10-K: Grayscale Digital Large Cap Fund Reports Strong Asset Growth

Grayscale Digital Large Cap Fund reports significant net asset growth to $777.2 million in FY2025, driven by digital asset appreciation amidst market volatility and regulatory shifts.

Summary

• The Fund's net assets increased by 47% to $777.2 million in FY2025, following a 93% increase in FY2024 and a 57% increase in FY2023.
• Net increase in net assets resulting from operations was $250.3 million in FY2025, $254.3 million in FY2024, and $98.8 million in FY2023.
• Net realized and unrealized gain on investments in digital assets was $266.4 million in FY2025, $264.2 million in FY2024, and $104.2 million in FY2023.
• The Fund transitioned from the CoinDesk Large Cap Select Index (DLCS) to the CoinDesk 5 Index (CD5) methodology effective June 5, 2025, and fully adopted CD5 for valuation from July 1, 2025.
• As of June 30, 2025, the Fund's portfolio consisted of Bitcoin (79.83%), Ether (11.33%), XRP (5.04%), Solana (3.01%), and Cardano (0.79%).
• Shares traded at a discount to NAV per Share for 751 days between July 1, 2022, and June 30, 2025, with a maximum discount of 63% and an average of 35%. As of June 30, 2025, the discount was 2%.
• From July 1, 2025, to September 2, 2025, Shares traded at both discounts and premiums, with a maximum premium of less than 1%, an average premium of less than 1%, a maximum discount of 10%, and an average discount of 6%. As of September 2, 2025, the discount was 8%.
• The Manager's Fee is 2.5% annually, paid in Fund Components.
• The SEC approved the application to list the Fund on NYSE Arca on July 1, 2025, but subsequently imposed a stay on the order for review.

Sentiment

Score: 7

Explanation: The Grayscale Digital Large Cap Fund has demonstrated strong asset growth and positive investment performance over the past three fiscal years, reflecting the appreciation of its underlying digital assets. The fund's transition to the CD5 methodology and the initial SEC approval for NYSE Arca listing are positive developments that could enhance its market position and liquidity. However, the subsequent stay on the NYSE Arca listing approval introduces significant uncertainty. The persistent trading of shares at a discount to NAV, the fund's inability to engage in staking, and the inherent volatility and regulatory risks of the digital asset market, particularly concerning the security status of certain holdings like XRP, SOL, and ADA, present considerable headwinds. While the long-term potential of digital assets remains, these factors suggest a 'hold' recommendation. Investors should monitor regulatory developments, the resolution of the NYSE Arca listing, and the fund's ability to narrow its NAV discount before considering further investment. The concentration in Bitcoin and Ether also means performance is heavily tied to these two assets.

Positives

• Significant growth in net assets: 47% increase in FY2025 to $777.2 million, following 93% in FY2024 and 57% in FY2023.
• Positive net realized and unrealized gains on digital asset investments across all reported fiscal years.
• Transitioned to the CoinDesk 5 Index (CD5) methodology, aiming for large-cap coverage, minimized transaction costs, and a replicable portfolio.
• SEC initially approved NYSE Arca listing on July 1, 2025, indicating potential for broader market access and improved liquidity, despite a subsequent stay.
• The Fund's digital assets are held in cold storage by Coinbase Custody Trust Company, LLC, a qualified custodian, with enhanced security procedures including geographically distributed private key shards and multi-signature requirements.
• The Manager maintains a robust cyber risk management program, supervised by a CISO, with annual third-party assessments and mandatory employee training.

