Crypto Asset Statement - NEAR Protocol
About this Statement
Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell NEAR Protocol in reliance on a prospectus exemption granted by the Canadian Securities Administrators (CSA) in the exemptive relief decision dated March 1, 2023. 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 NEAR Protocol
NEAR is the native token of the Near Protocol, which is a layer-1 proof-of-stake blockchain network. NEAR’s technology leverages sharding, a fundamental aspect of Ethereum’s upgrading plans, to facilitate its high transaction throughput and scalability. It has been architected to be developer and user friendly, which intends to accelerate the dApp development process and minimize resistance to new user onboarding. It’s mainnet launched in April 2020, with on-chain governance activated in October 2020.
Risks
As with all assets, investing in NEAR Protocol 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 NEAR Protocol 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 NEAR Protocol.
NEAR token distribution to insiders
Of the entire initial supply of NEAR tokens, over 47% was distributed to what might be considered insiders. The core contributors received 14%, backers received 16.7%, small backers received 6.1%, and the NEAR Foundation received 10% of the entire initial supply.1 Investors should consider this concentrated distribution when evaluating NEAR.
Network breach that may have exposed wallet keys in 2022
In August 2022, the NEAR Foundation revealed that they discovered a security breach and patched the vulnerability two months prior. Their revelation came immediately after Solana, a competing layer 1 network, experienced a wallet hack. NEAR’s vulnerability arose from their wallet recovery system, which may have allowed a third party to access seed phrases. Specifically, leveraging the email recovery process would inadvertently expose the seed phrase to NEAR’s third party analytics platform. NEAR reported that the rectified the vulnerability immediately and identified all parties that may have had access to the information.2 However, it is important that prospective investors understand the situation and NEAR’s communication of it, when evaluating NEAR.
Additionally, as described, the planned upgrades to the Ethereum are significant and extensive. The introduction of proof-of-stake consensus, protocol changes to enhance security, and eventual sharding to integrate scaling solutions introduces multiple sources of complexity to the Ethereum network and its code. To combat this, Ethereum developers have been actively working to de-complexify these concepts and develop solutions that allow upgrades with the least amount of technical complexity possible.4 However, investors should consider that all of the upgrades to Ethereum, and the forks that will be necessary to implement them, will introduce more complexity to the Ethereum network which could have an effect on it’s usability, it’s market sentiment, and ultimately its token price.
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.
References:
- NEAR Foundation. “NEAR Token Supply and Distribution.” October 16, 2020. https://near.org/blog/near-token-supply-and-distribution/
- Andrew Hayward. “Near Protocol Discloses Wallet Breach That May Have Exposed Private Keys.” Decrypt. August 5, 2022. https://decrypt.co/106819/near-protocol-wallet-breach-exposed-private-keys
Published Date: March 1, 2023
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Property as prescribed in the Coverage Policy of the Canadian Investor Protection Fund (CIPF) that is held in customers’ accounts, including cash balances but not crypto assets, is protected by CIPF within specified limits. A brochure describing the nature and limits of coverage is available upon request or at https://www.cipf.ca.