New York, — Grayscale Investments® (the “Sponsor”), the world’s largest digital currency asset manager, today announced that it has amended the methodology used to determine the Index Price of select Grayscale products (“the Select Products”).
This Index Price change will be applied to several single-asset Grayscale Trusts, including:
- Grayscale® Basic Attention Token Trust
- Grayscale® Bitcoin Trust
- Grayscale® Bitcoin Cash Trust
- Grayscale® Chainlink Trust
- Grayscale® DeFi Fund
- Grayscale® Digital Large Cap Fund
- Grayscale® Ethereum Trust
- Grayscale® Ethereum Classic Trust
- Grayscale® Litecoin Trust
- Grayscale® Solana Trust
- Grayscale® Stellar Lumens Trust
- Grayscale® Zcash Trust
The Select Products have historically valued their respective assets for operational purposes by reference to a volume-weighted average index price (the “Old Index Price”) of the underlying assets in U.S. dollars calculated by applying a weighting algorithm to the price and trading volume data for the immediately preceding 24-hour period as of 4:00 p.m., New York time derived from the selected digital asset exchanges that are reflected in the Indexes on such trade date. The methodology used exclusively by Grayscale and calculated by CoinDesk Indices, Inc. (the “Index Provider”) to calculate the Old Index Price overlaid an additional averaging mechanism to the price produced, resulting in the Old Index Price reflecting an average price for the 24-hour period. The Old Index Price was provided to the Sponsor once per day at 4:00 p.m., New York time.
Effective February 1, 2022, the Select Products will value their digital assets for operational purposes by reference to the index price (the “Index Price”) of the respective digital assets held by each product in U.S. dollars calculated by applying the same methodology to the price and trading volume data for the immediately preceding 24-hour period as of 4:00 p.m., New York time derived from the selected digital asset exchanges that are reflected in the Indexes on such trade date without the additional averaging mechanism being applied to the Index Price. The methodology used to calculate the Index Price is consistent with the publicly available digital asset prices that are published by the Index Provider continuously throughout the day, and as a result the Sponsor believes that using the Index Price will provide more transparency to investors. There will be no change to the Indexes used to determine the Index Price or the criteria used to select the digital asset exchanges included in the Indexes. The Index Price is calculated using non-GAAP methodology and is not used in the Select Products’ financial statements.
This release is being published to satisfy the Alternative Reporting Standards disclosure guidelines for OTCQX for Grayscale Zcash Trust (ZEC) and Grayscale Stellar Lumens Trust (XLM), the Annual Reports and other disclosures for these products are available at: https://www.otcmarkets.com/stock/ZCSH/disclosure and https://www.otcmarkets.com/stock/GXLM/disclosure, respectively.
Disclosure for each Product that is an SEC reporting company is available on the SEC’s website and through Grayscale’s website at https://grayscale.com/sec/.
Disclosure for each other Product is available in such Product’s private placement memorandum, which may be obtained from Grayscale by request.
Updates to Grayscale® Zcash Trust Disclosures
Historical Zcash Prices
For the period from January 1, 2019 and December 31, 2021, the average difference in price between the Old Index Price and the Index Price and the average difference in Digital Asset Holdings of the Trust as calculated using the Old Index Price and the Index Price of was 0.14%.
The following chart illustrates the movement in the Index Price, the Old Index Price, the Trust’s Digital Asset Holdings per Share based on the Old Index Price and the Index Price and the Trust’s net asset value per share as calculated in accordance with GAAP from October 24, 2017 to December 31, 2021. For more information on the determination of the Trust’s Digital Asset Holdings, see “Overview of the ZEC Industry and Market—ZEC Value—The Index and the Index Price.”
The following table illustrates the movements in the Old Index Price from the beginning of the Trust’s operations on October 24, 2017 to December 31, 2021. Since the beginning of the Trust’s operations, the Old Index Price has ranged from $23.90 to $687.00, with the straight average being $132.32. The Sponsor has not observed a material difference between the Old Index Price and average prices from the constituent Digital Asset Exchanges individually or as a group.
The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on October 24, 2017 to December 31, 2021. Since the beginning of the Trust’s operations, the Index Price has ranged from $23.70 to $687.00, with the straight average being $132.26. The Sponsor has not observed a material difference between the Index Price and average prices from the constituent Digital Asset Exchanges individually or as a group.
