ETHE

The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those set forth under “Part II, Item 1A. Risk Factors” in this Quarterly Report or in “Part I, Item 1A. Risk Factors” and “Forward-Looking Statements” or other sections of our Annual Report. Trust Overview The Trust is a passive entity that is managed and administered by the Sponsor and does not have any officers, directors or employees. The Trust holds Ether and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of Ether. On July 22, 2024, in connection with the approval of application under Rule 19b-4 of the Securities Exchange Act of 1934 on May 23, 2024 and the effectiveness of the registration statement on Form S-3, the Sponsor authorized the commencement of a redemption program. Shares of the Trust began trading on NYSE Arca on July 23, 2024, following the effectiveness of the Trust’s registration statement on Form S-3. The Trust issues Shares only in one or more blocks of 10,000 Shares (a block of 10,000 Shares is called a “Basket”) to certain Authorized Participants from time to time. Baskets are offered in exchange for Ether. Through its redemption program, the Trust redeems Shares from Authorized Participants on an ongoing basis. As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on Ether per Share) to reflect the value of the Ether held by the Trust, including Ether earned as Staking Consideration, 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 Ether, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to Ether. The Trust is not managed like a business corporation or an active investment vehicle. The Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet its investment objective. Prior to April 1, 2026, the Trust valued the Ether held by the Trust for operational purposes by reference to the CoinDesk Ether Price Index (ETX). As of April 1, 2026, the Index is the CoinDesk Ether Benchmark Rate which is used to calculate the NAV and NAV per Share. Prior to April 1, 2026, references to the “Index” in the Trust’s filings with the SEC, including this Quarterly Report on Form 10-Q, refer to the CoinDesk Ether Price Index (ETX). From and after April 1, 2026, references to the “Index” in the Trust’s filings with the SEC are to the CoinDesk Ether Benchmark Rate. Staking On October 6, 2025, the Trust began staking its Ether pursuant to staking arrangements with the Custodian and certain third-party staking providers and earns staking rewards in the form of additional Ether (“Staking Consideration”). The amount of Staking Consideration received by the Trust is influenced by factors including Ethereum Network conditions, protocol-level reward rates, the amount of Ether held by the Trust and the portion of the Trust’s Ether that is staked, and the Trust does not expect Staking Consideration to be earned at a consistent rate. Staking also introduces operational and liquidity considerations, including that staked Ether may be inaccessible for a period of time required to un-stake and withdraw Ether under Ethereum Network protocols and the Trust’s dependence on third-party staking providers for the execution of staking activities. Pursuant to the Trust’s staking arrangements and the Trust Agreement, a portion of gross Staking Consideration is allocated among the Custodian, the applicable staking providers and the Sponsor (the “Sponsor’s Staking Fee”), with the remainder retained by the Trust. Staking Consideration retained by the Trust increases the Trust’s Ether holdings, while distributions or sales of Ether reduce the Trust’s Ether holdings. The Trust may distribute Staking Consideration (in Ether or cash from the sale of Ether) to shareholders at the Sponsor’s discretion and subject to the Trust Agreement. Critical Accounting Policies and Estimates Investment Transactions and Revenue Recognition The Trust considers investment transactions to be the receipt of Ether by the Trust in connection with Share creations and the delivery of Ether by the Trust in connection with Share redemptions or for payment of expenses in Ether. The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in Ether. 