Part 1 – General Risks
Regulation
In Switzerland, Crypto Assets are currently regulated under the general laws and regulations as well as under specific changes to the law introduced by the Federal law for the adaptation of federal law to developments of the technology of distributed electronic registers of 25 September 2020. In the UK, Crypto Assets are currently unregulated by the FCA or the Bank of England. It is unknown how possible future changes in regulation could affect the value, functionality or legality of Crypto Assets in future.
While Copper is a member of the Financial Services Standard Association (VQF), a self-regulatory organization for anti-money laundering purposes (SRO) pursuant to the Swiss Federal Act on Combating Money Laundering and Terrorist Financing (AMLA) of 10 October 1997 as amended and restated from time to time (SR 955.0), neither Copper nor the Crypto Asset Service have been licensed or authorized by the Swiss Financial Market Supervisory Authority (FINMA). Therefore, you will not benefit from the same regulatory protections that are available in respect of regulated services offered by firms licensed by the Swiss Financial Market Supervisory Authority (FINMA).
Business conducted by us in connection with the Crypto Asset Service is not covered by the Swiss depositor protection scheme (Einlagensicherng) or the Financial Services Compensation Scheme and you will not be eligible to refer any complaint relating to the Crypto Asset Service to the Swiss Banking Ombudsman or UK Financial Ombudsman Service.
If Copper is unable to comply with any future regulations, this may lead to Copper incurring losses and it may also have an adverse impact on the Copper’s ability to carry out its business, including provision of the Crypto Asset Service.
Rules or procedures imposed by foreign exchange controls, asset freezes or other laws or regulations will prohibit or impose burdens or costs on the transfer of Crypto Assets to or by you or for your Account or on the realisation of Crypto Assets or the conversion, howsoever effected, of a Crypto Asset into Fiat (or vice versa) or Fiat from one currency into another currency.
If you are unclear about anything, it is important that you seek independent legal advice and are comfortable with the risks that you are taking.
Price volatility
Crypto Assets are considered very high risk, speculative investments. The value of Crypto Assets can be extremely volatile. Crypto Assets are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment. Other factors that may affect the price of Crypto Assets include changes in the total number of Crypto Assets in existence, the monetary policies of governments, the Fiat withdrawal and deposit policies of Exchanges, the fees associated with processing transactions, trade restrictions and regulatory measures.
Currently, there is a relatively limited adoption of Crypto Assets for use as payment instruments in retail or commercial transactions, therefore most transactions in Crypto Assets are speculative investments.
A sophisticated, technical understanding may be needed to fully understand the characteristics of, and the risks associated with, particular Crypto Assets.
Exchanges
In order to purchase Crypto Assets on your behalf, we may execute transactions with an Exchange. Many Exchanges are unregulated and do not operate under any form of external regulatory supervision. A number of Exchanges have closed without notice, gone out of business or failed, in some instances due to hacking by third-parties.
There is a significant risk of losing Crypto Assets or Fiat held at Exchanges. If an Exchange closes, goes out of business, or fails, there is unlikely to be any specific regulatory or legal protection, such as through a deposit guarantee scheme that will cover you for the loss of any Crypto Assets or Fiat you may have held at the Exchange, even when the Exchange is registered with a national authority.
Risks to which you may be exposed when dealing though Exchanges include:
(a) execution of a transaction at a substantially different price compared to the quoted bid or offer or the last reported price at the time of order entry;
(b) significant delays in the settlement of orders after the execution of an order; and
(c) rapid price fluctuations and a lack of liquidity.
Liquidity
Some Crypto Assets may be highly illiquid, meaning that they are infrequently traded, and may therefore be more difficult or impossible to sell within a reasonable timeframe or at a price which reflects "fair" value. Liquidity also varies between Exchanges, with some Exchanges having a more liquid trading market than others.
Digital wallets
Once Crypto Assets are purchased, they are stored in an electronic wallet. Electronic wallets have a public key and a private key or password that allows access to them. However, electronic wallets are not impervious to hackers and Crypto Assets may be stolen from an electronic wallet with little prospect of having them returned.
The loss of a private key required to access an electronic wallet may be irreversible and it may result in the loss of the Crypto Assets stored in the electronic wallet.
Decentralised nature of Crypto Asset technology
A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks, which are made up of transactions.
The open-source structure of a blockchain network protocol means that the core developers of the network protocol and other contributors are generally not directly compensated for their contributions in maintaining and developing the network protocol. A failure to properly monitor and upgrade a network protocol could damage the network protocol and affect the value, liquidity or even the existence of any Crypto Assets supported by that blockchain network.
New blocks are validated, and transactions confirmed, by peers. If the rewards and transaction fees are not sufficiently high to incentivise the peers, they may cease expending processing power to validate blocks and confirmations of transactions on the blockchain could be slowed or ceased. Again, this could affect the value, liquidity or even the existence of any Crypto Assets supported by that blockchain network.
Criminal activities and fraud
Transactions in Crypto Assets are usually public, but the identities of the participants in these transactions are usually not. Transactions by any one participant are therefore largely untraceable and provide owners of Crypto Assets with a high degree of anonymity. It is therefore possible that Crypto Assets will be used for transactions associated with criminal activities, including money laundering. This misuse could affect you directly or indirectly. For example, law enforcement agencies may decide to close an Exchange and prevent access to or use of any Crypto Assets or Fiat that the Exchange may be holding for you. Public information about particular Crypto Assets may also be unbalanced, incomplete or misleading.
Operational changes
There are risks of:
(a) operational changes to any blockchain protocol supporting any Crypto Asset (including, but not limited to, the occurrence of a Hard Fork); and
(b) external factors which may cause the loss of value of any Crypto Asset where modifications on any blockchain protocol are made.
