10-KT: Grayscale Stellar Lumens Trust (XLM) Reports Q4 Loss

Grayscale Stellar Lumens Trust (XLM) filed its transition report, detailing a fiscal year-end change and reporting a significant net asset decrease for the three months ended December 31, 2025, driven by XLM price depreciation.

Summary

• Grayscale Stellar Lumens Trust (XLM) is a Delaware Statutory Trust formed to hold Stellar Lumens (XLM) and provide investors with exposure to XLM through Shares.
• The Trust changed its fiscal year-end from September 30 to December 31, effective for the fiscal year commencing January 1, 2025, and ending December 31, 2025. This filing covers the three-month transition period from October 1, 2025, to December 31, 2025.
• The Trust's investment objective is for the value of its Shares to reflect the value of XLM held, less expenses and liabilities, but it has historically traded at substantial premiums and discounts.
• For the three months ended December 31, 2025, the Trust reported a net realized and unrealized loss on investment in XLM of ($19,685) thousand, primarily due to XLM price depreciation from $0.37 to $0.20 per XLM.
• Net assets decreased by 46% to $23,191 thousand at December 31, 2025, from $43,081 thousand at September 30, 2025.
• The Sponsor's Fee is 2.5% annually of the NAV Fee Basis Amount, payable in XLM.
• As of December 31, 2025, the Trust held approximately 0.4% of the XLM in circulation.
• The Trust does not currently operate a redemption program, which limits arbitrage mechanisms and can lead to Shares trading at substantial premiums or discounts to NAV.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative report due to the significant depreciation in XLM price and corresponding decrease in net assets, coupled with persistent structural issues like the lack of a redemption program and concentrated ownership risks. While regulatory clarity is emerging, the Trust's financial performance for the period is concerning.

Positives

• The Trust provides a cost-effective and convenient way for investors to gain exposure to XLM without direct acquisition and safekeeping complexities.
• Shares are market-traded and transparent, quoted on OTCQX, with daily NAV and NAV per Share published on the Trust's website.
• Minimal credit risk as the Trust directly owns actual XLM, not derivatives, and assets are not loaned or pledged.
• Enhanced security procedures for XLM custody, including cold storage, multiple encrypted private key shards, and geographical distribution of vaults, designed to remove single points of failure.
• The Index Provider's methodology for calculating the Index Price is designed to mitigate fraud, manipulation, and anomalous trading activity.
• The SEC dismissed charges against Binance, Coinbase, and Kraken between February 2025 and May 2025, and terminated investigations into many other digital asset market participants, potentially reducing regulatory uncertainty for the broader digital asset market.
• The GENIUS Act, signed into law in July 2025, establishes a regulatory framework for fully reserved payment stablecoins, which could increase adoption of regulated stablecoins as digital payment instruments.

Negatives

• Significant net decrease in net assets resulting from operations of ($19,890) thousand for the three months ended December 31, 2025.
• XLM price depreciated from $0.37 per XLM as of September 30, 2025, to $0.20 per XLM as of December 31, 2025.
• Net assets decreased by 46% from $43,081 thousand at September 30, 2025, to $23,191 thousand at December 31, 2025.
• The Trust has not met its investment objective, and Shares have historically traded at substantial premiums (max 461%, avg 105%) and discounts (max 35%, avg 9%) to NAV per Share. As of December 31, 2025, Shares traded at a 10% premium.
• The lack of an ongoing redemption program and Rule 144 holding period for privately placed shares prevents arbitrage, contributing to NAV deviations.
• The Stellar Network's primary advantage (cross-currency transactions) has not been widely adopted.
• Concentrated ownership of XLM, with the largest 100 wallets holding approximately 63% (excluding SDF) or 75% (including SDF) of XLM in circulation, poses a risk of adverse price effects from large sales.
• The Stellar Development Foundation (SDF) controls a significant amount of XLM (approximately 16.7 billion XLM remaining in wallets as of the report date), and its distribution plans or changes could negatively impact XLM price.
• The Stellar Network relies on a relatively small number of validators (approximately 69), increasing vulnerability to malicious actors or botnets gaining control.
• The Stellar Network's function as a cross-currency payment platform could be misused for illicit activities, increasing regulatory scrutiny and potentially leading to delisting from trading platforms.
• The Custodian's maximum liability for cold storage addresses is limited to $100 million if the value exceeds this threshold for five consecutive business days, potentially leaving losses above this amount uninsured.
• The Trust's assets are not subject to FDIC or SIPC protections.
• The Sponsor and the Trust's sole Authorized Participant (Grayscale Securities) are affiliated, raising potential conflicts of interest regarding Basket creation terms.
• DCG, the Sponsor's indirect parent, holds a minority interest (<1.0%) in Kraken, one of the Digital Asset Trading Platforms included in the Index, which could raise investor concerns about influence on market data.
• The Trust's payment of expenses (Sponsor's Fee, Additional Trust Expenses) in XLM is a taxable event for shareholders, potentially incurring tax liability without an associated cash distribution.
• The Trust is an emerging growth company, and reduced disclosure requirements may make Shares less attractive to investors.

