This Risk Disclosure Statement is an integral part of the Terms of Service. You must acknowledge having received, fully read, and understood it before signing the Terms of Service with CatalX CTS (“Catalyx”). This statement has been prepared to provide information about the principal risks associated with trading or storing Crypto Assets on the Catalyx platform, but cannot and does not disclose all applicable risks.
Trading in Crypto Assets (defined herein as digital assets, such as cryptocurrencies, tokens, stablecoins, and similar digital assets) can lead to significant and total losses. Therefore, before deciding to execute any transactions, you should understand the risks in the cryptocurrency market and make decisions based on a consideration of your own financial situation. Catalyx cannot and will not provide any advice in relation to whether any particular transaction is recommended or otherwise suitable for you. Do not purchase Crypto Assets unless you can afford to lose the value of your entire purchase. Enter into trades only when you understand the Crypto Asset you are buying, the characteristics of the Crypto Asset you want to trade, and the potential risks – some of which are listed in this risk disclosure document and some of which can be found in the Crypto Asset Statements posted at this link. Your purchase of Crypto Assets may result in a significant or total loss of your purchase amount.
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Crypto Assets made available through the Catalyx platform, including any opinion that the Crypto Assets themselves are not securities and/or derivatives.
What are Crypto Assets?
Crypto Assets utilize cryptography, peer-to-peer networking, and a public ledger to regulate the creation of new units, verify transactions, and secure the transactions without the intervention of any middle-man. Crypto Assets are not local currencies or legal tender, and are generally not backed by or supported by governments or central banks.
Crypto Assets bear their own specific risks, differing from traditionally known risks associated with national currencies, commodities, securities or other financial instruments. They may not be issued by governments or public/private institutions, there is no underlying asset behind them, and they do not physically exist. As further discussed below, as a result, the value of Crypto Assets is subject to market forces, which may result in the complete disappearance of a Crypto Asset entirely if market support for the Crypto Asset is extinguished.
Crypto Assets maintain their existence on a distributed (decentralized) network, which is generally not subject to regulation or other government oversight. The network is built on one-to-one transactions between individuals in an anonymous order, and in an end-to-end encrypted structure with cryptographic methods to ensure their integrity.
How Catalyx determines what Crypto Assets are offered on the Platform:
Catalyx has established robust policies and procedures to review each crypto asset offered for trading on the Platform. Among other information, we review available public information relating to the crypto asset on the following topics prior to making a determination on whether a crypto asset will be listed:
• The history and characteristics of the crypto asset including whether the crypto asset was launched by ICO;
• Analysis of the founders or inventors of the crypto asset/related network and a review of their ongoing involvement with crypto asset/network;
• How the crypto asset functions including a review of its utility or purpose;
• The market liquidity for the crypto asset;
• The current and proposed governance of the ecosystem on which crypto asset operates with a focus on the level of decentralization of such ecosystem; and
• The position taken by any regulator with respect to the crypto asset including any enforcement action taken against the crypto asset, the related network, or the founders.
In addition to the above we also conduct an analysis of factors weighing in favor or against the crypto asset being deemed to be a security based on Canadian securities laws.
We have prepared Crypto Asset Statements including plain language description of each Crypto Asset made available on the Catalyx Platform and certain specific risks that we have identified with respect to each Crypto Asset that is offered on the Catalyx Platform.
What are Crypto Contracts?
When you place an order to purchase or sell Crypto Assets through the Catalyx platform, the Crypto Asset that you purchase may be withdrawn by you to your private wallet or you may choose to keep it on the Catalyx platform. If you choose to keep it on the Catalyx platform your Crypto Assets will be held by our third-party custodian on your behalf. In the case of such an arrangement, a “Crypto Contract” represents our agreement to deliver the Crypto Assets that you hold on the platform to you upon request.
Crypto Asset Trading Risks
Trading Crypto Assets involves significant risks and potential for financial losses, including without limitation the following:
New Asset Risk
Blockchain technology is new and it is uncertain whether its economic value will persist over time. The continuation of the Crypto Asset community is not guaranteed, and insufficient software development, contribution rates, community disputes regarding the development of the network and scaling options, or any other unforeseen challenges that the community is not able to navigate could have an adverse impact on the price of a Crypto Asset.
