| Risk Category | Name | Full Description |
|---|---|---|
| Market Risk | Adoption Risk | Adoption of digital assets will require an accommodating regulatory environment. A lack of expansion in usage of digital assets and the blockchain could adversely affect an investment in the Notes. In addition, there is no assurance that any digital asset will maintain its value over the long-term. The value of any digital asset is subject to risks related to its usage. Even if growth in digital assets adoption occurs in the near or medium-term, there is no assurance that digital assets usage will continue to grow over the long-term. A contraction in use of digital assets may result in increased volatility or a reduction in the price of such digital assets or of digital assets generally, which would adversely impact the value of the Notes. Therefore, banks and other established financial institutions may refuse to process funds for crypto asset transactions; process wire transfers to or from crypto exchanges, crypto-related companies or service providers; or maintain accounts for persons or entities transacting in crypto asset. For example, Chinese officials cracked down on crypto asset in 2021, banning all crypto asset transactions and mining, damaging numerous crypto asset and putting pressure on stock prices for companies related to blockchains and crypto asset. This could dampen liquidity in the market and damage the public perception of digital assets generally or any one digital asset in particular, such as bitcoin, and their or its utility as a payment system, which could decrease the price of digital assets generally or individually. |
| Market Risk | Centralized Collateral Risk | In response to the high volatility of the price of crypto assets, stablecoins have been developed and released with the aim to offer crypto assets with stable value. A stablecoin is a crypto asset that's designed to maintain a long-term stable value in relation to other crypto assets or other assets referenced by it. Stablecoins have the aim to reduce risks for sellers and buyers and to enable long-term smart contracts on the blockchain. In the event that the price of the referenced crypto asset of other asset of a stablecoin drops abruptly, the related collateral may be liquidated immediately, and holders of the relevant stablecoin may lose their investment. Some stablecoins, are centralised, which means they are controlledby central party or their collateral is managed by a third-party custodian like a bank. This does however not automatically mitigate or reduce the aforementioned risk. |
| Market Risk | Currency Risk | While investing in crypto asset across different currencies can bring benefits due to the change in the exchange rates of certain currencies, it can also bring losses to the investor. One of the primary risks is currency exchange fluctuations. The value of the ETN may be denominated in a currency different from your local currency. If the exchange rate between the two currencies is unfavorable, it can erode the value of your investment when converting back to your local currency. Exchange rates are influenced by various factors, including economic conditions, geopolitical events, and market sentiment, which can be unpredictable and volatile. Investing in an ETN denominated in a different currency may concentrate your investment exposure in that specific currency. This lack of diversification can increase your vulnerability to currency-related risks. It's important to assess the potential impact on your overall investment portfolio and consider diversification strategies to manage currency-specific risks effectively. |
| Market Risk | Geographic Centralization Risk | Over the past few years, crypto asset have gained popularity in more and more countries throughout the world, but in some countries more so than others. Unlike other technologies, crypto asset only require a high level of Internet connection and do not provide users with a geographical advantage, so they are often not advantageous to people from certain countries. It is crucial that crypto asset users understand that each nation has a unique set of characteristics that, taken together, may prove to be more advantageous to crypto asset users than those from other nations. As an additional concern, the fact that certain nations are more likely to use crypto asset than others may lead to the problem of centralisation, since it is possible for one group or individual to have control of the wealth of a particular crypto asset, which results in a certain country's residents enjoying more privileges than others because of the wealth of that particular crypto asset. |
| Market Risk | Crypto Asset Referencing Risk | Certain crypto asset referencing instruments can increase the exposure to the crypto asset markets. These instruments are derivative instruments to track price movements of an underlying crypto asset to allow you to multiply earnings. The most straightforward explanation of a crypto asset referencing instrument is an instrument designed to track the price movements of an underlying asset by using derivative instruments to multiply the returns of the underlying asset using a multiple of 3x for example, in order to track and leverage the price fluctuations of the underlying asset. Crypto asset referencing instruments are categorised as high-risk products and can be subject to extreme volatility. |
