Regulatory Risk

The combination of the nature of WisdomTree Digital’s activities, the markets to which it is exposed, the institutions with which it does business and the digital assets which it issues makes it particularly exposed to national, international and supranational regulatory action and taxation changes. The scope and requirements of regulation and taxation applicable to WisdomTree Digital, a Gold Token, the App or digital wallets continues to change and evolve and there is a risk that as a result it may prove more difficult or impossible, or more expensive, for WisdomTree Digital to continue to carry on its functions or to provide the products and services in the manner currently contemplated. Regulation of digital assets and digital asset platforms is currently developing and likely to rapidly evolve, varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries are currently considering, or may in the future consider, laws, regulations, guidance, or other actions. Changes such as those described above may impact the ability of WisdomTree Digital to issue Gold Tokens, may require changes in the future to the agreements applicable to the Gold Token and may result in changes to the commercial terms associated therewith, which may also lead to delays in the ability to retrieve gold in relation to a Gold Token.

While WisdomTree Digital is subject to regulation, such as by being a licensed money transmitter in various U.S. states, WisdomTree Digital and Gold Tokens currently are not subjected to regulation under the securities or commodity laws of any country and, accordingly, do not benefit from the protections of such laws, including in the United States, and holdings of Gold Tokens are not FDIC or SIPC insured. Information provided by WisdomTree Digital should not be considered or relied upon as investment or other advice, as a recommendation from WisdomTree Digital, including regarding the use or suitability of any particular digital asset, crypto asset, blockchain network or any particular strategy. WisdomTree Digital is not acting and has not agreed to act in an investment advisory, fiduciary or quasi-fiduciary capacity to any advisor, end client or investor, and has no responsibility in connection therewith, with respect to any digital assets, crypto assets or blockchain networks.

The Custodian is regulated in the United Kingdom by the Financial Conduct Authority (“FCA”), but the custodial services provided by the Custodian and any sub-custodian under the Custodian Agreements are presently not a regulated activity subject to the supervision and rules of the FCA and are not subject to specific governmental regulatory supervision. In addition, the obligations of the Custodian are governed by English law. The Custodian may enter into arrangements with sub-custodians, which arrangements may also be governed by English law. The WisdomTree Prime User Agreement, which governs Gold Token holder rights, is governed by New York law. Any federal, New York, or other court situated in the United States may have difficulty interpreting English law (which, insofar as it relates to custody arrangements, is largely derived from court rulings rather than statute), LBMA rules or the customs and practices in the London custody market. It may be difficult or impossible to sue in relation to custodian arrangements in a United States, New York or other court situated in the United States. In addition, it may be difficult, time consuming and/or expensive to enforce in a foreign court a judgment rendered by a federal, New York, or other court situated in the United States.

Although the Custodian is a market maker, clearer and approved weigher under the rules of the LBMA (which sets out good practices for participants in the bullion market), the LBMA is not an official or governmental regulatory body. Accordingly, there is a dependency on the Custodian to comply with the best practices of the LBMA and to implement satisfactory internal controls for its gold bullion custody operations in order to keep the gold associated with Gold Tokens secure.