About this Statement

Coinsquare Capital Markets Inc. (“Coinsquare”) is offering crypto contracts to purchase and sell Internet Computer 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 Internet Computer

Founded and chaired by Dominic Williams, DFINITY Foundation (also known as Dfinity) is a nonprofit organization. ICP is the native cryptocurrency of the Internet Computer protocol. This protocol is a decentralized, open-source, general-purpose blockchain, designed to host smart contracts. For developers, ICP is a utility token, which means it has the ability of converting crypto into processing power. The network issues a fee based on the amount of computing power required by a developer’s project.

Risks

As with all assets, investing in Internet Computer 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 Internet Computer 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 Internet Computer.

ICP Token Value Crash After Launch

Internet Computer experienced an unusual situation following its initial coin offering where the token value declined by almost 90% within the first month. After the token sale it was revealed that Dfinity did not follow typical rules of other successful projects and instead allowed the treasury and initial investors to inject billions of dollars of ICP onto exchanges while not facilitating easy acquisition of tokens for longtime project supporters. Arkham Intelligence, a crypto analysis firm, identified 44 wallet addresses that were likely linked to insiders, which deposited over $2 billion in ICP tokens to exchanges in the days following the ICO. Some analysts called Dfinity’s approach unnecessarily complicated, contributing to the rapid decline in ICP price.1 Investors should be aware of this situation and its lasting effect on market sentiment. Additionally, investors should note that ICP has never recovered from the significant drop after ICO.

Risk of Centralization in Internet Computer’s Protocol

Internet Computer’s protocol dictates that voting rights increase with the amount of time that tokens are staked. In other words, the longer tokens are staked, the more voting power that specific token holder has per token. This means that Dfinity, the creators of Internet Computer, are at an advantage for voting since they have had access to staking on the network long before the public. This early access and the accompanying potential for increased voting power create an avenue for centralization or voting control by Dfinity.2 Investors should consider the risk of centralized control when evaluating Internet Computer.

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:

  1. Coinsquare Securities Law Assessment
  2. Coinsquare Digital Asset Security Audit
  3. 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.

References:

  1. Ephrat Livni and Andrew Ross Sorkin. “The Dramatic Crash of a Buzzy Cryptocurrency Raises Eyebrows.” The New York Times. June 28, 2021. https://www.nytimes.com/2021/06/28/business/dealbook/icp-cryptocurrency-crash.html
  2. Eduardo Prospero. “Concerns About Internet Computer (ICP)? Here’s What We Know.” Bitcoinist. 2021. https://bitcoinist.com/concerns-about-internet-computer-icp-heres-what-we-know/

Last updated on Jun 17, 2024