Crypto Asset Statement – Curve (CRV) – Coinberry

CNO 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 Curve. 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

Curve Finance is a decentralized exchange (DEX) optimized for low slippage swaps between stablecoins or similar assets that peg to the same value. The protocol employs an Automated Market Maker that was built specifically to give DeFi users low slippage and liquidity providers steady fee revenue. The Curve protocol was built around stablecoin liquidity in order to provide steadier interest returns without having to hold a very volatile asset. Since its inception, Curve has been a top DEX by volume, offering traders ample liquidity at low fees and slippage.

Due diligence

Coinberry has performed due diligence with respect to Curve 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 Curve has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Curve has the most significant connection

Risks Associated with Investing in Curve

Underlying Value Risk

Curve 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 Curve within those use cases. As Curve requires users to stake coins in exchange for returns, the supply of Crypto Assets in the platform is a key factor for its survival. As long as there is a demand and supply on the platform, the value of the Crypto Asset remains strong. If these means of valuing Curve prove to be fundamentally flawed, then the market may undergo a repricing of Curve, which could have an adverse impact on its price.

Top Curve Holders Control a Significant Percentage of the Outstanding Curve

In August 2020, Curve’s founder Egorov awarded himself 71% of governance in the process making it one of the highest in the industry. The current list of top holders can be found here.

Regulation of Curve

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

Volatility of Curve

The risks of trading Curve is high due to the unexpected changes in market sentiments which can lead to sharp and sudden movement in prices. It is not uncommon for the value of Curve 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 Curve) could prevent Coinberry from accessing its Curve. Loss of these private keys may be irreversible and could result in the loss of all or substantially all of crypto assets held in trust by Coinberry.

Your Holdings May Become Illiquid

You may not always be able to liquidate your Curve 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 Curve trading platforms. Unexpected market illiquidity may cause major losses to the holders of Curve. The large size of Curve that Coinberry may hold increases the risks of illiquidity by both making the Curve difficult to liquidate and in liquidating, Coinberry may affect Curve’s price significantly.

Susceptible to Error and Loss

There is no way to prevent all technical glitches and human error. Curve transfers are irreversible. An improper transfer (whereby Curve is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Curve agreeing to send the Curve back to the original sender in a separate subsequent transaction. Transfers are self-directed by the client. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Curve in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Curve, leading to its loss.

Risks Associated with the Curve Network

Dependence on Curve Developers

While many contributors to Curve’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 Curve’s software.

Disputes on the Development of the Curve Network may lead to Delays in the Development of the Network

There can be disputes between contributors on the best paths forward in building and maintaining Curve’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Curve community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.

Competitors of Curve

To the extent a competitor Curve gains popularity and greater market share, the use and price of Curve could be negatively impacted, which may adversely affect its price. Similarly, Curve and the price of the Curve Crypto Asset could be negatively impacted by competition from incumbents.

Possible Increase in Transaction Fees

Curve uses the Ethereum network and therefore is subject to transaction fee, also known as Gas fee, which refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network, which over the years have increased, causing higher transactional fee for other coins that runs on the Ethereum network. 

Decrease in Reward

Curve doesn’t have a block reward instead they provide a return on their coins. To attract users to lock their coins, Curve offers them a return on their coins, as well as a portion of the fee from the trades. This return is generated when Curve supplied the locked funds to protocols which in turn lend the coins out to users.

Risks Associated with Curve Trading Platforms

Regulation of Curve Trading Platforms

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

Limited Operating History of Curve Trading Platforms

Curve trading platforms have a limited operating history. Since 2009 several Curve 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 Curve trading platforms. The potential for instability of Curve 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 Curve, which may adversely affect its price.

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

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 Curve 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. Curve’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 Curve and its protocol.  

Different Prices of Curve on the Curve Trading Platforms

Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Curve 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 Curve Trading Platform(s)

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

Liquidity Constraints on Curve Markets

While the liquidity and traded volume of Curve 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 Curve 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 Curve. The large position in Curve that we may acquire increases the risks of illiquidity by making our Curve difficult to liquidate. In addition, liquidation of significant amounts of Curve by Coinberry may impact the market price of Curve.

Risk of Manipulation on Curve Trading Platforms

Some Curve trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Curve 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, Curve 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 Curve Network

There is no central clearing house for cash-to-Curve transactions. Current practice is for the purchaser of Curve to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Curve to the purchaser’s public Curve 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 Curve from a Curve trading platform, there is a risk that the Curve trading platform will not initiate the transfer on the Curve network upon receipt of cash from Coinberry, or that the bank where the Curve trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Curve 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 18, 2021