Schedule D to the Client Account Agreement
Risk Statement
All capitalized terms used and not defined herein are defined in the Client Account Agreement.
This risk statement (the “Risk Statement”) is presented to you at the time of opening your Account with Coinsquare. You must acknowledge having received, read, and understood this Risk Statement in order to open and operate an Account and use the Services. Please read this Risk Statement in its entirety.
Coinsquare believes that its clients should be aware of the risks involved in using the Services to purchase, hold, stake, or sell Digital Assets. Digital Asset trading or staking may not be appropriate for you, particularly if you use funds which you cannot afford to lose. The volatility and unpredictability of the price of Digital Assets relative to fiat currency may result in significant loss over a short period of time.
By opening an account with Coinsquare to use the Services, you are acknowledging that you have received, read and understand the risks set out herein. This Risk Statement does not necessarily capture all of the risks associated with trading or staking Digital Assets. Please refer to the terms of the Client Account Agreement for a more detailed description of your relationship with Coinsquare and the Platform. This Risk Statement provides a summary of certain risks you should take into account when deciding whether to trade or stake Digital Assets. It also provides a general description of what is meant by the term, “Crypto Contract” (which is defined below) as that term relates to securities regulatory jurisdiction over Coinsquare and the Platform. For information on the individual Digital Assets available on the Platform, Coinsquare has made available crypto asset statements which describe each Digital Asset in plain language. Clients are required to acknowledge, for each of the Digital Assets that they purchase through the Platform, that they have read and understand the respective individual crypto asset statements published on Coinsquare’s website.
No securities regulatory authority in Canada or any other jurisdiction has expressed an opinion about any of the Digital Assets (or Crypto Contracts) that are available through the Platform, including an opinion that the Digital Assets are not themselves securities and/or derivatives.
While Coinsquare has conducted due diligence, in accordance with its written policies, to evaluate each of the Digital Assets before making them available on the Platform and has concluded that none of the Digital Assets constitutes a security or derivative under the respective securities legislation of each of the jurisdictions of Canada and the securities and derivatives laws of the foreign jurisdiction with which each Digital Asset has the most significant connection, there is a risk that Coinsquare has incorrectly determined that none of the Digital Assets is a security or derivative. There is also a risk that Coinsquare’s conclusion that any particular Digital Asset is not a security or derivative may change over time. Additionally, Coinsquare’s due diligence process includes a cybersecurity audit of each token’s code or smart contract, and a qualitative analysis of the purpose, design, and risks of each token and their respective network by a committee of appointed personnel. In regards to making assets available for staking through the Coinsquare platform, Coinsquare conducts additional due diligence that focuses on the consensus mechanism of the network, the nuances of validator activity, reward frequency, and other factors that may make any asset or network similar or dissimilar from other assets or networks that have already been approved for staking on the platform. This staking due diligence is conducted by the same appointed committee that oversees the general asset review and approval process. For both staking and trading, Coinsquare conducts periodic reviews of the due diligence that was previously completed for an asset, and if any significant changes, updates, or news can be found, then the due diligence for that asset is refreshed and reviewed again by the committee.
Canadian Securities Administrators (“CSA”) Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets, and Joint CSA / IIROC Staff Notice 21-329 Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements set out the basis of securities law jurisdiction over crypto asset trading platforms that do not necessarily, as part of their business model, immediately deliver crypto assets off the platform to a client-controlled private wallet. By facilitating the provision of custody of crypto assets for clients, a contractual relationship between the platform and its clients is created in connection with the clients’ purchase and sale of crypto assets through the platform. A client’s contractual right to delivery of the crypto assets upon request constitutes a “Crypto Contract.”
Coinsquare is offering Crypto Contracts for the Digital Assets on the Platform in reliance on a prospectus exemption granted by the CSA in the exemptive relief decision dated Oct. 12th 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 other CSA jurisdictions would not apply in respect of a misrepresentation in this Risk Statement or any of the plain-language crypto asset statements published on Coinsquare’s website.
The following is a non-exhaustive list of risks you should consider when using the Services to purchase, hold, or sell Digital Assets and/or to enter into Crypto Contracts. This list may not be exhaustive.
Crypto-asset trading platforms, including Coinsquare, may cease operations or permanently shut down due to fraud, technical glitches, hackers, or malware, which could have an adverse impact on the value of Digital Assets. CCML reserves the right to not offer a quote should there be technical difficulties, extreme volatility, or counterparty problems. CCML will put a notice on its website in these extreme circumstances.
