S-1/A: Grayscale Solana Trust Amends S-1 Filing, Reveals Q1 2025 Net Asset Decline Amid ETF Listing Push

Grayscale Solana Trust (SOL) has filed an amendment to its S-1 registration statement, detailing its intent to list on NYSE Arca as an ETF, while reporting a significant 35% decrease in net assets for the first quarter of 2025 due to SOL price depreciation.

Summary

• Grayscale Solana Trust (SOL), a Delaware statutory trust, aims to convert into an ETF and list its shares on NYSE Arca under the symbol GSOL, pending SEC approval of its 19b-4 application filed on December 3, 2024.
• The Trust's investment objective is to reflect the value of SOL held, less expenses and liabilities, and it operates as a passive investment vehicle without leverage or derivatives.
• For the three months ended March 31, 2025, the Trust reported a net decrease in net assets of $37,237,284, primarily driven by a SOL price depreciation from $193.69 on December 31, 2024, to $125.23 on March 31, 2025.
• Net assets decreased by 35% to $66,514,737 as of March 31, 2025, from $102,631,276 at December 31, 2024.
• The Trust currently only supports cash orders for creation and redemption of Baskets (10,000 Shares) and is not able to facilitate in-kind transactions due to limited regulatory guidance and lack of 'In-Kind Regulatory Approval'.
• The Trust is prohibited from engaging in 'Staking' activities as of the filing date because the 'Staking Condition' (primarily related to grantor trust tax status) has not been met, which could negatively affect share value compared to direct SOL investments.
• The Trust irrevocably abandons all 'Incidental Rights' and 'IR Virtual Currency' (e.g., from forks or airdrops), meaning shareholders will not benefit from such events.
• The Sponsor's Fee is 2.5% annually of the NAV Fee Basis Amount, paid in SOL, and the Sponsor assumes most ordinary course expenses, excluding taxes and certain extraordinary expenses.
• As of March 31, 2025, SOL was the sixth largest digital asset by market capitalization, with an aggregate market value of approximately $64 billion and a 24-hour trading volume of $2.1 billion.
• The Trust's shares on OTCQX historically traded at a significant premium to NAV, with a maximum premium of 875% and an average of 356% from April 19, 2023, to March 31, 2025; as of March 31, 2025, the premium was 11%.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative. While the intent to list on NYSE Arca is a positive development for accessibility, the significant financial decline in Q1 2025, ongoing regulatory uncertainties regarding SOL's security status, and operational limitations (lack of in-kind redemptions, inability to stake) present substantial headwinds and risks for the Trust and its investors.

Positives

• The Trust intends to list its shares on NYSE Arca, which could enhance liquidity and accessibility for investors.
• The Sponsor, Grayscale Investments Sponsors, LLC, has an experienced management team with deep knowledge in financial services and digital assets.
• The Trust utilizes robust security protocols, including cold storage and multi-signature requirements, for safeguarding SOL assets through Coinbase Custody Trust Company, LLC.
• The previously ongoing lawsuit by Osprey Funds, LLC against the Sponsor was withdrawn on May 12, 2025, resolving a legal overhang.
• The Trust is structured as a passive investment vehicle, avoiding active management risks and complexities associated with derivatives or leverage.

Negatives

• The Trust experienced a significant net decrease in net assets of $37,237,284 for the three months ended March 31, 2025, primarily due to SOL price depreciation.
• The price of SOL depreciated significantly from $193.69 per SOL on December 31, 2024, to $125.23 per SOL on March 31, 2025.
• The Trust is currently unable to facilitate in-kind creations and redemptions of Shares, relying solely on cash orders, which could lead to operational inefficiencies and impact the arbitrage mechanism.
• The Trust is prohibited from engaging in Staking activities as the 'Staking Condition' has not been met, potentially placing it at a comparative disadvantage to direct SOL investments that can earn staking rewards.
• Shareholders will not receive the benefits of any forks or airdrops, as the Trust irrevocably abandons all 'Incidental Rights' and 'IR Virtual Currency'.
• The Trust's shares have historically traded at substantial premiums (up to 875%) or discounts to NAV, indicating potential for investor losses if the premium decreases or a discount widens.

