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CHAIN TECHNOLOGIES RESEARCH

VAULT TERMS

Please read these Vault Terms (these "Terms") carefully as they govern your participation in the Vault Program (as defined below) offered by Chain Technologies Research, an exempted company with limited liability incorporated under the laws of the Cayman Islands ( "Plasma"). These Terms are effective as of the first date that the individual or entity accepting these terms ( "User") participates in the Vault Program (as defined below). Plasma and User may each be individually referred to as "Party" and collectively as "Parties".

For purposes of these Terms, the "Service" means the technology infrastructure, software, and services provided by Plasma, including but not limited to the web application, smart contract interfaces, APIs, and related systems through which Users access and participate in the Vault Program.

PLEASE READ THESE TERMS CAREFULLY. THESE TERMS GOVERNS USER'S PARTICIPATION IN THE VAULT PROGRAM. IF USER DOES NOT AGREE TO BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF THESE TERMS, USER MUST NOT ACCEPT THESE TERMS AND MAY NOT PARTICIPATE IN THE VAULT PROGRAM.

THESE VAULT PROGRAMS TERMS ARE INCORPORATED INTO AND ARE A PART OF PLASMA'S TERMS OF USE AND PRIVACY POLICY (TOGETHER, THE "PLASMA TERMS"), AND TO THE EXTENT THERE IS ANY DIRECT CONFLICT BETWEEN THESE TERMS AND THE PLASMA TERMS, THESE VAULT TERMS WILL PREVAIL AND CONTROL SOLELY WITH RESPECT TO THE SUBJECT MATTER CONTAINED HEREIN.

USER ACCEPTS THESE TERMS BY CLICKING ON THE "I ACCEPT" (OR SIMILAR) BUTTON WITH RESPECT TO THESE TERMS, WHICH WILL ASSOCIATE YOUR ACCEPTANCE WITH YOUR REGISTERED ACCOUNT ON THE SERVICE. USER REPRESENTS THAT IT HAS READ, UNDERSTANDS, AND AGREES TO BE BOUND BY THESE TERMS, AND USER HAS THE LEGAL AUTHORITY TO ENTER INTO THESE TERMS.

USER AGREES THAT IT HAS READ, UNDERSTANDS AND ACCEPTS THE RISK DISCLOSURES SET FORTH ON SCHEDULE A HERETO.

1. Vault Program.

Subject to the terms and conditions of these Terms, Plasma may make available to User the Vaults described in Section 1(a) (the "Vault Program").

  • Vaults. To promote the adoption and growth of the Plasma protocol (the "Protocol"), Plasma will enable User to send (as described below) certain digital assets, e.g., USDT, USDC, USDS or other digital assets as may be allowed by Plasma from time to time (together, "Accepted Tokens") to a smart contract ("Vault") controlled and managed by one or more persons selected by Plasma and Veda Tech Limited, a British Virgin Islands business company, with registered office at c/o SHRM Trustees (BVI) Limited of Trinity Chambers, PO Box 4301, Road Town, Tortola, British Virgin Islands ("Veda"), based on technical competence, security practices, and operational history, in their sole and absolute discretion (together, the "Vault Operators"). User may send any amount and any combination of Accepted Tokens to the Vault as determined by User in its sole discretion (such User's Accepted Tokens, the "Vaulted Tokens"). User may send Accepted Tokens during the period that Plasma allows Users to send Accepted Tokens as determined by Plasma in its sole discretion and as communicated to User via the Service, publicly available communication channels, or other means (the "Acceptance Period"). Plasma may change the term of the Acceptance Period at any time in its sole discretion by providing notice to User. At any time during the Acceptance Period, User may withdraw any Vaulted Tokens that User sends to the Vault. Withdrawals may be subject to blockchain network conditions, smart contract limitations, and DeFi Protocol lock-up periods. Plasma does not guarantee immediate withdrawal availability and bears no liability for delays caused by network congestion, smart contract limitations, DeFi protocol restrictions, or technical issues.