Risks

• Extreme volatility of trading prices for digital assets, including XLM, could lead to substantial loss of value for Shares.
• Medium-to-long term value of Shares is subject to factors relating to blockchain technology capabilities and development, and fundamental investment characteristics of digital assets.
• Digital assets are a relatively new and rapidly evolving industry; the value of Shares depends on XLM acceptance.
• Digital assets may have concentrated ownership, and large sales or distributions by holders could adversely affect market price.
• A temporary or permanent fork or clone of the Stellar Network could adversely affect the value of Shares.
• Recent developments in the digital asset economy (e.g., FTX collapse, bank failures) have led to extreme volatility, disruption, loss of confidence, negative publicity, and market-wide declines in liquidity.
• The value of Shares relates directly to the value of XLM, the value of which may be highly volatile and subject to fluctuations due to a number of factors.
• The largely unregulated nature and lack of transparency of Digital Asset Trading Platforms may adversely affect digital asset values and Shares.
• Digital Asset Trading Platforms may be exposed to front-running and wash-trading.
• The Index has a limited history, and a failure of the Index Price could adversely affect the value of the Shares.
• Competition from the emergence or growth of other digital assets could have a negative impact on the price of XLM and adversely affect the value of the Shares.
• The Trust relies on third-party service providers to perform certain functions essential to the affairs of the Trust and the replacement of such service providers could pose challenges to the safekeeping of the Trust's XLM and to the operations of the Trust.
• Because of the holding period under Rule 144, the lack of an ongoing redemption program and the Trust's ability to halt creations from time to time, there is no arbitrage mechanism to keep the value of the Shares closely linked to the Index Price and the Shares have historically traded at a substantial premium over, or a substantial discount to, the NAV per Share.
• The Shares may trade at a price that is at, above or below the Trust's NAV per Share as a result of the non-concurrent trading hours between OTCQX and the Digital Asset Trading Platform Market.
• Shareholders may suffer a loss on their investment if the Shares trade above or below the Trust's NAV per Share.
• Extraordinary expenses, tax liabilities arising from XLM sales without distributions, indemnification obligations, intellectual property claims, and disruptions from pandemics or other disasters could adversely affect the value of the Shares.
• A determination that XLM or any other digital asset is a security may adversely affect the value of XLM and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust.
• Regulatory changes or actions by the U.S. Congress or any U.S. federal or state agencies may affect the value of the Shares or restrict the use of XLM, validating activity or the operation of the Stellar Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares.
• Regulatory changes or other events in foreign jurisdictions may affect the value of the Shares or restrict the use of one or more digital assets, validating activity or the operation of their networks or the Digital Asset Trading Platform Market in a manner that adversely affects the value of the Shares.
• The Authorized Participant, the Trust or the Sponsor could be subject to regulation as a money service business or money transmitter, which could result in extraordinary expenses to the Authorized Participant, the Trust or the Sponsor and also result in decreased liquidity for the Shares.
• Regulatory changes or interpretations could obligate the Trust or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust.
• The uncertain and evolving tax treatment of the Trust, digital assets, XLM and transactions involving XLM under U.S. federal, state, and local tax laws could adversely affect the value of the Shares.
• Conflicts of interest may arise among the Sponsor or its affiliates and the Trust.
• Shareholders cannot be assured of the Sponsor's continued services, the discontinuance of which may be detrimental to the Trust.
• If the Custodian resigns or is removed by the Sponsor, or otherwise, without replacement, it would trigger early termination of the Trust.
• The Trust is an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make the Shares less attractive to investors.
• The lack of full insurance and shareholders limited rights of legal recourse against the Trust, Trustee, Sponsor, Transfer Agent and Custodian expose the Trust and its shareholders to the risk of loss of the Trust's XLM for which no person or entity is liable.
• The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders.
• The Trust Agreement includes provisions that limit shareholders voting rights and restrict shareholders right to bring a derivative action.
• The Sponsor 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 Trust, adversely affecting the value of the Shares.
• The Trust's delivery or sale of XLM to pay expenses or other operations of the Trust could result in shareholders incurring tax liability without an associated distribution from the Trust.
• The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Transfer Agent or the Custodian under the Trust Documents.
• Intellectual property rights claims may adversely affect the Trust and the value of the Shares.
• Pandemics, epidemics and other natural and man-made disasters could negatively impact the value of the Trust's holdings and/or significantly disrupt its affairs.
• Shareholders may not receive the benefits of any forks or airdrops.
• Non-U.S. Holders may be subject to U.S. federal withholding tax on income derived from forks, airdrops and similar occurrences.