Risks

• Extreme volatility of SOL trading prices, which could cause the value of Shares to be volatile and/or lose all or substantially all of their value.
• Uncertainty regarding the medium-to-long term value of Shares due to the nascent and evolving nature of blockchain technologies and digital assets.
• The value of Shares is dependent on the acceptance of digital assets like SOL, which represent a new and rapidly evolving industry.
• Concentrated ownership of SOL, where large sales or distributions by major holders could adversely affect the market price.
• The largely unregulated nature and lack of transparency surrounding Digital Asset Trading Platforms, which may lead to fraud, market manipulation, business failures, or security issues.
• The limited history of the CoinDesk Solana Price Index (SLX) and potential for its failure to accurately reflect SOL price.
• Lack of active trading markets for the Shares, which may result in losses at the time of disposition.
• Possible illiquid markets exacerbating losses or increasing the variability between the Trust's NAV and its market price.
• Competition from other digital assets or smart contract platforms (e.g., Ethereum, Polkadot, Avalanche, Cardano) could negatively impact SOL price.
• Liquidity of Shares may be affected if Authorized Participants cease to perform their obligations or the Liquidity Engager cannot engage Liquidity Providers.
• Any suspension or unavailability of the Trust's redemption program may cause Shares to trade at a discount to NAV per Share.
• A final determination that SOL is a security by the SEC or a federal court could adversely affect SOL value, lead to extraordinary expenses, or terminate the Trust.
• Regulatory changes or actions by U.S. Congress or federal/state agencies may affect Share value or restrict SOL use/network operations.
• Regulatory changes or interpretations could obligate the Trust or Sponsor to register and comply with new regulations, resulting in extraordinary expenses.
• Potential conflicts of interest may arise among the Sponsor or its affiliates (e.g., DCG's minority stake in Kraken) and the Trust, potentially favoring their own interests.
• The Trust's reliance on third-party service providers (Custodian, Prime Broker, Transfer Agent) and the challenges of replacing them, including potential insolvency risks of custodians.
• Security threats to the Trust's SOL holdings (Vault Balance, Settlement Balance) could result in loss of assets or damage to reputation.
• SOL transactions are irrevocable, and stolen or incorrectly transferred SOL may be irretrievable.
• Lack of full insurance coverage and limited shareholder rights of legal recourse against the Trust and service providers.
• The Trust may be required to terminate and liquidate at a disadvantageous time for shareholders.
• Limited shareholder voting rights and restricted derivative actions under the Trust Agreement.
• Uncertainty regarding the U.S. federal income tax treatment of digital assets, including staking rewards and the Trust's grantor trust status.
• Staking introduces risks of SOL loss (e.g., slashing penalties) and illiquidity due to variable un-staking periods.
• Uncertain regulatory landscape surrounding Staking, including the risk of staking activities being deemed securities offerings.
• Beneficial owners of Shares could incur tax liabilities from staking without receiving corresponding distributions from the Trust.

Future Outlook

The Trust intends to issue Shares on an ongoing basis and list them on NYSE Arca under the symbol GSOL, relying on an SEC exemption for its redemption program. The Sponsor anticipates engaging in staking with respect to all of the Trust's SOL holdings once the 'Staking Condition' is satisfied, which would allow the Trust to receive additional SOL as 'Staking Consideration'. The Sponsor expects the arbitrage mechanism to function effectively upon NYSE Arca listing, leading to net creation of Shares if trading at a premium and net redemption if at a discount.

Management Comments

• "The Trust's investment objective is for the value of the Shares (based on SOL per Share) to reflect the value of SOL held by the Trust, as determined by reference to the Index Price, less the Trust's expenses and other liabilities."
• "While an investment in the Shares is not a direct investment in SOL, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to SOL."
• "The Sponsor believes that the security procedures in place for the Trust, including, but not limited to, offline storage, or cold storage, for a substantial portion of the Trust's SOL, multiple encrypted private key shards, usernames, passwords and 2-step verification, are reasonably designed to safeguard the Trust's SOL."
• "The Sponsor believes that it is generally more efficient, and therefore less costly, for spot commodity exchange-traded products to utilize in-kind orders rather than cash orders."
• "The Sponsor has committed to causing the Trust to irrevocably abandon all Incidental Rights and IR Virtual Currency to which the Trust might otherwise become entitled."

Industry Context

The filing reflects the ongoing trend of digital asset trusts seeking to convert to spot ETFs in the U.S., following the SEC's approval of Bitcoin and Ether spot ETFs. The document highlights the regulatory challenges specific to Solana (SOL), particularly the SEC's past stance on SOL as a security, which contrasts with the CFTC's view of SOL as a non-security commodity. The industry is also grappling with evolving regulatory guidance on broker-dealer custody of digital assets and the feasibility of in-kind creation/redemption mechanisms for crypto ETPs. The document also touches upon the broader digital asset market volatility, recent insolvencies (FTX, Celsius, Voyager), and increased regulatory scrutiny, which impact investor confidence and market liquidity.

