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 Balancer. 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.
Balancer is an automated market maker. Investors pledge different types of Crypto Assets into big funds called liquidity pools and then Balancer makes it possible to trade the Crypto Assets from those liquid pools. Balancer is built using Ethereum. Balancer can be compared to an index fund whereby it tracks the performance of every company as an aggregate, ensuring a balanced portfolio with reduced risk. Users of Balancer can also create their own index funds which includes Crypto Assets of their own, offering a balanced product like that of an index fund.
Coinberry has performed due diligence with respect to Balancer 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 Balancer has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Balancer has the most significant connection
Risks Associated with Investing in Balancer
Underlying Value Risk
Balancer 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 Balancer within those use cases. As Balancer requires users to stake coins in exchange for returns, the supply of Crypto Assets in the platform is a key factor for its survival. As long as there is a demand and supply in the platform, the value of the coin remains strong. If these means of valuing Balancer prove to be fundamentally flawed, then the market may undergo a repricing of Balancer, which could have an adverse impact on its price.
Regulation of Balancer
The regulation of Balancer continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Balancer or otherwise impact the demand for Balancer.
Volatility of Balancer
The risks of trading Balancer 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 Balancer 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 Balancer) could prevent Coinberry from accessing its Balancer. 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 Balancer 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 Balancer trading platforms. Unexpected market illiquidity may cause major losses to the holders of Balancer. The large size of Balancer that Coinberry may hold increases the risks of illiquidity by both making the Balancer difficult to liquidate and in liquidating, Coinberry may affect Balancer’s price significantly.
Susceptible to Error and Loss
There is no way to prevent all technical glitches and human error. Balancer transfers are irreversible. An improper transfer (whereby Balancer is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Balancer agreeing to send the Balancer back to the original sender in a separate subsequent transaction. Transfers are self-directed by the client. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Balancer in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Balancer, leading to its loss.
Risks Associated with the Balancer Network
Dependence on Balancer Developers
While many contributors to Balancer’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 Balancer’s software.
Disputes on the Development of the Balancer 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 Balancer’s software.
Competitors of Balancer
To the extent a competitor Balancer gains popularity and greater market share, the use and price of Balancer could be negatively impacted, which may adversely affect its price. Similarly, Balancer and the price of the Balancer Crypto Asset could be negatively impacted by competition from incumbents.
Possible Increase in Transaction Fees
Balancer 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
Balancer doesn’t have a block reward instead they provide a return on their coins. To attract users to lock their coins, Balancer offers them a return on their coins, as well as a portion of the fee from the trades. This return is generated when Balancer supplied the locked funds to protocols which in turn lend the coins out to users.
Risks Associated with Balancer Trading Platforms
Regulation of Balancer Trading Platforms
Balancer trading platforms are spot markets in which Balancer can be exchanged for fiat currencies (CAD, USD, etc). Coinberry seeks to ensure that the Balancer trading platforms on which it transacts are reputable, stable and operating in compliance with applicable laws.
Limited Operating History of Balancer Trading Platforms
Balancer trading platforms have a limited operating history. Since 2018 several Balancer 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 Balancer trading platforms. The potential for instability of Balancer 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 Balancer, which may adversely affect its price.
Hacking of Balancer Trading Platforms May Have a Negative Impact on Perception of the Security of the Balancer 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 Balancer 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. Balancer’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 Balancer and its protocol.
Different Prices of Balancer on the Balancer Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Balancer 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 Balancer Trading Platform(s)
Balancer 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 Balancer Markets
While the liquidity and traded volume of Balancer 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 Balancer 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 Balancer. The large position in Balancer that we may acquire increases the risks of illiquidity by making our Balancer difficult to liquidate. In addition, the liquidation of significant amounts of Balancer by Coinberry may impact the market price of Balancer.
Risk of Manipulation on Balancer Trading Platforms
Some Balancer trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Balancer 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, Balancer 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 Balancer Network
There is no central clearing house for cash-to-Balancer transactions. Current practice is for the purchaser of Balancer to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Balancer to the purchaser’s public Balancer 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 Balancer from a Balancer trading platform, there is a risk that the Balancer trading platform will not initiate the transfer on the Balancer network upon receipt of cash from Coinberry, or that the bank where the Balancer trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Balancer 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 18, 2021