S-1/A: Grayscale Solana Trust S-1/A: ETF Listing & Staking Update

Grayscale Solana Trust (SOL) files an S-1/A amendment detailing its intent to list as an ETF on NYSE Arca, outlining cash-only creation/redemption, and future staking plans contingent on regulatory approval.

Summary

• Grayscale Solana Trust (SOL) is a Delaware Statutory Trust that holds SOL digital assets, aiming for its Shares to reflect SOL's value less expenses.
• The Trust is currently quoted on OTCQX under GSOL and intends to list on NYSE Arca as Grayscale Solana Trust ETF under the same symbol, pending SEC approval.
• Shares are issued and redeemed in Baskets of 10,000 Shares to Authorized Participants, currently only through Cash Orders, as in-kind transactions require further regulatory approval.
• The Trust may engage in staking a portion of its SOL holdings to earn additional SOL (Staking Consideration), but this is contingent on satisfying a 'Staking Condition' related to tax qualification as a grantor trust and regulatory compliance.
• The Sponsor expects to stake up to approximately 85% of the Trust's SOL, with the remainder held unstaked in a 'Liquidity Sleeve' to manage redemption requests.
• Net assets increased by 25% to $83.399 million for the three months ended June 30, 2025, driven by SOL price appreciation from $125.23 to $157.80 per SOL.
• For the six months ended June 30, 2025, net assets decreased by 19% to $83.399 million, primarily due to SOL price depreciation from $193.69 to $157.80 per SOL.
• For the year ended December 31, 2024, net assets increased by 307% to $102.631 million, driven by SOL price appreciation from $104.79 to $193.69 per SOL.
• Grayscale Investments Sponsors, LLC (GSIS), an indirect wholly owned subsidiary of Digital Currency Group, Inc. (DCG), is the sole Sponsor.
• Coinbase Custody Trust Company, LLC serves as the Custodian, and Coinbase, Inc. is the Prime Broker, responsible for securing the Trust's SOL holdings.

Sentiment

Score: 6

Explanation: The filing outlines significant historical growth and positive future intentions (NYSE Arca listing, staking), which are favorable. However, substantial regulatory uncertainties regarding SOL's security status, the current cash-only creation/redemption model, and the contingent nature of staking introduce considerable risks and potential operational inefficiencies. The recent decline in net assets for H1 2025 also tempers overall sentiment.

Positives

• Intent to list on NYSE Arca under GSOL, which could enhance liquidity and accessibility for a broader investor base.
• The Trust's design includes an arbitrage mechanism intended to keep the Share value closely aligned with the underlying SOL price.
• Future potential to engage in SOL staking to generate additional SOL (Staking Consideration), which could enhance returns for the Trust, once regulatory and tax conditions are met.
• Robust security protocols for SOL custody, including cold storage, multiple encrypted private key shards, and geographical distribution of vaults, designed to mitigate theft and loss risks.
• The Sponsor assumes most ordinary-course operational and periodic expenses, reducing direct cost burdens on the Trust.
• Significant historical growth in net assets in 2023 (2008% increase) and 2024 (307% increase) due to SOL price appreciation.

Negatives

• The Trust currently relies solely on cash orders for creations and redemptions, as in-kind transactions require further regulatory approval, potentially leading to operational inefficiencies and wider premiums/discounts.
• Staking is currently prohibited because the 'Staking Condition' (tax qualification as a grantor trust) has not been met, which may place the Trust at a comparative disadvantage.
• Shares have historically traded at a substantial premium to NAV per Share on OTCQX (e.g., maximum 875%, average 302% from April 2023 to June 2025), posing a risk of loss if this premium decreases.
• The amount of SOL represented by each Share will gradually decline over time due to the payment of the Sponsor's Fee and other expenses.
• Shareholders will not receive benefits from forks or airdrops, as the Trust irrevocably abandons any Incidental Rights and IR Virtual Currency.
• Potential conflicts of interest exist due to the Sponsor's affiliates (DCG) having investments in other digital assets and a minority interest in Kraken, an Index constituent.
• The Trust's status as an emerging growth company means reduced disclosure requirements, which some investors may find less attractive.
• Net assets experienced a 19% decrease in the first half of 2025, primarily due to SOL price depreciation.

