Crypto Asset Statement - Cosmos

Cosmos connects different blockchains through a hub-and-zone structure utilizing the Inter-Blockchain Communication protocol. Cosmos has grown to over 40 unique zones, however 80% of all network activity occurs in only 5 zones.¹ This could be indicative of reduced usability or dwindling adoption, or it may simply be consolidation of user preferences. Regardless, investors should consider this when investing in Cosmos.

Cosmos is available on multiple networks. It’s commonly traded as an ERC-20 token on the Ethereum network. Additionally it is available as a BEP-20 on the BNB Smart Chain, and also on the Polygon network, Cronos network and its own unique network. Consequently, it is dependent on the continued stability of each of those networks. Any fundamental issues in the Ethereum, BNB Smart Chain, Cronos, Polygon, or Cosmos network may impact ATOM’s smart contract or token value. Investors should consider this dependency when evaluating Cosmos.

As with staking any crypto asset, staking ATOM is not without risk. Many of the risks of staking ATOM are explained in our Risk Statement https://coinsquare.com/en-ca/ccml-rs/

in the following sections:

What is Staking, How Does Coinsquare Help You Earn Staking Rewards?, Validators, Custody, Slashing, Unbonding Periods, Rewards, Fees, Risks Related to Staking, Reliance on third party vendors, Slashing and missed rewards, Due diligence on validators may be insufficient, Illiquidity during unbonding periods, Due diligence on Digital Assets may be insufficient, Short History risk.

In addition to these general staking risks, we outline some information and risks that are more specific to ATOM below.

Cosmos employs a delegated proof-of-stake (DPoS) system for securing its network. This means that ATOM holders can delegate their tokens to be staked with an approved validator, which builds that validator’s reputation and relative size within the network of validators. As validators earn rewards for their activities in the blockchain, those who have delegated their ATOM to those validators earn a share of those rewards proportional to the amount of ATOM that the holder has staked with the validator.  

Staking rewards are computed and distributed after each successful block. If a reward is accrued after during a block, it will be issued immediately upon the completion of the block. When rewards are received by Coinsquare, Coinsquare will provide statements to users indicating the amount of the rewards that the user is entitled to as well as the total rewards that were earned and any fees payable. For each block, your share of ATOM rewards is proportionate to the amount of ATOM that you had staked when the block began.  

Coinsquare’s staking service is designed to automatically stake any rewards (“auto re-staking”) that are earned by clients through the staking service. This means that when rewards are distributed to any client account, those rewards immediately enter that network’s bonding period. Once the bonding period is complete, the rewarded amount joins the pre-existing staked balance to earn rewards through the staking service. Currently, Coinsquare does not offer the ability for clients to opt out of the reward auto re-staking mechanism. However, if a client withdraws enough of their staked balance, causing the total staked amount to fall below the minimum stake amount for that asset, no rewards earned from then onwards will be automatically staked and instead will be credited to the client’s unstated holdings. Any assets that were in the bonding period when the staked amount fell below the minimum amount will enter the unbonding period immediately upon completing the bonding period, after which it will be added to that client’s unstaked holdings.     

The estimated rewards percentage that appears throughout the Coinsquare app is a calculated annual percentage yield (APY) rate, which is derived from an APY rate that reported to us from our Staking partner, BitGo. The reported rate is then reduced by Bitgo’s fee and Coinsquare’s fee, leaving the estimated rewards percentage that is displayed to in the app. The displayed rate is approximately what you can expect to earn by staking the asset, but is subject to fluctuations based on various factors for each network. Coinsquare evaluates the net rewards paid to clients against the calculated and displayed estimated rewards percentage on an ongoing basis, at least quarterly. 

Each crypto asset for which Coinsquare provides staking services is subject to specific fees because of the unique nature of each blockchain network. These fees are calculated on a percentage basis in relation to the amount of rewards earned. Coinsquare’s service fee may be up to 30% of net rewards earned by a user (as more fully described in our fee schedule https://coinsquare.com/en-ca/ccml-fs/). 

Coinsquare receives net rewards from its Custodian, BitGo. This means that BitGo’s fees of 9% of gross rewards are removed on-chain from the total amount earned by the validator before the net amount is distributed to CCML. CCML then takes the amount received, removes the fee as explained below, and distributes the remaining amount proportionally to each user that had assets staked for the entirety of the period in which the rewards were earned. 

With respect to any rewards earned on your staked ATOM: (i) Coinsquare’s custodian, BitGo, will be entitled to a fee (as described above) and may pay a portion of that fee to any third-party service provider it selects to act as validator; (ii) any remaining portion of the rewards (the “Net Rewards”) will be delivered to one of Coinsquare’s custodial wallets with BitGo; (iii) Coinsquare will be entitled to a fee of up to 30% in respect of the Net Rewards (the “Coinsquare Services Fees”); and (iv) after the Coinsquare Service Fee has been paid, your account will be credited with any remaining portion of the rewards, and, subject to any unbonding, lock-up or cooling-down period, you will be able to hold, sell or withdraw your rewards.  

Currently, the third-party service provider we use is our custodian, BitGo. BitGo is regulated as a trust company under the Division of Banking in South Dakota. Pursuant to Coinsquare’s relationship with BitGo, BitGo may act as the validator in respect of staked crypto assets or may select a third-party service provider to act as the validator. BitGo currently has a contractual relationship with Figment, whereby Figment acts as validator for the crypto assets stored in Coinsquare’s custodial wallets with BitGo. Headquartered in Toronto, Figment is one of the world’s largest blockchain infrastructure and services providers. 

Validators miss out on ATOM rewards if they fail to participate when called upon, and their existing stake can be destroyed if they behave dishonestly. 

Coinsquare may, at its sole discretion, transfer reimbursements for slashing penalties it receives from BitGo to its users less any administrative costs or expenses Coinsquare incurs in reimbursing users. In the event a supported Cosmos validator is slashed, Coinsquare has no obligation to replace any lost ATOM or otherwise provide any compensation for any losses. Negative impacts of slashing will be allocated to all clients using the staking service in proportion to the amount of ATOM they had staked.