Crypto Asset Statement - AAVE

About this Statement

Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell AAVE in reliance on a prospectus exemption granted by the Canadian Securities Administrators (CSA) in the exemptive relief decision dated July 5, 2022. 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 CSA jurisdictions do not apply in respect of a misrepresentation in this statement to the extent that a crypto contract is distributed under the above-noted prospectus relief.

No securities regulatory authority in Canada or any other jurisdiction has expressed an opinion about any of the crypto assets (or crypto contracts) that are available through Coinsquare’s platform, including an opinion that the crypto assets are not themselves securities and/or derivatives.

Coinsquare has compiled the information contained in this Crypto Asset Statement to the best of its ability based on publicly available information.  Coinsquare is providing this Crypto Asset Statement on an “as is” basis and makes no representation or warranty as to accuracy or completeness of the contents.   

About AAVE

Stani Kulechov is the founder and CEO of Aave, an open source and non-custodial liquidity market protocol to earn interest on deposits and borrow assets. Depositors earn interest by providing liquidity to lending pools, while borrowers can obtain loans by tapping into these pools with variable and stable interest rate options. Aave Protocol is unique in that it tokenizes deposits as aTokens, which accrue interest in real-time. It also features access to Flash Loans and Credit Delegation as uncollateralized loan options.

Risks

As with all assets, investing in AAVE is not without some general risks. Many of these risks are identified and explained in our Risk Statement. In addition to the general risks, we outline some risks that are specific to AAVE below. While we make an effort to identify every source of risk, we encourage you to do your own research and ensure you are comfortable investing in AAVE.

Aave Protocol Risks

Since Aave protocol is unique in the way it tokenizes deposits as aTokens, the value of AAVE is highly dependent on the stability and security of the Aave protocol. As a crypto-lending platform, Aave protocol relies on the security of each lended asset to maintain the integrity of the protocol and the ecosystem. Consequently, Aave evaluates token risk using a defined methodology with highly technical, complex factors and quantitative metrics.1 The Aave risk framework has been established and is publicly available at https://docs.aave.com/risk.

Aave reliance on Ethereum & Chainlink

Aave, like many other tokens, is built on top of the Ethereum blockchain. Consequently, Aave relies on the health and continued stability of the Ethereum network to continue to operate as intended. Aave has also integrated with Chainlink to power the Aave Oracle Network.2 Consequently, Aave relies on the continued stability and health of Chainlink to protect itself against Oracle Network risk. Any fundamental issues in either network could significantly impact Aave’s stability and market capitalization.

Flash Loans on Aave

Flash loans are a feature that allows one to borrow any available amount of an asset without any collateral as long as it is returned to the protocol within one block transaction.3 The accessibility of flash loans presents the potential for flash loan attacks, where assets from a flash loan are used to manipulate the market in the favour of the lender. While a flash loan attack may not necessarily target Aave, the availability of this mechanism could cause scrutiny from entities that may pose a risk to Aave.

Uncertain regulatory status of DeFi lending platforms

To date, Canadian financial regulators have not taken a firm position on centralized or decentralized crypto lending platforms/protocols.4 Additionally, many governments have not yet determined if or how they will attempt to regulate this new financial technology. As the regulatory landscape develops, scrutiny from various governing bodies could have an impact on the market capitalization of AAVE.

Coinsquare’s Due Diligence for Digital Assets

To be made available for trading on Coinsquare’s platform, a digital asset must pass the following due diligence reviews:

  1. Coinsquare Securities Law Assessment
  2. Coinsquare Digital Asset Security Audit
  3. New Digital Asset Business Case

Coinsquare undertakes these three levels of due diligence in order to determine whether the digital asset is compliant with our legal and regulatory obligations, is secure, and has historical data supporting a beneficial business case. Coinsquare’s New Product Committee must provide final approval for a new digital asset to be made available on the platform.

References:

  1. Alex Bertomeu-Gilles. “Understanding the Risks of Aave.” Medium.com. July 9, 2020. https://medium.com/aave/understanding-the-risks-of-aave-43334dbfc6d0
  2. Chainlink Ecosystem. “AAVE x Chainlink.” 2020. https://www.chainlinkecosystem.com/ecosystem/aave
  3. Aave. “Flash Loans.” 2021. https://docs.aave.com/faq/flash-loans
  4. Rene Sorell, Lori Stein, Ana Badour, Laure Fouin. “Regulatory Uncertainty Regarding Crypto Asset Lending in Canada.” McCarthy Tetrault. June 1, 2022.  https://www.mccarthy.ca/en/insights/blogs/techlex/regulatory-uncertainty-regarding-crypto-asset-lending-canada

Published Date: July 5, 2022