Risks

• Extreme volatility of SOL trading prices could lead to a material adverse effect on the value of the Shares, potentially resulting in a loss of all or substantially all of their value.
• The medium-to-long term value of Shares is uncertain due to the nascent and rapidly evolving nature of blockchain technologies and digital assets.
• Concentrated ownership of SOL (top 100 wallets hold approximately 28%) could lead to adverse effects on market price from large sales or distributions.
• The largely unregulated nature and lack of transparency of Digital Asset Trading Platforms increase risks of fraud, market manipulation, business failures, and security issues.
• Validators may suffer losses due to staking (e.g., slashing, inactivity leaks) or staking may become unattractive, adversely affecting the Solana Network.
• Temporary or permanent forks or clones of the Solana Network could adversely affect the value of SOL and the Trust's ability to operate.
• Lack of active trading markets for the Shares may result in losses for investors at the time of disposition.
• Illiquid markets for SOL may exacerbate losses or increase the variability between the Trust's NAV and its market price.
• Regulatory changes or actions by U.S. Congress or federal/state agencies (e.g., SEC, CFTC) may affect SOL value or restrict its use, validating activity, or market operations.
• A final determination that SOL is a security could materially and adversely affect its value, result in extraordinary expenses, or lead to the termination of the Trust.
• Changes in SEC policies could adversely impact the value of the Shares, especially if competing ETPs for other digital assets are approved.
• The Trust or Sponsor could be subject to regulation as a money service business or money transmitter, leading to extraordinary expenses and decreased liquidity.
• Uncertain U.S. federal income tax treatment of the Trust and digital assets, including staking income and the grantor trust status, could result in adverse tax consequences for shareholders.
• Security threats to the Trust's SOL holdings (Vault Balance, Settlement Balance) could result in theft, loss, destruction, or other attacks, harming operations and reputation.
• SOL transactions are irrevocable; stolen or incorrectly transferred SOL may be irretrievable, leading to potential losses for the Trust.
• Limited insurance coverage and shareholders' limited rights of legal recourse against the Trust and its service providers expose the Trust and shareholders to the risk of loss.
• The Trust may be required to terminate and liquidate at a time disadvantageous to shareholders.
• Shareholders have limited voting rights and restricted rights to bring derivative actions, requiring a 10.0% ownership threshold by non-affiliated shareholders.
• The Sponsor's sole responsibility for determining NAV and NAV per Share introduces risk of errors in valuation calculations.
• Extraordinary, non-recurring expenses (e.g., taxes, litigation costs) are borne by the Trust, requiring the sale of SOL and reducing NAV.
• Shareholders may incur tax liabilities from SOL sales for expenses without receiving corresponding distributions from the Trust.
• Intellectual property rights claims could adversely affect the Trust's operations and the value of the Shares.
• Pandemics, epidemics, and other disasters could negatively impact demand for digital assets and disrupt service provider operations.
• Coinbase Global serving as custodian and prime execution agent for several competing SOL products could lead to resource allocation issues or conflicts of interest.
• Authorized Participants also serving competing SOL products could adversely affect the arbitrage mechanism and the Trust's operations.
• The inability of Authorized Participants and market makers to hedge their SOL exposure may adversely affect the liquidity of Shares.
• Arbitrage transactions may be problematic if creation and redemption processes encounter difficulties, leading to divergence between Share price and SOL price.

Future Outlook

The Trust intends to list its Shares on NYSE Arca under the symbol GSOL and operate a redemption program, relying on an exemption or other relief from the SEC under Regulation M. It also plans to engage in SOL staking to earn Staking Consideration once the 'Staking Condition' (tax qualification as a grantor trust) is satisfied and compliance with any additional requirements is met. The Sponsor expects to stake up to approximately 85% of the Trust's SOL holdings at all times, with the remainder serving as a liquidity sleeve.

Management Comments

• The Sponsor believes that SOL is not a security and its transactions in SOL are not securities transactions, despite the SEC's position under former Chair Gensler's leadership.
• The Sponsor intends to vigorously defend against the lawsuit filed by Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd.

Industry Context

The digital asset industry is characterized by extreme volatility, rapid evolution, and increasing regulatory scrutiny, particularly following significant market disruptions like the FTX collapse. The SEC has initiated a 'Crypto Task Force' and 'Project Crypto' to develop a comprehensive regulatory framework, which could significantly impact digital asset markets. The Trust faces competition from other established digital assets like Bitcoin and Ether, as well as other smart contract platforms (e.g., Ethereum, Polkadot, Avalanche, Cardano) and traditional financial institutions exploring blockchain technology (e.g., J.P. Morgan's Onyx). The emergence of central bank digital currencies (CBDCs) also poses a competitive threat. While the SEC has approved spot Bitcoin and Ether ETPs, the regulatory status of SOL as a non-security remains a point of contention with the SEC, creating ongoing uncertainty for the Trust.

Comparison to Industry Standards

• The Trust's current reliance on cash-only creations and redemptions, rather than in-kind transactions, is a novel approach for spot commodity exchange-traded products, which typically utilize in-kind mechanisms (e.g., gold and silver ETPs). This could lead to less efficient arbitrage compared to established industry standards.
• The Trust employs robust security protocols for its SOL holdings, including cold storage, multiple encrypted private key shards, and geographical distribution of vaults, which align with best practices for institutional-grade digital asset custody.
• The Solana Network's Proof-of-History (PoH) timestamping mechanism is designed to offer a transaction processing speed and capacity advantage over other blockchain networks like Bitcoin and Ethereum, which rely on sequential block production, positioning it as a potentially more scalable solution within the smart contract platform sector.