| Market Risk | Low Liquidity Risk | Low liquidity in crypto asset markets refers to a situation where there is insufficient trading activity and a limited number of participants. This poses significant risks for traders and investors. Firstly, low liquidity can lead to wide bid-ask spreads, making it expensive to enter or exit positions. Market orders in illiquid markets may cause slippage, where the executed price deviates significantly from the expected price. Moreover, low liquidity can also amplify price volatility. A large order in such a market could lead to drastic price swings, making the market susceptible to manipulation and sudden crashes. In extreme cases, a lack of liquidity might even hinder the ability to execute trades altogether. Additionally, low liquidity markets are more vulnerable to pump-and-dump schemes, where coordinated groups artificially inflate prices before rapidly selling off. Investors might find it challenging to accurately assess an asset's value due to the erratic price movements in illiquid markets. Overall, low liquidity increases the complexity of trading, heightens risks, and necessitates cautious decision-making for anyone involved in cryptocurrency markets. |
| Market Risk | Centralized Validation Risk | Since September 2022, Ethereum has relied on validators rather than miners to add new transactions to the network, switching from proof-of-work to proof-of-stake. These validators get to choose which transactions and in what sequence get into each block. Although this has already reduced the network's energy consumption, it also means that a significant amount of the ETH used to secure the network is held by centralised entities. As a result, these centralised entities are much more likely to be given blocks of transactions to add to the chain and may end up having a disproportionate amount of control over what is and isn't permitted on the network. Therefore, there is a risk that it could easily lead to the centralisation of power if a small number of delegates or influential validators gain control over the authority to approve and validate transactions. |
| Market Risk | Refusal Acceptance Risk | Banks and other established financial institutions may refuse (a) to process funds for crypto asset transactions, (b) process wire transfers to or from crypto exchanges, (c) to service crypto-related companies or service providers and/or (d) to maintain accounts for persons or entities transacting in crypto asset. For example, Chinese officials cracked down on crypto asset in 2021, banning all crypto asset transactions and mining, damaging numerous crypto asset and putting pressure on stock prices for companies related to blockchains and crypto asset. This could dampen liquidity in the market and damage the public perception of digital assets generally or any one digital asset in particular, and their or its utility as a payment system, which could decrease the price of digital assets generally or individually. |
| Market Risk | Risk of losses and volatility | The volatility of an asset is a measure of how much the price of a given asset has increased or decreased over time. The riskier an investment is, the larger returns or greater losses it may provide over shorter time periods. The trading prices of many digital assets have experienced extreme volatility in recent periods and may well continue to do so. Consequently, the volatility of Digital Assets can lead many investors to large losses. It has been observed that more sophisticated investors tend to sell their digital assets before a steep decline in price, whereas at the same time small investors have continued to buy. |
| Market Risk | Network Related Risk | Network Related Risk: A Tron-linked company bought the company that developed BitTorrent, a peer-to-peer file sharing protocol and application used to share data over the Internet. TRX token value could be directly affected by the performance of for-profit corporations involved in this deal or non-profit organizations associated with Tron. |
| Regulatory Risk | Limited Access Risk | Some services offered by a cryptocurrency network may be restricted depending on the user's digital identity or geographical location. |
| Regulatory Risk | Illegal Content Risk | It is important to note that, even though all transactions that appear on the blockchain are kept on a public record and are available to anyone for review, the identity of those who initiated the transaction remains unknown. During the course of a transaction, a crypto address is used to communicate with one or more destination addresses on behalf of the sender. A crypto address is a random set of characters, which is roughly equivalent to a bank account number in cryptography. As a result, criminals may appear operate anonymously while dealing in narcotics, firearms, explosives, child pornography, and other items. Terrorists can do the same when soliciting money or donations for extremist groups. It is difficult to tackle the problem of filtering out content for adult audiences, including violence, through a decentralised network, implying that no one is in control of the crypto network, which is negative for the platform's image. |
| Technology Risk | Blockchain Risk | Blockchain technologies are premised on theoretical conjectures as to the impossibility, in practice, of solving certain mathematical problems quickly. Those conjectures remain unproven, however, and mathematical or technological advances could conceivably prove them to be incorrect. Blockchain technology companies may also be negatively affected by cryptography or other technological advances, such as the development of quantum computers with significantly more power than computers presently available, that undermine or vitiate the cryptographic consensus mechanism underpinning the relevant Blockchain. If either of these events were to happen, markets and crypto assets that rely on blockchain technologies could quickly collapse, and an investment in the relevant crypto asset ETN may be adversely affected. |
