{"url_path":"/sec/teth/10-q/2026/item-1a","section_key":"item-1a","section_title":"Item 1A Risk Factors","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1992508/0001213900-26-057485-index.html","accession_number":"0001213900-26-057485","cik":"0001992508","ticker":"TETH","issuer_name":"21Shares Ethereum ETF","edgar_url":"https://www.sec.gov/Archives/edgar/data/1992508/0001213900-26-057485-index.html","primary_entity_key":"0001992508","primary_entity_name":"21Shares Ethereum ETF"},"word_count":1632,"has_tables":true,"body_markdown":"Item 1A. Risk Factors\n\n \n\nYou should carefully consider\nthe risk factors discussed below as well as the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report,\nwhich could materially affect our business, financial condition or future results. Other than as described herein, there have been no\nmaterial changes in our risk factors from those disclosed in our 2025 Annual Report on Form 10-K.\n\n \n\nThe risks described below\nand in our Annual Report are not the only risks facing the Trust. You should also consider any risks and uncertainties described under\nthe caption “Risk Factors” in any applicable prospectus, prospectus supplement, registration statement or other document that\nwe file with the SEC before or after the date of this prospectus that is incorporated by reference herein. Additional risks and uncertainties\nnot currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition\nand/or operating results.\n\n* *\n\n*The Trust Agreement\nincludes a provision restricting Shareholders’ right to bring a derivative action.*\n\n \n\nUnder Section 7.4 of the Trust\nAgreement, Shareholders’ statutory right under Delaware law to bring a derivative action (i.e., to initiate a lawsuit in the name\nof the Trust in order to assert a claim belonging to the Trust against a fiduciary of the Trust or against a third-party when the Trust’s\nmanagement has refused to do so) is restricted. Under Delaware law, a shareholder may bring a derivative action if the shareholder is\na shareholder at the time the action is brought and either (i) was a shareholder at the time of the transaction at issue or (ii) acquired\nthe status of shareholder by operation of law or the Trust’s governing instrument from a person who was a shareholder at the time\nof the transaction at issue. Additionally, Section 3816(e) of the Delaware Statutory Trust Act specifically provides that a “beneficial\nowner’s right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth\nin the governing instrument of the statutory trust, including, without limitation, the requirement that beneficial owners owning a specified\nbeneficial interest in the statutory trust join in the bringing of the derivative action.” In addition to the requirements of applicable\nlaw and in accordance with Section 3816(e) of the Delaware Statutory Trust Act, the Trust Agreement provides that no Shareholder will\nhave the right, power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of the Trust unless two\nor more Shareholders who are eligible to bring such derivative action under the Delaware Trust Statute and who (i) are not “Affiliates”\n(as defined in the Trust Agreement and below) of one another and (ii) collectively hold at least 10% of the outstanding Shares join in\nthe bringing or maintaining of such action, suit or other proceeding. “Affiliate” means (i) any Person directly or indirectly\nowning, controlling or holding with power to vote 10% or more of the outstanding voting securities of such Person, (ii) any Person 10%\nor more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by such Person,\n(iii) any Person, directly or indirectly, controlling, controlled by or under common control of such Person, (iv) any employee, officer,\ndirector, member, manager or partner of such Person, or (v) if such Person is an employee, officer, director, member, manager or partner,\nany Person for which such Person acts in any such capacity; and “Person” means any natural person and any partnership, limited\nliability company, statutory trust, corporation, association, or other legal entity.\n\n \n\n18\n\n \n\n \n\nIn addition to the 10% ownership\nthreshold described above, the Trust Agreement imposes the following further procedural conditions on any Shareholder seeking to bring\na derivative action on behalf of the Trust: (1) prior to bringing any such action, two or more non-affiliated Shareholders collectively\nholding at least 10% of the outstanding Shares must first make a pre-suit demand upon the Sponsor to bring the subject action, unless\nan effort to cause the Sponsor to bring such an action is not likely to succeed (a demand shall only be deemed not likely to succeed,\nand therefore excused, if the Sponsor has a personal financial interest in the transaction at issue, and the Sponsor shall not be deemed\ninterested in a transaction or otherwise disqualified from ruling on the merits of a Shareholder demand by virtue of the fact that the\nSponsor receives remuneration for his or her service as Sponsor of the Trust or as a trustee or director of one or more trusts that are\nunder common management with or otherwise affiliated with the Trust); and (2) unless a demand is excused pursuant to clause (1) of this\nparagraph, the Sponsor must be afforded a reasonable amount of time