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 The Sandbox. 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.
The Sandbox is a virtual world where players can build, own, and monetize their gaming experiences using non-fungible tokens (NFTs) and SAND, the platform’s utility token. Players can create digital assets in the form of NFTs, upload them to the marketplace, and integrate them into games with The Sandbox Game Maker. The Sandbox virtual world is made up of LAND – digital pieces of real estate – in The Sandbox metaverse that players can buy to build experiences on top of. It aims to bring blockchain into mainstream gaming, attracting both crypto and non-crypto game enthusiasts by offering the advantages of true ownership, digital scarcity, monetization capabilities, and interoperability across games.
Coinberry has performed due diligence with respect to The Sandbox 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 The Sandbox has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which The Sandbox has the most significant connection
Risks Associated with Investing in The Sandbox
Underlying Value Risk
The Sandbox has seen an impressive influx of interest in the year 2021, centring on this cryptocurrency's use as an in-game currency for The Sandbox metaverse game. The rise of the metaverse has propelled SAND to become a top-performing token, alongside tremendous momentum. Those in the crypto world seeking tokens with longer-term momentum-driven upside have sought out The Sandbox as a way to play this strength. However, the price of The Sandbox fluctuates with the transactional fee, which has a strong relation to the demand and supply of The Sandbox as a coin and network. If these means of valuing The Sandbox prove to be fundamentally flawed, then the market may undergo a repricing of The Sandbox, which could have an adverse impact on its price.
Regulation of The Sandbox
The regulation of The Sandbox continues to evolve in North America and within foreign jurisdictions, which may restrict the use of The Sandbox or otherwise impact the demand for The Sandbox.
Volatility of The Sandbox
The risks of trading The Sandbox 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 The Sandbox 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 The Sandbox) could prevent Coinberry from accessing its The Sandbox. 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 Sandbox 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 The Sandbox trading platforms. Unexpected market illiquidity may cause major losses to the holders of The Sandbox. The large size of The Sandbox that Coinberry may hold increases the risks of illiquidity by both making the Sandbox difficult to liquidate and in liquidating, Coinberry may affect The Sandbox’s price significantly.
The Sandbox 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 Sandbox Network
Dependence on The Sandbox Developers
While many contributors to The Sandbox’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 The Sandbox’s software.
Disputes on the Development of The Sandbox 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 The Sandbox’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Sandbox community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.
Significant Increase in The Sandbox Interest Could Affect the Ability of the Sandbox Network to Accommodate Demand
One of the most contentious issues within the Sandbox community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of The Sandbox. There are many possible solutions, and most of them boil down to different ideologies on how The Sandbox 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 The Sandbox, otherwise, users may become frustrated and lose faith in the network.
Attacks on the Sandbox Network
The Sandbox 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 The Sandbox
To the extent a competitor to The Sandbox gains popularity and greater market share, the use and price of The Sandbox could be negatively impacted, which may adversely affect its price.
Significant Energy Consumption to run the Sandbox Network
Because of the significant computing power required to mine The Sandbox, 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 The Sandbox Trading Platforms
Regulation of The Sandbox Trading Platforms
The Sandbox trading platforms are spot markets in which The Sandbox can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Sandbox trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of The Sandbox Trading Platforms
The Sandbox trading platforms have a limited operating history. The potential for instability of The Sandbox 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 The Sandbox, which may adversely affect its price.
Hacking of The Sandbox Trading Platforms May Have a Negative Impact on Perception of the Security of the Sandbox Network
While The Sandbox’s blockchain has never been compromised by hackers, exchanges frequently have. The Sandbox 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. The Sandbox’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 The Sandbox and its blockchain.
Different Prices of The Sandbox on the Sandbox Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for The Sandbox 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 Sandbox 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