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 Decentraland. 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.
Decentraland is a decentralized, traversable, three-dimensional (3D), virtual reality platform being built on the Ethereum blockchain. The platform focuses on the ownership of parcels of digital land where users can create unique environments in a virtual world. A decentralized model will allow participants to realize several benefits over centralized services. Users and contributors will be able to benefit from transactions that occur on the platform, instead of allowing some or all the revenue to flow to a single party. Furthermore, a decentralized platform will reduce the risk of censorship and vulnerabilities due to infrastructure failures or security breaches.
Coinberry has performed due diligence with respect to Decentraland 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 Decentraland has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Decentraland has the most significant connection
Risks Associated with Investing in Decentraland
Underlying Value Risk
Decentraland is a crypto-powered virtual reality game. It is a virtual living platform written on an Ethereum blockchain platform. Land, outfits, scenes, and a host of other virtual assets can be bought using MANA crypto tokens. Just like in real life, they can either appreciate or depreciate in value based on supply and demand. The price of Decentraland fluctuates with the transactional fee, which has a strong relation to the demand and supply of Decentraland as a coin and network. If these means of valuing Decentraland prove to be fundamentally flawed, then the market may undergo a repricing of Decentraland, which could have an adverse impact on its price.
Regulation of Decentraland
The regulation of Decentraland continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Decentraland or otherwise impact the demand for Decentraland.
Volatility of Decentraland
The risks of trading Decentraland 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 Decentraland 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 Decentraland) could prevent Coinberry from accessing its Decentraland. 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 Decentraland 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 Decentraland trading platforms. Unexpected market illiquidity may cause major losses to the holders of Decentraland. The large size of Decentraland that Coinberry may hold increases the risks of illiquidity by both making the Decentraland difficult to liquidate and in liquidating, Coinberry may affect Decentraland’s price significantly.
Decentraland 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 Decentraland Network
Dependence on Decentraland Developers
While many contributors to Decentraland’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 Decentraland’s software.
Disputes on the Development of the Decentraland 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 Decentraland’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Decentraland community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in Decentraland Interest Could Affect the Ability of the Decentraland Network to Accommodate Demand
One of the most contentious issues within the Decentraland community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Decentraland. There are many possible solutions, and most of them boil down to different ideologies on how Decentraland 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 Decentraland, otherwise, users may become frustrated and lose faith in the network.
Attacks on the Decentraland Network
The Decentraland 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 Decentraland
To the extent a competitor to Decentraland gains popularity and greater market share, the use and price of Decentraland could be negatively impacted, which may adversely affect its price.
Significant Energy Consumption to run the Decentraland Network
Because of the significant computing power required to mine Decentraland, 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 Decentraland Trading Platforms
Regulation of Decentraland Trading Platforms
Decentraland trading platforms are spot markets in which Decentraland can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Decentraland trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Decentraland Trading Platforms
Decentraland trading platforms have a limited operating history. The potential for instability of Decentraland 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 Decentraland, which may adversely affect its price.
Hacking of Decentraland Trading Platforms May Have a Negative Impact on Perception of the Security of the Decentraland Network
While Decentraland’s blockchain has never been compromised by hackers, exchanges frequently have. Decentraland 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. Decentraland’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 Decentraland and its blockchain.
Different Prices of Decentraland on the Decentraland Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Decentraland 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 Decentraland 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