Crypto Asset Statement - Optimism
About this Statement
Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Optimism 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.
About Optimism
OP is the governance token of Optimism, which is a layer-2 optimistic rollup scaling solution for the Ethereum network. As a scaling solution, Optimism intends to leverage Ethereum’s security while improving its transaction throughput, latency, and costs. Developers can build dApps on Optimism as they would on Ethereum, and those dApps should operate at reduced costs due to Optimism’s rollup technology. The OP token was first issued in May 2022 as means of introducing the Optimism Collective to the community to accommodate DAO governance through on-chain voting.¹
Risks
As with all assets, investing in Optimism 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 Optimism 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 Optimism.
Optimism airdrop hack during initial token launch
During the initial launch of the OP token, the Optimism Foundation enlisted the help of Wintermute, a leading crypto market maker, to facilitate the airdrop of 20 million OP tokens. However, the tokens were sent to a Wintermute wallet address that had not yet been synced to layer-2, making them temporarily inaccessible. Within a day, a hacker accessed and removed the entirety of the 20 million tokens. The hacker eventually returned 17 million tokens, kept 2 million as a reward for exposing the vulnerability, and sent 1 million to Vitalik Buterin.²
Unresolved findings from Optimism’s smart contract audit
Openzeppelin conducted an audit on the Optimism smart contract, the results of which are publicly available on Openzeppelin’s website. The audit results detail numerous vulnerabilities, the majority of which have been resolved, however there are some findings that have not been resolved:
- High Severity
- [H04] Irrelevant proof contributions are accepted
- Medium Severity
- [M01] Potential mismatch in allowed gas limit for sequenced and queued transactions
- [M02] Pre-state root and transaction may not uniquely identify transitions
- [M03] Initial state root cannot be challenged
The full details of the audit, including all findings, is available at https://blog.openzeppelin.com/optimism-smart-contracts-audit/
Ethereum Upgrade Plans and Layer 2 Solutions
The most prominent portion of Optimism’s technology is an Ethereum layer 2 scaling solution that is built on top of the Ethereum Mainnet (layer 1) to provide increased throughput and lower costs for transactions that are processed through the Optimism network, but then ultimately secured by the Ethereum Mainnet. Optimism utilizesoptimistic rollup technology to roll multiple transactions up into one transaction on Ethereum layer 1. Layer 2 solutions are part of the Ethereum network’s plan to upgrade Ethereum to proof of stake consensus and eventually integrate those layer 2 solutions directly into Ethereum through a process called sharding.4 Unfortunately, the Ethereum Upgrades have been delayed multiple times. These delays mean that layer 2 solutions face a longer wait for integration to Ethereum. Investors should be aware that further delays to Ethereum Upgrades has the potential to negatively impact market sentiment towards layer 2 solutions, and ultimately affect OP token price. Additionally, Optimism may simply not be chosen by the Ethereum Network for integration, which also could negatively impact market sentiment and OP 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:
- Optimism. “What is the Optimism Collective?” February 8, 2023. https://community.optimism.io/docs/governance/
- Stacy Elliot. “Optimism Hacker Returns 17 Million Tokens After Airdrop Blunder” Decrypt. June 10, 2022. https://decrypt.co/102541/optimism-hacker-returns-17-million-tokens-airdrop
- Openzeppelin Security “Optimism Smart Contracts Audit.” November 24, 2021. https://blog.openzeppelin.com/optimism-smart-contracts-audit/
- Ethereum. “Sharding.” June 22, 2022. https://ethereum.org/en/upgrades/sharding/
Published Date: Feb 5 2024
FINTRAC Registered
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.