  • Distributions. The Vaulted Tokens may be programmatically deposited to independent third-party decentralized finance protocols deployed on the Protocol ("DeFi Protocols") and may earn distributions (meaning any returns, rewards, or benefits generated from DeFi Protocol deposits), if any, during the Acceptance Period. The Vault Operators will control this process in their sole discretion. Distributions earned will be automatically transferred to the wallet address associated with the User of the Vaulted Tokens. The Vaulted Tokens contained therein will be deposited into DeFi Protocols subject to the terms and conditions that govern the Vault and any applicable DeFi Protocol, including the terms relating to any such DeFi Protocol's rewards or incentives, if any. User further acknowledges and agrees that (i) Plasma has no control or influence over such third-party DeFi Protocols or Vault Operators; (ii) the Vault and the DeFi Protocol(s) to which the Vaulted Tokens may be deposited may not provide any return, rewards, or benefits to User in respect of its Vaulted Tokens or otherwise during the Acceptance Period, and (iii) that Plasma is not obligated to make any rewards available during the Acceptance Periodor otherwise. User acknowledges that distributions are not guaranteed and that User may receive less than the original Vaulted Tokens upon withdrawal due to various factors including but not limited to DeFi Protocol losses, smart contract failures, penalties imposed by blockchain protocols for validator misbehavior ("slashing"), or market conditions. Plasma makes no representations regarding expected returns, and past performance of any DeFi Protocol does not indicate future results.

2. Eligibility.

  • Digital Wallet Connection: In order to send Accepted Tokens, User may need to connect a compatible third-party digital wallet (a "Digital Wallet") to the Service. When User connects a Digital Wallet, User represents and warrants that it owns or has the authority to connect such Digital Wallet.
  • Age and Legal Capacity: User represents and warrants that User is: (i) at least eighteen (18) years old; (ii) of legal age to form a binding contract; and (iii) not a person barred from using the Service under the laws of User's place of residence, or any other applicable jurisdiction.
  • Sanctions and Compliance: User represents and warrants that none of: (i) User; (ii) any affiliate of any entity on behalf of which User is entering into these Terms; (iii) any other person having a beneficial interest in any entity on behalf of which User is entering into these Terms (or in any affiliate thereof); or (iv) any person for whom User is acting as agent or nominee in connection with these Terms is: (A) a country, territory, entity or individual named on an OFAC list as provided at https://www.treas.gov/ofac, or any person or entity prohibited under the OFAC programs, regardless of whether or not they appear on the OFAC list, (B) on any list pursuant to the European Union ("EU") and/or United Kingdom ("UK") regulations (as the latter are extended to the Cayman Islands by statutory instrument) or otherwise subject to sanctions imposed by the EU or UK; (C) a senior foreign political figure, or any immediate family member or close associate of a senior foreign political figure; or (D) a person against which there is a legal proceeding pending that relates to its activities relating to buying, selling, sending Accepted Tokens to the Vault, or otherwise using cryptocurrency or any other token- or digital asset- trading or blockchain technology related activities.
  • Risk Acknowledgement: User recognizes that the Vault Program may involve certain risks, including, but not limited to, those risks set forth in Schedule A hereto.
  • Geographic Restrictions: User represents and warrants that it is not located in, incorporated, or otherwise established in, or a citizen or resident of: (i) any jurisdiction where participation in the Vault Program would be prohibited by applicable law; or (ii) Cuba, Iran, North Korea, Syria, the Crimea Region, or any other jurisdiction subject to sanctions applicable to the Cayman Islands, including those imposed by the United Nations, United States, United Kingdom, or the European Union.
  • Sophisticated User: User represents and warrants that it has sufficient knowledge and experience in blockchain technology, DeFi protocols, and digital assets to evaluate the risks and merits of participating in the Vault Program and is able to bear the economic risk of total loss of the Vaulted Tokens.