17 Principal Market and Fair Value Determination To determine which market is the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust’s net asset value in accordance with U.S. GAAP (“Principal Market NAV”), the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurement, which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for Ether in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that Ether is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust only receives Ether in connection with a creation order from the Authorized Participant (or a Liquidity Provider) and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to market-based volume and level of activity for Digital Asset Markets. The Authorized Participant(s), or a Liquidity Provider, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets (referred to as “Trading Platform Markets” in this Quarterly Report), each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). In determining which of the eligible Digital Asset Markets is the Trust’s principal market, the Trust reviews these criteria in the following order: •First, the Trust reviews a list of Digital Asset Markets that maintain practices and policies designed to comply with anti-money laundering (“AML”) and know-your-customer (“KYC”) regulations, and non-Digital Asset Trading Platform Markets that the Trust reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market. •Second, the Trust sorts these Digital Asset Markets from high to low by market-based volume and level of activity of Ether traded on each Digital Asset Market in the trailing twelve months. •Third, the Trust then reviews pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. •Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Trading Platform Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Trading Platform Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of the aforementioned analysis, a Trading Platform Market has been selected as the Trust’s principal market. The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market’s trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market’s price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust’s determination of its principal market. Investment Company Considerations The Trust is an investment company for U.S. GAAP purposes and follows accounting and reporting guidance in accordance with the FASB ASC Topic 946, Financial Services—Investment Companies. The Trust uses fair value as its method of accounting for Ether in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company under the Investment Company Act. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material. 18 Review of Financial Results (unaudited) Financial Highlights for the Three and Six Months Ended June 30, 2026 and 2025 (All amounts in the following table and the subsequent paragraphs, except Share, Ether and price of Ether amounts, are in thousands) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net realized and unrealized (loss) gain on investment in Ether $ (398,708 ) $ 770,042 $ (1,169,714 ) $ (1,195,026 ) Net (decrease) increase in net assets resulting from operations $ (402,501 ) $ 754,396 $ (1,178,132 ) $ (1,232,472 ) Net assets(1) $ 1,223,344 $ 2,836,933 $ 1,223,344 $ 2,836,933 (1)Net assets in the above table and subsequent paragraphs are calculated in accordance with U.S. GAAP based on the Digital Asset Market price of Ether on the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date. Net realized and unrealized loss on investment in Ether for the three months ended June 30, 2026 was ($398,708), which includes a realized gain of $4,481 on the transfer of Ether to pay the Sponsor’s Fee, a realized gain of $79,779 on the sale of Ether to meet redemptions, a realized gain of $3,082 on the sale of Ether for Income Distribution, a realized gain of $739 on the transfer of Ether to pay the Sponsor’s Staking Fee, and net change in unrealized appreciation/depreciation on investment in Ether of ($486,789). Net realized and unrealized loss on investment in Ether for the period was driven by Ether price depreciation from $2,095.22 per Ether as of March 31, 2026, to $1,578.53 per Ether as of June 30, 2026. Net decrease in net assets resulting from operations was ($402,501) for the three months ended June 30, 2026, which consisted of the net realized and unrealized loss on investment in Ether, and the net investment loss of $3,793. Net assets decreased to $1,223,344 at June 30, 2026, a 31% decrease for the three-month period. The decrease in net assets resulted from the aforementioned Ether price depreciation, the withdrawal of approximately 5,048 Ether to pay the foregoing Sponsor’s Fee, the withdrawal of