Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell NEAR Protocol 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.
NEAR is the native token of the Near Protocol, which is a layer-1 proof-of-stake blockchain network. NEAR’s technology leverages sharding, a fundamental aspect of Ethereum’s upgrading plans, to facilitate its high transaction throughput and scalability. It has been architected to be developer and user friendly, which intends to accelerate the dApp development process and minimize resistance to new user onboarding. It’s mainnet launched in April 2020, with on-chain governance activated in October 2020.
As with all assets, investing in NEAR Protocol 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 NEAR Protocol 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 NEAR Protocol.
Of the entire initial supply of NEAR tokens, over 47% was distributed to what might be considered insiders. The core contributors received 14%, backers received 16.7%, small backers received 6.1%, and the NEAR Foundation received 10% of the entire initial supply.¹ Investors should consider this concentrated distribution when evaluating NEAR.
In August 2022, the NEAR Foundation revealed that they discovered a security breach and patched the vulnerability two months prior. Their revelation came immediately after Solana, a competing layer 1 network, experienced a wallet hack. NEAR’s vulnerability arose from their wallet recovery system, which may have allowed a third party to access seed phrases. Specifically, leveraging the email recovery process would inadvertently expose the seed phrase to NEAR’s third party analytics platform. NEAR reported that the rectified the vulnerability immediately and identified all parties that may have had access to the information.² However, it is important that prospective investors understand the situation and NEAR’s communication of it, when evaluating NEAR.
As with staking any crypto asset, staking NEAR is not without risk. Many of the risks of staking NEAR are explained in our Risk Statement https://coinsquare.com/en-ca/ccml-rsa/
in the following sections:
What is Staking, How Does Coinsquare Help You Earn Staking Rewards?, Validators, Custody, Slashing, Unbonding Periods, Rewards, Fees, Risks Related to Staking, Reliance on third party vendors, Slashing and missed rewards, Due diligence on validators may be insufficient, Illiquidity during unbonding periods, Due diligence on Digital Assets may be insufficient, Short History risk.
In addition to these general staking risks, we outline some information and risks that are more specific to NEAR below.
Near Protocol employs proof-of-stake (PoS) consensus to secure the network with a unique system known as threshold proof-of-stake which attemps to provide a deterministic method by which validators are given a proportion of the limited amount of “seats” comensurate to their relative staked amount. This system allows NEAR holders to delegate their tokens to a validator to increase its total stake amount, thus increasing its chance for being alloted more validator “seats”. 3 Those who delegate their NEAR tokens to validators earn a proportion of the total rewards earned by that validator during any epoch in which the tokens are staked.
Staking rewards are computed and distributed after each successful epoch. If a reward is accrued after during an epoch, it will be issued immediately upon the completion of the epoch. 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.
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 can expect to earn by staking the asset, but is subject to fluctuations based on various factors for each network. 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 NEAR: (i) Coinsquare’s custodian, BitGo, will be entitled to a fee 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.
Each epoch, which is the period of time during which validators earn rewards, lasts approximately twelve hours.
Validators miss out on NEAR 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 NEAR validator is slashed, Coinsquare has no obligation to replace any lost NEAR 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 NEAR 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.
