Schedule D to the Client Account Agreement
All capitalized terms used and not defined herein are defined in the Client Account Agreement.
This risk disclosure (the “Risk Disclosure”) is presented to you at the time of opening your Account with Coinsquare. You must acknowledge having received, read, and understood this Risk Disclosure in order to open and operate an Account and use the Services. Please read this Risk Disclosure in its entirety.
Coinsquare believes that its clients should be aware of the risks involved in using the Services to purchase, hold, or sell Digital Assets. Digital Asset trading 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. This Risk Disclosure does not necessarily disclose all of the risks or relevant considerations when using the Services.
The following is a non-exhaustive list of risk factors you should consider when using the Services to purchase, hold, or sell Digital Assets.
1. Exchange Risk
Digital Asset exchanges 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.
2. Short History Risk
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.
3. Price Volatility
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.
4. Potential Decrease in Global Demand for Digital Assets
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.
5. Potential for Illiquid Markets
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.
6. Transfers of Digital Assets are Irreversible
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, can only be undone by the receiver of the Digital Asset agreeing to send it back to the original sender in a separate subsequent transaction. To the extent Coinsquare erroneously transfers, whether accidentally or otherwise, Digital Assets in incorrect amounts or to the wrong recipients, Coinsquare may be unable to recover the Digital Assets.
7. Concentration Risks
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.
8. Uncertainty in Regulation
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.
9. Financial Institutions May Refuse to Support Transactions Involving 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.
10. A Digital Asset’s Blockchain May Temporarily or Permanently Fork and/or Split
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.
11. Cyber-Security Risk
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 (“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 Coinsquare you forfeit any profit, loss, or voting right claims to any Digital Asset Airdrops to Coinsquare.
13. Issues with Cryptography Underlying Digital Asset Networks
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 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 it is no longer attractive to users, thereby dampening demand for Digital Assets.
14. Internet Risk
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.
15. Open Loop System
When you enter into a contract with Coinsquare to buy and sell Digital Assets, that contract provides you with certain rights and imposes certain responsibilities; the contract, and your contractual right to the Digital Assets that you may deposit, buy, hold, and sell pursuant to the contract, may constitute a security or derivative. In particular, the contract you sign with Coinsquare enables you to deposit, buy, sell, withdraw, and hold Digital Assets in your own private wallet. We refer to this as an “open loop” system.
16. Risk if Entity Gains a 51% Share of a Digital Asset Network
If an entity gains control over 51% of the compute 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.
17. Possible Increase in Transaction Fees
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 applicable Digital Asset.
18. Possible Increase in Service Fees
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.
19. Lack of Investor Protection Insurance
Coinsquare is not a member of the Canadian Investor Protection Fund. Digital Assets purchased and held in an account with Coinsquare are not protected by the Canadian Investor Protection Fund, the Canadian Deposit Insurance Corporation, or any other investor protection insurance scheme.
20. No Voting Rights
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 modelling, or governance models). Therefore, if you have a 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.
21. Custody Risk Insurance
Coinsquare has developed a robust set of cold and hot wallet policies and procedures to safeguard the Digital Assets in its custody. However, inherent risks of an open loop system present vulnerabilities such that a part or all of the Digital Assets custodied by Coinsquare or any third-party custodian may be lost without any means of retrieving them.
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 strongly encouraged to withdraw any Digital Assets that you may purchase on Coinsquare’s Platform or hold on Coinsquare into your own private wallet(s).
22. Threats to Coinsquare’s Physical Assets
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.
23. Covid-19 Outbreak
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.
24. Use of Leverage
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.
25. Halting, Suspending and Withdrawing Digital Assets from Coinsquare
Coinsquare may decide to halt, suspend, or withdraw 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 on the Digital Asset, or changes in third-party custodian availability of the Digital Asset. In such circumstances, Coinsquare will seek to give as much time as possible, on a best-effort basis, for clients to sell or withdraw Digital Assets from the Platform.
Last revised: September 20, 2021