Crypto Asset Statement - Dash
About this Statement
Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Dash in reliance on a prospectus exemption granted by the Canadian Securities Administrators (CSA) in the exemptive relief decision dated October 12, 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.
Dash was founded by software developers Evan Duffield and Kyle Hagan from a fork in the Bitcoin network. However, Dash wasn’t the top name choice when it was first launched. The project was originally called XCoin, changing its name to Darkcoin two weeks later before rebranding again to Dash in March 2015. Dash aims to be the most user-friendly and scalable payments-focused cryptocurrency in the world. Dash is marketed to both individual users and businesses, including merchants, financial services, traders and those who need to send international remittances. Some unconventional uses of Dash also include paying for fried chicken at the Church’s Fried Chicken restaurant in Venezuela!
As with all assets, investing in Dash is not without some general risks. Many of these risks are identified and explained in our Risk Statement.
The relevant sections in the Risk Statement are as follows:
Platform Risk, Short History Risk, Price Volatility, Potential Decrease in Global Demand for Digital Assets, Potential for Illiquid Markets, Transfers of Digital Assets are Irreversible, Concentration Risks, Uncertainty in Regulation, Financial Institutions May Refuse to Support Transactions Involving Digital Assets, Digital Assets’ Blockchain May Temporarily or Permanently Fork and/or Split, Cyber-Security Risk, Airdrops, Issues with Cryptography Underlying Digital Asset Networks, Internet Risk, Open Loop System, Risk if Entity Gains a 51% Share of Digital Asset Network, Possible Increase in Transaction Fees, Possible Increase in Service Fees, Limited Canadian Investor Protection Fund Account, No Voting Rights, Custody of Digital Assets, Custody Risk Insurance, Threats to Coinsquare’s Physical Assets, Covid-19 Outbreak, Use of Leverage, Halting, Suspending, and Discontinuing Digital Assets.
In addition to the general risks, we outline some risks that are specific to Dash 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 Dash.
DASH block reward reduction
Since Dash is the result of a fork on the Bitcoin network, it has a reward reduction protocol whereby block rewards are reduced on a predetermined schedule. Unlike Bitcoin, where the reward for block validation is reduced by 50% every 210,000 blocks (a.k.a. “halving”), Dash’ block reward is only reduced by 7.14% every 210240 blocks. Since Dash’ block time is approximately 2.5 minutes, this results in a reward reduction approximately every 365 days.1 While this reduction is significantly less than the halving experienced in the Bitcoin and Bitcoin Cash networks, the reduction in block reward may still have similar effects where network participants leave the network as rewards reduce. Decreased network participation may affect Dash price and is something that should be considered by investors.
Security concerns with Dash Masternode network
The Dash network utilizes a system of Masternodes, which are powerful servers backed by collateral in DASH. Masternodes host full copies of the Dash blockchain, and provide layer-2 services to the network. In return, Masternodes are paid for their service by the Dash network. Additionally, Masternodes are given voting rights to fund community projects that support the Dash ecosystem.2
Establishing a Masternode requires a high level of technical knowledge. With the growth of the digital asset space, an increasing amount of non-technical people have expressed desire, and attempted to set up Dash Masternodes. Several approved companies have been formed to allow non-technical people to pay a monthly fee to participate in the Masternode network, where the company provides technical support, near-perfect up-time, and make it very simple to set up a node. These various companies each charge different monthly fees, but offer very similar services. Dash has identified a potential risk whereby the majority of Masternodes migrate to the company that offers the lowest monthly fee. Theoretically, a single company could be ultra-competitive and gain over 51% of the Masternode network, which would present a security risk if that company was subsequently hacked. In this case, Dash Network security will only be as good as that specific company’s security, since 51% of all Masternodes would be compromised if that company were hacked, allowing a bad actor to have voting control and blockchain control of Dash network. If this were to occur, it could severely impact the market capitalization of DASH.
Dash has identified several potential safeguards that could be implemented to mitigate this risk. These safeguards include issuing a Dash Masternode hosting software licence, limiting the number of Masternodes hosted with any one company, collecting statistical data on Masternode hosting distribution, and developing a Masternode self-installer. As of the writing of this statement, Dash has not yet implemented any of these safeguards and is continuing to monitor the Masternode network.3
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:
- Coinsquare Securities Law Assessment
- Coinsquare Digital Asset Security Audit
- 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.
- NiceHash. “Dash reward reduction.” https://www.nicehash.com/countdown/dash-halving-2022-05-27-12-00
- Dash. “How Masternodes Work.” https://www.dash.org/masternodes/
- Dash. “Possible security threat to the Dash Masternode network.” August 10, 2019. https://www.dash.org/forum/threads/possible-security-threat-to-the-dash-masternode-network.47513/
Published Date: Feb 5 2024