The characteristics, functions, operation, use and other properties of any Crypto Asset and the software, networks, protocols, systems, and technology used to administer, create, issue, transfer, cancel, use or transact in any Crypto Asset is complex, technical and difficult to understand or evaluate.
The long-term value of Crypto Assets may be tied to the success or failure of the blockchain technology. The cryptography underlying Crypto Assets could prove to be flawed or ineffective. Flaws in the source code for Crypto Assets could be exposed and exploited, including flaws that disable some functionality for users, expose users’ personal information and/or result in the theft of users’ Crypto Assets.
There is no assurance that a person who accepts Crypto Assets as a payment today will continue to do so in the future.
Market prices for Crypto Assets can be volatile and highly unpredictable. The value of Crypto Assets is determined by supply and demand and can fluctuate accordingly. The price of Crypto Assets may be affected by trends in their utility as a store of value, means of exchange, market sentiment, level of liquidity, public speculation, the securities market, other markets, increased regulation, the spread of other similar Crypto Assets, or an unexpected or extraordinary event. A high degree of volatility and unpredictability may result in unforeseen significant losses over a short period of time.
Markets for Crypto Assets can at times become “illiquid,” which means there can be a scarcity of persons willing to trade in a particular Crypto Asset. Illiquid markets have increased risk of loss because they can experience high volatility of prices, and in such markets, participants may find it impossible to liquidate positions except at unfavorable prices. There is no guarantee that the markets for any Crypto Assets will be active and liquid or permit the establishment or liquidation of positions when desired or at favorable prices.
The use of limit orders may not limit your risk of losses. Market conditions may not satisfy the required conditions to liquidate your position at the time and price you expect.
Uncertainty in Future Regulation of Crypto Assets
Government regulation of Crypto Assets is unsettled and continues to evolve in Canada and in foreign jurisdictions, which may restrict the use of Crypto Assets or otherwise impact their demand. Applicable law, regulation, and executive orders may require Catalyx to, upon request by government agencies, freeze withdrawals or trading (or both), or cease support for a specific Crypto Asset on the Catalyx platform. Furthermore, recordkeeping and customer verification procedures are subject to change at any time in accordance with the laws or industry practices. Catalyx must comply with the law and you must accept any inconveniences or other consequences resulting from this compliance. Catalyx may suspend or reject transaction requests, suspend or cease support for Crypto Assets, or suspend or terminate client’s access to services to comply with applicable laws or regulations or an order from law enforcement or other governmental authority.
Regulators in Canada have not reviewed or provided an opinion on the Crypto Assets traded on the Catalyx platform. Future action by regulatory authority may deem a Crypto Asset to be a security or derivative under Canadian law. Such determination may require trading of such Crypto Asset to be temporarily or permanently suspended which may result in you being unable to sell the Crypto Asset.
Uncertainty in Future Financial Institution Support for Crypto Assets
Financial institutions may in the future refuse to process funds for Crypto Asset transactions, process wire transfers, or maintain accounts for entities transacting in Crypto Assets.
The Blockchains on which Crypto Assets Operate may Temporarily or Permanently Fork
Blockchain networks are powered by open-source software. Different parties need to use common rules to maintain the history of the blockchain and when these parties are not in agreement, a “fork” (i.e., a split) of the blockchain may occur creating new forked assets (each a “New Forked Asset”). Forks can affect the viability or value of a Crypto Asset. Catalyx may choose not to support a New Forked Asset on our platform. If we do not support a New Forked Asset, you may not be able to withdraw the New Forked Asset from the Catalyx platform promptly or at all; you may not be able to trade the New Forked Asset on our platform for fiat currency or other crypto assets; and you may lose any value associated with such New Forked Asset.
Certain addresses on the blockchain networks hold a significant amount of the currently outstanding Crypto Assets. If one of these addresses were to exit their positions, it could cause volatility that may adversely affect the price of the Crypto Asset.
If anyone gains controls over 51% of the computing power (hash rate) used by certain blockchain networks, they could use their majority share to double spend their Crypto Assets. If such a “51% attack” were to be successful, this would significantly erode trust in blockchain networks which may significantly decrease the value of Crypto Assets. The potential for a person or group of people to control over 51% of the computing power used by a blockchain network is tied to the network itself. Certain Crypto Assets may be more vulnerable to this type of attack.
