All trading involves risk of capital loss. Before investing in eToro Digital Assets tokens (the “tokens”) you should read the “Transparency” section of our website and make sure you understand the nature of the tokens. You should also read this Risk Warnings document which provides you with information about some of the key risks associated with the tokens. In particular, you should take note that as a tokenholder you will not have any right to or interest in the underyling asset represented by a token, you will not have the right to redeem your token or claim against any person for the value represented by your tokens, the value of the tokens may fall below the value of the underlying asset represented by the token and there is no guarantee that you will be able to sell your tokens. You should not invest money in the tokens that you cannot afford to lose.
If you decide to invest in the tokens, you are voluntarily choosing to engage in sophisticated financial transactions which are associated with a significant risk of financial loss and are therefore not appropriate for everyone.
Risks specific to the tokens
§ There may not be a market for the tokens
The Market Maker is not obliged to always make a market in the tokens and tokenholders have no right to redeem their tokens against the Market Maker (or any other person). In the absence of the Market Maker’s market making activities on eToroX it is unlikely that there will be an active market in the tokens. In such circumstances, it is unlikely that the tokenholders would be able to sell their tokens and would therefore be unlikely to be able to recover any of the capital invested in the tokens.
§ The value of the tokens may fall to zero
If there is not sufficient demand for the tokens the value of the tokens will fall. This would result in deviation from the value of the underlying asset represented by the tokens and, in the worst case scenario, the value of the tokens may fall to zero. This could happen in circumstances where the Market Maker is unwilling or unable to offer prices to buy and sell the tokens through eToroX at a level sufficient to ensure broad correspondence with the value of the underlying asset, where the tokens are delisted from eToroX (which could occur without the consent of or notice to tokenholders) or where the Market Maker becomes insolvent.
§ The Market Maker or eToroX could become insolvent or otherwise fail to perform their roles in relation to the tokenization structure
Since the tokens are only currently listed and tradeable on eToroX and only subject to the market making activities of a single Market Maker which are both members of the eToro Group there is a high degree of risk concentration in these two entities. If either is unable to perform its role in relation to the tokenization structure (for example, as a result of insolvency) the value of the tokens may fall, tokenholders may be unable to sell their tokens, or both.
General risks relating to cryptoassets
The tokens are a type of cryptoasset. Cryptoassets trading also involves additional special risks not generally shared with official currencies, goods or commodities. Cryptoassets do not have legal tender status, but rather they are backed by technology and trust. There is no central bank that can take corrective measures to protect the value of Cryptoassets. Moreover, there is always a risk that changes in the applicable legislative or regulatory regime may adversely affect the use, transfer, exchange, and value of Cryptoassets. Cryptoasset markets and exchanges are not currently regulated with the same control, and customers are not entitled to the same protections, available in relation to other financial instruments.
The following is a non-exhaustive list of risks associated with trading in Cryptoassets:
§ The cryptoassets market is a dynamic arena in which prices are determined by demand and supply only. Cryptoasset prices are often highly unpredictable and volatile and they can and do fluctuate significantly on and during any given day. Due to such price fluctuations, the value of your cryptoassets may increase or decrease at any given moment and in some cases this may result in the loss of all the capital invested.
§ The prices of cryptoassets are usually not transparent and are highly speculative and susceptible to market manipulation. In the worst case scenario the cryptoassets could be rendered worthless.
§ There are risks associated with utilizing an internet-based system including, but not limited to, the failure of hardware, software, and internet connections, the risk of malicious software introduction, the risk that third parties may obtain unauthorized access to information or assets, and cyber-attacks on the security, integrity or operation of the cryptoassets blockchain or other underlying technology.
§ The blockchain technology through which the cryptoassets are being issued or traded is subject to failures, mistakes and other errors which, in the worst case scenario, may result in loss of all your cryptoassets.
You remain ultimately responsible for understanding the technological, economic and legal nature of cryptoassets, for carefully and adequately managing your exposure in accordance with that understanding and for your risk appetite in respect of innovative, volatile and speculative new technologies and assets. Cryptoassets trading may not generally be appropriate, particularly with funds drawn from retirement savings, student loans, mortgages, emergency funds, or funds set aside for other long term purposes.