to consider such Shareholder request and to investigate the basis\nof such claim and the Sponsor shall be entitled to retain counsel or other advisors in considering the merits of the request, and the\nSponsor shall require an undertaking by the Shareholders making such request to reimburse the Trust for the expense of any such advisor\nin the event the Sponsor determines not to take action. Any decision by the Sponsor to bring, maintain, or compromise (or not to bring,\nmaintain, or compromise) any such court action, proceeding or claim, or to submit the matter to a vote of Shareholders, shall be made\nby the Sponsor in good faith and shall be binding upon the Shareholders. In addition to claims that must be brought derivatively under\napplicable law, the Trust Agreement requires that any claim affecting all Shareholders of the Trust proportionately, based on their number\nof Shares of the Trust, must also be brought as a derivative claim subject to these conditions, regardless of whether such claim involves\na violation of a Shareholder’s rights under the Trust Agreement or any other alleged violation of contractual or individual rights\nthat might otherwise give rise to a direct claim (and regardless, in each case, of whether such claims sound in tort, fraud or otherwise,\nor are based on common law, statutory, equitable, legal or other grounds).\n\n \n\nThese provisions apply to\nany derivative actions brought in the name of the Trust other than derivative claims brought under the federal U.S. securities laws and\nthe rules and regulations thereunder. The enforceability of Section 7.04’s derivative action threshold and procedural requirements\nunder applicable federal or state law has not been definitively established. The 10% ownership threshold and procedural requirements represent\ncontractual restrictions on derivative actions authorized by Section 3816(e) of the Delaware Statutory Trust Act, which expressly permits\ntrust instruments to modify or restrict the rights of beneficial owners to bring derivative actions. However, the application of such\na threshold in the context of a registered exchange-traded product has not been comprehensively addressed by the courts. Accordingly,\nit is possible that a court could decline to enforce the Trust’s 10% threshold and procedural requirements.\n\n \n\nA Shareholder wishing to bring\na derivative action on behalf of the Trust must satisfy both the 10% ownership threshold and the pre-suit demand process described above\nbefore commencing any such action, suit or other proceeding, further limiting the ability of a Shareholder to seek redress in the name\nof the Trust. Due to these additional requirements, a Shareholder attempting to bring or maintain a derivative action in the name of the\nTrust will be required to locate other Shareholders with which it is not affiliated and that have sufficient Shares to meet the 10% threshold\nbased on the number of Shares outstanding on the date the claim is brought and thereafter throughout the duration of the action, suit\nor proceeding. Shareholders wishing to satisfy this ownership threshold would need to identify and coordinate with other Shareholders\nof the Trust. Because the Trust’s Shares are held in book-entry form through the DTC and beneficial ownership information is not\npublicly available, individual investors may face substantial difficulty in locating other Shareholders. There is no mechanism established\nby the Trust to facilitate such shareholder coordination, and the Trust is not required to assist Shareholders in identifying one another.\nAccordingly, even Shareholders who believe they have a legitimate derivative claim may, as a practical matter, be unable to satisfy the\n10% threshold and bring an action. Even if successful, this may be difficult and may result in increased costs to a Shareholder attempting\nto seek redress in the name of the Trust in court.\n\n \n\n19\n\n \n\n \n\nMoreover, if Shareholders\nbringing a derivative action, suit or proceeding pursuant to this provision of the Trust Agreement do not hold 10% of the outstanding\nShares on the date such an action, suit or proceeding is brought, or such Shareholders are unable to maintain Share ownership meeting\nthe 10% threshold throughout the duration of the action, suit or proceeding, such Shareholders’ derivative action may be subject\nto dismissal. As a result, the Trust Agreement limits the likelihood that a Shareholder will be able to successfully assert a derivative\naction in the name of the Trust, even if such Shareholder believes that he or she has a valid derivative action, suit or other proceeding\nto bring on behalf of the Trust.\n\n \n\nBecause the Trust’s\nShares are held in book-entry form through DTC, the beneficial owners of Shares are generally not reflected on the Trust’s share\nregister. Accordingly, any shareholder or group of Shareholders seeking to establish that they collectively hold at least 10% of the outstanding\nShares must provide documentary evidence of their beneficial ownership as of the date of the derivative demand. Acceptable evidence may\ninclude broker statements, DTC participant confirmations, account statements from a registered broker-dealer or bank that is a DTC participant,\nor such other documentation as the Trust may reasonably require."}