approximately 834 Ether to pay the foregoing Sponsor’s Staking Fee, the payable of approximately 9 Ether to pay the foregoing Sponsor’s Staking Fee, and the redemption of approximately 85,655 Ether with a value of $179,607 from the Trust, partially offset by the contribution of approximately 13,725 Ether with a value of $27,261 to the Trust in connection with Share creations during the period and the contribution of approximately 4,046 Ether with a value of $8,286 in connection with Staking Rewards. Net realized and unrealized gain on investment in Ether for the three months ended June 30, 2025 was $770,042, which includes a realized gain of $12,074 on the transfer of Ether to pay the Sponsor’s Fee, a realized gain of $153,517 on the sale of Ether to meet redemptions, and net change in unrealized appreciation/depreciation on investment in Ether of $604,451. Net realized and unrealized gain on investment in Ether for the period was driven by Ether price appreciation from $1,827.33 per Ether as of March 31, 2025, to $2,516.23 per Ether as of June 30, 2025. Net increase in net assets resulting from operations was $754,396 for the three months ended June 30, 2025, which consisted of the net realized and unrealized gain on investment in Ether, less the Sponsor’s Fee of $15,646. Net assets increased to $2,836,933 at June 30, 2025, a 28% increase for the three-month period. The increase in net assets resulted from the aforementioned Ether price appreciation and the contribution of approximately 25,227 Ether, with a value of $64,761 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 7,159 Ether to pay the foregoing Sponsor’s Fee, and the redemption of approximately 107,448 Ether, with a value of $205,781 from the Trust during the period. Net realized and unrealized loss on investment in Ether for the six months ended June 30, 2026 was ($1,169,714), which includes a realized gain of $11,441 on the transfer of Ether to pay the Sponsor’s Fee, a realized gain of $292,582 on the sale of Ether to meet redemptions, a realized gain of $11,935 on the sale of Ether for Income Distribution, a realized gain of $3,594 on the transfer of Ether to pay the Sponsor’s Staking Fee, net change in unrealized appreciation/depreciation on investment in Ether of ($1,489,085), and net change in unrealized appreciation/depreciation on the Sponsor’s Staking Fee payable of ($181). Net realized and unrealized loss on investment in Ether for the period was driven by Ether price depreciation from $2,971.94 per Ether as of December 31, 2025, to $1,578.53 per Ether as of June 30, 2026. Net decrease in net assets resulting from operations was ($1,178,132) for the six months ended June 30, 2026, which consisted of the net realized and unrealized loss on investment in Ether, and the net investment loss of $8,418. Net assets decreased to $1,223,344 at June 30, 2026, a 55% decrease for the six-month period. The decrease in net assets resulted from the aforementioned Ether price depreciation, the withdrawal of approximately 10,428 Ether to pay the foregoing Sponsor’s Fee, the withdrawal of approximately 2,501 Ether to pay the foregoing Sponsor’s Staking Fee, the payable of approximately 9 Ether to pay the foregoing Sponsor’s Staking Fee, and the redemption of approximately 222,954 Ether with a value of $541,860 from the Trust, partially offset by the contribution of approximately 100,638 Ether with a value of $261,371 to the Trust in connection with Share creations during the period and the contribution of approximately 8,333 Ether with a value of $18,808 in connection with Staking Rewards. Net realized and unrealized loss on investment in Ether for the six months ended June 30, 2025 was ($1,195,026), which includes a realized gain of $30,214 on the transfer of Ether to pay the Sponsor’s Fee, a realized gain of $657,896 on the sale of Ether to meet 19 redemptions, and net change in unrealized appreciation/depreciation on investment in Ether of ($1,883,136). Net realized and unrealized loss on investment in Ether for the period was driven by Ether price depreciation from $3,340.40 per Ether as of December 31, 2024, to $2,516.23 per Ether as of June 30, 2025. Net decrease in net assets resulting from operations was ($1,232,472) for the six months ended June 30, 2025, which consisted of the net realized and unrealized loss on investment in Ether, less the Sponsor’s Fee of $37,446. Net assets decreased