Negatives

• Shares have historically traded at a substantial discount to NAV per Share (average 35% from July 2022 to June 2025), indicating a lack of efficient arbitrage mechanism due to Rule 144 holding periods and absence of a redemption program.
• The SEC's approval for NYSE Arca listing was stayed, creating uncertainty regarding the timing and ultimate approval of the listing.
• The Fund is not permitted to engage in Staking activities, which could place it at a comparative disadvantage to direct digital asset investments or other vehicles that do.
• Concentrated ownership in Bitcoin (79.83%) and Ether (11.33%) as of June 30, 2025, makes the Fund highly susceptible to price fluctuations in these two assets.
• Digital Asset Trading Platforms are largely unregulated and susceptible to fraud, market manipulation, business failures, and security breaches, which could adversely affect asset values.
• The value of Shares can be influenced by factors unrelated to the underlying digital assets, such as operational problems or security threats to the Fund's infrastructure.
• Shareholders have limited voting rights and restricted ability to bring derivative actions, giving almost all control to the Manager.
• Potential conflicts of interest exist due to the Manager and its affiliates (e.g., Grayscale Securities as sole Authorized Participant, DCG's minority interest in Kraken).
• The Custodian's maximum liability for cold storage addresses exceeding $100 million for five consecutive business days is limited to $100 million, potentially exposing the Fund to significant uninsured losses.

