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 ADA the risks identified in this Crypto Asset Statement and in the Statement of Crypto Asset and Crypto Contract Risks may not be all the risks related to the Crypto Assets and Crypto Contracts as there may be other additional unknown risks, that may exist.
Cardano is a third-generation crypto-asset established in 2015 by the Charles Hoskinson; Bitcoin and Ethereum are the first and second generations of crypto assets. Cardano is the Blockchain whereas ADA is the token. ADA began its use in 2017 as an open-source software with its own blockchain that is backed by peer-review research. Cardano has a layered architecture that could facilitate self-executing smart contracts that do not require professional oversight. It aims to change how people use and transfer wealth, data, and currency of all kinds on a massive scale using blockchain technology solutions.
Coinberry has performed due diligence with respect to ADA 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 ADA has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which ADA has the most significant connection
Risks Associated with Investing in ADA
Underlying Value Risk
ADA 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, and unit of account, and the demand for ADA 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 ADA priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing ADA prove to be fundamentally flawed, then the market may undergo a repricing of ADA, which could have an adverse impact on its price.
Cardano Organization Structure
~20% of the ADA ownership is held by the founders/project. This means the organization is a semi-centralized model where the founders/project control a significant vote related to the planning and decision making of the foundation. A high level of centralization and ownership by the Cardano Organization may adversely affect the price of ADA itself.
Regulation of ADA
The regulation of ADA continues to evolve in North America and within foreign jurisdictions, which may restrict the use of ADA or otherwise impact the demand for ADA.
Volatility of ADA
The risks of trading ADA 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 ADA 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 Crypto Assets) could prevent Coinberry from accessing its ADA 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 ADA 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 ADA trading platforms. Unexpected market illiquidity may cause major losses to the holders of ADA. The large size of ADA that Coinberry may hold increases the risks of illiquidity by both making the ADA difficult to liquidate and in liquidating, Coinberry may affect ADA’s price significantly.
Susceptible to Error and Loss
There is no way to prevent all technical glitches and human errors. As with all crypto asset transactions, ADA transfers are irreversible. An improper transfer (whereby ADA is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the ADA agreeing to send the ADA back to the original sender in a separate subsequent transaction. To the extent Coinberry erroneously transfers, whether accidental or otherwise, ADA in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the ADA, leading to its loss.
Risks Associated with the Cardano Network
Disputes on the Development of the Cardano 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 Cardano’s software. Furthermore, the node operators supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Cardano community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Competitors to Cardano
To the extent a competitor to Cardano gains popularity and greater market share, the use and price of ADA could be negatively impacted, which may adversely affect its price. Similarly, ADA and the price of ADA could be negatively impacted by competition from incumbents in the credit card and payments industries.
Risks Associated with ADA Trading Platforms
Regulation of ADA Trading Platforms
ADA trading platforms are spot markets in which crypto assets can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the crypto-asset trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of ADA Trading Platforms
Given the newness of crypto assets in general, ADA trading platforms have a limited operating history. Since 2009 several crypto assets 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 ADA trading platforms. The potential for instability of ADA 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 ADA, which may adversely affect its price.
Hacking of ADA Trading Platforms May Have a Negative Impact on Perception of the Security of the Cardano Network
While the Cardano blockchain has never been compromised by hackers, exchanges frequently have. ADA 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. ADA’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 ADA and its blockchain, Cardano.
Different Prices of ADA on the ADA Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for ADA 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 ADA Trading Platform(s)
Between 2013 and 2021, a number of crypto-asset trading platforms have been closed due to fraud, failure or security breaches. While smaller ADA trading platforms are less likely to have the infrastructure and capitalization that make larger ADA trading platforms more stable, larger ADA 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 ADA Markets
While the liquidity and traded volume of ADA 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 ADA trading platform. When transacting in the Crypto Asset markets, Coinberry will be competing for liquidity with other large investors, including speculators, node operators, 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 ADA. The large position in ADA that we may acquire increases the risks of illiquidity by making our ADA difficult to liquidate. In addition, liquidation of significant amounts of ADA by Coinberry may impact the overall market price of ADA.
Risk of Manipulation on ADA Trading Platforms
Some ADA trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. ADA 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, ADA 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 Cardano Network
There is no central clearing house for cash-to-ADA transactions. Current practice is for the purchaser of ADA to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of ADA to the purchaser’s public ADA 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 ADA from an ADA trading platform, there is a risk that the ADA trading platform will not initiate the transfer on the Cardano network upon receipt of cash from Coinberry, or that the bank where the ADA trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the ADA 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 16, 2021