to $2,836,933 at June 30, 2025, a 40% decrease for the six-month period. The decrease in net assets resulted from the aforementioned Ether price depreciation, the withdrawal of approximately 15,230 Ether to pay the foregoing Sponsor’s Fee, and the redemption of approximately 333,499 Ether with a value of $811,599 from the Trust, partially offset by the contribution of approximately 58,395 Ether with a value of $145,024 to the Trust in connection with Share creations during the period. Cash Resources and Liquidity The Trust only receives and holds cash in order to facilitate creations and redemptions pursuant to Cash Orders, and distributions to shareholders related to staking activities and has not otherwise had or maintained a cash balance at any time since inception. When selling Ether in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor endeavors to sell the exact amount of Ether needed to pay expenses in order to minimize the Trust’s holdings of assets other than Ether. In addition, upon the consummation or deemed failure of a Cash Order to create or redeem Baskets, the Trust will promptly return any excess cash it continues to hold with respect to such Cash Order to the applicable counterparty. As a consequence, the Sponsor expects that the Trust will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period. Furthermore, the Trust is not a party to any off-balance sheet arrangements. Generally, the Trust does not intend to hold cash, except in connection with Cash Orders for creations or redemptions of Baskets. Cash includes non-interest bearing non-restricted cash with one institution. Cash in a bank deposit account, at times, may exceed U.S. federally insured limits. The Trust has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits. In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expenses of the Trust during the periods covered by this Quarterly Report were the Sponsor’s Fee and Sponsor’s Staking Fee. The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. Selected Operating Data As of June 30, 2026 2025 Price of Ether on principal market $ 1,578.53 $ 2,516.23 Principal Market NAV per Share(1) $ 12.77 $ 20.84 Principal Market NAV(1) $ 1,223,344,003 $ 2,836,932,554 Index Price $ 1,578.40 $ 2,518.06 NAV per Share(2) $ 12.76 $ 20.85 NAV(2) $ 1,223,243,255 $ 2,838,995,794 (1)The Principal Market NAV and Principal Market NAV per Share are calculated using the fair value of Ether based on the price provided by the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date, in accordance with U.S. GAAP. (2)The Trust’s NAV and NAV per Share are derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date. The Trust’s NAV per Share is calculated using a non-GAAP methodology where the price is derived from multiple Digital Asset Trading Platforms. The Digital Asset Trading Platforms included in the Index (the “Constituent Trading Platforms”) as of June 30, 2026, were Binance, Bitstamp by Robinhood, Bullish, Bybit, Crypto.com, Gate, Gemini, HashKey, Kraken, LMAX Digital, OKX, and OSL. The Digital Asset Trading Platforms included in the Index as of June 30, 2025, were Coinbase, Kraken, Bullish, Crypto.com, and LMAX Digital. See “Item 1. Business—Overview of the Ethereum Industry and Market—Ether Value—The Index and the Index Price” in our Annual Report for a description of the Index and the Index Price. The Trust reflects creations and redemptions and the Ether for proceeds receivable or payable with respect to such creations and redemptions, respectively, on the trade date, which is the business day an accepted creation or redemption order is placed by an Authorized Participant. Creation and redemption orders are settled on T+1 or T+2, as established at the time of order placement, and therefore the Ether for proceeds receivable or payable with respect to such creations and redemptions, respectively, are recorded as a receivable or payable until the Ether are delivered or removed from the Trust for settlement. 20 Historical NAV and Ether Prices As movements in the price of Ether will directly affect the price of the Shares, investors should understand recent movements in the price of Ether. Investors, however, should also be aware that past movements in the Ether price are not indicators of future movements. