Crypto Asset Statement - Axie Infinity

About this Statement

Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Axie Infinity 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 Axie Infinity

Axie Infinity was founded in 2018 by Sky Mavis, a technology-focused game developer with a team primarily based in Vietnam, along with Trung Nguyen and Aleksander Larsen. Axie Infinity is a Pokémon and Tamagotchi inspired universe where users can earn tokens through gameplay and contributing to the ecosystem. Players can battle, collect, raise, and build a land-based kingdom for their pets. It is governed by the Axie Infinity Shards(AXS) – an ERC-20 token for the Axie Universe.

Risks

As with all assets, investing in Axie Infinity 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 Axie Infinity 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 Axie Infinity.

Reliance on Ronin Network

Axie Infinity is an ERC20 token associated with the Axie Infinity game, which operates on the Ronin Network, a side-chain of Ethereum. Sky Mavis, the creators of the Axie Infinity game, created the Network specifically to process in-game transactions.1 Ronin utilizes a Proof of Authority consensus mechanism that intends to provide transaction fees that are significantly lower than those (gas fees) on Ethereum layer 1.2 However, since it does not yet use a rollup technology (like optimistic or zero-knowledge), transactions are only validated and stored on the Ronin blockchain and are not ultimately secured by the Ethereum blockchain’s Proof of Work consensus. Ronin is centralized and controlled by Sky Mavis.

Exposed Vulnerability Resulting in $625M Loss

On March 23, 2022, hackers exposed a vulnerability in the Ronin Bridge to maliciously remove 173,600 ETH and 25.5M USDC. The Ronin Bridge is designed to move assets between Ethereum layer 1 and the Ronin Network. The bad actors used hacked private security keys to compromise the network nodes that validate transfers to and from the Ronin blockchain.3 Sky Mavis discovered the breach on March 28, 2022 and exercised their centralized control of the Ronin Bridge to stop the flow of assets onto or off the blockchain. As of April 6, 2022, Sky Mavis is working with law enforcement and forensic cryptographers to track and, hopefully, recover the assets.4

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. Axie Infinity. “Ronin Ethereum Side-Chain.” April, 2021. https://whitepaper.axieinfinity.com/technology/ronin-ethereum-sidechain
  2. FPG_Odin. “Extended Q&A of Axie Infinity Sidechain Announcement.” Medium. June 30, 2020. https://medium.com/@FPG_Odin/extended-q-a-of-axie-infinity-sidechain-announcement-b4c5dfc899c9
  3. Prashant Jha. “The aftermath of Axie Infinity’s $650M Ronin Bridge hack.” CoinTelegraph. April 12, 2022. https://cointelegraph.com/news/the-aftermath-of-axie-infinity-s-650m-ronin-bridge-hack
  4. Prashant Jha. “Finance Redefined: Axie Infinity’s Ronin bridge faces worst hack, Binance launches Bridge 2.0 and more. Coin Telegraph. April 1, 2022. https://cointelegraph.com/news/finance-redefined-axie-infinity-s-ronin-bridge-faces-worst-hack-binance-launches-bridge-2-0-and-more

Published Date: July 5, 2022