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 Avalanche. 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.
Avalanche is an open-source platform for launching decentralized finance applications and enterprise blockchain deployments in one interoperable, scalable ecosystem. Developers who build on Avalanche can create applications and custom blockchain networks with complex rulesets or build on existing private or public subnets.
Coinberry has performed due diligence with respect to Avalanche 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 Avalanche has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Avalanche has the most significant connection
Risks Associated with Investing in Avalanche
Underlying Value Risk
Avalanche is one of the few blockchains that can scale without sacrificing decentralization. Its potential for interoperability with many blockchains is limitless. Avalanche blockchains alter consensus algorithms based on the use case, and the network has more validators than other networks. Just as oil is priced by the supply and demand of global markets, as a function of its utility to, for instance, power machines and create plastics, so too is Avalanche priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing Avalanche prove to be fundamentally flawed, then the market may undergo a repricing of Avalanche, which could have an adverse impact on its price.
Top Avalanche Holders Control a Significant Percentage of the Outstanding Avalanche
Certain addresses on the Avalanche blockchain networks hold a significant amount of the currently outstanding Crypto Assets. Holders of AVAX can also stake their tokens on Avalanche's primary network and earn rewards for participating in and validating the network. There is a max supply of 720,000,000 AVAX tokens, with a circulating supply of just over 220 million (as of November 2021).
Regulation of Avalanche
The regulation of Avalanche continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Avalanche or otherwise impact the demand for Avalanche.
Volatility of Avalanche
The risks of trading Avalanche 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 Avalanche to quickly drop or rise thereby negatively or positively impacting your investment. Avalanche appears to be unusually volatile, given a 3-month investment horizon. Avalanche secures Sharpe Ratio (or Efficiency) of 0.032, which signifies that digital coin had 0.032% of return per unit of standard deviation over the last 3 months.
Loss of “Private Keys”
The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Avalanche) could prevent Coinberry from accessing its Avalanche. 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 Avalanche 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 Avalanche trading platforms. Unexpected market illiquidity may cause major losses to the holders of Avalanche.
Coinberry does not currently support Avalanche transfers/withdrawals. 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 Avalanche Network
Dependence on Avalanche Developers
While many contributors to Avalanche’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 Avalanche’s software.
Significant Increase in Avalanche Interest Could Affect the Ability of the Avalanche Network to Accommodate Demand
One of the most contentious issues within the Avalanche community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Avalanche. There are many possible solutions, and most of them boil down to different ideologies on how Avalanche should be used. However, Avalanche has been designed to be faster and cheaper, thus processing more transactions per second at a lower cost. According to Ava Labs, Avalanche can process over 4,500 transactions per second.
Competitors to Avalanche
To the extent a competitor to Avalanche gains popularity and greater market share, the use and price of Avalanche could be negatively impacted, which may adversely affect its price. Similarly, Avalanche and the price of Avalanche could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the Avalanche Network
Because of the significant computing power required to mine Avalanche, 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. However, Avalanche blockchain is the most energy-efficient among most of the largest blockchain networks. The Crypto Carbon Ratings Institute report pointed out that the Avalanche blockchain uses only 0.0005% of the energy used by the Bitcoin blockchain and 0.0028% of the energy used by the Ethereum blockchain.
Risks Associated with Avalanche Trading Platforms
Regulation of Avalanche Trading Platforms
Avalanche trading platforms are spot markets in which Avalanche can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Avalanche trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Avalanche Trading Platforms
Avalanche has a limited operating history and has not been validated over a long period of time. The network launched the genesis block in late September 2020. Despite rigorous audits, the crypto network is still developing and making significant decisions that will affect the design, functionality, and governance. These factors may adversely affect public perception alongside AVAX’s price action. The potential for instability of Avalanche 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 Avalanche, which may also adversely affect its price.
Different Prices of Avalanche on the Avalanche Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Avalanche 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 Avalanche Network
Upgrades by Avalanche to the Avalanche platform, a hard fork in the Avalanche platform, or a change in how transactions are confirmed on the Avalanche platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Avalanche standard. Furthermore, Avalanche is a Proof-of-Stake blockchain using the “Avalanche consensus mechanism”. It is a blockchain network that promises a high transaction throughput of 4,500 transactions per second (TPS) and is the first smart contract platform that can confirm transactions in under one second.
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 May 3, 2022