Most recent update: 11 April 2023

No securities regulatory authority in Canada has expressed an opinion about USD 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 USD 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 and selling crypto assets and is not exhaustive. Purchasers are encouraged to conduct their own research prior to buying or selling any crypto asset.

Prior to making USD Coin available through the Services, Company conducted due diligence and determined that USD Coin is unlikely to be a security or derivative under Canadian securities legislation. 

Token Description & Project Background

In 2018, the CENTRE Consortium launched USD Coin as a way to convert US dollars into a digital token on a blockchain. CENTRE is responsible for developing and maintaining the technology and framework for  USD Coin. The motivation behind the creation of  USD Coin was to offer a faster, cheaper, and more efficient alternative to sending traditional US dollars through a bank.  USD Coin is a decentralized stablecoin that is meant to maintain a 1:1 value with the US dollar.  USD Coin can be found on various public blockchains such as Ethereum, BSC, Polygon, and Arbitrum. Each  USD Coin is backed by one US dollar or an asset of equal value. Company does not support or guarantee  USD Coin's peg to the US dollar, and changes in stablecoin supply and demand can cause it to move off its peg. To maintain the peg, a user can send US dollars to the token issuer's bank account and to mint  USD Coin. When a holder of  USD Coin redeems it, the equivalent amount of  USD Coin is burned and removed from circulation, and the funds underlying  USD Coin's reserves are transferred to the holder's external bank.

Risks of USD Coin

Investing in USD 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 Company Risk Statement.

Specific Risks of USD Coin

USD Coin is a stablecoin that is backed by fiat currency or cash equivalents on a 1-to-1 basis 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 fiat reserve that supports USD 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 USD 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, some stablecoin issuers work with regulators and auditors and publish 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 USD 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. For instance, in times of financial distress, commercial paper may become illiquid, which could have a significant impact on the value of USD Coin.

Solvency Issues of Issuers of Reserve Assets

It's important to note that some stablecoins may provide data on the proportion of commercial paper that backs USD Coin, but not reveal the issuers of such commercial paper. This lack of disclosure makes it challenging to assess the solvency risk associated with those commercial papers. If the issuers of the commercial paper, or any similar instruments, held by USD Coin face solvency issues, it could have a severe impact on the value of USD Coin.

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 USD Coin, and it's crucial for users to conduct their own due diligence to assess the risks and determine whether they are acceptable. Neither USD Coin nor the Company guarantees the value of USD Coin, and holders will not have any recourse if the value of USD Coin declines for any reason.

Segregated Reserves

The USD Coin reserve is kept in separate accounts for the exclusive benefit of those who hold USD Coin. According to legal and regulatory requirements, CENTRE is not permitted to utilize the  USD Coin reserve for its own business purposes. In the unlikely event that CENTRE were to declare bankruptcy, the  USD Coin reserve would still be set aside for USD Coin holders and would not be included as part of CENTRE's bankruptcy assets.

Company’s Evaluation Process

Before making USD Coin available on its platform, Company reviewed and assessed it to determine whether it qualifies as a security or derivative under Canadian securities legislation. Based on this assessment, Company concluded that it is not. However, there is a possibility that this conclusion could change in the future, and in such an event, Company would have to remove USD Coin from its platform as explained in the Company Risk Statement.

It is important to note that no Canadian securities regulatory authority has provided an opinion on whether USD Coin is a security or derivative.

Company's review of USD Coin included various factors, such as its creation, governance, usage, and design, including source code, security, and roadmap for growth, as well as the supply, demand, maturity, utility, and liquidity of the token. The review also considered technical risks, including any code defects or security breaches, and legal and regulatory risks, including any pending, potential, or prior civil, regulatory, criminal, or enforcement actions related to USD Coin and whether securities regulatory authorities consider it a security or derivative.

Other Relevant Information

Like all crypto assets, there are general risks associated with USD 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 Risk Statement. 

As a reminder, this Crypto Asset Statement is not intended to be exhaustive of all risks associated with trading USD Coin and we encourage you to conduct your own due diligence to determine whether trading USD Coin is right for you.