Digital Assets are just over a decade old, and as such, it is unclear whether the economic value, governance or functional elements of Digital Assets will persist over time. The Digital Asset community has successfully navigated a considerable number of challenges since the introduction of blockchain technology. That said, the continued engagement of the Digital Asset community is not guaranteed, and any future challenges that the community is not able to navigate could have an adverse impact on the price to purchase or proceeds received from the sale of a Digital Asset.
The price of Digital Assets on public trading platforms has a limited history. Digital Asset prices have historically been volatile and subject to influence by many factors including the levels of liquidity on trading platforms, public speculation on future appreciation in value, swings in investor confidence, and changes in regulatory characterization.
A Digital Asset may lose most or all of its value.
If speculators, investors, merchants, or consumers stop purchasing, using, holding, or dealing in Digital Assets, or the rate of adoption of Digital Assets slows, then the price of Digital Assets may be adversely impacted. There is no guarantee that Digital Assets will maintain their long-term value in terms of purchasing power in the future or that the acceptance of Digital Assets for payments by mainstream retail merchants and commercial businesses will continue to grow.
If there is a relatively small volume of buy and sell orders in the marketplace, it may become difficult to execute a trade of Digital Assets. Unexpected market illiquidity may cause major losses to the holders of Digital Assets.
Transfers of Digital Assets are irreversible. An improper transfer (whereby a Digital Asset is accidentally sent to the wrong recipient), whether accidental or resulting from theft or unauthorized access, can only be undone by the receiver of the Digital Asset agreeing to send the Digital Asset back to the original sender in a separate subsequent transaction. To the extent your access credentials are taken over by another party (with or without your permission) and transfers are made, you may be unable to recover the Digital Assets. You are responsible for maintaining the security of your access credentials.
With respect to certain Digital Assets, a significant percentage of their total outstanding units are held by a disproportionately small amount of Digital Asset wallet addresses. If one of these top holders were to exit their Digital Asset position, a block sale of a large amount of a Digital Asset could adversely affect the price of that Digital Asset.
The regulation of Digital Assets continues to evolve in Canada and in foreign jurisdictions which may restrict the use of Digital Assets or otherwise impact the demand for Digital Assets.
Financial institutions provide bank accounts to facilitate transfers of fiat currency in connection with Digital Asset transactions. Canadian regulated banks and other financial institutions may refuse to process funds for Digital Asset transactions or to process wire transfers to or from Digital Asset trading platforms, Digital Asset-related companies, or service providers, or maintain accounts for persons or entities transacting in Digital Assets.
Many Digital Asset blockchain networks are powered by open source software. When a modification to that software is released by developers, and a substantial majority of miners consent to the modification, a change is implemented and the blockchain network continues uninterrupted. However, if a change were to be introduced with less than a substantial majority consenting to the proposed modification, and if the modification were not compatible with the software in operation prior to its modification, the consequence would be what is known as a “fork” (i.e., a split) of the blockchain. One blockchain would be maintained by the pre-modification software and the other by the post-modification software. The effect is that both blockchains would operate in parallel, but independently. There are precedents for this occurring, for example on both the Bitcoin and Ethereum blockchain networks. In the future, such a fork could occur again, and affect the viability or value of a Digital Asset. Coinsquare may choose not to support any future fork of the underlying blockchain of the Digital Assets available on the Platform, in which case you might not have any rights to the new digital assets that may be created as a result of that fork. By using Coinsquare you forfeit any profit, loss, or voting right claims to any Digital Assets forked on the Platform.
Digital Asset companies, such as Coinsquare, and their service providers may be subject to operational and information security risks resulting from cyber-attacks. These include, among other behaviors, stealing or corrupting data maintained online or digitally, denial of service attacks on websites, the unauthorized release of confidential information, and various other forms of cyber-security breaches. This in turn could cause Coinsquare to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures, and/or financial loss.
Third parties may send Digital Assets into wallets operated by Coinsquare or Coinsquare’s third-party custodians (“Digital Asset Airdrops”). Should Coinsquare be issued any additional Digital Assets alongside the ones held by Coinsquare or Coinsquare’s third-party custodians, we would not be responsible for any consequences arising from such an issuance, including any perceived or actual losses or missed gains. Coinsquare will decide in its sole discretion whether or not to support the Digital Asset Airdrops or whether or not to distribute the Digital Asset Airdrops to our clients, with or without prior notification. By using the Services, you forfeit any profit, loss, or voting right claims to any Digital Asset Airdrops to Coinsquare.