Termination of the Network Program Risk and Withdrawal of Developers from the Project Risk
There are risks that a network where Crypto Assets are traded can be terminated due to withdrawal of developers from the project, or the withdrawal of validators (nodes, etc.) from the network.
Crypto Assets stored by you on the Catalyx platform are held by Catalyx’s designated custodian Bittrex Global GmbH (the “Custodian”). The Custodian is a Liechtenstein-based corporation licensed under the Token and Trusted Technology Service Provider Act as a Token Depository. Crypto Assets held on the platform are held by the Custodian in an omnibus wallet in the name of Catalyx.
Lack of Investor Protection Insurance
The Custodian acts as custodian for all Crypto Assets held by you on the Catalyx platform. The Custodian is not regulated as a financial institution or equivalent in any province or territory of Canada.
The Custodian holds all Crypto Assets in trust for clients of Catalyx in an omnibus account in the name of Catalyx and separate and distinct from the assets of Catalyx, affiliates and all of the Custodian’s other clients. However, Crypto Assets may still be subject to risk of loss: (i) if the Custodian becomes bankrupt or insolvent; (ii) if there is a breakdown in a Custodian’s information technology systems; or (iii) due to the fraud, willful or reckless misconduct, negligence or error of a Custodian or its personnel. Catalyx has reviewed the Custodian’s reputation, financial stability, relevant internal controls, and ability to deliver custodial services and has concluded that the Custodian’s system of controls and supervision is sufficient to manage risks of loss to Crypto Assets in accordance with prudent business practice.
In the event that the Custodian becomes bankrupt or insolvent, Crypto Assets purchased and held in an account with the Custodian are not protected by the Canadian Investor Protection Fund (CIPF), the Canadian Deposit Insurance Corporation (CDIC) or any other government backed investor protection insurance scheme. Further, Users may face difficulties repatriating their Crypto Assets and/or enforcing their legal rights against the Custodian since it is located in a foreign jurisdiction. There is an unavoidable risk of the loss of some or all of the User’s Crypto Assets if the Custodian becomes bankrupt or insolvent.
Any bond or insurance policy held by the Custodian or Catalyx may not be sufficient to cover all losses incurred by you in the event that the Custodian is hacked or otherwise suffers losses of Crypto Assets in its custody.
Wallets may not be Available Due to Maintenance or Issues
From time to time, the Custodian may need to undergo wallet maintenance during these times your wallet may not be available and you may not be able to trade your Crypto Assets.
Assets May be Lost
The nature of crypto assets may lead to an increased risk of fraud, hack or cyberattack and may mean that technological difficulties experienced by the Custodian may prevent access to, or use of, your Crypto Assets, including a complete loss of your Crypto Assets.
Catalyx Platform Risks:
System and Operational Risks
There is the risk that a system failure may occur due to changes to the external environment and this may disrupt your ability to execute transactions. A “system failure” is when Catalyx finds that a malfunction (not including obstructed network lines or problems with a customer’s computer) has occurred in the system required to provide the platform’s services, and customers are no longer able to place orders over the internet (Catalyx website, platform or applications) or customers’ orders arrive late or cannot be placed.
In the event that a customer loses any opportunity (e.g., Catalyx is unable to receive a customer’s order and the customer therefore loses the opportunity to place the order, losing profits that ordinarily would have been earned) due to emergency system maintenance or a system failure, Catalyx will not be able to execute a process to fix the error because it will be unable to identify the original order details that the customer intended to place.
Trading systems may experience unexpected surges in activity, or other operational or technical difficulties that may cause interruptions in the services. The Catalyx platform may experience operational issues that lead to delays. There is a risk of transaction failure resulting from unanticipated technical difficulties.
Risk with Electronic Trading and Dependence on the Internet
There are risks associated with using an internet-based trading system including, but not limited to, the failure of hardware, software and internet connection failure. Catalyx maintains an independent and secure ledger of all transactions to minimize losses, and maintains contingency plans to minimize the possibility of system failure. However, Catalyx does not control signal power, reception, routing via the internet, configuration of your equipment or the reliability of your connection to the internet. The result of any failure of the foregoing may be that your order is either not executed according to your instructions, or is not executed at all.
Catalyx will not be held responsible for errors, communication interruptions or failures, disruptions in service, distortions, or other adverse experiences while using the Catalyx platform, however they may occur.