Future Outlook

The Trust intends to file annual reports on Form 10-K for the twelve-month period ending December 31 of each year, starting with the fiscal year ending December 31, 2026. The Sponsor may in the future operate a redemption program, subject to SEC regulatory approval and its sole discretion, which could reduce any premium or discount at which the Shares trade. The SEC has launched a crypto task force and Project Crypto to develop a comprehensive and clear regulatory framework for digital assets, which may lead to new rules and legislation.

Management Comments

• "The Sponsor believes that the security procedures in place for the Trust... are reasonably designed to safeguard the Trust's XLM."
• "The Sponsor intends to evaluate each future fork or airdrop on a case-by-case basis in consultation with the Trust's legal advisers, tax consultants and Custodian."
• "The Sponsor believes that it is applying the proper legal standards in determining that XLM is not a security in light of the uncertainties inherent in the Howey and Reves tests."
• "The Sponsor does not intend to dissolve the Trust on the basis that XLM could at some future point be finally determined to be a security."
• "The Sponsor does not expect the foregoing proceedings [Genesis Capital lawsuit] to have a material adverse effect on the Trust's business, financial condition or results of operations."

Industry Context

StockSavvy.ai notes that the digital asset market continues to be characterized by extreme volatility and regulatory uncertainty, as evidenced by the significant price depreciation of XLM and the ongoing evolution of regulatory frameworks in the U.S. and globally. The dismissal of SEC charges against major exchanges like Binance, Coinbase, and Kraken, along with the signing of the GENIUS Act, suggests a potential shift towards clearer, albeit still developing, regulatory guidelines for the industry. However, the inherent risks of concentrated ownership, scaling challenges, and potential for illicit use remain significant concerns for digital assets like XLM, which is still developing its transactional utility compared to more established cryptocurrencies. The Trust's reliance on an affiliated Authorized Participant and the lack of a redemption program highlight structural issues that can exacerbate price deviations from underlying asset value, a common theme in less mature digital asset investment vehicles.

Comparison to Industry Standards

• The Stellar Network's consensus mechanism (Federated Byzantine Agreement) is similar to Ripple's, but unlike Ripple, it facilitates tokenized asset creation and a decentralized trading platform.
• XLM's primary advantage as an intermediary in global foreign exchange transactions has not been widely adopted, contrasting with the more established use cases of Bitcoin or Ether.
• XLM is the 17th largest digital asset by market capitalization (~$6.5 billion), significantly smaller than Bitcoin and many other digital assets, indicating less market maturity and liquidity.
• The Stellar Network handles approximately 35.7 transactions per second, which is faster than Bitcoin's block production (around every 9 minutes) but still faces scaling challenges common to many digital asset networks.
• XLM average daily transaction fees ($0.0007 per transaction as of Dec 31, 2025) are significantly lower than Bitcoin's ($0.65 per transaction as of Dec 31, 2025), highlighting its intended low-cost transactional utility.
• The Trust's Shares have historically traded at substantial premiums (max 461%, avg 105%) and discounts (max 35%, avg 9%) to NAV, a common issue for closed-end digital asset trusts lacking redemption mechanisms, unlike spot Bitcoin or Ether ETFs that maintain tighter tracking.
• The Custodian (Coinbase Custody Trust Company, LLC) is a fiduciary under New York Banking Law and a qualified custodian under the Investment Advisers Act, aligning with industry best practices for institutional digital asset custody.