Cryptographic and algorithmic protocols are used to protect the secrecy of codes regulating the blockchain system used to effect transfers of Digital Assets. In the past, flaws in the source code for Digital Assets have been exposed and exploited, including flaws that disabled some functionality for users, exposed users’ personal information, and/or resulted in the theft of users’ Digital Assets. The cryptography underlying the Digital Assets could prove to be flawed or ineffective, or developments in mathematics and/or technology, including advances in digital computing, algebraic geometry, and quantum computing, could result in such cryptography becoming ineffective. Any of these circumstances could result in the theft of users’ Digital Assets by malicious actors. Moreover, functionality of Digital Asset networks may be negatively affected such that they are no longer attractive to users, thereby dampening demand for Digital Assets.
Coinsquare accesses Digital Assets’ blockchains via the internet, and its clients access Coinsquare’s Platform via the internet. Thus, the entire system is dependent upon the continued functioning of the internet. Coinsquare maintains an independent and secure ledger of all transactions to minimize loss and maintains contingency plans to minimize the possibility of system failure; however, Coinsquare does not control signal power, reception, routing via the internet, configuration of your equipment, or the reliability of your connection to the internet.
When you enter into a Crypto Contract with Coinsquare to buy and sell Digital Assets, that Crypto Contract provides you with certain rights and imposes certain responsibilities; the Crypto Contract, and your contractual right to the Digital Assets that you may deposit, buy, hold, and sell pursuant to the Crypto Contract, may constitute a security or derivative. In particular, the contract you sign with Coinsquare enables you to deposit, buy, sell, withdraw (with some limitations), and hold Digital Assets in your own private wallet. We refer to this as an “open loop” system. Please note that some Digital Assets may not be eligible for withdrawal from the platform for technical reasons.
If an entity gains control over 51% of the computational power (hash rate) of a Digital Asset network, the entity could use its majority share to interfere with the operation of that network in ways that could undermine trust in the network.
There are transaction fees applicable to certain Digital Asset transactions. These transaction fees have historically been relatively low, but there is no assurance that they will remain low. Higher transaction fees may result in a decrease in the value of the relevant Digital Asset(s).
Certain fees Coinsquare charges you for the Services are based in part on the fees charged to Coinsquare by its third-party service providers. Those third-party service provider fees are subject to change, which may result in Coinsquare increasing its fees.
Coinsquare is a member of the Canadian Investor Protection Fund (“CIPF”). However, the Digital Assets held by Coinsquare (directly or indirectly through third-party custodians) on behalf of clients will not qualify for CIPF protection, nor will they qualify for protection by the Canadian Deposit Insurance Corporation or any other investor protection scheme.
Coinsquare will not enable voting functionality for any Digital Assets that would confer a right to vote on topics that may directly and indirectly affect functionality and economics of the particular Digital Asset (e.g., changes to block reward amounts, inflation percentages, consensus modeling, or governance models). Therefore, if you have a Crypto Contract in respect of any Digital Assets that confer these rights to vote, you will not be able to exercise any such voting rights, and you forfeit any such rights to Coinsquare.
As provided in the Client Account Agreement, Coinsquare may hold your Digital Assets on your behalf, directly in a hot wallet temporarily, and indirectly through a third-party custodian in cold wallet storage on an ongoing basis. Coinsquare has developed a robust set of policies, procedures, and controls to safeguard the Digital Assets in its custody. However, the “open loop” nature of the system means that while you are able to transfer Digital Assets on and off the Platform, there is an inherent risk that a part or all of your Digital Assets may be lost without any means of retrieving them. You may access the Digital Assets that you have purchased on the Platform by placing an order to sell the Digital Assets or by requesting a transfer of those Digital Assets to your own private wallet. Notwithstanding the foregoing, certain Digital Assets may be “Trade Only” (no withdrawals permitted) until the Platform supports withdrawals for the particular Digital Asset.
Coinsquare uses Coinbase Custody Trust Company, LLC (“Coinbase”) for cold storage custodial services to securely hold certain digital assets belonging to clients. Coinbase is a New York trust company regulated by the New York State Department of Financial Services (https://www.dfs.ny.gov).
Coinsquare owns more than 25% of Tetra Trust Company (“Tetra”), one of Coinsquare’s Digital Asset custodians, and uses Tetra for cold storage custodial services to securely hold certain digital assets belonging to clients. Tetra received its Certificate of Registration from the Government of Alberta on July 5, 2021. Tetra is regulated by the Alberta Treasury Board and Finance (“ATBF”) https://www.alberta.ca/treasury-board-and-finance.aspx.
Coinsquare is authorized to use Tetra as a Digital Asset custodian pursuant to exemptive relief from IIROC’s prescribed Acceptable Securities Location requirements to have minimum net worth of $100,000,000, on the condition that their custody is limited to regulated Digital Assets, they continue to meet ATBF’s custodian and oversight requirements, and these conditions are disclosed to clients.
