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 Yearn Finance. 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.
Yearn Finance was launched in July 2020 by founder Andrei Cronje and is a decentralized asset management platform that has multiple uses such as liquidity provision, lending and insurance. It is an automated yield farming protocol that searches the market for the best return opportunities, and then supplies pooled liquidity (i.e. crypto assets that are lent in order to earn passive income) to the pools that in return earn the highest return for their holders.
Coinberry has performed due diligence with respect to Yearn Finance 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 Yearn Finance has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Yearn Finance has the most significant connection
Risks Associated with Investing in Yearn Finance
Underlying Value Risk
Yearn Finance represents a relatively new form of digital value that is still being digested by society. Its underlying value is driven by its store of value, means of exchange, unit of account, and the demand for Yearn Finance 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 Yearn Finance 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 Yearn Finance prove to be fundamentally flawed, then the market may undergo a repricing of Yearn Finance, which could have an adverse impact on its price.
Regulation of Yearn Finance
The regulation of Yearn Finance continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Yearn Finance or otherwise impact the demand for Yearn Finance.
Volatility of Yearn Finance
The risks of trading Yearn Finance are high as the decentralized finance sector is volatile and speculative which can lead to sharp and sudden movements in prices. Yearn Finance commits to high yields for its users through its decentralized lending platform; these cannot be classified as certainties but possibilities and as with every investment this will ultimately affect the price of Yearn Finance.
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 Yearn Finance. 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.
Strong Competition in the Space
There are several other crypto assets in the decentralized lending space that could take a substantial part of the market and condemn Yearn Finance to trade at a certain price range that may impact the price.
Your Holdings May Become Illiquid
You may not always be able to liquidate your Yearn Finance 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 Yearn Finance trading platforms. Unexpected market illiquidity may cause major losses to the holders of Yearn Finance. The large size of Yearn Finance that Coinberry may hold increases the risks of illiquidity by both making the Yearn Finance difficult to liquidate and in liquidating, Coinberry may affect Yearn Finance’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, Yearn Finance transfers are irreversible. An improper transfer (whereby Yearn Finance is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Yearn Finance agreeing to send the Yearn Finance back to the original sender in a separate subsequent transaction. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Yearn Finance in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Yearn Finance, leading to its loss.
Risks Associated with the Yearn Finance Network
Dependence on Yearn Finance Developers
While many contributors to Yearn Finance’s software are employed by companies in the industry, a portion of them are not full-time Yearn Finance devotees. As a result, there are no contracts or guarantees that they will continue to contribute to Yearn Finance’s software development.
Disputes on the Development of the Yearn Finance 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 Yearn Finance’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Yearn Finance community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in Yearn Finance Interest Could Affect the Ability of the Yearn Finance Network to Accommodate Demand
One of the most contentious issues within the Yearn Finance community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of its inception. There are many possible solutions, and most of them boil down to different ideologies on how Yearn Finance should be used. However, it will be important for the community to continue to develop at a pace that meets the demand for transacting in Yearn Finance, otherwise, users may become frustrated and lose faith in the network.
Possible Increase in Transaction Fees
Yearn Finance miners, functioning in their transaction confirmation capacity, collect fees for each transaction they confirm. Miners confirm transactions by adding previously unconfirmed transactions to new blocks in the blockchain. Miners are not forced to confirm any specific transaction, but they are economically incentivized to confirm valid transactions as a means of collecting fees. Miners have historically accepted relatively low transaction confirmation fees because miners have a very low marginal cost of validating unconfirmed transactions. If miners collude in an anti-competitive manner to reject low transaction fees, then Yearn Finance users could be forced to pay higher fees, thus reducing the attractiveness of the Yearn Finance Network. Yearn Finance mining occurs globally and it may be difficult for authorities to apply antitrust regulations across multiple jurisdictions. Any collusion among miners may adversely impact the price of Yearn Finance.
Attacks on the Yearn Finance Network
The Yearn Finance Network is periodically subject to distributed denial of service attacks to clog the list of transactions being tabulated by miners, which can slow the confirmation of authentic transactions. Another avenue of attack would be if a large number of miners were taken offline then it could take some time before the difficulty of the mining process algorithmically adjusts, which would stall block creation time and therefore transaction confirmation time. Thus far these scenarios have not plagued the network for long or in a systemic manner.
Competitors to Yearn Finance
To the extent a competitor to Yearn Finance gains popularity and greater market share, the use and price of Yearn Finance could be negatively impacted, which may adversely affect its price. Similarly, Yearn Finance and the price of Yearn Finance could be negatively impacted by competition from incumbents in the credit card and payments industries.
Risks Associated with Yearn Finance Trading Platforms
Regulation of Yearn Finance Trading Platforms
Yearn Finance trading platforms are spot markets in which Yearn Finance can be exchanged for fiat currencies (CAD, USD, etc). Coinberry seeks to ensure that the Yearn Finance trading platforms on which it transacts are reputable, stable and operating in compliance with applicable laws.
Limited Operating History of Yearn Finance Trading Platforms
Given the newness of cryptocurrency in general, Yearn Finance trading platforms have a limited operating history. Since 2009 several Yearn Finance 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 Yearn Finance trading platforms. The potential for instability of Yearn Finance 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 Yearn Finance, which may adversely affect its price.
Hacking of Yearn Finance Trading Platforms May Have a Negative Impact on Perception of the Security of the Yearn Finance Network
While Yearn Finance’s blockchain has never been compromised by hackers, exchanges frequently have. Yearn Finance 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 Yearn Finance 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. Yearn Finance’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 Yearn Finance and its blockchain.
Different Prices of Yearn Finance on the Yearn Finance Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Yearn Finance 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.
Closure of Yearn Finance Trading Platform(s)
Between 2020 and 2021, a number of Yearn Finance trading platforms have been closed due to fraud, failure or security breaches. In many of these instances, the customers of Yearn Finance trading on these trading platforms were not compensated or made whole for the partial or complete losses of their account balances. While smaller Yearn Finance trading platforms are less likely to have the infrastructure and capitalization that make larger Yearn Finance trading platforms more stable, larger Yearn Finance trading platforms are more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems).
Liquidity Constraints on Yearn Finance Markets
While the liquidity and traded volume of Yearn Finance 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 Yearn Finance 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 Yearn Finance. The large position in Yearn Finance that we may acquire increases the risks of illiquidity by making our Yearn Finance difficult to liquidate. In addition, the liquidation of significant amounts of Yearn Finance by Coinberry may impact the overall market price of Yearn Finance.
Risk of Manipulation on Yearn Finance Trading Platforms
Some Yearn Finance trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Yearn Finance 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, Yearn Finance 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 Yearn Finance Network
There is no central clearing house for cash-to-Yearn Finance transactions. Current practice is for the purchaser of Yearn Finance to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Yearn Finance to the purchaser’s public Yearn Finance 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 Yearn Finance from a Yearn Finance trading platform, there is a risk that the Yearn Finance trading platform will not initiate the transfer on the Yearn Finance network upon receipt of cash from Coinberry, or that the bank where the Yearn Finance trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Yearn Finance trading platform.
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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