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 BAT. 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
BAT is a Crypto Asset intending to create a virtuous cycle around digital advertising that is equitable for creators and consumers. BAT was created by Brendan Eich, co-founder of JavaScript, Mozilla and Firefox in May 2017. BAT runs on the Ethereum network and is integrated natively on a consumer web browser called Brave. BAT can be exchanged between advertisers, publishers and internet users based on their web activity, and is intended to streamline commerce between all 3 groups. Users are rewarded with BAT by viewing ad content, publishers can deliver higher-impact ads and advertisers can be assured their messaging is being viewed by a willing audience. The end result is a digital advertising platform powered by BAT. Users can either hold the BAT, exchange it for fiat or other Crypto Assets, or use it to pay content creators.
Due diligence
Coinberry has performed due diligence with respect to BAT 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:
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Liquidity of the market
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Total market capitalization
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Timeline since Crypto Asset inception
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Crypto Asset available for custody with existing custodians
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The current developer ecosystem
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Whether BAT has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which BAT has the most significant connection
Risks Associated with Investing in BAT
Underlying Value Risk
BAT represents a relatively 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, unit of account, and the demand for BAT within those use cases. 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 BAT priced by the supply and demand of global markets for its own utility within remittances, B2B payments, time-stamping, etc. If these means of valuing BAT prove to be fundamentally flawed, then the market may undergo a repricing of BAT, which could have an adverse impact on its price.
Regulation of BAT
The regulation of BAT continues to evolve in North America and within foreign jurisdictions, which may restrict the use of BAT or otherwise impact the demand for BAT.
Volatility of BAT
The risks of trading BAT are high due to the volatility which can lead to sharp and sudden movements in prices. As with all investments, it is not uncommon for the value of BAT to quickly drop when there shift in the demand and supply which will ultimately impact the price.
Loss of “Private Keys”
The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Crypto Assets) could prevent Coinberry from accessing its BAT 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 BAT 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 BAT trading platforms. Unexpected market illiquidity may cause major losses to the holders of BAT. The large size of BAT that Coinberry may hold increases the risks of illiquidity by both making the BAT difficult to liquidate and in liquidating, Coinberry may affect BAT’s price significantly.
Susceptible to Error and Loss
There is no way to prevent all technical glitches and human error. As with all Crypto Asset transactions, BAT transfers are irreversible. An improper transfer (whereby BAT is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the BAT agreeing to send the BAT 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, BAT in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the BAT, leading to its loss.
Risks Associated with the BAT Network
Disputes on the Development of the BAT 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 BAT’s software. Therefore, the BAT community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Possible Increase in Transaction Fees
BAT uses the Ethereum network and therefore is subject to a transaction fee, also known as a Gas fee. Gas 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.
Competitors to BAT
To the extent a competitor to BAT gains popularity and greater market share, the use and price of BAT could be negatively impacted, which may adversely affect its price. Similarly, BAT and the price of BAT could be negatively impacted by competition from incumbents in the credit card and payments industries.
Risks Associated with BAT Trading Platforms
Regulation of BAT Trading Platforms
BAT trading platforms are spot markets in which BAT can be exchanged for fiat currencies (CAD, USD, etc). Coinberry seeks to ensure that the BAT trading platforms on which it transacts are reputable, stable and operating in compliance with applicable laws.
Limited Operating History of BAT Trading Platforms
Given the newness of Crypto Assets in general, BAT 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 BAT trading platforms. The potential for instability of BAT 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 BAT which may adversely affect its price.
Different Prices of BAT on the BAT Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for BAT 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 BAT Trading Platform(s)
As a decentralized exchange, BAT has been trading on multiple platforms as the scalability increases, with more and more platforms offering BAT. In the long run, BAT may be impacted if several platforms close due to fraud, failure, or security breaches.
Liquidity Constraints on BAT Markets
While the liquidity and traded volume of BAT 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 BAT 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 BAT. The large position in BAT that we may acquire increases the risks of illiquidity by making our BAT difficult to liquidate. In addition, the liquidation of significant amounts of BAT by Coinberry may impact the overall market price of BAT.
Risk of Manipulation on BAT Trading Platforms
Some BAT trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. BAT 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, BAT 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 BAT Network
There is no central clearing house for cash-to-BAT transactions. Current practice is for the purchaser of BAT to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of BAT to the purchaser’s public BAT 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 BAT from a BAT trading platform, there is a risk that the BAT trading platform will not initiate the transfer on the BAT network upon receipt of cash from Coinberry, or that the bank where the BAT trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the BAT 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 August 18, 2021
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