Crypto Asset Statement – Chainlink (LINK) – Coinberry

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 decision Re Coinberry Limited dated August 19th 2021 [link]. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities 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 Chainlink. 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.

Background

Chainlink is a Crypto Asset aiming to incentivize a global network of computers to provide reliable real-world data to smart contracts running the blockchain. Chainlink was created to address the issue whereby smart contracts had a reliance on external data sources to execute the terms of the contract and to act as a bridge between the blockchain with the smart contracts and the external data sources. Within the Chainlink network, each data provider (called an oracle) is incentivized to provide accurate data and a reputation score is assigned to each. Furthermore, when nodes follow the software’s rules and provide useful data, they are rewarded in Chainlink’s Crypto Asset, called LINK.

Due diligence

Coinberry has performed due diligence with respect to Chainlink 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 Crypto Asset inception
Crypto Asset available for custody with existing custodians
The current developer ecosystem
Whether Chainlink has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Chainlink has the most significant connection

Risks Associated with Investing in Chainlink

Underlying Value Risk

Chainlink represents a new form of digital value that is still being digested by society. Its underlying value is driven by its utility as a store of value, means of exchange, and unit of account, and the demand for Chainlink within those use cases. Chainlink is competing with many other general-purpose, smart contracting, proof-of-stake blockchains with industry-leading Ethereum already showing entrenched network effects.

Regulation of Chainlink

The regulation of Chainlink continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Chainlink or otherwise impact the demand for Chainlink.

Volatility of Chainlink

The risks of trading Chainlink 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 Chainlink to quickly drop or rise thereby negatively or positively impacting your investment.

Loss of “Private Keys”

The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Chainlink) could prevent Coinberry from accessing its Chainlink. 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 Chainlink 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 Chainlink trading platforms. Unexpected market illiquidity may cause major losses to the holders of Chainlink. The large size of Chainlink that Coinberry may hold increases the risks of illiquidity by both making the Chainlink difficult to liquidate and in liquidating, Coinberry may affect Chainlink’s price significantly.

Susceptible to Error or Loss

There is no way to prevent all technical glitches and human error. As with all Crypto Asset transactions, Chainlink transfers are irreversible. An improper transfer (whereby Chainlink is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Chainlink agreeing to send the Chainlink back to the original sender in a separate subsequent transaction. Coinberry receives transfer instructions from its clients and relies on the accuracy of the information provided by the client. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Chainlink in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Chainlink, leading to its loss.

Risks Associated with the Chainlink Network

Dependence on Chainlink Developers

While many contributors to the Chainlink protocol 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 the Chainlink protocol.

Disputes on the Development of the Chainlink Protocol may lead to Delays in the Development of the Protocol

There can be disputes between contributors on the best paths forward in building and maintaining Chainlink’s software. Therefore, the Chainlink community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.

Competitors to Chainlink

To the extent a competitor to Chainlink gains popularity and greater market share, the use and price of Chainlink could be negatively impacted, which may adversely affect its price. Similarly, Chainlink and the price of Chainlink could be negatively impacted by competition from incumbents in the credit card and payments industries.

Risks Associated with Chainlink Trading Platforms

Regulation of Chainlink Trading Platforms

Chainlink trading platforms are spot markets in which Chainlink can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Chainlink trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.

Limited Operating History of Chainlink Trading Platforms

Given the newness of Crypto Assets in general, Chainlink trading platforms have a limited operating history. Since 2009 several Crypto Asset trading platforms have been closed or experienced disruptions due to fraud, failure, security breaches or distributed denial of service attacks. In many of these instances, the customers of such trading platforms were not compensated or made whole for the partial or complete loss of funds held at Chainlink trading platforms. The potential for instability of Crypto Asset 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 Chainlink, which may adversely affect its price.

Hacking of Chainlink Trading Platforms May Have a Negative Impact on Perception of the Security of the Chainlink Protocol

Chainlink trading platforms that adhere to best practices are insured, and most of these have not been hacked, or if they have the loss has been minimal. Although there is ample evidence which indicates that almost all of the economic trading volumes in Chainlink occur on the top ten global trading platforms, many of which are regulated by the New York State Department of Financial Services, carry insurance for their hot wallet assets, such exchanges, or other, smaller, or less reputable exchanges, may get hacked. Chainlink’s price is at risk if a platform is hacked as it can shake consumer confidence for those that do not understand the difference between a weakness in the platform versus a weakness in Chainlink and its blockchain.

Different Prices of Chainlink on the Chainlink Trading Platforms

Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Chainlink on that platform can also spike, making it trade at a premium to other platforms. This tendency is common geographically, with Asian platforms frequently trading at a premium to platforms in Europe or America.

Closure of Chainlink Trading Platform(s)

Chainlink has been trading on multiple platforms as the scalability increases, with more and more platforms offering the Crypto Asset. In the long run, the coin may be impacted if several platforms close due to fraud, failure, or security breaches.

Liquidity Constraints on Chainlink Markets

While the liquidity and traded volume of Chainlink are continually growing, they are still maturing assets. We may not always be able to acquire or liquidate crypto assets we hold in trust 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 the Chainlink trading platform. When transacting in the Crypto Asset markets, Coinberry will be competing for liquidity with other large investors, including speculators, miners and other investment funds and institutional investors. Unexpected market illiquidity, and other conditions beyond our control, may cause major losses to the holders of a Crypto Asset, including Chainlink. The large position in Chainlink that we may acquire increases the risks of illiquidity by making our Chainlink difficult to liquidate. In addition, the liquidation of significant amounts of Chainlink by Coinberry may impact the market price of Chainlink.

Risk of Manipulation on Chainlink Trading Platforms

Some Chainlink trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Chainlink trading platforms are not required to adopt policies and procedures for the purpose of detecting and preventing manipulative and deceptive trading activities and, in the event that manipulative and deceptive trading activities are detected, Chainlink trading platforms may not have procedures for, or jurisdiction to, sanction or otherwise deter such activities and/or to detect, investigate and prosecute fraud.

Settlement of Transactions on the Chainlink Network

There is no central clearing house for cash-to-Chainlink transactions. Current practice is for the purchaser of Chainlink to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Chainlink to the purchaser’s public Chainlink address upon receipt of the cash. The purchaser and seller monitor the transfer with a transaction identification number that is available immediately upon transfer and is expected to be included in the next block confirmation. When Coinberry purchases Chainlink from a Chainlink trading platform, there is a risk that the Chainlink trading platform will not initiate the transfer on the network upon receipt of cash from Coinberry, or that the bank where the Chainlink trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Chainlink trading platform.

Risk Statement

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 Aug 17, 2021