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 19, 2021. 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 Polygon. 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.
Polygon is a platform designed to support infrastructure development and help Ethereum scale. Its core component is a modular, flexible framework (Polygon SDK) that allows developers to build and connect Layer-2 infrastructures like Plasma, Optimistic Rollups, zkRollups, and Validium and standalone sidechains like the project's flagship product, Matic POS (Proof-of-Stake). Polygon rebranded from Matic Network in February 2021 and pivoted towards supporting multiple Layer-2 infrastructure. It will continue to support the Matic POS sidechain and Plasma-based payment system, which currently hosts over 90 applications.
Coinberry has performed due diligence with respect to Polygon 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 Polygon has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Polygon has the most significant connection
Risks Associated with Investing in Polygon
Underlying Value Risk
Polygon (MATIC) is an Ethereum token that powers the Polygon Network. It aims to provide faster and cheaper transactions on the Ethereum blockchain and to make the latter a multi-chain system. The price of Polygon fluctuates with the transactional fee, which has a strong relation to the demand and supply of Polygon as a coin and network. If these means of valuing Polygon prove to be fundamentally flawed, then the market may undergo a repricing of Polygon, which could have an adverse impact on its price.
Regulation of Polygon
The regulation of Polygon continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Polygon or otherwise impact the demand for Polygon.
Volatility of Polygon
The risks of trading Polygon 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 Polygon 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 Polygon) could prevent Coinberry from accessing its Polygon. 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 Polygon 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 Polygon trading platforms. Unexpected market illiquidity may cause major losses to the holders of Polygon. The large size of Polygon that Coinberry may hold increases the risks of illiquidity by both making the Polygon difficult to liquidate and in liquidating, Coinberry may affect Polygon’s price significantly.
Polygon 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 Polygon Network
Dependence on Polygon Developers
While many contributors to Polygon’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 Polygon’s software.
Disputes on the Development of the Polygon 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 Polygon’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Polygon community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in Polygon Interest Could Affect the Ability of the Polygon Network to Accommodate Demand
One of the most contentious issues within the Polygon community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Polygon. There are many possible solutions, and most of them boil down to different ideologies on how Polygon 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 Polygon, otherwise, users may become frustrated and lose faith in the network.
Attacks on the Polygon Network
The Polygon 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 Polygon
To the extent a competitor to Polygon gains popularity and greater market share, the use and price of Polygon could be negatively impacted, which may adversely affect its price.
Significant Energy Consumption to run the Polygon Network
Because of the significant computing power required to mine Polygon, 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 Polygon Trading Platforms
Regulation of Polygon Trading Platforms
Polygon trading platforms are spot markets in which Polygon can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Polygon trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Polygon Trading Platforms
Polygon trading platforms have a limited operating history. The potential for instability of Polygon 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 Polygon, which may adversely affect its price.
Hacking of Polygon Trading Platforms May Have a Negative Impact on Perception of the Security of the Polygon Network
While Polygon’s blockchain has never been compromised by hackers, exchanges frequently have. Polygon 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. Polygon’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 Polygon and its blockchain.
Different Prices of Polygon on the Polygon Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Polygon 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 Polygon 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