Management Changes

Corporate Governance

Legal Proceedings

• Osprey Funds, LLC filed a lawsuit against the Sponsor in Connecticut Superior Court alleging violations of the Connecticut Unfair Trade Practices Act (CUTPA) related to advertising of Grayscale Bitcoin Trust ETF. The Sponsor's motion for summary judgment was granted on February 7, 2025, and Osprey's subsequent motion for reargument was denied on March 19, 2025. Osprey filed a notice of appeal on March 31, 2025, but 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 SDNY Bankruptcy Court against Digital Currency Group, Inc. and certain affiliates, including GSO, alleging preferential transfers. GSO believes the lawsuit is without merit and intends to vigorously defend against it.
• The SEC brought charges against Digital Asset Trading Platforms Binance, Coinbase, and Kraken in June and November 2023, respectively, alleging operation of unregistered securities exchanges and that certain digital assets (including SOL) were securities. The SEC entered court-approved joint stipulations to dismiss these complaints between February 2025 and May 2025.
• The SEC filed settled enforcement actions against Mango Labs, LLC, Mango DAO, and Blockworks Foundation in September 2024, and an enforcement action against Cumberland DRW, LLC in October 2024, in both instances describing SOL and other digital assets as examples of crypto assets offered and sold as securities. The Cumberland DRW, LLC action was dismissed in March 2025.

Related Party Transactions

• The Sponsor, Grayscale Investments Sponsors, LLC (GSIS), is an indirect wholly owned subsidiary of Digital Currency Group, Inc. (DCG).
• DCG 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, an affiliate of the Sponsor, is the only Authorized Participant for the Trust.
• Genesis Global Trading, Inc., a wholly owned subsidiary of DCG, served as a Liquidity Provider from October 3, 2022, to September 12, 2023.
• The Sponsor pays fees to CoinDesk Indices, Inc., the Index Provider, which was an affiliate of the Sponsor until its sale on November 20, 2023.
• The Sponsor pays fees to Coinbase Custody Trust Company, LLC (Custodian) and Coinbase, Inc. (Prime Broker), which are affiliates of Coinbase Global.
• Officers of the Sponsor may trade SOL for their personal accounts, subject to internal trading policies and procedures.

Stakeholder Impact

• Shareholders: Potential for increased liquidity and broader market access with NYSE Arca listing, but also exposure to significant price volatility, regulatory uncertainty, and the risk of Shares trading at premiums or discounts to NAV. Limited voting rights and restricted derivative action rights may impact shareholder recourse.
• Authorized Participants: Will facilitate creation and redemption of Shares, subject to regulatory requirements and market conditions. May face competition from other exchange-traded products.
• Solana Network: Increased institutional investment exposure through the Trust could benefit the network's adoption and perceived legitimacy, but the network remains vulnerable to technical attacks, forks, and validator issues.
• Regulators: The filing highlights ongoing and evolving regulatory scrutiny of digital assets, particularly regarding security classification and staking, which could lead to new rules or enforcement actions impacting the Trust and the broader industry.

Next Steps

• Obtain SEC approval for NYSE Arca's 19b-4 application to list the Shares.
• Achieve effectiveness of the registration statement and list Shares on NYSE Arca under the symbol GSOL.
• Rename the Trust to 'Grayscale Solana Trust ETF' upon the effectiveness of the registration statement and NYSE Arca listing.
• Seek and obtain 'In-Kind Regulatory Approval' to enable in-kind creations and redemptions of Shares.
• Satisfy the 'Staking Condition' (tax qualification as a grantor trust) to permit the Trust to engage in SOL staking activities.
• Implement a Staking Policy for the Trust once staking is permitted.
• Continue monitoring the SOL market, evolving regulatory landscape, and performance of service providers.

Key Dates

Recommendation

The Grayscale Solana Trust (SOL) presents a regulated avenue for exposure to Solana, with strategic plans for an NYSE Arca listing and potential staking income, which are positive catalysts. However, the significant regulatory uncertainty surrounding SOL's classification as a security by the SEC, the current reliance on cash-only creation/redemption mechanisms (which can lead to inefficient arbitrage and premiums/discounts), and the contingent nature of staking activities introduce considerable risks. While historical performance has been strong, the recent H1 2025 decline in net assets due to SOL price depreciation underscores volatility. A 'hold' recommendation is appropriate for seasoned investors, acknowledging the long-term potential of Solana while exercising caution due to the substantial regulatory and operational hurdles that could impact the Trust's performance and liquidity.

Keywords

Solana, SOL, Grayscale, ETF, Digital Asset, Cryptocurrency, Blockchain, Staking, SEC, NYSE Arca, Investment Trust, Crypto ETF, Spot SOL, Digital Currency Group, Coinbase