Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Injective 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.
Injective is the governance token of the Injective blockchain, a layer-1 network which markets itself as the blockchain built for finance. Injective boasts unique features such as an on-chain order book that supports spot, futures, and derivatives trading, that aim to attract those who would build financial dApps.1 Injective was built using the Cosmos SDK, and consequently uses the Tendermint proof-of-stake consensus mechanism.2 Injective values interoperability, enabling communication with other chains that employ the Inter-Blockchain Communication (IBC) protocol through Wormhole (a protocol developed through the Cosmos SDK).3 Injective is available as the native asset of the Injective blockchain, or as an ERC20 token. They are interconvertable via the Injective Hub, but the ERC20 token must be converted to native for staking. The current offering of INJ at Coinsquare is the ERC20 token only. The current offering of INJ at Coinsquare is the native token only.
As with all assets, investing in Injective 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 Injective 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 Injective.
Although Injective is a layer-1 blockchain, it is heavily intertwined with the Cosmos Network. Injective was developed using the Cosmos SDK, and it utilizes CosmWasm for its smart contract and dApp development on the network.4 CosmWasm was originally developed for the Cosmos ecosystem, but has evolved to be used with other IBC-compatipble networks.5 While native INJ and the Injective blockchain are not reliant on the Cosmos network as an ERC20 token is reliant on the Ethereum network, there are still clear links between Injective and Cosmos as explained above. This relation between the two networks could have the potential to impact market price of either asset based on news or movements in the other asset. Potential investors should be aware of the link between Injective and Cosmos and consider this when evaluating INJ for investment.
The INJ ERC20 token that is offered by Coinsquare is dependent on the stability and security of the Ethereum Mainnet. Any fundamental issues with this network could impact the value of ERC20 INJ, or the operation of the Injective Hub bridge which allows interconversion of the ERC20 token with the native INJ blockchain asset.
Injective employs a mechanism whereby 60% of all fees from dApps are entered into a buy-back-and-burn event. In these events, the basket of fees, which is typically comprised of various assets, is auctioned of to the highest bidder in exchange for INJ token. The proceeds of the auction (the INJ tokens) are then burned, whihc reduces the total supply of INJ.6 On June 6, 2023, the official Injective twitter account posted, saying that Injective had the highest burn rate in crypto and that nearly 5.7 million INJ tokens had been burned to date. Potential investors should be aware of the deflationary impact of burning, and also be aware that there has been increasing regulatory scrutiny from the United States SEC on tokens that employ a burning mechanism.
Injective employs a delegated proof-of-stake (DPoS) system for securing its network that is standard with the Cosmos SDK, known as Tendermint. This consensus mechanism allows INJ holders to delegate their tokens to be staked with an approved validator, which builds that validator’s reputation and relative size within the network of validators. As validators earn rewards for their activities in the blockchain, those who have delegated their INJ to those validators earn a share of those rewards proportional to the amount of INJ that the holder has staked with the validator.
Staking rewards are computed and distributed after each successful block. If a reward is accrued during a block, it will be issued immediately upon the completion of the block. When rewards are received by Coinsquare, Coinsquare will provide statements to users indicating the amount of the rewards that the user is entitled to as well as the total rewards that were earned and any fees payable. For each block, your share of INJ rewards is proportionate to the amount of INJ that you had staked when the block began.
Coinsquare’s staking service is designed to automatically stake any rewards (“auto re-staking”) that are earned by clients through the staking service. This means that when rewards are distributed to any client account, those rewards immediately enter that network’s bonding period. Once the bonding period is complete, the rewarded amount joins the pre-existing staked balance to earn rewards through the staking service. Currently, Coinsquare does not offer the ability for clients to opt out of the reward auto re-staking mechanism. However, if a client withdraws enough of their staked balance, causing the total staked amount to fall below the minimum stake amount for that asset, no rewards earned from then onwards will be automatically staked and instead will be credited to the client’s unstated holdings. Any assets that were in the bonding period when the staked amount fell below the minimum amount will enter the unbonding period immediately upon completing the bonding period, after which it will be added to that client’s unstaked holdings.
The estimated rewards percentage that appears throughout the Coinsquare app is a calculated annual percentage yield (APY) rate, which is derived from an APY rate that reported to us from our Staking partner, BitGo. The reported rate is then reduced by BitGo’s fee and Coinsquare’s fee, leaving the estimated rewards percentage that is displayed to in the app. The displayed rate is approximately what you might earn by staking the asset, but is subject to fluctuations based on various factors for each network and is not guaranteed. Additionally, it’s important to note that past performance is not necessarily indicative of future performance with respect to rewards earned from staking any asset. Coinsquare evaluates the net rewards paid to clients against the calculated and displayed estimated rewards percentage on an ongoing basis, at least quarterly.
Each crypto asset for which Coinsquare provides staking services is subject to specific fees because of the unique nature of each blockchain network. These fees are calculated on a percentage basis in relation to the amount of rewards earned. Coinsquare’s service fee may be up to 30% of net rewards earned by a user (as more fully described in our fee schedule https://coinsquare.com/en-ca/ccml-fs/).
Coinsquare receives net rewards from its Custodian, BitGo. This means that BitGo’s fees of 9% of gross rewards are removed on-chain from the total amount earned by the validator before the net amount is distributed to CCML. CCML then takes the amount received, removes the fee as explained below, and distributes the remaining amount proportionally to each user that had assets staked for the entirety of the period in which the rewards were earned.
With respect to any rewards earned on your staked INJ: (i) Coinsquare’s custodian, BitGo, will be entitled to a fee (as described above) and may pay a portion of that fee to any third-party service provider it selects to act as validator; (ii) any remaining portion of the rewards (the “Net Rewards”) will be delivered to one of Coinsquare’s custodial wallets with BitGo; (iii) Coinsquare will be entitled to a fee of up to 30% in respect of the Net Rewards (the “Coinsquare Services Fees”); and (iv) after the Coinsquare Service Fee has been paid, your account will be credited with any remaining portion of the rewards, and, subject to any unbonding, lock-up or cooling-down period, you will be able to hold, sell or withdraw your rewards.
Currently, the third-party service provider we use is our custodian, BitGo. BitGo is regulated as a trust company under the Division of Banking in South Dakota. Pursuant to Coinsquare’s relationship with BitGo, BitGo may act as the validator in respect of staked crypto assets or may select a third-party service provider to act as the validator. BitGo currently has a contractual relationship with Figment, whereby Figment acts as validator for the crypto assets stored in Coinsquare’s custodial wallets with BitGo. Headquartered in Toronto, Figment is one of the world’s largest blockchain infrastructure and services providers.
Validators miss out on INJ rewards if they fail to participate when called upon, and their existing stake can be destroyed if they behave dishonestly.
Coinsquare may, at its sole discretion, transfer reimbursements for slashing penalties it receives from BitGo to its users less any administrative costs or expenses Coinsquare incurs in reimbursing users. In the event a supported Injective validator is slashed, Coinsquare has no obligation to replace any lost INJ or otherwise provide any compensation for any losses. Negative impacts of slashing will be allocated to all clients using the staking service in proportion to the amount of INJ they had staked.
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.
