held by the Fund or sell Shares at a
price lower than the value of the underlying portfolio holdings held by the Fund, causing Shareholders to suffer losses. Even with regulatory
approval for in-kind transactions, the Fund may not be able to successfully implement in-kind creation and redemption transactions, which
could put the Fund at a disadvantage compared to other crypto asset ETPs that are able to implement in-kind creations and redemptions.

The Fund may experience a loss if
it is required to sell cash equivalents at a price lower than the price at which they were acquired