3. No Representation or Warranty; Guarantees.

User acknowledges that nothing in these Terms shall obligate Plasma to accept User's Accepted Tokens or to accept the Vaulted Tokens in a DeFi Protocol. Each Party is an independent person or company and neither Party is an agent, partner, advisor, or fiduciary of the other. User acknowledges and agrees that it has not entered into these Terms in reliance upon any warranty or representation made by Plasma other than as explicitly set forth herein. User expressly acknowledges, understands and agrees that use of the Service and any participation in the Vault Program, is at User's sole risk, and that both the Service and any related functionality, and the Vault Program, are provided and used on an "AS IS," "UNDER DEVELOPMENT" and on an "AS AVAILABLE" basis without representations, warranties, promises or guarantees whatsoever of any kind by Plasma. (A) PLASMA DOES NOT MAKE AND EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY; (B) WITH RESPECT TO THE SERVICE, PLASMA SPECIFICALLY DOES NOT REPRESENT OR WARRANT AND EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY REPRESENTATIONS OR WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, OR AS TO THE WORKMANSHIP OR TECHNICAL CODING THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT; (C) PLASMA SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE SECURITY, FUNCTIONALITY, OR AVAILABILITY OF ANY DEFI PROTOCOL, VAULT OPERATOR ACTIONS, OR THIRD-PARTY SERVICES; (D) WITH RESPECT TO THE VAULT PROGRAM, PLASMA EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY THAT USER WILL BE ABLE TO EARN YIELD FROM THE VAULTED TOKENS(E) PLASMA DISCLAIMS ALL LIABILITY ARISING FROM THE ACTION OR INACTION OF ANY THIRD PARTY.

4. Limitation of Liability and Indemnification.

  • Subject to sections 4(b) and 4(c) below, User disclaims and waives any right or cause of action against Plasma of any kind in any jurisdiction that would give rise to any Damages (defined below) whatsoever, on the part of Plasma. Plasma shall not be liable to User for any type of Damages, whether direct, indirect, incidental, special, punitive, consequential or exemplary (including Damages for lost profits, goodwill, use or data), even if and notwithstanding the extent to which Plasma had been advised of the possibility of such Damages. User agrees not to seek any refund, compensation or reimbursement from Plasma, regardless of the reason, including partial or total failure of the Vault Program.
  • For the avoidance of doubt, the disclaimers and waivers in section 4(a) above shall not apply to any Damages that arise as a result of Plasma's intentional misconduct or gross negligence.
  • User agrees to defend, indemnify and hold harmless Plasma and its affiliates, employees, and agents (including developers, auditors, contractors or founders) from and against all liabilities, losses, damages, costs and expenses (including reasonable attorneys' fees) that arise from or relate to: (i) User's use or misuse of the Vault Program; (ii) User's violation of these Terms; (iii) User's violation of any rights of any other person or entity; (iv) any inaccurate information provided by User; (v) User's violation of any applicable law, regulation, or rule related to the Vault Program; or (vi) User's negligence or willful misconduct.

5. Remedies.

User hereby agrees and acknowledges that (a) Plasma would be irreparably harmed in the event of a breach by User of User's obligations hereunder, (b) monetary damages may not be an adequate remedy for such breach and (c) Plasma shall be entitled to specific performance or injunctive relief, without the need to post a bond or other security, in addition to any other remedy that it may have at law or in equity, in the event of such breach. User explicitly acknowledges that User's failure to comply with its obligations in these Terms will cause Plasma to incur economic damages and losses of types and in amounts which are impossible to compute and ascertain with certainty as a basis for recovery of actual damages, and that the rights in the prior sentence (if exercised) represent a fair, reasonable and appropriate remedy therefor.

6. Taxes.

User acknowledges and agrees that it may be subject to tax liabilities as a result of the activities undertaken in connection with the Vault, participation in the Protocol and any other actions contemplated in these Terms. User hereby represents that (a) it has consulted with a tax adviser that it deems advisable in connection with any use of the Protocol, or that it has had the opportunity to obtain tax advice but have chosen not to do so, and (b) neither Plasma nor its affiliates has provided User with any tax advice. User understands that User bears sole responsibility for any taxes as a result of the matters and transactions the subject of these Terms (excluding, for the avoidance of doubt, any net income tax obligations of Plasma or its affiliates). To the extent permitted by law, User agrees to indemnify, defend and hold Plasma or any of its affiliates, employees or agents (including developers, auditors, contractors or founders) harmless from any claim by any tax authority for unpaid taxes, assessments, or penalties imposed on Plasma as a result of User's failure to properly report or pay taxes related to the Vault Program.

