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 Loopring. 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.
Loopring is an open protocol for building high-performance, order book decentralized exchanges on Ethereum. Their goal is to enable the building of highly scalable exchanges without compromising Ethereum-level security guarantees through a zkRollup construction.
Coinberry has performed due diligence with respect to Loopring 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 Loopring has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Loopring has the most significant connection
Risks Associated with Investing in Loopring
Underlying Value Risk
Loopring’s primary goals are to reduce user dependency on centralized exchanges or other trustworthy third parties and enable worldwide liquid marketplaces. Loopring aims to do this by rewarding ecosystem players to execute decentralized exchange services, with transactions handled by non-custodial smart contracts. 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 Loopring priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing Loopring prove to be fundamentally flawed, then the market may undergo a repricing of Loopring, which could have an adverse impact on its price.
Top Loopring Holders Control a Significant Percentage of the Outstanding Loopring
Certain addresses on the Loopring blockchain networks hold a significant amount of the currently outstanding Crypto Assets. However, top 100 holders collectively own 82.14% tokens of Loopring.
Regulation of Loopring
The regulation of Loopring continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Loopring or otherwise impact the demand for Loopring.
Volatility of Loopring
The risks of trading Loopring 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 Loopring to quickly drop or rise thereby negatively or positively impacting your investment. However, the prospect of Loopring being a good long-term investment is fine, but the current support levels have not been yet established. That said, the current price development has shot up the price of LRC by huge margins.
Loss of “Private Keys”
The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Loopring) could prevent Coinberry from accessing its Loopring. 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 Loopring 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 Loopring trading platforms. Unexpected market illiquidity may cause major losses to the holders of Loopring.
Loopring 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 Loopring Network
Dependence on Loopring Developers
While many contributors to Loopring’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 Loopring’s software.
Significant Increase in Loopring Interest Could Affect the Ability of the Loopring Network to Accommodate Demand
One of the most contentious issues within the Loopring community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of Loopring. There are many possible solutions, and most of them boil down to different ideologies on how Loopring should be used. However, Loopring settles transactions on the Ethereum blockchain to finalize trades between users that were first matched off-chain. These trades are batched to reduce cost and increase speed. Loopring claims it can perform over 2,000 trades per second with this technique.
Competitors to Loopring
To the extent a competitor to Loopring gains popularity and greater market share, the use and price of Loopring could be negatively impacted, which may adversely affect its price. Similarly, Loopring and the price of Loopring could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the Loopring Network
Because of the significant computing power required to mine Loopring, 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 Loopring Trading Platforms
Regulation of Loopring Trading Platforms
Loopring trading platforms are spot markets in which Loopring can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Loopring trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.
Limited Operating History of Loopring Trading Platforms
Loopring trading platforms have a limited operating history. The potential for instability of Loopring 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 Loopring, which may adversely affect its price.
Different Prices of Loopring on the Loopring Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Loopring 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 Loopring Network
Upgrades by Loopring to the Loopring platform, a hard fork in the Loopring platform, or a change in how transactions are confirmed on the Loopring platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future Loopring standard. However, Loopring claims its platform will allow exchanges built on top of it to sidestep the slow speeds and high costs associated with decentralized exchanges on Ethereum through the use of a newer type of cryptography called zero-knowledge rollups, or zkRollups. With zkRollups, Loopring asserts its exchanges can offer faster settlements for traders.
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