Determination of the Index Price When Index Price is Unavailable
The Sponsor will continue to use the same cascading set of rules to determine the appropriate Zcash reference rate in the event that the Index Price is unavailable, which are set forth below for reference:
1. Index Price = The price set by the Index as of 4:00 p.m., New York time, on the valuation date. If the Index becomes unavailable, or if the Sponsor determines in good faith that the Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Index Provider to obtain the Index Price directly from the Index Provider. If after such contact the Index remains unavailable or the Sponsor continues to believe in good faith that the Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
2. Index Price = The price set by Coin Metrics Real-Time Rate (the “Secondary Index”) as of 4:00 p.m., New York time, on the valuation date (the “Secondary Index Price”). The Secondary Index Price is a real-time reference rate price, calculated using trade data from constituent markets selected by Coin Metrics (the “Secondary Index Provider”). The Secondary Index Price is calculated by applying 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 Index becomes unavailable, or if the Sponsor determines in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Secondary Index Provider to obtain the Secondary Index Price directly from the Secondary Index Provider. If after such contact the Secondary Index remains unavailable or the Sponsor continues to believe in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
3. Index Price = The price set by the Trust’s principal market (the “Tertiary Pricing Option”) as of 4:00 p.m., New York time, on the valuation date. The Tertiary Pricing Option is a spot price derived from the principal market’s public data feed that is believed to be consistently publishing pricing information as of 4:00 p.m., New York time, and is provided to the Sponsor via an application programming interface. If the Tertiary Pricing Option becomes unavailable, or if the Sponsor determines in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Tertiary Pricing Provider to obtain the Tertiary Pricing Option directly from the Tertiary Pricing Provider. If after such contact the Tertiary Pricing Option remains unavailable after such contact or the Sponsor continues to believe in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
4. Index Price = The Sponsor will use its best judgment to determine a good faith estimate of the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
Updates to Risk Factors disclosure:
The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares.
The Index has a limited history and the Index Price is an average composite reference rate calculated using volume-weighted trading price data from various Digital Asset Exchanges chosen by the Index Provider. The Digital Asset Exchanges chosen by the Index Provider have also changed over time. For example, on January 19, 2020, the Index Provider removed Poloniex as part of its scheduled quarterly review. The Index Provider may remove or add Digital Asset Exchanges to the Index in the future at its discretion. For more information on the inclusion criteria for Digital Asset Exchanges in the Index, see “Overview of the ZEC Industry and Market—ZEC Value—The Index and the Index Price.”
Although the Index is designed to accurately capture the market price of ZEC, third parties may be able to purchase and sell ZEC on public or private markets not included among the constituent Digital Asset Exchanges of the Index, and such transactions may take place at prices materially higher or lower than the Index Price. Moreover, there may be variances in the prices of ZEC on the various Digital Asset Exchanges, including as a result of differences in fee structures or administrative procedures on different Digital Asset Exchanges. For example, based on data provided by the Index Provider, on any given day during year ended December 31, 2021, the maximum differential between the 4:00 p.m., New York time spot price of any single Digital Asset Exchange included in the Index and the Index Price was 2.39% and the average of the maximum differentials of the 4:00 p.m., New York time spot price of each Digital Asset Exchange included in the Index and the Index Price was 1.46%. During this same period, the average differential between the 4:00 p.m., New York time spot prices of all the Digital Asset Exchanges included in the Index and the Index Price was 0.01%. All Digital Asset Exchanges that were included in the Index throughout the period were considered in this analysis. To the extent such prices differ materially from the Index Price, investors may lose confidence in the Shares’ ability to track the market price of ZEC, which could adversely affect the value of the Shares.
Updates to Grayscale® Stellar Lumens Trust Disclosures
Historical Stellar Lumens Prices
For the period from January 1, 2019 and December 31, 2021, the average difference in price between the Old Index Price and the Index Price and the average difference in Digital Asset Holdings the Trust as calculated using the Old Index Price and the Index Price of was 0.05%.
The following chart illustrates the movement in the Index Price, the Old Index Price, the Trust’s Digital Asset Holdings per Share based on the Old Index Price and the Index Price and the Trust’s net asset value per share as calculated in accordance with GAAP from December 6, 2018 to December 31, 2021. For more information on the determination of the Trust’s Digital Asset Holdings, see “Overview of the XLM Industry and Market—XLM Value—The Index and the Index Price.”
The following table illustrates the movements in the Old Index Price from the beginning of the Trust’s operations on December 6, 2018 to December 31, 2021. Since the beginning of the Trust’s operations, the Old Index Price has ranged from $0.04 to $0.73, with the straight average being $0.18. The Sponsor has not observed a material difference between the Old Index Price and average prices from the constituent Digital Asset Exchanges individually or as a group.
The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on December 6, 2018 to December 31, 2021. Since the beginning of the Trust’s operations, the Index Price has ranged from $0.03 to $0.72, with the straight average being $0.18. The Sponsor has not observed a material difference between the Index Price and average prices from the constituent Digital Asset Exchanges individually or as a group.
