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 Terra. 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.
Terra is an algorithmically governed, seigniorage share style stablecoin platform to which a collection of fiat-pegged tokens and a stabilizing crypt asset, Luna, are native. It was created in January 2018 with the singular vision of facilitating the mass adoption of cryptocurrencies by creating digitally native assets that are price-stable against the world's major fiat currencies. The vision is that with the adoption and user engagement of a massive payment network, it will be able to, for the first time, bootstrap a blockchain payment network to the scale it deserves and facilitate far more powerful products and use cases through its infrastructure.
Coinberry has performed due diligence with respect to Terra 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 Terra has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Terra has the most significant connection
Risks Associated with Investing in Terra
Underlying Value Risk
The biggest risk with Luna is to assess whether there are chances of losses if Terra’s stablecoins are unable to hold their pegs, given Luna acts as a volatility absorption mechanism. Further, The U.S. Securities and Exchange Commission (SEC) is currently investigating Terraform over whether it is selling unregistered securities. This subpoena is related to Terraform’s Mirror Protocol, which offers synthetic versions of stocks, and not the Terra protocol itself. However, the price of Terra fluctuates with the transactional fee, which has a strong relation to the demand and supply of Terra as a coin and network. If these means of valuing Terra prove to be fundamentally flawed, then the market may undergo a repricing of Terra, which could have an adverse impact on its price.
Regulation of Terra
The regulation of Terra, besides US SEC’s ongoing investigation, continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Terra or otherwise impact the demand for Terra besides increasing.
Volatility of Terra
The risks of trading Terra 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 Terra 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 Terra) could prevent Coinberry from accessing its Terra. 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 Terra 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 Terra trading platforms. Unexpected market illiquidity may cause major losses to the holders of Terra. The large size of Terra that Coinberry may hold increases the risks of illiquidity by both making the Terra difficult to liquidate and in liquidating, Coinberry may affect Terra’s price significantly.
Terra 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 Terra Network
Dependence on Terra Developers
While many contributors to Terra’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 Terra’s software.
Disputes on the Development of the Terra 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 Terra’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Terra community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in Terra Interest Could Affect the Ability of the Terra Network to Accommodate Demand
One of the most contentious issues within the Terra community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Terra. There are many possible solutions, and most of them boil down to different ideologies on how Terra 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 Terra, otherwise, users may become frustrated and lose faith in the network.
Attacks on the Terra Network
The Terra 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 Terra
To the extent a competitor to Terra gains popularity and greater market share, the use and price of Terra could be negatively impacted, which may adversely affect its price.
Significant Energy Consumption to run the Terra Network
Because of the significant computing power required to mine Terra, 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 Terra Trading Platforms
Regulation of Terra Trading Platforms
Terra trading platforms are spot markets in which Terra can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Terra trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Terra Trading Platforms
Terra trading platforms have a limited operating history. The potential for instability of Terra 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 Terra, which may adversely affect its price.
Hacking of Terra Trading Platforms May Have a Negative Impact on Perception of the Security of the Terra Network
While Terra’s blockchain has never been compromised by hackers, exchanges frequently have. Terra 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 the economic trading volumes in Terra 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. Terra’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 Terra and its blockchain.
Different Prices of Terra on the Terra Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Terra 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 Terra Network
Upgrades by Terra to the Terra platform, or a change in how transactions are confirmed on the Terra 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