Gold Custody and Insurance Risk

In respect of gold attributable to a Gold Token, it is held by the Custodian at its London vault premises. Access to such gold could be restricted by natural events, such as flooding or an earthquake, or human actions, such as a terrorist attack. Insurance and/or bonding is the responsibly of the Custodian and WisdomTree Digital is not responsible for ensuring that adequate insurance arrangements have been made, or for insuring or bonding the gold held at the Custodian, and will not be required to make any inquiry regarding such matters. Accordingly, there is a risk that the gold associated with a Gold Token could be lost, stolen or damaged resulting in a loss to a Gold Token holder. Gold in custody at the Custodian moves from an unallocated account to an allocated (i.e., segregated account) (the agreements associated with such accounts, the “Custodian Agreements”) under a continuous allocation process. Under the Custodian Agreements, while the Custodian will use reasonable care and skill in the performance of its duties, the Custodian is only liable for losses that are the direct result of negligence, fraud or willful default in the performance of its duties and then only up to the market value of the gold lost or damaged at the time such negligence, fraud or willful default is discovered. In addition, the Custodian is not liable for any delay in performance or any nonperformance of any of its obligations under the Custodian Agreements by reason of any cause beyond its reasonable control, including breakdown, malfunction or failure of transmission, communication or computer facilities. If any gold attributable to a Gold Token is lost, damaged, stolen or destroyed, the responsible party may not have the financial resources (including liability insurance coverage) sufficient to satisfy the claim or may not readily be identifiable to satisfy its obligations in respect of a Gold Token resulting in a loss to a Gold Token holder. The ability of WisdomTree Digital to monitor the performance of the Custodian is limited because, under the Custodian Agreement, WisdomTree Digital has only limited rights (and Gold Token holders have no rights) to visit the premises of the Custodian for the purpose of examining the gold and certain related records maintained by the Custodian. In addition, while gold attributable to a Gold Token is generally held in allocated form and the Custodian has contractually agreed to a continuous allocation process of gold from an unallocated account to the allocated account, gold will be held in an unallocated account until the time of allocation (generally each business day). Further, if the Custodian fails to allocate gold in a timely manner, in the proper amounts or otherwise in accordance with the terms of the allocated account agreement, unallocated gold will not be segregated from the Custodian’s assets. During such time as the gold is held in an unallocated account, such unallocated account does not give proprietary rights to specific bars of gold but instead gives an unsecured claim against the Custodian for the amount of gold held in those accounts and is not segregated from the assets of the Custodian as is the case with the allocated account. As a result, in the event of the insolvency of the Custodian it may not be possible to recover any or the full amount of any gold held in the unallocated account. In addition, in the event of the Custodian’s insolvency, there may be a delay and costs incurred in identifying the gold bars held in the allocated gold account. The Custodian may enter into arrangements with sub-custodians for which the risks noted above would apply and be heightened. The Custodian is entitled to terminate the Custodian Agreements upon 90 days written notice. If following such notice of termination, WisdomTree Digital is not able to appoint a new Custodian it would be forced to retrieve the affected Gold Tokens for gold or otherwise liquidate the gold for cash and pay Gold Token holders cash, which may not be an opportune time for a Gold Token holder and could lead to a loss for a Gold Token holder.