Management Changes

Corporate Governance

Legal Proceedings

• On May 19, 2025, Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd. filed a complaint in the United States Bankruptcy Court for the Southern District of New York (SDNY Bankruptcy Court) against Digital Currency Group, Inc. (DCG) and certain affiliates, including GSO (former Co-Sponsor), alleging preferential transfers. Genesis Capital seeks to avoid transfers to GSI (predecessor to GSO) of 105 Bitcoin and 37,647.06 Ethereum Classic tokens. GSO believes the lawsuit is without merit and intends to vigorously defend against it. The Sponsor does not expect this to have a material adverse effect on the Trust.

Related Party Transactions

• Grayscale Investments Sponsors, LLC (Sponsor) is a consolidated subsidiary of Digital Currency Group, Inc. (DCG).
• Grayscale Securities, LLC, the sole Authorized Participant and distributor/marketer, is an affiliate of the Sponsor and a wholly-owned subsidiary of DCG.
• The Sponsor pays a monthly fee to CoinDesk Indices, Inc. (Index Provider) for the Index License Agreement.
• DCG, the indirect parent company of the Sponsor, holds a minority interest (<1.0%) in Kraken, one of the Digital Asset Trading Platforms included in the Index.
• DCG's board approved the purchase of up to $200 million worth of Shares of the Trust and other affiliated investment products, though no purchases of Trust Shares have been made as of March 6, 2026.
• Several employees of the Sponsor and DCG are FINRA-registered representatives through Grayscale Securities.
• The Trust indemnifies the Sponsor, Trustee, Transfer Agent, and Custodian for certain liabilities.
• The Sponsor may appoint itself or an affiliate as an agent for distributing Incidental Rights or IR Virtual Currency to shareholders.

Stakeholder Impact

• Shareholders are directly impacted by XLM price volatility, the lack of a redemption program leading to premiums/discounts, and potential tax liabilities from XLM sales for expenses without distributions. They have limited voting rights and restricted derivative action rights.
• The Sponsor (Grayscale Investments Sponsors, LLC) receives a 2.5% annual fee and is responsible for day-to-day administration and paying ordinary course expenses. It faces potential conflicts of interest due to affiliations.
• The Custodian (Coinbase Custody Trust Company, LLC) is responsible for safeguarding XLM; liability limitations and insurance coverage may not fully cover all potential losses.
• Authorized Participants (Grayscale Securities, LLC) facilitate the creation of Baskets; being affiliated with the Sponsor raises potential conflicts.
• The Stellar Development Foundation (SDF) controls a significant portion of XLM supply, and its distribution decisions can impact XLM price.
• Digital Asset Market Participants are affected by market volatility, regulatory changes, and operational issues on Digital Asset Trading Platforms.

Next Steps

• The Trust intends to file annual reports on Form 10-K for the twelve-month period ending December 31 of each year, starting with the fiscal year ending December 31, 2026.
• The Trust may in the future operate a redemption program, subject to regulatory approval from the SEC and approval by the Sponsor.
• The Sponsor intends to evaluate each future fork, airdrop, or similar occurrence on a case-by-case basis in consultation with legal advisers, tax consultants, and the Custodian.
• The SEC's crypto task force and Project Crypto will continue efforts to draft clear rules for crypto asset distributions, custody, and trading.

Key Dates

Recommendation

The Trust's performance is directly tied to the highly volatile XLM, which experienced significant depreciation in the last quarter. While the Trust offers exposure to XLM, the persistent trading at premiums/discounts to NAV due to the lack of a redemption mechanism, coupled with concentrated ownership risks and ongoing regulatory uncertainties, makes it a speculative investment. The recent dismissals of SEC charges against exchanges and new stablecoin legislation offer some positive regulatory signals for the broader crypto market, but XLM's specific utility and adoption remain limited. Investors should hold existing positions but exercise caution given the inherent risks and lack of direct control over the underlying asset's market dynamics.

Keywords

Stellar Lumens (XLM), Grayscale Trust, Digital Assets, Cryptocurrency, SEC Filing, 10-KT, Investment Trust, Blockchain, OTC Markets, Financial Report, Market Volatility, Regulatory Risk, Custody, Sponsor Fee, Net Asset Value (NAV)