7. Dispute Resolution.

The Parties (a) hereby irrevocably, unconditionally, and exclusively submit to the jurisdiction of the courts located in the Cayman Islands for the purpose of any suit, action or other proceeding arising out of or based upon these Terms, (b) agree not to commence any suit, action or other proceeding arising out of or based upon these Terms except in the courts located in the Cayman Islands, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that these Terms or the subject matter hereof may not be enforced in or by such court. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THESE TERMS. Each Party agrees that any breach or threatened breach by such Party of any of its obligations under these Terms would cause the other Party irreparable harm, for which monetary damages would not be an adequate remedy, and therefore, will entitle the other Party to injunctive relief with respect thereto (without the necessity of posting any bond). No action, regardless of form, arising out of or relating to these Terms may be brought by either Party more than one year after the cause of action arose, or such Party had notice of the occurrence of the act on which the cause of action is based, whichever is earlier, except that an action for non-payment may be brought within two years after the amount claimed to be due became payable. Any cause of action not brought within such period shall be deemed waived, and such action or claim is permanently barred.

8. Severability.

If any provision or provisions of these Terms shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of these Terms (including without limitation, each portion of any Section hereof containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the Parties hereto; and (c) to the fullest extent possible, the provisions of these Terms (including, without limitation, each portion of any Section of these Terms containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

9. Amendments.

  • Plasma reserves the right to modify or update the terms of these Terms at any time ("Revised Terms"). The Revised Terms will be effective upon the posting of the Revised Terms on Plasma's website www.plasma.to or any successor or related site designated by Plasma, and User's continued participation in the Vault Program after the posting will constitute User's acceptance of, and agreement to be bound by, the Revised Terms. User is expected to check this page from time to time to take notice of any changes Plasma makes, as they are binding on User.
  • If User does not agree with any Revised Terms, User's sole and exclusive remedy is to discontinue participation in the Vault Program.

10. Successors and Assignment.

These Terms shall inure to the benefit of and shall be binding upon the successors and permitted assigns of Plasma and User. User may not assign these Terms without the prior written consent of Plasma.

11. Governing Law.

These Terms shall be governed by and construed in accordance with the law of the Cayman Islands, without giving effect to its conflict of laws principles.

12. Force Majeure.

Neither Party shall be liable for any failure or delay in performance under these Terms which is due to acts of God, war, terrorism, pandemic, strike, lock-out, or other labor dispute, government action, or any other cause beyond the reasonable control of such Party, provided that such Party promptly notifies the other Party and uses commercially reasonable efforts to remedy the situation.

13. Data Protection and Privacy.

User acknowledges that blockchain transactions are public and permanent. Plasma bears no responsibility for any privacy implications of User's participation in the Vault Program. User acknowledges that wallet addresses and transaction data will be publicly visible on the blockchain and that Plasma cannot delete or modify blockchain records.

14. Audit and Monitoring Rights.

Plasma reserves the right to monitor and audit the Vault and DeFi Protocol interactions at any time and to suspend or terminate the Vault Program based on findings. Such monitoring may include security assessments, financial reviews, and compliance evaluations. Plasma may also implement automated monitoring systems to detect unusual or potentially harmful activity.

15. Emergency Actions.

Plasma reserves the right to take emergency actions, including but not limited to pausing deposits, withdrawals, or the entire Vault Program, in response to: (i) security threats or breaches; (ii) regulatory requirements or investigations; (iii) technical failures or vulnerabilities; (iv) market manipulation or unusual market conditions; or (v) any other circumstances that Plasma determines in its sole discretion pose a risk to Users, the Protocol, or Plasma.

16. No Third-Party Beneficiaries.

These Terms are for the sole benefit of the Parties and their permitted successors and assigns, and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of these Terms.

17. Survival.

The provisions of Sections 3 (No Representation or Warranty), 4 (Limitation of Liability), 5 (Remedies), 6 (Taxes), 7 (Dispute Resolution), 8 (Severability), 11 (Governing Law), 13 (Data Protection and Privacy), and this Section 17 (Survival), and any other provisions that by their nature should survive termination, shall survive any termination or expiration of these Terms.

18. Counterparty Risk.

User acknowledges that the Vault Program involves interaction with various third parties including but not limited to Vault Operators, DeFi Protocols, and other blockchain participants. User accepts all counterparty risks and acknowledges that Plasma has no control over and bears no responsibility for the actions or failures of such third parties.