Determination of the Index Price When Index Price is Unavailable
The Sponsor will continue to use the same cascading set of rules to determine the appropriate Stellar Lumens reference rate in the event that the Index Price is unavailable, which are set forth below for reference:
1. Index Price = The price set by the Index as of 4:00 p.m., New York time, on the valuation date. If the Index becomes unavailable, or if the Sponsor determines in good faith that the Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Index Provider to obtain the Index Price directly from the Index Provider. If after such contact the Index remains unavailable or the Sponsor continues to believe in good faith that the Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
2. Index Price = The price set by Coin Metrics Real-Time Rate (the “Secondary Index”) as of 4:00 p.m., New York time, on the valuation date (the “Secondary Index Price”). The Secondary Index Price is a real-time reference rate price, calculated using trade data from constituent markets selected by Coin Metrics (the “Secondary Index Provider”). The Secondary Index Price is calculated by applying 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 Index becomes unavailable, or if the Sponsor determines in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Secondary Index Provider to obtain the Secondary Index Price directly from the Secondary Index Provider. If after such contact the Secondary Index remains unavailable or the Sponsor continues to believe in good faith that the Secondary Index does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
3. Index Price = The price set by the Trust’s principal market (the “Tertiary Pricing Option”) as of 4:00 p.m., New York time, on the valuation date. The Tertiary Pricing Option is a spot price derived from the principal market’s public data feed that is believed to be consistently publishing pricing information as of 4:00 p.m., New York time, and is provided to the Sponsor via an application programming interface. If the Tertiary Pricing Option becomes unavailable, or if the Sponsor determines in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will, on a best efforts basis, contact the Tertiary Pricing Provider to obtain the Tertiary Pricing Option directly from the Tertiary Pricing Provider. If after such contact the Tertiary Pricing Option remains unavailable after such contact or the Sponsor continues to believe in good faith that the Tertiary Pricing Option does not reflect an accurate price, then the Sponsor will employ the next rule to determine the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
4. Index Price = The Sponsor will use its best judgment to determine a good faith estimate of the Index Price. There are no predefined criteria to make a good faith assessment and it will be made by the Sponsor in its sole discretion.
Updates to Risk Factors disclosure:
The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares.
The Index has a limited history and the Index Price is an average composite reference rate calculated using volume-weighted trading price data from various Digital Asset Exchanges chosen by the Index Provider. The Digital Asset Exchanges chosen by the Index Provider have also changed over time. For example, on January 19, 2020, the Index Provider removed Poloniex as part of its scheduled quarterly review. The Index Provider may remove or add Digital Asset Exchanges to the Index in the future at its discretion. For more information on the inclusion criteria for Digital Asset Exchanges in the Index, see “Overview of the XLM Industry and Market—XLM Value—The Index and the Index Price.”
Although the Index is designed to accurately capture the market price of XLM, third parties may be able to purchase and sell XLM on public or private markets not included among the constituent Digital Asset Exchanges of the Index, and such transactions may take place at prices materially higher or lower than the Index Price. Moreover, there may be variances in the prices of XLM on the various Digital Asset Exchanges, including as a result of differences in fee structures or administrative procedures on different Digital Asset Exchanges. For example, based on data provided by the Index Provider, on any given day during twelve months ended December 31, 2021, the maximum differential between the 4:00 p.m., New York time spot price of any single Digital Asset Exchange included in the Index and the Index Price was 25.65% and the average of the maximum differentials of the 4:00 p.m., New York time spot price of each Digital Asset Exchange included in the Index and the Index Price was 7.24%. During this same period, the average differential between the 4:00 p.m., New York time spot prices of all the Digital Asset Exchanges included in the Index and the Index Price was 0.08%. All Digital Asset Exchanges that were included in the Index throughout the period were considered in this analysis. To the extent such prices differ materially from the Index Price, investors may lose confidence in the Shares’ ability to track the market price of XLM, which could adversely affect the value of the Shares.
About Grayscale Investments®
Grayscale enables investors to access the digital economy through a family of secure, compliant, and future-forward investment products. Founded in 2013, Grayscale has a proven track record and unrivaled expertise as the world’s largest digital currency asset manager. Investors, advisors, and allocators turn to Grayscale’s private placements, public quotations, and ETFs for exposure to both single asset, diversified, and thematic investment products. Grayscale products are distributed by Genesis Global Trading, Inc. (Member FINRA/SIPC, MSRB Registered) or Foreside Fund Services, LLC. For more information, please follow @Grayscale or visit grayscale.com.
