Crypto Asset Statement - Stellar
About this Statement
Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Stellar 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. 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.
Stellar was created in 2014 by the Stellar Development Foundation. Jed McCaleb, co-founder of Ripple, is among the founders of Stellar Lumens. Stellar was introduced as a facilitator for global payments that also maintained the integrity of financial transactions. Lumens, the currency of the Stellar network, was created for this purpose. It acts as a neutral currency on Stellar-backed payment portals, so that no national currency is ‘preferred’ and everyone across the globe enjoys a transparent, frictionless and agnostic payment facilitator.
As with all assets, investing in Stellar 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 Stellar 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 Stellar.
Concentration of XLM Supply
The XLM token supply is highly concentrated. The Stellar Development Foundation, a non-profit organization that is primarily responsible for Stellar’s technical progress and business development, controls more than 80% of the circulating supply of XLM1
Such high concentration of supply within one entity creates a risk that the SDF’s actions alone can have serious consequences on XLM’s market cap and token price.
Competition with Other Blockchain Platforms for Nodes
Stellar, like other blockchain platforms, relies on a decentralized consensus mechanism to process transactions. This requires a network of participants, called nodes, to be actively running special software to maintain the Stellar network. Stellar competes in a global marketplace for participants with other platforms, including Bitcoin, Ethereum and other blockchains. Currently, there are only 46 active nodes on the Stellar network2. By comparison, Ethereum has over 4,000 nodes3. The small number of nodes may pose a potential risk to XLM investors, as the platform suffers from concentration risk, and the withdrawal of a small number of participants may make the platform less able to process transactions,, with negative consequences for XTZ’s market sentiment, market cap and 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.
- Alex Dovbyna, “Stellar Development Foundation Pockets 98 Percent of Newly Created XLM Tokens”, U Today, July 1st, 2020. https://u.today/stellar-development-foundation-pockets-98-percent-of-newly-created-xlm-tokens
- “Nodes”, StellarBeat. July 22, 2022. https://stellarbeat.io/nodes
- “Ethereum Mainnet Statistics”. Ether Nodes, July 21, 2022. https://ethernodes.org/
Published Date: July 22, 2022