About this Statement
Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell EIGEN 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 EIGEN
EIGEN is the utility token of EigenLayer, which is a protocol that allows networks or protocols to leverage Ethereum’s proof of stake consensus mechanism to secure their own network/protocol through a process called “re-staking.” EigenLayer serves various Actively Validated Services (AVS) that requires their own distributed validation semantics for verification, such as such as sidechains, data availability layers, new virtual machines, keeper networks, oracle networks, bridges, threshold cryptography schemes, and trusted execution environments. Many of the AVSs that use EigenLayer to secure their network with ETH re-staking have explicit objective faults that can be mathematically or cryptographically determined and acted upon (slashed). However, there is a much wider class of digital tasks where the faults in their execution are not provable onchain in a smart contract but are observable by any observer outside the chain and a wide agreement can be achieved among the honest observers.1 These faults are frequently referred to as “intersubjectively attributable faults” in the EigenLayer documentation. Staking of EIGEN allows EigenLayer to secure AVSs that have any intersubjectively attributable faults and penalize the EIGEN stake of the operators who participate in these faults. The EigenLayer whitepaper explains in detail the extreme complexity of the protocol and how EIGEN staking secures AVSs with intersubjectively attributable faults.2
Risks
As with all assets, investing in EIGEN is not without some general risks. All of the risks of trading and staking crypto that are identified and explained in our Risk Statement [hyperlink to risk statement] apply to EIGEN . 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 EIGEN 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 EIGEN.
Reliance on the Ethereum Network
As EIGEN is only supported by CCML as an ERC-20 token on the Ethereum network, it is highly dependent on the continued stability of that network. Any fundamental issues in the Ethereum network may impact EIGEN’s smart contract or token value. Investors should consider this dependency when evaluating EIGEN.
EIGEN Token Distribution Concerns
EIGEN token was distributed to early users of EigenLayer re-staking through what was called a “stakedrop.” Essentially this was an airdrop to those who had re-staked ETH to secure AVSs in the EigenLayer protocol. Concerns were raised when it was revealed that the stakedrop would not be available to residents of the USA, regardless of how much re-staked ETH they had. 3 Additionally, concerns were raised over the amount of EIGEN tokens that were distributed to early contirbutors and early investors, which was 25.5% and 29.5% of the initial supply, respectively.4 These allocated tokens were subject to a lock up period 5 but it appeared that some of these tokens were able to be staked during their lockup period, which caused concern among the community. The concerns surrounding EIGEN token distribution should be considered when evaluating EIGEN.
EigenLayer Complexity
The EigenLayer technology is very complex and aims to solve a new problem in a unique way through EIGEN staking to provide security to protocols with intersubjectively attributable faults. The various concepts, complexities, edge cases, and solutions are explained in detail in the EigenLayer whitepaper. Potential investors should read the whitepaper [ https://docs.eigenlayer.xyz/assets/files/EIGEN_Token_Whitepaper-0df8e17b7efa052fd2a22e1ade9c6f69.pdf] in entirety to ensure they understand and are comfortable with the technology that is EigenLayer and the EIGEN token when evaluating EIGEN.
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 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
