NO SECURITIES REGULATORY AUTHORITY IN CANADA OR ANY OTHER JURISDICTION HAS EXPRESSED AN OPINION ABOUT CRYPTO CONTRACTS OR ANY OF THE CRYPTO ASSETS MADE AVAILABLE THROUGH THE PLATFORM (as hereinafter defined), INCLUDING AN OPINION THAT THE CRYPTO ASSETS ARE NOT THEMSELVES SECURITIES AND/OR DERIVATIVES.
Coinberry is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decisionRe Coinberry Limiteddated August 19th, 2021 [link]. The statutory rights of action for damages and the right of rescission insection 130.1 of theSecurities Act(Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this Crypto Asset Statement or the Statement of Crypto Asset and Crypto Contract Risks.
Together with the Statement of Crypto Asset and Crypto Contract Risks, the provisions of which are incorporated herein, this Crypto Asset Statement, lists certain specified risks associated with Algorand. The risks identified in this Crypto Asset Statement and in the Statement of Crypto Asset and Crypto Contract Risks may not be all of the risks related to the Crypto Assets and Crypto Contracts and there may be other additional unknown risks, that may exist. As with any investment, the risks with cryptocurrencies are high and it is important that you understand the risks before you invest.
Algorand is a scalable, secure, and decentralized digital currency and smart contract platform. Its protocol uses a variation of Proof-of-Stake (PoS) called Pure PoS (PPoS) to secure the network and reach a consensus on block production. Unlike other PoS models, PPoS does not reward, nor does it put validator or user funds at risk of being slashed (a loss of funds used to promote honest node and user behaviour). Algorand intends to eventually leverage its PPoS design to form the foundation for an on-chain governance system.
Coinberry has performed due diligence with respect to Algorand to satisfy itself as to the viability of offering it on the Platform. Our due diligence included, but was not limited to, a review of the following:
- Liquidity of the market
- Total market capitalization
- Timeline since token inception
- Token available for custody with existing custodians
- The current developer ecosystem
- Whether Algorand has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Algorand has the most significant connection
Risks Associated with Investing in Algorand
Underlying Value Risk
Algorand is well known for its ability to work across various blockchain networks. That is, developers on Algorand can create digital assets or smart contracts on the blockchain's Layer-1 network. For reference, a Layer-1 cryptocurrency technology is an actual blockchain, while Layer-2 technologies add an abstract operating model that helps increase the efficiency and scalability of the Layer-1 assets. Algorand's Layer-1 network provides a blockchain-based ecosystem that allows fungible and non-fungible tokens from other blockchains to communicate with each other. However, just as oil is priced by the supply and demand of global markets, as a function of its utility to, for instance, power machines and create plastics, so too is Algorand priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing Algorand prove to be fundamentally flawed, then the market may undergo a repricing of Algorand, which could have an adverse impact on its price.
Top Algorand Holders Control a Significant Percentage of the Outstanding Algorand
Certain addresses on the Algorand blockchain networks hold a significant amount of the currently outstanding Crypto Assets. However, the top 10 holders have 99.95% possession of Algorand.
Regulation of Algorand
The regulation of Algorand continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Algorand or otherwise impact the demand for Algorand.
Volatility of Algorand
The risks of trading Algorand are high due to the unexpected changes in market sentiments which can lead to sharp and sudden movements in prices. It is not uncommon for the value of Algorand to quickly drop or rise thereby negatively or positively impacting your investment. However, Investors Observer gives Algorand a moderate volatility rank of 27, placing it in the bottom 27% of cryptos on the market.
Loss of “Private Keys”
The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Algorand) could prevent Coinberry from accessing its Algorand. Loss of these private keys may be irreversible and could result in the loss of all or substantially all of the crypto assets held in trust by Coinberry.
Your Holdings May Become Illiquid
You may not always be able to liquidate your Algorand at a desired price. It may become difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in the marketplace, including on Algorand trading platforms. Unexpected market illiquidity may cause major losses to the holders of Algorand.
Coinberry does not currently support Algorand transfers. Crypto transfers are currently limited to the following coins: BTC, ETH, LTC and XRP (Buy/Sell not supported, existing holdings can be transferred out).
Risks Associated with the Algorand Network
Dependence on Algorand Developers
While many contributors to Algorand’s software are employed by companies in the industry, most of them are not directly compensated for helping to maintain the protocol. As a result, there are no contracts or guarantees that they will continue to contribute to Algorand’s software. However, Algorand encourages developers to build in this ecosystem through various initiatives. There is a set of Algorand Standard Assets (ASA) frameworks for token development, which simplifies dApp development. Developers can also use a set of existing tools or contribute to the platform’s development since it's open-source.
Significant Increase in Algorand Interest Could Affect the Ability of the Algorand Network to Accommodate Demand
One of the most contentious issues within the Algorand community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Algorand. There are many possible solutions, and most of them boil down to different ideologies on how Algorand should be used. However, Algorand’s ability to meet the high-volume demands of modern financial institutions whilst offering reduced transaction costs, transaction finality and robust security has led to an increase of stablecoins on the platform
Competitors to Algorand
To the extent a competitor to Algorand gains popularity and greater market share, the use and price of Algorand could be negatively impacted, which may adversely affect its price. Similarly, Algorand and the price of Algorand could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the Algorand Network
Because of the significant computing power required to mine Algorand, the network’s energy consumption may ultimately be deemed to be or indeed become unsustainable (barring improvements in efficiency which could be designed for the protocol). This could pose a risk to broader and sustained acceptance of the network as a peer-to-peer transactional platform. However, the speed of transactions on the Algorand platform and its low transaction fees, in addition to being a permissionless pure proof-of-stake blockchain protocol, makes the network more accessible, scalable and uses far less energy.
Risks Associated with Algorand Trading Platforms
Regulation of Algorand Trading Platforms
Algorand trading platforms are spot markets in which Algorand can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Algorand trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Algorand Trading Platforms
Algorand trading platforms have a limited operating history. The potential for instability of Algorand trading platforms and the closure or temporary shutdown of exchanges due to fraud, business failure, hackers, distributed denial of service attacks or malware or government-mandated regulation may reduce confidence in Algorand, which may adversely affect its price.
Different Prices of Algorand on the Algorand Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Algorand on that platform can also spike, making it trade at a premium to other platforms. This tendency is common geographically, with Chinese platforms frequently trading at a premium to platforms in Europe or America.
Settlement of Transactions on the Algorand Network
Upgrades by Algorand to the Algorand platform, a hard fork in the Algorand platform, or a change in how transactions are confirmed on the Algorand platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Algorand standard. However, atomic transfer on Algorand is confirmed in less than 5 seconds. Further, Algorand can process approximately 6.8 real transactions per second, or about 590 thousand transactions per day, which is 17M transactions per month.
Please make sure to review the Statement of Crypto Asset and Crypto Contract Risks for additional discussion of general risks associated with the Crypto Contracts and Crypto Assets made available on Coinberry.
Last Updated May 3, 2022