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 19, 2021. The statutory rights of action for damages and the right of rescission in section 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 Axie Infinity. 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.
Architected by Sky Mavis and inspired by Pokemon, Axie Infinity is a "play-to-earn" pet training game and a virtual world built on the Ethereum blockchain. Players can collect, breed, battle, and trade in-game pets called Axies. All in-game assets are represented via fungible ERC-20 or non-fungible ERC-721 tokens and thus trade on secondary markets. Axie was built as a fun and educational way to introduce the world to blockchain technology. Axie Infinity differs from a typical game because it leverages blockchain incentives to reward players economically for their contributions to the ecosystem. This mechanism, dubbed "Play-to-Earn", has grown increasingly popular in developing nations like the Philippines, Argentina, and Venezuela. In some of these places, the economic opportunities present in-game exceed those available in the real world.
Coinberry has performed due diligence with respect to Axie Infinity 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 Axie Infinity has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Axie Infinity has the most significant connection
Risks Associated with Investing in Axie Infinity
Underlying Value Risk
Sky Mavis has embedded economic incentives in Axie infinity by leveraging Ethereum token standards ERC-20 and ERC-721. This game is influenced heavily by three cryptocurrencies — Ethereum (ETH), Smooth Love Potion (SLP), and AXS (Axie Infinity) which makes it carry the volatility risks. Low-risk cryptocurrencies are very unlikely to have their prices manipulated but a big move in a low-risk cryptocurrency means lots of dollars are moving into, or out of, that crypto. Hence, the price of Axie Infinity fluctuates with the transactional fee, which has a strong relation to the demand and supply of Axie Infinity as a coin and network. If these means of valuing Axie Infinity prove to be fundamentally flawed, then the market may undergo a repricing of Axie Infinity, which could have an adverse impact on its price.
Regulation of Axie Infinity
The regulation of Axie Infinity continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Axie Infinity or otherwise impact the demand for Axie Infinity.
Volatility of Axie Infinity
Though Investors Observer gives Axie Infinity a low volatility rank of 16, placing it in the bottom 16% of cryptos on the market, the risks of trading Axie Infinity are 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 Axie Infinity 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 Axie Infinity) could prevent Coinberry from accessing its Axie Infinity. Loss of these private keys may be irreversible and could result in the loss of all or substantially all crypto assets held in trust by Coinberry.
Your Holdings May Become Illiquid
You may not always be able to liquidate your Axie Infinity 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 Axie Infinity trading platforms. Unexpected market illiquidity may cause major losses to the holders of Axie Infinity. The large size of Axie Infinity that Coinberry may hold increases the risks of illiquidity by both making the Axie Infinity difficult to liquidate and in liquidating, Coinberry may affect Axie Infinity’s price significantly.
Axie Infinity transfers are not currently supported by Coinberry. 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 Axie Infinity Network
Dependence on Axie Infinity Developers
While many contributors to Axie Infinity’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 Axie Infinity’s software.
Disputes on the Development of the Axie Infinity 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 Axie Infinity’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Axie Infinity community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in Axie Infinity Interest Could Affect the Ability of the Axie Infinity Network to Accommodate Demand
One of the most contentious issues within the Axie Infinity community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Axie Infinity. There are many possible solutions, and most of them boil down to different ideologies on how Axie Infinity 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 Axie Infinity, otherwise, users may become frustrated and lose faith in the network.
Attacks on the Axie Infinity Network
The Axie Infinity 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 many 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 Axie Infinity
To the extent a competitor to Axie Infinity gains popularity and greater market share, the use and price of Axie Infinity could be negatively impacted, which may adversely affect its price.
Significant Energy Consumption to run the Axie Infinity Network
Because of the significant computing power required to mine Axie Infinity, 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.
Risks Associated with Axie Infinity Trading Platforms
Regulation of Axie Infinity Trading Platforms
Axie Infinity trading platforms are spot markets in which Axie Infinity can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Axie Infinity trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Axie Infinity Trading Platforms
Axie Infinity trading platforms have a limited operating history. The potential for instability of Axie Infinity 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 Axie Infinity, which may adversely affect its price.
Hacking of Axie Infinity Trading Platforms May Have a Negative Impact on Perception of the Security of the Axie Infinity Network
While Axie Infinity’s blockchain has never been compromised by hackers, exchanges frequently have. Axie Infinity 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 Axie Infinity’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 Axie Infinity and its blockchain.
Different Prices of Axie Infinity on the Axie Infinity Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Axie Infinity 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 Axie Infinity Network
Upgrades by Ethereum to the Ethereum platform, a hard fork in the Ethereum platform, or a change in how transactions are confirmed on the Ethereum platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Ethereum standard.
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 Jan 31, 2022