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 Maker. 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.
Maker is a peer-to-contract lending platform enabling over-collateralized loans by locking Ether in a smart contract and minting Dai, a stablecoin pegged to the US dollar. Dai's stability is achieved through a dynamic system of collateralized debt positions, autonomous feedback mechanisms and incentives for external actors. Once generated, Dai can be freely sent to others, used as payments for goods and services, or held as long-term savings. The Maker protocol is an open-source project started in 2014 with the goal of creating a permissionless credit system that would allow users to take out loans collateralized by cryptocurrency.
Coinberry has performed due diligence with respect to Maker 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 Maker has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Maker has the most significant connection
Risks Associated with Investing in Maker
Underlying Value Risk
In March 2020, Ether price collapse and subsequent network congestion proved to be a long-tail systemic risk to Maker. The system essentially did not perform as intended and allowed some users to lose all their collateral. However, the issuance of new MKR, undid years of MKR value accrual and also illustrated the possibility of future MKR holder dilution in the future. As such, the price of Maker fluctuates with the transactional fee, which has a strong relation to the demand and supply of Maker as a coin and network. If these means of valuing Maker prove to be fundamentally flawed, then the market may undergo a repricing of Maker, which could have an adverse impact on its price.
Regulation of Maker
The regulation of Maker continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Maker or otherwise impact the demand for Maker.
Volatility of Maker
The risks of trading Maker 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 Maker 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 Maker) could prevent Coinberry from accessing its Maker. 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 Maker 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 Maker trading platforms. Unexpected market illiquidity may cause major losses to the holders of Maker. The large size of Maker that Coinberry may hold increases the risks of illiquidity by both making the Maker difficult to liquidate and in liquidating, Coinberry may affect Maker’s price significantly.
Maker 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 Maker Network
Dependence on Maker Developers
While many contributors to Maker’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 Maker’s software.
Disputes on the Development of the Maker 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 Maker’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Maker community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in Maker Interest Could Affect the Ability of the Maker Network to Accommodate Demand
One of the most contentious issues within the Maker community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Maker. There are many possible solutions, and most of them boil down to different ideologies on how Maker 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 Maker, otherwise, users may become frustrated and lose faith in the network.
Attacks on the Maker Network
The Maker 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 Maker
To the extent a competitor to Maker gains popularity and greater market share, the use and price of Maker could be negatively impacted, which may adversely affect its price.
Significant Energy Consumption to run the Maker Network
Because of the significant computing power required to mine Maker, 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 Maker Trading Platforms
Regulation of Maker Trading Platforms
Maker trading platforms are spot markets in which Maker can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Maker trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Maker Trading Platforms
Maker trading platforms have a limited operating history. The potential for instability of Maker 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 Maker, which may adversely affect its price.
Hacking of Maker Trading Platforms May Have a Negative Impact on Perception of the Security of the Maker Network
While Maker’s blockchain has never been compromised by hackers, exchanges frequently have. Maker 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. Maker’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 Maker and its blockchain.
Different Prices of Maker on the Maker Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Maker 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 Maker Network
Upgrades by Maker to the Maker platform or a change in how transactions are confirmed on the Maker platform may have unintended, adverse effects on all blockchains using the DeFi technology for settlement of transactions.
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