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 Thorchain. 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.
Thorchain is an independent blockchain built using the Cosmos SDK that will serve as a cross-chain decentralized exchange (DEX). It uses an automated market maker (AMM) model that resembles the first iterations of Bancor (BNT) or Uniswap where Thorchain’s native token (RUNE) will be the base swap pair. This model allows traders to move between different asset pools using RUNE as a somewhat hidden intermediary. It also rewards liquidity providers (LPs), those that deposit or “stake” assets on either side of a liquidity pool, with a portion of trading fees.
Coinberry has performed due diligence with respect to Thorchain 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 Thorchain has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Thorchain has the most significant connection
Risks Associated with Investing in Thorchain
Underlying Value Risk
Thorchain is a protocol that allows users to transfer cryptocurrencies between blockchains instantly. It’s intended to serve as the backend for the next wave of decentralized cross-chain exchanges. However, 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 Thorchain priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing Thorchain prove to be fundamentally flawed, then the market may undergo a repricing of Thorchain, which could have an adverse impact on its price.
Top Thorchain Holders Control a Significant Percentage of the Outstanding Thorchain
Certain addresses on the Thorchain blockchain networks hold a significant amount of the currently outstanding Crypto Assets. However, the top 100 holders have 68% possession of Thorchain.
Regulation of Thorchain
The regulation of Thorchain continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Thorchain or otherwise impact the demand for Thorchain. However, Thorchain has little governance baked into the system. This is done so that nodes don't communicate or learn who one another is. This is important for security because it makes sure that nodes don't act together to take control.
Volatility of Thorchain
The risks of trading Thorchain 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 Thorchain to quickly drop or rise thereby negatively or positively impacting your investment. However, Investors Observer gives Thorchain a moderate volatility rank of 47, placing it in the bottom 47% 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 Thorchain) could prevent Coinberry from accessing its Thorchain. 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 Thorchain 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 Thorchain trading platforms. Unexpected market illiquidity may cause major losses to the holders of Thorchain.
Coinberry does not currently support Thorchain 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 Thorchain Network
Dependence on Thorchain Developers
While many contributors to Thorchain’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 Thorchain’s software. Furthermore, Thorchain was created by a group of anonymous cryptocurrency developers and there is no official creator for the project, and none of the 18 self-organized developers have any formal title.
Significant Increase in Thorchain Interest Could Affect the Ability of the Thorchain Network to Accommodate Demand
One of the most contentious issues within the Thorchain community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Thorchain. There are many possible solutions, and most of them boil down to different ideologies on how Thorchain should be used. However, the decentralized liquidity protocol of Thorchain, allows users to swap assets between different blockchains.
Competitors to Thorchain
To the extent a competitor to Thorchain gains popularity and greater market share, the use and price of Thorchain could be negatively impacted, which may adversely affect its price. Similarly, Thorchain and the price of Thorchain could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the Thorchain Network
Because of the significant computing power required to mine Thorchain, 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 Thorchain Trading Platforms
Regulation of Thorchain Trading Platforms
Thorchain trading platforms are spot markets in which Thorchain can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Thorchain trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Thorchain Trading Platforms
Thorchain trading platforms have a limited operating history. The potential for instability of Thorchain 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 Thorchain, which may adversely affect its price.
Different Prices of Thorchain on the Thorchain Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Thorchain 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 Thorchain Network
Upgrades by Thorchain to the Thorchain platform, a hard fork in the Thorchain platform, or a change in how transactions are confirmed on the Thorchain platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Thorchain standard. The user-friendly interface of Thorchain helps the network to be more accessible and frictionless. Thus, Thorchain enables users to quickly exchange tokens across top blockchains such as Bitcoin, Ethereum, Binance Smart Chain, and others.
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