Risks

• Extreme volatility of digital asset trading prices, which could cause Shares to lose all or substantially all of their value.
• Uncertain medium-to-long term value of Shares due to the recency of digital asset development and blockchain technology.
• The value of Shares depends on the acceptance of digital assets, a new and rapidly evolving industry.
• Temporary or permanent forks or clones of digital asset networks could adversely affect Share value.
• Recent extreme volatility and disruption in digital asset markets, loss of confidence in participants, negative publicity, and market-wide declines in liquidity.
• The largely unregulated nature and lack of transparency of Digital Asset Trading Platforms, leading to potential fraud, security failures, or operational problems.
• Limited history of the Index Prices and potential for material differences between Index Prices and actual market prices.
• Lack of an ongoing redemption program and Rule 144 holding periods prevent arbitrage, causing Shares to trade at substantial premiums or discounts to NAV.
• Non-current trading hours between OTCQX and Digital Asset Trading Platform Market can cause Shares to trade at prices above or below NAV.
• Regulatory changes or actions by U.S. Congress or federal/state agencies may affect digital asset values or restrict their use, mining, or network operations.
• Regulatory changes or other events in foreign jurisdictions may affect digital asset values or restrict their use, mining, or network operations.
• Potential for Authorized Participants, the Fund, or the Manager to be regulated as a money service business or money transmitter, leading to extraordinary expenses and decreased liquidity.
• Regulatory changes or interpretations could obligate the Fund or Manager to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses or termination.
• Shareholders have different rights than those in U.S. jurisdictions due to the Fund being a Cayman Islands limited liability company.
• The Fund may be required to disclose information, including investor data, to regulators.
• Conflicts of interest may arise among the Manager or its affiliates and the Fund.
• Discontinuance of the Manager's services could be detrimental to the Fund.
• Custodian's resignation or removal without replacement could trigger early termination of the Fund.
• Digital assets may have concentrated ownership, and large sales by holders could adversely affect market prices.
• Insufficient digital asset awards or transaction fees, or regulatory limits on mining/validating, could reduce incentives for miners/validators, impacting network security and asset values.
• If a malicious actor or botnet obtains control of more than certain thresholds of the processing power on a Digital Asset Network, or otherwise obtains control over the Digital Asset Network through its influence over core developers or otherwise, such actor or botnet could manipulate the blockchain.
• Shareholders may not receive benefits from forks or airdrops due to operational, tax, or regulatory issues.
• In the event of a hard fork of the network of a digital asset held by the Fund, the Manager will, if permitted by the terms of the LLC Agreement, use its discretion to determine which network should be considered the appropriate network for the Fund's purposes, and in doing so may adversely affect the value of the Shares.
• Any name change and any associated rebranding initiative by the core developers of a digital asset may not be favorably received by the digital asset community, which could negatively impact the value of such digital asset and the value of the Shares.
• If the Digital Asset Networks of the digital assets held by the Fund are used to facilitate illicit activities, businesses that facilitate transactions in the Fund Components could be at increased risk of criminal or civil lawsuits, or of having services cut off, which could negatively affect the price of the relevant Fund Components and the value of the Shares.
• Smart contracts are a new technology and ongoing development may magnify initial problems, cause volatility on the networks that use smart contracts and reduce interest in them, which could have an adverse impact on the value of digital assets that rely on smart contracts.
• Layer 2 solutions underlying certain of the Fund Components were only recently conceived and may not function on their underlying, base-layer smart contract platforms as intended which could have an adverse impact on the value of the Fund Components and an investment in the Shares.
• ERC-20 tokens rely on the ERC-20 standard and the Ethereum blockchain to function and any adverse impact on the ERC-20 standard and/or the Ethereum blockchain could have an adverse impact on the value of certain digital assets that may be held by the Fund and the value of the Shares.
• Changes in the governance of a Digital Asset Network or protocol may not receive sufficient support from users, miners, or validators, which may negatively affect that Digital Asset Network's or protocol's ability to grow and respond to challenges.
• Digital Asset Networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful.
• The perception that certain high-profile contributors will no longer contribute to the network could have an adverse effect on the market price of the related digital asset.
• Prices of the Fund Components may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment.
• Failure of funds that hold digital assets or that have exposure to digital assets through derivatives to receive SEC approval to list their shares on exchanges could adversely affect the value of the Shares.
• The Fund is an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make the Shares less attractive to investors.
• The Fund seeks to replicate the performance of the Index as closely as possible. However, the Fund may not achieve perfect correlation with the Index due to various factors.
• The Fund relies on third-party service providers to perform certain functions essential to the affairs of the Fund and the replacement of such service providers could pose a challenge to the safekeeping of the Fund's digital assets and to the operations of the Fund.
• Security threats to the Digital Asset Accounts could result in the halting of Fund operations and a loss of Fund assets or damage to the reputation of the Fund, each of which could result in a reduction in the value of the Shares.
• Transactions in digital assets are irrevocable and stolen or incorrectly transferred digital assets may be irretrievable. As a result, any incorrectly executed digital asset transactions could adversely affect the value of the Shares.
• The lack of full insurance and shareholders' limited rights of legal recourse against the Fund, Manager, Transfer Agent and Custodian expose the Fund and its shareholders to the risk of loss of the Fund's digital assets for which no person or entity is liable.
• The Fund may be required, or the Manager may deem it appropriate, to wind up, liquidate and dissolve at a time that is disadvantageous to shareholders.
• The LLC Agreement includes provisions that limit shareholders' voting rights and restrict shareholders' right to bring a derivative action.
• The Manager is solely responsible for determining the value of the NAV and NAV per Share and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares.
• Extraordinary expenses resulting from unanticipated events may become payable by the Fund, adversely affecting the value of the Shares.
• The value of the Shares will be adversely affected if the Fund is required to indemnify the Manager, the Transfer Agent or the Custodian under the Fund Documents.
• Intellectual property rights claims may adversely affect the Fund and the value of the Shares.
• Pandemics, epidemics and other natural and man-made disasters could negatively impact the value of the Fund's holdings and/or significantly disrupt its affairs.
• The SEC has taken, and may in the future take, the view that some of the digital assets held by the Fund are securities, which has adversely affected, and could adversely affect the value of such digital assets and the price of the Shares and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Fund.
• If regulators subject an Authorized Participant, the Fund or the Manager to regulation as a money service business or money transmitter, this could result in extraordinary expenses to the Authorized Participant, the Fund or the Manager and also result in decreased liquidity for the Shares.
• The Fund is a Cayman Islands limited liability company. The rights of the Fund's shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.
• The Fund may be subject to U.S. federal withholding tax on income derived from forks, airdrops and similar occurrences or from Staking or digital asset lending activities.

Future Outlook

The Manager remains committed to pursuing the listing of the Fund on NYSE Arca and continues to work closely with key stakeholders to obtain approval. The Fund may in the future operate a redemption program, subject to regulatory approval from the SEC and the Manager's discretion, which could reduce premiums or discounts. The Manager does not intend to actively manage the portfolio in response to price changes, except during quarterly rebalancing. The Fund may engage in Staking Activities, Governance Activities, or lending activities in the future, with any value created included in Principal Market NAV or NAV calculation, or used to pay the Fund's expenses.

