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 Near Protocol. 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.
Near Protocol is a decentralized development platform that uses a Proof-of-Stake (PoS) consensus mechanism and will eventually feature a sharded architecture to scale transaction throughput. Its block generation scheme is called Doomslug and its proposed sharding design is dubbed Nightshade. These technologies will work together to scale the network and minimize congestion. NEAR has also been designed to be developer and user-friendly as it features a few key innovations to accelerate the application development and user-onboarding processes. The NEAR blockchain was created and developed by the NEAR Foundation. Its main net went live in April 2020, and network validators voted to unlock token transfers in October 2020. NEAR's bridge to Ethereum (called the Rainbow Bridge) launched in March 2021.
Coinberry has performed due diligence with respect to Near Protocol 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 Near Protocol has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Near Protocol has the most significant connection
Risks Associated with Investing in Near Protocol
Underlying Value Risk
NEAR token price reached an all-time high of $20.42 on 16 January 2022. However, it then fell to a 30-day low of $7.41 on 24 February 2022 as the broader crypto market shed value. 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 Near Protocol priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing Near Protocol prove to be fundamentally flawed, then the market may undergo a repricing of Near Protocol, which could have an adverse impact on its price.
Top Near Protocol Holders Control a Significant Percentage of the Outstanding Near Protocol
Certain addresses on the Near Protocol blockchain networks hold a significant amount of the currently outstanding Crypto Assets. However, the top 10% holders have 71.67% of possession.
Regulation of Near Protocol
The regulation of Near Protocol continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Near Protocol or otherwise impact the demand for Near Protocol.
Volatility of Near Protocol
The risks of trading Near Protocol 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 Near Protocol to quickly drop or rise thereby negatively or positively impacting your investment. However, NEAR Protocol has a moderate volatility rank of 45, placing it in the bottom 45% 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 Near Protocol) could prevent Coinberry from accessing its Near Protocol. 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 Near Protocol 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 Near Protocol trading platforms. Unexpected market illiquidity may cause major losses to the holders of Near Protocol.
Near Protocol 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 Near Protocol Network
Dependence on Near Protocol Developers
While many contributors to Near Protocol’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 Near Protocol’s software. However, the complex technology of Near, allows developers to easily and sustainably build applications, thus securing high-value assets like money and identity while making them performant and usable enough for consumers to access.
Significant Increase in Near Protocol Interest Could Affect the Ability of the Near Protocol Network to Accommodate Demand
One of the most contentious issues within the Near Protocol community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Near Protocol. There are many possible solutions, and most of them boil down to different ideologies on how Near Protocol should be used. However, NEAR uses a sharding approach to increase its capacity as additional nodes participate. This is done by dynamically splitting the network nodes into multiple shards when usage is high enough to require it and parallelizing computation across those shards. With this approach, the network can scale continuously as demand increases.
Competitors to Near Protocol
To the extent a competitor to Near Protocol gains popularity and greater market share, the use and price of Near Protocol could be negatively impacted, which may adversely affect its price. Similarly, Near Protocol and the price of Near Protocol could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the Near Protocol Network
Because of the significant computing power required to mine Near Protocol, 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, NEAR Protocol generates a carbon footprint of 174 tons of CO2 per year. Therefore, NEAR Protocol is more than 200,000 times more carbon efficient than Bitcoin, mainly by applying PoS instead of PoW.
Risks Associated with Near Protocol Trading Platforms
Regulation of Near Protocol Trading Platforms
Near Protocol trading platforms are spot markets in which Near Protocol can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Near Protocol trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Near Protocol Trading Platforms
Near Protocol trading platforms have a limited operating history. The potential for instability of Near Protocol 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 Near Protocol, which may adversely affect its price.
Different Prices of Near Protocol on the Near Protocol Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Near Protocol 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 Near Protocol Network
Upgrades by Near Protocol to the Near Protocol platform, a hard fork in the Near Protocol platform, or a change in how transactions are confirmed on the Near Protocol platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Near Protocol standard. However, NEAR Protocol provides a permission-less base layer, independent currency and predetermined monetary policy and marketplace of computing resources.
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