Most recent update: 28 April 2023
No securities regulatory authority in Canada has expressed an opinion about CAD Coin or any of the other Crypto Contracts or Crypto Assets made available through Paytrie AB Inc. (“Company”) on the Company Platform, including an opinion that CAD Coin itself is not a security and/or derivative. Changes to applicable law may adversely affect the use, transfer, exchange, or value of any of your crypto assets, and such changes may be sudden and without notice.
This overview provides a summary and risks involved with buying, selling and holding CAD Coin and is not exhaustive. Purchasers are encouraged to conduct their own research prior to buying or selling any crypto asset, including CAD Coin.
Prior to making CAD Coin available through the Services, Company conducted due diligence and determined that CAD Coin is unlikely to be a security or derivative under Canadian securities legislation.
Token Description & Project Background
In 2021, the Company launched CAD Coin as a way to convert CAD dollars into a digital token on a blockchain. Company is responsible for developing and maintaining the technology and framework for CAD Coin. The motivation behind the creation of CAD Coin was to offer a faster, cheaper, and more efficient alternative to sending traditional CAD dollars through a bank. CAD Coin is a decentralized stablecoin that is meant to maintain a 1:1 value with the CAD dollar (as discussed below). CAD Coin can be found on various public blockchains such as Ethereum, Polygon, and Arbitrum.
Each CAD Coin is backed by one CAD dollar or “cash equivalents” (i.e., liquid securities with an original maturity less than or equal to 90 days). Company supports and guarantees CAD Coin's peg to the CAD dollar. To maintain this peg, the Company maintains a corresponding reserve of CAD dollars, or “cash equivalents”, to the CAD Coin actively in circulation. When a holder of CAD Coin redeems it, the equivalent amount of CAD Coin is burned and removed from circulation, and the Company will transfer the corresponding funds to the holder.
Risks of CAD Coin
Purchasing CAD Coin, like any other crypto asset, comes with certain general risks. These include: (i) volatility risk and liquidity risk, (ii) short history risk, (iii) demand risk, (iv) forking risk, (v) code defects, (vi) regulatory risk, (vii) electronic trading risk, and (viii) cyber security risk.
For more information on the general risks associated with crypto assets, please refer to the Services Risk Statement.
Specific Risks of CAD Coin
CAD Coin is a stablecoin that is backed by Canadian dollars or “cash equivalents” for each stablecoin token issued. The purpose of this backing is to enable the stablecoin holder to redeem the token for fiat currency whenever they want. The cash and “cash equivalents” reserve that supports CAD Coin is meant to prevent the stablecoin from "depegging" from the target fiat currency, which means that one unit of the stablecoin would have a different value from one unit of the target fiat currency.
Risk of Insufficient Reserves
In the case where a fiat-backed stablecoin like CAD Coin does not have enough cash or “cash equivalents” to redeem all the coins that holders have requested, the stablecoin may become depegged. This is similar to a bank run in traditional finance, where more claims are issued than the institution has cash on hand to fulfill them.
To address these concerns, Company will work with its third-party auditors and publishes the results of their audit to demonstrate that they have enough cash and “cash equivalents” to fulfill all claims. However, because stablecoin structures and reporting on these reserves are relatively new, there is no guarantee that these publications are accurate or sufficient to meet the claims of CAD Coin holders in the event of significant redemptions.
Liquidity Risks of Reserves
Some stablecoins carry a risk associated with the assets that are used to back them. While certain stablecoins may identify assets as "cash equivalents," it's important for those conducting due diligence to evaluate whether these assets truly qualify as such. CAD Coin reserves are held in a segregated account, only hold Canadian dollars and “cash equivalents” and are not invested in any other financial instruments.
Centralization and Regulatory Risks
Fiat-backed stablecoins require a centralized issuer, which carries financial and regulatory risks. Non-compliance with local rules and regulations by the stablecoin issuer can raise concerns about the stability and redeemability of the stablecoin, resulting in the risk of a depegging event.
Moreover, if the stablecoin issuer experiences financial or operational difficulties, such as insolvency or having to pause operations, this also increases the risk of a depegging event, which can significantly affect the value of the stablecoin.
Please note that the risks and summaries outlined here are not a comprehensive discussion of all associated risks. There may be other risks associated with holding CAD Coin, and it's crucial for users to conduct their own due diligence to assess the risks and determine whether they are acceptable.
Segregated Reserves
The CAD Coin reserve is kept in separate accounts for the exclusive benefit of those who hold CAD Coin. Company is not permitted to utilize the CAD Coin reserve for its own business purposes. In the unlikely event that Company were to declare bankruptcy, [the CAD Coin reserve would still be set aside for CAD Coin holders and would not be included as part of Company’s bankruptcy assets]. The Company also maintains effective governance practices, including business continuity planning, in the event of an emergency.
Other Relevant Information
Like all crypto assets, there are general risks associated with CAD Coin including: volatility risk, liquidity risk, short history risk, demand risk, forking risk, code defects, regulatory risk, electronic trading risk, and cyber security risk. For additional information of general risks associated with crypto assets, you may refer to the Services Risk Statement.
As a reminder, this Crypto Asset Statement is not intended to be exhaustive of all risks associated with buying, selling and holding CAD Coin and we encourage you to conduct your own due diligence to determine whether CAD Coin is right for you.
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