Management Comments

• Grayscale Investments Sponsors, LLC, the manager of the Fund, remains committed to pursuing the listing of the Fund on NYSE Arca and continues to work closely with key stakeholders to obtain approval of the application.
• The Manager continues to believe SOL is not a security and did not exclude such digital asset from the Fund following the assertions made by the SEC.
• The Manager intends to evaluate each fork, airdrop or similar event on a case-by-case basis in consultation with the Fund's legal advisers, tax consultants and the Custodian, and may, in its sole discretion, determine that a different course of action with respect to such event is in the best interests of the Fund.
• The Manager does not currently expect to hold cash for a period of more than 90 days and intends to use any cash held by the Fund to purchase additional tokens of the Fund Components then held by the Fund in proportion to their respective Weightings during the next Fund Rebalancing Period.
• The Manager believes that the security procedures in place for the Fund, including but not limited to, offline storage, or cold storage, multiple encrypted private key shards, usernames, passwords and 2-step verification, are reasonably designed to safeguard the Fund's digital assets.
• The Manager believes that the SEC is unlikely to approve a request to list the shares of a spot exchange-traded product that holds a digital asset that the SEC believes is a security.

Industry Context

The digital asset industry is new and rapidly evolving, characterized by extreme price volatility and regulatory uncertainty. Recent developments, including the failures of FTX, Celsius, and Voyager Digital, have led to significant disruption, loss of confidence, and increased regulatory scrutiny. The SEC has taken enforcement actions against major digital asset trading platforms (Binance, Coinbase, Kraken) and issuers (Ripple Labs), asserting that certain digital assets are securities, though some of these actions have been dismissed or resulted in mixed court rulings (e.g., XRP). Global regulatory bodies are also increasing oversight, with China banning crypto transactions, the UK regulating digital asset activities, and the EU implementing MiCA. The industry faces scaling challenges, energy consumption concerns for Proof-of-Work, and new technologies like Layer 2 solutions and Proof-of-Stake.

Comparison to Industry Standards

• The Fund's cold storage and multi-signature security protocols are highlighted as enhanced security measures compared to other digital asset financial vehicles.
• The Fund directly owns actual digital assets, differentiating it from products using derivatives such as CoinShares exchange-traded notes or futures and options traded on the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).
• The Fund's inability to engage in Staking places it at a comparative disadvantage relative to direct digital asset investments or other vehicles that permit staking.
• The Fund's historical trading at a substantial discount/premium to NAV, due to lack of a redemption program and Rule 144 holding periods, contrasts with efficient arbitrage mechanisms typically found in traditional ETFs.
• The SEC's approval of spot Bitcoin and spot Ether exchange-traded products, but not yet for other digital assets like those in the Fund, highlights ongoing regulatory hurdles and potential competitive disadvantages.

Management Changes

Corporate Governance

Legal Proceedings

• Osprey Funds, LLC vs. Grayscale Investments, LLC: Osprey sued the Manager in Connecticut Superior Court on January 30, 2023, alleging violations of the Connecticut Unfair Trade Practices Act (CUTPA). The Manager's motion for summary judgment was granted on February 7, 2025, on grounds that CUTPA does not apply to securities. Osprey's subsequent appeal was withdrawn on May 12, 2025.
• Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd. vs. Digital Currency Group, Inc. and affiliates (including GSO): Filed May 19, 2025, in SDNY Bankruptcy Court, alleging preferential transfers to GSI (predecessor to GSO) during the preference period prior to Genesis Capital's bankruptcy. GSO believes the lawsuit is without merit and intends to vigorously defend against it.

Related Party Transactions

• The Manager (GSIS) and its affiliates (GSO, Grayscale Securities, DCG) have potential conflicts of interest due to shared ownership and various roles (Manager, Authorized Participant, distributor, marketer, investor in digital assets and related companies).
• Digital Currency Group, Inc. (DCG), the indirect parent company of the Manager, holds 6.50% of the Fund's Shares as of September 2, 2025.
• DCG has an authorization to purchase up to $200 million worth of Shares across various Grayscale products, but has not purchased any Fund Shares under this authorization as of September 2, 2025.
• Grayscale Securities, a wholly owned subsidiary of the Manager, is the only acting Authorized Participant, distributor, and marketer for the Shares, meaning creation basket issuances are not at arms-length.
• DCG holds a minority interest (less than 1.0%) in Kraken, one of the Digital Asset Trading Platforms included in the Index Price calculation.
• The Index Provider (CoinDesk Indices, Inc.) was formerly an indirect parent company of DCG until its sale to an unaffiliated third party on November 20, 2023.
• The Manager's officers may trade digital assets for their own personal trading accounts, potentially creating conflicts of interest with the Fund's positions.

