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 USD Coin. 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.
USD Coin (USDC) is a fiat-collateralized stablecoin that offers the advantages of transacting with blockchain-based assets while mitigating price risk. Each USDC is issued as an ERC-20 token on the Ethereum blockchain and is 100% collateralized by a corresponding USD held in accounts subject to regular public reporting of reserves.
Coinberry has performed due diligence with respect to USD Coin 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 USD Coin has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which USD Coin has the most significant connection
Risks Associated with Investing in USD Coin
Underlying Value Risk
USDC is a great option for traditional investors looking for a low-beta investment that can generate returns better than CDs. This low-beta investment can also reduce the portfolio's overall risk which can help match the portfolio's risk profile with the investor's risk appetite. 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 the USD Coin priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. If these means of valuing USD Coin prove to be fundamentally flawed, then the market may undergo a repricing of the USD Coin, which could have an adverse impact on its price.
Top USD Coin Holders Control a Significant Percentage of the Outstanding USD Coin
Certain addresses on the USD Coin blockchain networks hold a significant amount of the currently outstanding Crypto Assets. However, the top 10 holders have 34.54% possession of USD Coin.
Regulation of USD Coin
The regulation of USD Coin continues to evolve in North America and within foreign jurisdictions, which may restrict the use of USD Coin or otherwise impact the demand for USD Coin. However, USD Coin (USDC) is a stablecoin issued by CENTRE — a joint venture between Coinbase and Circle. The cryptocurrency is backed by U.S. dollar-denominated assets held at regulated and audited U.S. financial institutions.
Volatility of USD Coin
The risks of trading USD Coin 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 USD Coin to quickly drop or rise thereby negatively or positively impacting your investment. However, USD Coin is a stable coin as it is pegged to the US dollar.
Loss of “Private Keys”
The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its USD Coin) could prevent Coinberry from accessing its USD Coin. 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 USD Coin 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 USD Coin trading platforms. Unexpected market illiquidity may cause major losses to the holders of USD Coin.
Coinberry does not currently support USD Coin 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 USD Coin Network
Dependence on USD Coin Developers
While many contributors to USD Coin’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 USD Coin’s software.
Significant Increase in USD Coin Interest Could Affect the Ability of the USD Coin Network to Accommodate Demand
One of the most contentious issues within the USD Coin community has been around how to scale the network as user demand continues to rise. The debate goes back to the earliest days of USD Coin. There are many possible solutions, and most of them boil down to different ideologies on how USD Coin should be used.
Competitors to USD Coin
To the extent a competitor to USD Coin gains popularity and greater market share, the use and price of USD Coin could be negatively impacted, which may adversely affect its price. Similarly, USD Coin and the price of USD Coin could be negatively impacted by competition from incumbents in the credit card and payments industries.
Significant Energy Consumption to run the USD Coin Network
Because of the significant computing power required to mine USD Coin, 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 USD Coin Trading Platforms
Regulation of USD Coin Trading Platforms
USD Coin trading platforms are spot markets in which USD Coin can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the USD Coin trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws. As the issuer of USDC, Circle is subject to oversight by 46 state regulators, which conduct frequent exams of Circle’s activities.
Limited Operating History of USD Coin Trading Platforms
USD Coin trading platforms have a limited operating history. The potential for instability of USD Coin 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 USD Coin, which may adversely affect its price.
Different Prices of USD Coin on the USD Coin Trading Platforms
Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for USD Coin 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 USD Coin Network
Upgrades by USD Coin to the USD Coin platform, a hard fork in the USD Coin platform, or a change in how transactions are confirmed on the USD Coin platform may have unintended, adverse effects on all blockchains using the ERC-20 standard, ERC-721 standard, or any other future USD Coin standard.
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