Comparison to Industry Standards

• Unlike other spot digital asset exchange-traded products (like Bitcoin and Ether ETFs), Grayscale Solana Trust is currently unable to create and redeem shares via in-kind transactions with Authorized Participants, relying solely on cash orders. This is noted as a potential operational inefficiency and a novel product structure not extensively tested.
• The document explicitly states that the SEC has only approved applications for spot digital asset ETPs holding Bitcoin and Ether, and that investors should not assume similar approvals for other digital assets like SOL, despite the establishment of CFTC-regulated SOL futures markets.
• The Trust's historical trading at substantial premiums (up to 875%) on OTCQX, compared to its NAV, indicates a significant divergence from the typical arbitrage efficiency seen in more mature ETF markets for traditional assets.
• The Trust's inability to participate in staking, due to the 'Staking Condition' not being met, places it at a disadvantage compared to direct SOL holders or other vehicles that can generate yield through proof-of-stake mechanisms.
• The document notes that Coinbase Global, the parent of the Custodian and Prime Broker, serves as SOL custodian and prime execution agent for several competing exchange-traded SOL products, highlighting a concentration of service providers in the nascent crypto ETP ecosystem.

Management Changes

Corporate Governance

Legal Proceedings

• Osprey Funds, LLC filed a lawsuit against the Sponsor in Connecticut Superior Court on January 30, 2023, alleging violations of the Connecticut Unfair Trade Practices Act (CUTPA) related to Grayscale Bitcoin Trust advertising. The Sponsor's motion for summary judgment was granted on February 7, 2025, and Osprey withdrew the action and appeal on May 12, 2025.
• Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd. filed a complaint on May 19, 2025, in the U.S. Bankruptcy Court for the Southern District of New York against Digital Currency Group, Inc. (DCG) and certain affiliates, including Grayscale Operating, LLC, alleging preferential transfers. Grayscale believes the lawsuit is without merit and intends to vigorously defend against it.

Related Party Transactions

• Digital Currency Group, Inc. (DCG), the sole equity holder and indirect parent company of the Sponsor, holds a minority interest of less than 1.0% in Kraken, one of the Digital Asset Trading Platforms included in the Index.
• Grayscale Securities, LLC, a registered broker-dealer and affiliate of the Sponsor, acts as an Authorized Participant for the Trust.
• The Sponsor and its affiliates may have conflicting demands in allocating resources among different clients and future business ventures, potentially favoring other ventures that generate larger fees.
• The Sponsor may engage other affiliated service providers in the future, potentially disincentivizing replacement of existing affiliated providers.
• Officers of the Sponsor may trade SOL for their personal accounts, potentially taking positions opposite to the Trust's, subject to internal policies.

Stakeholder Impact

• **Shareholders**: Face risks of SOL price volatility, potential losses if shares trade at a discount, limited voting rights, and no benefits from forks/airdrops. May incur tax liabilities without distributions from staking.
• **Authorized Participants**: Responsible for facilitating creation/redemption orders, but face challenges due to the lack of in-kind transactions and regulatory uncertainty regarding broker-dealer handling of spot SOL.
• **Sponsor**: Manages the Trust, earns fees, and assumes most ordinary expenses. Faces potential conflicts of interest due to affiliations and other business ventures.
• **Custodian/Prime Broker (Coinbase entities)**: Provide critical safekeeping and transaction services for SOL. Their operational stability and regulatory compliance are crucial for the Trust.
• **Solana Network**: The Trust's operations, particularly potential staking, could impact the network's activity and security. Network disruptions or changes in governance could affect the Trust's assets.

Next Steps

• Obtain SEC approval for the NYSE Arca 19b-4 application to list the Shares.
• Seek and obtain 'In-Kind Regulatory Approval' to enable in-kind creation and redemption of Shares.
• Satisfy the 'Staking Condition' to permit the Trust to engage in SOL staking activities and earn 'Staking Consideration'.
• Continue to defend against the legal proceeding filed by Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd.

Key Dates

Keywords

Solana, SOL, Grayscale, ETF, SEC, S-1/A, Digital Asset, Cryptocurrency, Investment Trust, NYSE Arca, Spot ETF, Staking, Arbitrage, Custody, Regulation