Crypto Asset Statement - Tezos
About this Statement
Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Tezos 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.
Tezos is an open-source platform for assets and applications that can evolve by upgrading itself. In Tezos, all stakeholders can participate in governing the protocol, including upgrades to the amendment process. Self-amendment allows Tezos to upgrade itself without having to split (“fork”) the network into two different blockchains. Owners can interact with the Tezos blockchain by holding Tezos tokens (XTZ). For the purpose of validating transactions on the protocol, a process called “baking” was developed. Simply put, it is the act of signing and publishing blocks to the Tezos blockchain. Bakers are a crucial component of the proof-of-stake (PoS) consensus mechanism by ensuring that all transactions in a block are correct, that the order of transactions is agreed upon, and that no double-spending has occurred.
As with all assets, investing in Tezos 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 Tezos 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 Tezos.
Reliance on Baker Nodes
The Tezos ecosystem relies on a set of individual nodes, known as Bakers, to process transactions based on a proof-of-stake mechanism. Baker nodes stake their XTZ to join the network, and are rewarded with XTZ for their computing power spent on validating a transaction. Currently, there are 402 active Baker nodes on the network that process transactions1 For comparison, the Ethereum network has approximately 4,000 nodes2.
The Tezos ecosystem, as one of many proof-of-stake blockchain projects, competes for the participation of nodes with other projects that also use proof-of-stake models. There is a risk that a lack of Baker node participants could hinder or prevent Tezos from properly providing its services, which may negatively affect XTZ’s market sentiment, market cap and token price.
Competition with Other Layer-1 Proof-of-Stake Platforms
Tezos is a delegated proof-of-stake blockchain which is primarily used to process transactions and deploy smart contracts. Other blockchain platforms such as Ethereum, Cardano, Polkadot, Cosmos, Solana, Avalanche, and Binance Smart Chain provide very similar services. The number of platforms providing similar services poses a risk to XTZ investors, as the platform may not be competitive enough to gain market share, 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.
Published Date: Feb 5 2024