Stakeholder Impact

• Shareholders: Benefit from asset appreciation, but face risks from market volatility, regulatory uncertainty, and potential discounts to NAV. Limited voting rights and derivative action restrictions may impact their ability to influence the Fund's operations or seek redress.
• Manager (Grayscale Investments Sponsors, LLC): Receives a 2.5% annual fee, responsible for day-to-day administration and paying Manager-paid Expenses. Faces potential conflicts of interest due to its affiliated entities.
• Authorized Participants (Grayscale Securities, LLC): As the sole Authorized Participant, it facilitates creation of Baskets and receives fees for its services. Its affiliation with the Manager creates potential conflicts of interest.
• Custodian (Coinbase Custody Trust Company, LLC): Safeguards digital assets, but its liability is limited under certain conditions (e.g., Cold Storage Threshold), potentially exposing the Fund to uninsured losses.
• Regulators (SEC, CFTC, FinCEN, etc.): Increased scrutiny and potential for new regulations impact the entire digital asset ecosystem and the Fund's operations, potentially leading to compliance burdens or changes in market dynamics.
• Digital Asset Market Participants: Affected by market volatility, regulatory actions, and the stability of trading platforms, which can influence the value and liquidity of the Fund's underlying assets.

Next Steps

• Manager to continue pursuing NYSE Arca listing approval.
• Fund may in the future operate a redemption program, subject to SEC and Manager approval.
• Manager intends to use any cash held by the Fund to purchase additional Fund Components during the next Fund Rebalancing Period.
• Manager may, in its sole discretion, decide to cause the Fund to hold cash for longer than 90 days and use it for other lawful purposes.
• Manager intends to engage additional unaffiliated Authorized Participants in the future.
• Manager to evaluate each fork, airdrop, or similar event on a case-by-case basis.
• Manager to post new Fund Components and their respective Fund Weightings on its website at the end of each Fund Rebalancing Period.
• Manager to halt creations (and redemptions, if permitted) during Fund Rebalancing Periods.
• Manager to cause the Fund to resume creations (and redemptions, if permitted) after Fund Rebalancing Periods.
• Manager to continue monitoring the value of digital assets in cold storage addresses for the Cold Storage Threshold.
• SEC's crypto task force and Project Crypto initiatives are ongoing, aiming to modernize securities rules for digital assets.

Key Dates

Recommendation

The Grayscale Digital Large Cap Fund has demonstrated strong asset growth and positive investment performance over the past three fiscal years, reflecting the appreciation of its underlying digital assets. The fund's transition to the CD5 methodology and the initial SEC approval for NYSE Arca listing are positive developments that could enhance its market position and liquidity. However, the subsequent stay on the NYSE Arca listing approval introduces significant uncertainty. The persistent trading of shares at a discount to NAV, the fund's inability to engage in staking, and the inherent volatility and regulatory risks of the digital asset market, particularly concerning the security status of certain holdings like XRP, SOL, and ADA, present considerable headwinds. While the long-term potential of digital assets remains, these factors suggest a 'hold' recommendation. Investors should monitor regulatory developments, the resolution of the NYSE Arca listing, and the fund's ability to narrow its NAV discount before considering further investment. The concentration in Bitcoin and Ether also means performance is heavily tied to these two assets.

Keywords

Digital Assets, Cryptocurrency, Bitcoin, Ethereum, Solana, XRP, Cardano, SEC Filing, 10-K, Grayscale, GDLC, Investment Fund, Market Capitalization, NAV, OTCQX, NYSE Arca, Regulation, Blockchain, Proof-of-Stake, Proof-of-Work, Financial Reporting, Risk Management, Corporate Governance