Blockchain settlement
In general, it is impossible to cancel or reverse a transaction that has been submitted to any blockchain network supporting a Crypto Asset, such that after a transaction request has been submitted to a blockchain network by us, we will not be able to cancel or modify it.
There are some instances where blockchain transactions, i.e., Crypto Asset transfers, may be unconfirmed for a duration of time and, in some circumstances, may not be confirmed at all. There is therefore a risk that where such instances occur, transactions may never complete and Crypto Assets may remain in a state where they cannot be transferred to another electronic wallet.
Some Crypto Assets may settle on more than one underlying 'layer one' blockchain. However, certain Exchanges and other counterparties may not support transactions on all of these blockchains. There is therefore a risk that you may be unable to recover Crypto Assets if they are sent using an unsupported network.
Concentration Risk
Blockchain networks are generally spread across a number of participating nodes, with no barrier to entry for additional nodes, to give effect to a decentralised, permissionless network. The more decentralised a blockchain network, the wider the spread of nodes and theoretically, the more secure the network.
There are also private, permissioned blockchain networks that are made up of a select number of nodes within a concentrated network.
However, should one node, or many nodes acting in concert have the capacity to control over 50% of a blockchain, there is a risk that these nodes will then sabotage the network a (51% Attack). Consequences of a 51% Attack may include: transaction reversals, deletion of transactions or the attacking nodes retrieving all Crypto Assets supported by that blockchain network. In such circumstances, it is usually very difficult or even impossible to retrieve lost Crypto Assets.
Part 2 – Product Specific Risks
Copper Connect
Smart contracts and DeFi protocols are associated with heightened risks, including front-running by miners validating transactions on the underlying blockchain. It may also be impossible to identify the counterparty with which you are transacting or, in some cases, to have any guarantee that the fees paid for an attempted on-chain transaction will result in that transaction actually taking place.
Smart contracts in a blockchain protocol may contain vulnerabilities that put your Crypto Assets at risk, including the exploitation of bugs in code and the manipulation of external price feeds for Crypto Assets within protocols. This means that a transaction via a smart contract may not settle in accordance with your expectations, and that Crypto Assets in your Vault may be drained.
Margin Lending
There are significant risks, which are exacerbated in an illiquid market, associated with Margin Lending, including the risk of a margin call and the complete liquidation of your collateral. Before entering into any such arrangements, you should seek independent legal advice and be comfortable with the risks that you are taking.
Staking
There are various risks associated with Staking including: market risk, as a result of a lack of liquidity if any lockup period you have agreed to means you cannot access your Staked Crypto Assets; adverse effects on the Staked Crypto Assets as a result of problems, changes or errors with the underlying blockchain protocol; loss or diminution in the market value of the Staked Crypto Assets; part or all of the Staking Rewards being lost due to partner actions or network activity; network downtime interrupting the staking process potentially resulting in Staking Rewards being lost or less than that which might have been realised if no such downtime had occurred; a Missed Staking Reward or Slashing Penalty comprised either of (i) a downtime event, where nodes fail to sign transactions for a period of time, or (ii) a double-signing event, where the action of two blocks on the blockchain are signed at the same block height or with one key, such that in either scenario you will be punished by the relevant blockchain protocol, following which you may lose out on Staking Rewards or suffer a permanent loss of your Staked Crypto Assets.
Settlement and currency exchange
As explained in these Terms and as elaborated in the Risk Warnings above, the transfer of Fiat and Crypto Assets to your order will involve third-parties and/or blockchain networks. Any transfer may therefore be delayed or may fail in ways that are unpredictable and beyond our control.
In particular, if we are instructed by you to deliver Crypto Assets held in your Account against payment, there is a risk that confirmed delivery of such Crypto Assets and receipt of payment related to such Crypto Assets may not be completed simultaneously. This is conventionally referred to as settlement risk and applies to any transfer of Crypto Assets for Fiat or vice versa, to any transfer of one Crypto Asset for another, and to any exchange of one Fiat currency for another. There are also other risks involved in connection with the delivery of Crypto Assets or Fiat pursuant to your instructions in accordance with market practice, including in respect of failed confirmations of transactions in Crypto Assets.
Where settlement is delayed, it is likely that the value of the relevant Crypto Asset or Fiat currency (whether measured in the value of any other Fiat currency or Crypto Asset, as applicable) will change between the time of the relevant order or payment and the time of delivery. This risk is conventionally referred to as currency risk or foreign exchange risk, with regard to Fiat, and as market risk, with regard to Crypto Assets traded on markets.
All settlement, currency, foreign exchange and market risks in respect of any transaction undertaken in relation to your Account will be borne by you alone. You should consider these risks before undertaking any transaction.
NFTs
It is possible that the person who creates, mints and/or sells an NFT (or another type of Crypto Asset) may not own or control all of the Intellectual Property Rights embodied in the content of that NFT (or other types of Crypto Asset), which may lead to claims of IP infringement by third parties. You acknowledge and accept that, to the extent that any Crypto Assets in which you transact using the Crypto Asset Service may infringe the Intellectual Property rights of any third parties resulting in any claims to this effect, you will bear all risk and responsibility for such claims and any and all associated costs.
ClearLoop
While your Delegated Assets are not transferred to the applicable ClearLoop Exchange, you remain subject to counterparty and settlement risk in relation to any unsettled profits that you may make on that ClearLoop Exchange. As such, you should perform due diligence on any ClearLoop Exchange and agree to bear all risks and responsibility in connection with such trading thereon. Furthermore, in the event of any dispute between yourself and any ClearLoop Exchange, you acknowledge that Copper may be required to transfer any Crypto Assets subject to that dispute to the ClearLoop Exchange in accordance with clause 11.1.