19. Entire Terms.

These Terms, including Schedule A, sets forth the entire understanding and agreements among the Parties hereto concerning the Vault Program.

Schedule A

Potential risks associated with blockchain protocols and digital assets, include, but are not limited to:

Risk Associated with Blockchain Protocols.

As digital assets are based on blockchain protocols, any malfunction, breakdown or abandonment of the protocol or other technological difficulties may have a material adverse effect on or prevent access to or use of digital assets. These include, but are not limited, to the non-exhaustive list set out below:

  • ineffectiveness of the individual or groups of developers contributing to the protocols;
  • ineffectiveness of the network validators ("miners" or "block producers") and/or of the consensus mechanisms to secure a blockchain network against confirmation of invalid transactions;
  • disputes among the developers or validators;
  • changes in the consensus or validation schemes that underlie a blockchain network, including, but not limited to, shifts between so-called "proof of work" and "proof of stake" schemes, and newer mechanisms such as "proof of history", "proof of authority", or other consensus algorithms which may negatively affect the blockchain network;
  • the failure of cybersecurity controls or security breaches of a blockchain network;
  • undiscovered technical flaws in a blockchain network;
  • the development of new or existing hardware or software tools or mechanisms that could negatively impact the functionality of the systems;
  • decrease in value of digital assets associated with a blockchain network; and
  • infringement of intellectual property rights by a blockchain network's participants.

Any malfunction, breakdown, abandonment, unintended function, unexpected functioning of or attack on the protocol may have an adverse effect on the Vaulted Tokens, including causing the smart contracts to malfunction or function in an unexpected or unintended manner.

Regulatory actions could negatively impact the protocol or the development or deployment of decentralized finance (DeFi) strategies or smart contracts in various ways. In such a case, there is a risk that the Parties may need to pause or restructure the collaboration.

Smart Contracts Risks:

A "Smart Contract" is an open-source autonomous computerized algorithm capable of executing code to implement the terms of an agreement. Smart Contracts create a variety of new risks to users with no legal recourse, including, but not limited to:

  • "Coding Errors" (where an error in the implementation of the Smart Contract causes financial loss to the users);
  • "Rug Pulls" (where the smart contract developers intentionally create backdoors in the code to withdraw funds or cause other losses);
  • "Governance Issues" (where the holders of the governance digital assets vote to take a decision which negatively affects the value of the funds in the smart contract);
  • High "gas" fees (where the transaction fees to execute the smart contract climb to high levels due to demand);
  • "Reentrancy Attacks" (where malicious contracts can call back into the vulnerable contract before the first invocation is finished);
  • "Integer Overflow/Underflow" (where mathematical operations exceed the maximum or minimum values that can be stored);
  • "Front-running" (where transactions are observed in the mempool and malicious actors submit transactions with higher gas fees to execute first);
  • "Block Timestamp Manipulation" (where block timestamps can be manipulated by miners within certain bounds); and
  • "Delegate Call Injection" (where external code execution can be maliciously redirected).

Each Decentralised Finance (DeFi) application and protocol holds its specific risks, which include:

  • Liquidity risks (see also below Liquid Vault Risks).
  • Risks related to the malfunctioning of algorithms.
  • Other technical risks: the smart contracts not behaving as intended by the developers. It is very difficult to code error-free, so there is a high probability that some level of technical risk that exists, even after the code has been audited.
  • Risk related to external information influencing how the smart contracts operate to the detriment of other users (for example, an oracle could provide malicious data, and an administrator could change a system parameter or governance procedures could be co-opted).
  • Economic incentive failure risk: Many smart contract protocols, especially in the DeFi space, rely on economic incentives to encourage network participants to perform certain actions. These incentives could fail to encourage the right behavior or not be adequate enough, leading to other users being adversely impacted.
  • Impermanent Loss: If the DeFi Protocols involve providing liquidity to automated market makers, the value of deposited assets may diverge from holding the assets directly due to price ratio changes.
  • Oracle Manipulation: Price oracles may be manipulated through various attacks including flash loans, leading to incorrect valuations.
  • Composability Risks: DeFi protocols often interact with multiple other protocols, creating complex dependency chains where failure in one protocol can cascade to others.
  • Flash Loan Attacks: Attackers may use uncollateralized loans to manipulate protocol states within a single transaction.
  • Maximum Extractable Value (MEV) Exploitation: Validators, searchers, builders, or other transaction propagators may reorder, insert, or censor transactions to extract value.
  • Protocol Upgrade Risks: Changes to DeFi protocols through governance or admin functions may adversely affect deposited assets.