Coinsquare also uses BitGo Trust Company, Inc. (“BitGo”) for Coinsquare’s staking offering and for cold storage custody of client digital assets. BitGo is a South Dakota trust company licensed under the South Dakota Division of Banking. Coinsquare is authorized to use BitGo as a Digital Asset custodian pursuant to exemptive relief from CIRO’s prescribed Acceptable Securities Location requirements to have minimum net worth of $100,000,000 on the condition that BitGo maintains its good standing under the South Dakota Division of Banking’s requirements and other conditions disclosed to clients.
When you hold the following Digital Assets in your account on the CCML platform, your Digital Assets may be held by the following custodian:
Digital AssetCoinbaseTetraBitGo Bitcoin Yes Yes Yes Ethereum Yes Yes Yes 1Inch Yes Yes Yes Aave Yes Yes Yes Algorand Yes Yes Yes ApeCoin Yes Yes Yes Arbitrum No Yes No Avalanche Yes Yes Yes Axie Infinity Yes Yes Yes Bitcoin Cash Yes Yes Yes Basic Attention Token Yes Yes Yes Bonk No No Yes Cardano Yes Yes Yes Celestia No No Yes Chainlink Yes Yes Yes Chiliz Yes Yes Yes Compound Yes Yes Yes Cosmos Yes Yes Yes Curve DAO Yes Yes Yes Dai Yes Yes Yes Dash No Yes Yes Decentraland Yes Yes Yes Dogecoin Yes Yes Yes EOS Yes No Yes Enjin Coin Yes Yes Yes Ethereum Classic Yes Yes Yes Fantom Yes Yes Yes Filecoin Yes No No Hedera No No Yes Injective Yes Yes Yes Internet Computer Yes No No Lido DAO Yes Yes Yes Litecoin Yes Yes Yes Loopring Yes Yes Yes Maker Yes Yes Yes Near Protocol Yes Yes Yes Optimism Yes Yes No Pepecoin No Yes Yes Polkadot Yes Yes Yes Polygon Yes Yes Yes Sei No No Yes Shiba Inu Yes Yes Yes Solana Yes Yes Yes Stellar Yes Yes Yes SushiSwap Yes Yes Yes Tezos Yes Yes Yes The Graph Yes Yes Yes USD Coin Yes Yes Yes Uniswap Yes Yes Yes XRP Yes Yes Yes Yearn.Finance Yes Yes Yes Wrapped Bitcoin Yes Yes Yes Worldcoin No Yes Yes
Coinsquare and any third-party custodians it may retain have insurance to protect the Digital Assets they hold. However, it is important to note that the insured sum may not be sufficient to cover all of the potential losses that may be incurred by Coinsquare or by any third-party custodian, and any losses of Digital Assets held in custody may only be covered partially by existing insurance. As such, you are reminded that you may withdraw any Digital Assets that you purchase on Coinsquare’s Platform or hold through Coinsquare’s Platform into your own private wallet(s).
Coinsquare’s physical assets, such as its personnel, hardware, buildings, or data processing infrastructure could experience a range of threats, such as fire, flood, natural disaster, theft, vandalism, or terrorism. As such, there exists a risk of partial or full loss of your Digital Assets due to the aforementioned events.
The effects of COVID-19 and the measures taken by companies and governments to combat the coronavirus have negatively affected Digital Asset values and increased volatility in the financial markets, including the market price and volatility of the Digital Assets. At this point, the extent to which COVID-19 may impact, or may continue to impact, the market price of the Digital Assets is uncertain and cannot be predicted.
Coinsquare does not offer its clients margin or any other type of loan, but we cannot prevent clients from borrowing cash from other sources to purchase Digital Assets on the Platform. However, using borrowed money to finance the purchase of Digital Assets involves a potentially greater degree of risk than purchases made with cash. If you borrow money to purchase Digital Assets, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the Digital Assets purchased declines.
Coinsquare maintains written policies that govern the halting, suspending, and discontinuing of Digital Assets from trading on the Platform. In accordance with those policies, Coinsquare may decide to halt, suspend, or discontinue certain Digital Assets from its Platform, for any reason whatsoever, including but not limited to, business decisions made in Coinsquare’s sole discretion, changes in market trends, changes in the demand for the Digital Asset, changes in legal or regulatory risk associated with the Digital Asset, changes in relevant blockchain support for the Digital Asset, or changes in third-party custodian availability of the Digital Asset. In such circumstances, Coinsquare will seek to give clients as much time as possible, on a best-efforts basis, in accordance with Coinsquare’s written policies on this, to sell or withdraw Digital Assets through the Platform.
Risks in Staking on the Platform
In addition to the risks outlined above, there are particular risks associated with staking on the Platform.
