Crypto Asset Statement - Synthetix (SNX)

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 Synthetix. 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 

Synthetix is a Crypto Asset for minting synthetic assets on the Synthetix Network, which is built on Ethereum. Synthetix is a decentralized synthetic asset platform that provides on-chain exposure to real-world currencies, commodities, stocks, and indices. These synthetic assets (Synths) are backed by Synthetix Network Tokens (SNX) locked into a smart contract as collateral. 

 

Due diligence 

Coinberry has performed due diligence with respect to Synthetix 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 Synthetix has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Synthetix has the most significant connection 

 

Risks Associated with Investing in Synthetix  

Underlying Value Risk  

Synthetix represents a 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, and unit of account, and the demand for Synthetix within those use cases. Synthetix has a very high collateralization ratio of 750%. While some can view this as capital inefficient, it is also essential for Synthetix to maintain such a high ratio as there is no liquidation process to protect the counterparties. Currently, only SNX can be used as collateral in the system. Although this provides a direct relationship between utilization of the network and the value of the collateral, there is still an inherent risk where SNX is more volatile than other assets such as ETH, since the order book of ETH is much deeper than SNX.  

 

Regulation of Synthetix  

The regulation of Synthetix continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Synthetix or otherwise impact the demand for Synthetix.  

 

Volatility of Synthetix

The risks of trading Synthetix 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 Synthetix to quickly drop or rise thereby negatively or positively impacting your investment. 

 

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 may impact the price of Synthetix.  

 

Loss of “Private Keys”  

The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Synthetix) could prevent Coinberry from accessing its Synthetix. 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.  

 

Your Holdings May Become Illiquid  

You may not always be able to liquidate your Synthetix 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 Synthetix trading platforms. Unexpected market illiquidity may cause major losses to the holders of Synthetix. The large size of Synthetix that Coinberry may hold increases the risks of illiquidity by both making the Synthetix difficult to liquidate and in liquidating, Coinberry may affect Synthetix’s price significantly.  

 

Susceptible to Error and Loss  

There is no way to prevent all technical glitches and human error. Synthetix transfers are irreversible. An improper transfer (whereby Synthetix is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Synthetix agreeing to send the Synthetix back to the original sender in a separate subsequent transaction. Coinberry receives transfer instructions from its clients and relies on the accuracy of the instruction provided by the client. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Synthetix in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Synthetix, leading to its loss.  

 

Risks Associated with the Synthetix Network  

Dependence on Synthetix Developers  

While many contributors to Synthetix’s network 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 Synthetix’s network.  

 

Hacking of Synthetix Crypto Trading Platform 

 

Disputes on the Development of the Synthetix 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 Synthetix’s protocol.  

 

Competitors to Synthetix    

To the extent a competitor to Synthetix gains popularity and greater market share, the use and price of Synthetix could be negatively impacted, which may adversely affect its price. Similarly, Synthetix  and the price of Synthetix could be negatively impacted by competition from incumbents in the credit card and payments industries.   

 

Possible Increase in Transaction Fees  

Synthetix uses the Ethereum network and therefore is subject to a transaction fee, also known as Gas fee. This 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. 

 

Attacks on the Synthetix Network  

The Synthetix 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.  

  

Decrease in Reward  

With Synthetix reward system liquidity providers are eligible to receive two types of rewards if the collateralization ratio remains at 600% staking rewards, denominated in SNX, and exchange fees from all Synth trades, denominated in USD. Exchange fees are distributed in accordance with the amount of debt each staker has issued. Linking rewards to the collateralization ratio ensures that Synths are always sufficiently backed by collateral. Un-staking SNX tokens, burns USD. Because the debt pool fluctuates, one needs to burn more USD than they initially minted making it less profitable.  

 

Competitors to Synthetix  

To the extent a competitor to Synthetix gains popularity and greater market share, the use and price of Synthetix could be negatively impacted, which may adversely affect its price. Similarly, Synthetix and the price of Synthetix could be negatively impacted by competition from incumbents in the credit card and payments industries.  

 

Risks Associated with Synthetix Trading Platforms 

Regulation of Synthetix Trading Platforms  

Synthetix trading platforms are spot markets in which Synthetix can be exchanged for fiat currencies (CAD, USD, etc). Coinberry seeks to ensure that the Synthetix trading platforms on which it transacts are reputable, stable and operating in compliance with applicable laws.  

 

Limited Operating History of Synthetix Trading Platforms  

Synthetix trading platforms have a limited operating history. The potential for instability of Synthetix 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 Synthetix, which may adversely affect its price. 

 

Hacking of Synthetix Trading Platforms May Have a Negative Impact on Perception of the Security of the Synthetix Protocol 

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 Synthetix 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. Synthetix’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 Synthetix and its protocol.  

 

Different Prices of Synthetix on the Synthetix Trading Platforms 

Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Synthetix 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 Synthetix Trading Platform(s)  

Between 2013 and 2021, a number of Crypto Asset trading platforms have been closed due to fraud, failure or security breaches. In many of these instances, the customers of Synthetix trading on these trading platforms were not compensated or made whole for the partial or complete losses of their account balances. Synthetix has been trading on multiple platforms as the scalability increases, with more and more platforms offering the Crypto Asset. In the long run, the Crypto Asset may be impacted if several platforms close due to fraud, failure, or security breaches.  

 

Liquidity Constraints on Synthetix Markets 

While the liquidity and traded volume of Synthetix 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 Synthetix trading platform. When transacting in the Crypto Asset markets, Coinberry will be competing for liquidity with other large investors, including speculators, 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 Synthetix. The large position in Synthetix that we may acquire increases the risks of illiquidity by making our Synthetix difficult to liquidate. In addition, the liquidation of significant amounts of Synthetix by Coinberry may impact the market price of Synthetix.  

 

Risk of Manipulation on Synthetix Trading Platforms  

Some Synthetix trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Synthetix 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, Synthetix 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 Synthetix Network  

There is no central clearing house for cash-to-Synthetix transactions. Current practice is for the purchaser of Synthetix to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Synthetix to the purchaser’s public Synthetix 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 Synthetix from a Synthetix trading platform, there is a risk that the Synthetix trading platform will not initiate the transfer on the Synthetix network upon receipt of cash from Coinberry, or that the bank where the Synthetix trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Synthetix 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 Aug 18, 2021