Liquid Vault Risks.

Liquid Vault Tokens (LVTs) are receipt tokens that allow users to directly participate in Vault while also maintaining the ability to use their LVTs elsewhere in decentralized finance (DeFi) ecosystems or transfer ownership of their original Vaulted tokens. LVTs may provide increased liquidity and capital efficiency to the DeFi markets, but they are a new product with an uncertain legal and regulatory regime. The primary risk of liquid Vault is that the value of any LVTs may de-peg from the value of the original or underlying tokens. LVTs are not automatically pegged to the original or underlying Vaulted tokens through algorithmic means and may trade freely on the market, where prices are determined by market forces. This means that LVTs may start selling for much lower than their original or underlying tokens during a bear market or a liquidity crunch. For example, in June 2022, the stETH liquid staking token, based on Ethereum (ETH), depegged about 7% from ETH because of market pressures.

LVTs have an uncertain legal and regulatory regime. The legal and regulatory regime applicable to LVTs has not been determined and there may be significant changes and developments in the future.

Finally, LVTs have lower liquidity compared to the regular or underlying tokens. While the LVT market has grown significantly, LVTs do not benefit from the same liquidity as the underlying Vaulted tokens.

Cross-Chain and Bridge Risks.

Digital assets that are transferred across different blockchain networks through bridge protocols may face significant risks. Bridge protocols may be vulnerable to hacks, with historical incidents resulting in hundreds of millions in losses. Cross-chain communication may fail or be delayed, and different security models between chains may create vulnerabilities that can be exploited by malicious actors. Wrapped or bridged tokens may lose their peg to underlying assets, resulting in significant value loss. Validator or relayer misbehavior in bridge protocols may result in loss of funds, and time delays in cross-chain operations may result in unfavorable price execution or failed transactions.

Immutable Transactions Risks.

Blockchain is a chronologically ordered ledger of all validated transactions across certain digital asset networks. It is shared among users for each applicable digital asset network. Each "block" in the "chain" contains a confirmed transaction. Just as the blockchain creates a public record of certain digital asset network transactions, it also creates an immutable one. Transactions that have been verified, and thus recorded as a block on the blockchain, generally cannot be undone. Even if the transaction turns out to have been in error, or due to theft of a user's digital assets, the transaction is not reversible. The blockchain may be susceptible to hacking or other attacks that seek to manipulate the ledger. Blockchains that are less established or not as widely used are typically more susceptible to these types of attacks.

Failure of Blockchain Projects.

Blockchain technologies, digital assets, and digital asset sales are rapidly evolving areas from a regulatory, technology and utility perspective. Due to the technically complex nature of the blockchain networks and platforms created by new projects and companies, they may from time to time face unforeseeable and/or unresolvable difficulties. Accordingly, the development of the blockchain networks or platforms could fail, terminate or be delayed at any time for any reason (including, but not limited to, the lack of funds). Such development failure or termination may render the digital assets untransferable, reduced, with no utility or obsolete.

Open-Source Networks Risks.

Open-source blockchain networks use a cryptographic protocol to govern the peer-to-peer interactions between computers. The code that sets forth the protocol is typically informally maintained by a development team known as the core developers. Some of the inherent risks include:

  • core developers may propose amendments to a network's source code through software upgrades that alter the protocols and software of the network and the properties of the underlying digital assets. To the extent that a significant majority of the users on a network install such software upgrade, the network would be subject to new protocols and software that may adversely affect its value;
  • core developers and contributors are generally not directly compensated for their contributions in maintaining and developing the network protocol. Consequently, there is a lack of financial incentive for developers to maintain or develop the blockchain network and the core developers may lack the resources to adequately address emerging issues with the protocol. Even if a protocol is currently supported by core developers, there can be no guarantee that such support will continue or be sufficient in the future;
  • the source codes may contain bugs, defects, inconsistencies, flaws or errors, which may disable some functionality, create vulnerabilities or cause instability in the network.

