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 Kyber Network. 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.
Kyber Network is an Ethereum based decentralized exchange focused on the rapid execution of transactions on the blockchain. Kyber functions by aggregating liquidity from reserves which are operated by reserve managers. These managers are responsible for maintaining liquidity in the trading pairs offered and updating bid and ask spreads. For their services, managers are compensated through the spread of each transaction. Furthermore, anyone with additional capital can contribute to reserve pools and receive a return.
Coinberry has performed due diligence with respect to Kyber Network 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 Kyber Network has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Kyber Network has the most significant connection
Risks Associated with Investing in Kyber Network
Underlying Value Risk
Kyber Network 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, unit of account, and the demand for Kyber Network within those use cases. As with any DeFi protocol, Kyber Network presents a slightly elevated short history risk relative to more established Crypto Assets like Bitcoin. Further, the Kyber Network community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of KNC have no recourse to Kyber Network if KNC declines in value for any reason.
Regulation of Kyber Network
The regulation of Kyber Network continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Kyber Network or otherwise impact the demand for Kyber Network.
Volatility of Kyber Network
The risks of trading Kyber Network 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 Kyber Network 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 Kyber Network) could prevent Coinberry from accessing its Kyber Network. 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 Kyber Network 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 Kyber Network trading platforms. Unexpected market illiquidity may cause major losses to the holders of Kyber Network. The large size of Kyber Network that Coinberry may hold increases the risks of illiquidity by both making the Kyber Network difficult to liquidate and in liquidating, Coinberry may affect Kyber Network’s price significantly.
Kyber Network transfers are irreversible. An improper transfer (whereby Kyber Network is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Kyber Network agreeing to send the Kyber Network back to the original sender in a separate subsequent transaction. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Kyber Network in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Kyber Network, leading to its loss.
Risks Associated with the Kyber Network
Dependence on Kyber Network Developers
While many contributors to Kyber Network’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 Kyber Network’s software.
Disputes on the Development of the Kyber 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 Kyber Network’s software. Therefore, the Kyber Network community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Possible Increase in Transaction Fees
Kyber Network 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.
Decrease in Reward
Kyber Network provides a return on their Crypto Asset, the KCN. Kyber Network launched its very first liquidity mining program on Polygon and Ethereum with an estimated $30 million in rewards to eligible Kyber liquidity providers. As they focus on aggregating liquidity and facilitating swaps for ERC-20 tokens. Kyber Network collects fees in ETH, with a portion of them going to these reserves, which collect them based on the amount of liquidity they provide. If the price of ETH falls, this will have an adverse effect on Kyber Network’s reward.
Competitors to Kyber Network
To the extent a competitor to Kyber Network gains popularity and greater market share, the use and price of Kyber Network could be negatively impacted, which may adversely affect its price. Similarly, Kyber Network and the price of Kyber Network could be negatively impacted by competition from incumbents in the credit card and payments industries.
Risks Associated with Kyber Network Trading Platforms
Regulation of Kyber Network Trading Platforms
Kyber Network trading platforms are spot markets in which Kyber Network can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Kyber Network trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Kyber Network Trading Platforms
Kyber Network trading platforms have a limited operating history. The potential for instability of Kyber Network 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 Kyber Network, which may adversely affect its price.
Hacking of Kyber Network Trading Platforms May Have a Negative Impact on Perception of the Security of the Kyber Network
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 Kyber Network 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. Kyber Network’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 Kyber Network and its blockchain.
Different Prices of Kyber Network on the Kyber Network Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Kyber Network 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 Kyber Network Trading Platform(s)
As a decentralized exchange, Kyber Network has been trading on multiple platforms as the scalability increases, with more and more platforms offering the coin. In the long run, the coin may be impacted if several platforms close due to fraud, failure, or security breaches.
Liquidity Constraints on Kyber Network Markets
While the liquidity and traded volume of Kyber Network 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 Kyber Network 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 Kyber Network. The large position in Kyber Network that we may acquire increases the risks of illiquidity by making our Kyber Network difficult to liquidate. In addition, the liquidation of significant amounts of Kyber Network by Coinberry may impact the market price of Kyber Network.
Risk of Manipulation on Kyber Network Trading Platforms
Some Kyber Network trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Kyber Network 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, Kyber Network 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 Kyber Network
There is no central clearing house for cash-to-Kyber Network transactions. Current practice is for the purchaser of Kyber Network to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Kyber Network to the purchaser’s public Kyber Network 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 Kyber Network from a Kyber Network trading platform, there is a risk that the Kyber Network trading platform will not initiate the transfer on the network upon receipt of cash from Coinberry, or that the bank where the Kyber Network trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Kyber Network 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 Aug 17, 2021