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 Cosmos. 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.
Cosmos is a network of sovereign blockchains that communicate via IBC, an interoperability protocol modelled after TCP/IP, for secure data and value transfer. The Cosmos Hub, also known as "Gaia," is a proof of stake chain with a native token, ATOM, that serves as a hub for IBC packet routing among blockchains within the Cosmos network. The Cosmos Hub, like the majority of blockchains in the Cosmos network, is secured by the Byzantine Fault-Tolerant (BFT) Proof-of-Stake consensus algorithm, Tendermint.
Coinberry has performed due diligence with respect to Cosmos 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 Cosmos has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Cosmos has the most significant connection
Risks Associated with Investing in Cosmos
Underlying Value Risk
Cosmos aims to offer an ecosystem of connected blockchains. It also tries to reduce the complexity of the blockchain technology and ease for developers with help of a modular framework that demystifies decentralized apps. 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 Cosmos priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing Cosmos prove to be fundamentally flawed, then the market may undergo a repricing of Cosmos, which could have an adverse impact on its price.
Top Cosmos Holders Control a Significant Percentage of the Outstanding Cosmos
Certain addresses on the Cosmos blockchain networks hold a significant amount of the currently outstanding Crypto Assets. However, the top 10 holders control possession of 91.71%.
Regulation of Cosmos
The regulation of Cosmos continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Cosmos or otherwise impact the demand for Cosmos.
Volatility of Cosmos
The risks of trading Cosmos 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 Cosmos to quickly drop or rise thereby negatively or positively impacting your investment. Furthermore, Investors Observer gives Cosmos a moderate volatility rank of 34, placing it in the bottom 34% of cryptos on the market.
Loss of “Private Keys”
The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Cosmos) could prevent Coinberry from accessing its Cosmos. 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 Cosmos 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 Cosmos trading platforms. Unexpected market illiquidity may cause major losses to the holders of Cosmos.
Coinberry does not currently support Cosmos transfers. 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 Cosmos Network
Dependence on Cosmos Developers
While many contributors to Cosmos’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 Cosmos’s software. However, Cosmos allows developers the choice to build autonomous application-specific blockchains that can be easily interconnected. This means that developers are no longer forced to exist as smart contracts on someone else's chain. They can opt-out of high transaction fees and network congestion, make their own rules and scale for mainstream adoption.
Significant Increase in Cosmos Interest Could Affect the Ability of the Cosmos Network to Accommodate Demand
One of the most contentious issues within the Cosmos community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Cosmos. There are many possible solutions, and most of them boil down to different ideologies on how Cosmos should be used. However, Cosmos is an ecosystem of blockchains that can scale and interoperate with each other, thus enhancing large amounts of transactions per second.
Competitors to Cosmos
To the extent a competitor to Cosmos gains popularity and greater market share, the use and price of Cosmos could be negatively impacted, which may adversely affect its price. Similarly, Cosmos and the price of Cosmos could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the Cosmos Network
Because of the significant computing power required to mine Cosmos, 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, Cosmos solves the problem of high energy consumption by using a Proof-of-Stake consensus mechanism that relies on the Tendermint Core engine and thus achieves high performance with a low carbon footprint.
Risks Associated with Cosmos Trading Platforms
Regulation of Cosmos Trading Platforms
Cosmos trading platforms are spot markets in which Cosmos can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Cosmos trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Cosmos Trading Platforms
Cosmos trading platforms have a limited operating history. The potential for instability of Cosmos 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 Cosmos, which may adversely affect its price.
Different Prices of Cosmos on the Cosmos Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Cosmos 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 Cosmos Network
Upgrades by Cosmos to the Cosmos platform, a hard fork in the Cosmos platform, or a change in how transactions are confirmed on the Cosmos platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Cosmos standard. Cosmos goal is to speak to everything. It vows to become an internet of blockchains, the central sun around which thousands of parallel blockchains orbit, thus allowing each to talk and interact freely. The goal is to break the monolithic architecture found in blockchain predecessors like Ethereum and change the siloed nature of distributed ledger technology from the ground up. By doing so, Cosmos will create a universe where blockchain stars can instantly reach their potential and join the consensus constellations illuminating future skies.
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