Price Manipulation Risks.

The number of digital assets traded for a given network and the number of venues available for trading may be very low, making the market price of the digital assets more easily manipulated. While the risk of market manipulation exists in connection with any markets, the risk may be greater for digital assets.

Fluctuation in Prices.

The price of digital assets has fluctuated widely over the past few years and is likely to continue to experience significant price fluctuations. Digital asset markets have historically experienced extended periods of flat or declining prices, in addition to sharp fluctuations. The global market for digital assets is characterized by supply and demand constraints that generally are not present in the markets for commodities or other assets such as gold and silver. There is no assurance that digital assets will maintain their long-term value in terms of future purchasing power or that the acceptance of digital asset payments by mainstream retail merchants and commercial businesses will continue to grow.

Loss of Private Keys.

A private key, or a combination of private keys, is necessary to control and dispose of digital assets stored in digital wallets or vaults. Accordingly, loss of requisite private key(s) associated with these digital wallets or vaults will result in the loss of such digital assets, and the private key will not be capable of being restored by the network.

Malicious Actors.

If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains control of more than fifty percent (50%) of the processing power on a network, such actor or botnet could manipulate the network. If a malicious actor or botnet obtains a majority of the processing power dedicated to mining on a network, it may be able to alter the blockchain on which the network and most transactions rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude or modify the ordering of transactions. The malicious actor could "double-spend" its own digital assets and prevent the confirmation of other users' transactions. To the extent that such a malicious actor or botnet did not yield its control of the processing power on the network or the community did not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible.

Cryptographic Protection.

Cryptography is evolving, and security, in general, cannot be guaranteed to exist at all times. Advancement in cryptography technologies and techniques, including, but not limited to, code-cracking, hacking and the development of artificial intelligence or quantum computers, could be identified as risks to all cryptography-based systems, including digital assets themselves. When such technologies or techniques are applied, adverse outcomes such as theft, loss, disappearance, destruction, devaluation or other compromises of digital assets may result. Hackers or other malicious groups or organizations may attempt to interfere with the digital assets in a variety of ways, including, but not limited to, malware attacks, denial of service attacks, consensus-based attacks, Sybil attacks, smurfing and spoofing. Further, many networks rely on open-source software and un-permissioned distributed ledgers. Accordingly, anyone may intentionally or unintentionally compromise the core infrastructural elements of a network and its underlying technologies. Consequently, such compromise may result in the loss of digital assets. Therefore, the security of digital assets cannot be guaranteed, due to the unpredictability of cryptography or security innovations or interference by hackers or other malicious groups or organizations.

Insurance and Recovery Limitations.

Digital assets held in the Vault Program have no government insurance protection such as FDIC insurance that applies to traditional bank deposits. Private insurance for digital asset losses may be unavailable or prohibitively expensive, and recovery of lost or stolen digital assets is generally impossible due to the immutable nature of blockchain transactions. Smart contract insurance protocols that purport to offer coverage may themselves be subject to smart contract risks, exploits, and governance failures that prevent claims from being paid out. Legal remedies for digital asset losses may be limited or non-existent given the decentralized nature of blockchain protocols and the potential anonymity of protocol developers or malicious actors. Users may have no recourse against decentralized protocols or anonymous developers in the event of losses.

Regulatory and Legal Risks.

Digital assets and DeFi protocols operate in an uncertain and rapidly evolving regulatory environment that varies significantly across jurisdictions. Future regulations may restrict or prohibit participation in DeFi protocols, potentially resulting in the immediate cessation of the Vault Program or loss of access to Vaulted Tokens. The tax treatment of DeFi transactions, including yield generation, token swaps, and liquidity provision, remains uncertain in many jurisdictions and may result in unexpected tax liabilities. The legal enforceability of smart contract terms is largely untested in courts, creating uncertainty about dispute resolution and recovery options. Cross-border regulatory conflicts may create compliance impossibilities where adhering to one jurisdiction's requirements violates another's laws. Regulatory enforcement actions against DeFi protocols, Vault Operators, or related parties may result in the immediate freezing or loss of Vaulted Tokens without prior notice.