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world. The Trust’s performance prior to July 23, 2024 is based on market-determined prices on OTC Markets and on the Trust’s performance without an ongoing share creation and redemption program. Prior to July 23, 2024, the Trust’s Shares traded at both premiums and discounts to the value of the Trust’s assets, less its expenses and other liabilities, which at times were substantial, in part due to the lack of an ongoing redemption program. Effective as of July 23, 2024, the Trust established an ongoing share creation and redemption program and the Shares of the Trust were listed to NYSE Arca. Hence, the Trust’s performance for periods prior to July 23, 2024 is not directly comparable to, and should not be used to make conclusions in conjunction with, the Trust’s performance for periods subsequent to July 23, 2024. The following chart illustrates the movement in the Trust’s NAV per Share (as adjusted for the Share Split for periods prior to December 17, 2020) versus the Index Price and the Trust’s Principal Market NAV per Share (as adjusted for the Share Split for periods prior to December 17, 2020) from December 14, 2017 (the commencement of the Trust’s operations) to June 30, 2026. For more information on the determination of the Trust’s NAV, see “Item 1. Business—Overview of the Ethereum Industry and Market—Ether Value—The Index and the Index Price” in our Annual Report. 21 The following table illustrates the movements in the Index Price from July 1, 2021 to June 30, 2026. The Sponsor has not observed a material difference between the Index Price and average prices from the Constituent Trading Platforms as of June 30, 2026, individually or as a group. High Low Period Average Index Price Date Index Price Date End of period Last business day Twelve months ended June 30, 2022 $ 3,028.51 $ 4,776.32 11/9/2021 $ 913.51 6/18/2022 $ 1,018.72 $ 1,018.72 Twelve months ended June 30, 2023 $ 1,565.15 $ 2,116.13 4/16/2023 $ 1,041.28 7/12/2022 $ 1,927.13 $ 1,927.13 Twelve months ended June 30, 2024 $ 2,498.38 $ 4,033.10 3/11/2024 $ 1,531.25 10/12/2023 $ 3,423.17 $ 3,371.40 Twelve months ended June 30, 2025 $ 2,689.70 $ 4,050.21 12/6/2024 $ 1,465.07 4/8/2025 $ 2,518.06 $ 2,518.06 Twelve months ended June 30, 2026 $ 2,960.82 $ 4,832.59 8/22/2025 $ 1,553.95 6/6/2026 $ 1,578.40 $ 1,578.40 July 1, 2021 to June 30, 2026 $ 2,548.49 $ 4,832.59 8/22/2025 $ 913.51 6/18/2022 $ 1,578.40 $ 1,578.40 The following table illustrates the movements in the Digital Asset Market price of Ether, as reported on the Trust’s principal market, from July 1, 2021 to June 30, 2026. High Low Period Average Digital Asset Market Price Date Digital Asset Market Price Date End of period Last business day Twelve months ended June 30, 2022 $ 3,028.54 $ 4,776.95 11/9/2021 $ 913.24 6/18/2022 $ 1,019.72 $ 1,019.72 Twelve months ended June 30, 2023 $ 1,565.23 $ 2,116.20 4/16/2023 $ 1,040.35 7/12/2022 $ 1,925.83 $ 1,925.83 Twelve months ended June 30, 2024 $ 2,498.36 $ 4,033.86 3/11/2024 $ 1,530.88 10/12/2023 $ 3,423.00 $ 3,371.60 Twelve months ended June 30, 2025 $ 2,689.64 $ 4,053.28 12/6/2024 $ 1,465.40 4/8/2025 $ 2,516.23 $ 2,516.23 Twelve months ended June 30, 2026 $ 2,961.07 $ 4,833.89 8/22/2025 $ 1,554.17 6/6/2026 $ 1,578.53 $ 1,578.53 July 1, 2021 to June 30, 2026 $ 2,548.54 $ 4,833.89 8/22/2025 $ 913.24 6/18/2022 $ 1,578.53 $ 1,578.53 22 The following chart sets out the historical closing prices for the Shares as reported by OTC Markets and the Trust’s NAV per Share from June 20, 2019 to July 22, 2024. ETHE Premium/(Discount): ETHE Share Price vs. NAV per Share (Non-GAAP) ($) The following chart sets out the historical closing prices for the Shares as reported by NYSE Arca and the Trust’s NAV per Share from July 23, 2024 to June 30, 2026. ETHE Premium/(Discount): ETHE Share Price vs. NAV per Share (Non-GAAP) ($) 23 The following chart sets out the historical premium and discount for the Shares calculated as a percentage of the historical closing prices for the Shares as reported by OTC Markets divided by the Trust’s NAV per Share from June 20, 2019 to July 22, 2024. ETHE Premium/(Discount): ETHE Share Price vs. NAV per Share (Non-GAAP) (%) The following chart sets out the historical premium and discount for the Shares calculated as a percentage of the historical closing prices for the Shares as reported by NYSE Arca divided by the Trust’s NAV per Share from July 23, 2024 to June 30, 2026. ETHE Premium/(Discount): ETHE Share Price vs. NAV per Share (Non-GAAP) (%) 24