Cyber Security Risk
A breach in cyber security refers to events that may cause Catalyx to lose proprietary information or other information subject to privacy laws, suffer data corruption, or lose operational capacity. Cyber security breaches may involve unauthorized access to Catalyx digital information systems (e.g. through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service attacks (i.e. efforts to make network services unavailable to intended users). In addition, cyber security breaches of the Catalyx’s third-party service providers can also give rise to many of the same risks associated with direct cyber security breaches.
Unauthorized third parties may access or use your Catalyx Account and effect transactions without your knowledge or authorization, whether by obtaining the password to your Catalyx Account, obtaining control over another device or account used by you in connection with any enhanced security measures enabled for your account, or by other methods. Catalyx has established robust policies and procedures with the purpose of minimizing the risk of a cyber security incident, but such risks cannot be completely eliminated.
Catalyx may suspend or cease to support the transfer, storage or trading of any Crypto Asset at any time, and service providers may do the same. Our delisting policies and procedures are contained in our Terms of Service that can be accessed at this link.
Risks Due to Changes in Fees and Other Charges
You should be aware that there are certain costs built into the spread offered on purchases and sales of Crypto Assets, as disclosed within the Catalyx platform. Fees are set in part by the fees charged to Catalyx by third-party liquidity providers, which are subject to change. Such fees will be provided to you in advance of completing an order and you will be required to accept the fees in order the complete the transaction.
Risk Due to Investing with Borrowed Funds
Investing with borrowed funds creates additional risk that can be realized if the value of the investments shrinks. In this case, the financial institution that provided the loan may require you to pay back all or part of it immediately, resulting in investment loss that may not have occurred otherwise. In addition to realizing an investment loss, the financial institution will likely require that interest be paid on the loan.
Loss Due to Error
Any Crypto Asset may be lost if sent to the wrong address (for example, but without limitation, if the address is improperly formatted, contains errors, or is intended to be used for a different type of Crypto Asset). Any Crypto Asset may be lost if sent to a correct address, but the recipient does not act as intended (e.g. a scam platform). Catalyx has no possibility to charge back the Crypto Asset and any transfer of Crypto Asset to whichever recipient is your sole responsibility.
In using the Catalyx Platform you acknowledge and accept the consequences of the risks:
The risks described in this document may result in loss of Crypto Assets, decrease in or loss of all value for Crypto Assets, inability to access or transfer Crypto Assets, inability to trade Crypto Assets, inability to receive financial benefits available to other Crypto Assets holders, and other financial losses to you. You hereby acknowledge that these risks fall outside the sphere which may be influenced by actions of Catalyx. Therefore, Catalyx will have no responsibility or liability for, any such risks.
You represent and warrant that you have: (a) the necessary technical expertise and ability to review and evaluate the security, integrity and operation of any Crypto Assets that you decide to acquire or trade; and (b) the knowledge, experience, understanding, professional advice and information to make your own evaluation of the merits and risks of any Crypto Asset or trade. You accept the risk of trading Crypto Assets by using the Catalyx Platform, and are responsible for conducting your own independent analysis of the risks specific to the Crypto Assets and the Catalyx Platform. You should not acquire or trade any Crypto Assets unless you have sufficient financial resources and can afford to lose all value of the Crypto Assets.
Catalyx’s decision to support the transfer, storage or trading of any particular Crypto Asset through the Catalyx Platform does not indicate Catalyx’s approval or disapproval of the Crypto Asset or the integrity, security or operation of the Crypto Asset or its Underlying Technology. The risks associated with Crypto Assets and trading Crypto Assets apply notwithstanding Catalyx’s decision to support a particular Crypto Asset. Catalyx does not provide trading advice, does not have any fiduciary duty to you or any other user and does not make any warranty about the suitability of any Crypto Asset for trading or ownership by you.
Certain statutory rights under securities legislation in Canada do not apply in respect of this Risk Statement or any Crypto Asset Statement.
Catalyx has submitted an application for registration as a securities dealer in each Province in Canada as well as an application for relief under securities legislation, but there is no guarantee the application will be granted. Catalyx is not currently registered under the securities or derivatives legislation of any jurisdiction of Canada and has not been granted an exemption from any requirements of securities or derivatives legislation of any jurisdiction in Canada.
Until such time as Catalyx obtains registration, Catalyx has agreed to abide by the terms of an undertaking filed with the Alberta Securities Commission, available at the following link.