| Technology Risk | Staking Risk | The process of staking crypto asset is the commitment of certain amounts of a crypto to support the blockchain network for a certain period of time. The act of staking crypto assets earns rewards, making it one of the most popular ways to earn passive income in crypto. Among the various features of the crypto ecosystem, staking contributes to the network's security, making it work smoothly and reliably. The act of staking ensures that the network remains decentralised and resistant to attacks. However, there are some risks related to staking crypto assets. First of all, it is common for users to "vest" or lock up their crypto assets for a specified amount of time under staking terms, meaning they can't withdraw or transfer their assets during this timeframe, even if they need access right away. As a result, investors cannot take advantage of price gains if there are positive moves in prices during the vesting period. Additionally, in a short period of time, a crypto asset may experience severe market volatility, which could have an effect on the rewards from staking. Therefore, a decline in the price of a coin that you are staking can have a drastic effect on the rewards that you receive from staking, and profits obtained through staking may be countered if the value of the coin drops drastically. Crypto asset bear markets such as the current one can be considered disadvantageous because they are sustained for such a long period of time. Slashing risk in proof-of-stake (PoS) blockchains involves penalties imposed on validators for malicious or faulty behavior. Validators stake crypto assets to participate in consensus. If they breach network rules intentionally or unintentionally, they can lose some staked assets. Scenarios triggering slashing include double signing conflicting blocks, prolonged downtime, Byzantine actions, collusion, and validating invalid data. Penalties vary based on protocols and might include seizing part of the staked funds or temporary suspension. Slashing deters dishonesty and ensures network security by aligning validators' incentives with the blockchain's integrity. Slashing may in some cases results in total loss of staked funds, rewards or a combination thereof. Lastly, staking may result in total loss of funds due to smart contract risk, exploits or bugs in the protocol, or hard forks. Self-custody of staked crypto assets does not circumvent these risks. Investing in crypto asset can generate passive income by staking them to secure the Blockchain, which provides passive income to their holders. Nonetheless, delayed delivery may cause rewards made by the network to take a while to reach investors. Therefore, peak traffic on a blockchain network results in delays, a congestion of transactions, and higher transaction fees because demand exceeds supply and network validators can choose which transactions to process. Hence, payouts and re-investment can be delayed. For individuals relying on crypto asset rewards as a source of income or passive earnings, delays can create financial uncertainty. If rewards are delayed for an extended period, it can disrupt cash flow and affect individuals' financial planning. This is particularly relevant for users who depend on regular rewards for living expenses or other financial obligations. The unpredictability of reward delays can make it challenging for individuals to effectively manage their finances. |
| Technology Risk | Resources Risk | Mismanaged resources such as servers (network nodes or website serves) are a security risk because they can enable denial-of-service attacks and more subtle attacks like draining funds. The term (distributed-)denial-of-service ((DDoS) refers to an attack where malicious cyber threat actors prevent legitimate users from accessing information systems, devices, or other network resources. Several services like email, websites, and online accounts that rely on the compromised machine or network may also be harmed. When a network or host is the target of a denial-of-service attack, traffic is poured into it until it can no longer manage it, prohibiting authorised users from accessing the resource. A DoS attack can be carried out in a variety of ways. Attackers most frequently target network servers by saturating them with traffic. In this kind of DoS attack, the attacker floods the target server with requests, causing it to become overloaded. Such requests are fraudulent and contain forged return addresses, which deceive the server when it tries to verify the requestor's identity. The server becomes overloaded as the junk requests are continuously handled, which results in a DoS circumstance for legitimate requestors. The consequences of a DDoS attack may be server outages, leakage of personal information and total loss of funds depending on what the server is used for. |
| Technology Risk | Complexity Risk | The complexity of crypto asset introduces several risks for investors. These risks arise from various factors such as technological intricacies, regulatory challenges, market volatility, and security vulnerabilities. Crypto asset operate on complex technological foundations, such as blockchain technology and cryptography. For investors unfamiliar with these concepts, understanding the inner workings of crypto asset can be challenging. Lack of technical knowledge may lead to errors in handling digital wallets, executing transactions, or managing private keys, resulting in the loss of funds. Additionally, the rapid evolution of crypto asset and the introduction of new technologies and protocols further complicate the landscape, making it difficult for investors to stay up to date and make informed decisions. Crypto asset can lack transparency in terms of the underlying technology, project governance, and market information. Some projects may lack clear documentation or have complex technical whitepapers that make it challenging to assess their viability. Additionally, the decentralised nature of crypto asset can result in a lack of reliable information sources, making it difficult for investors to conduct thorough due diligence. Without adequate transparency, investors may struggle to evaluate the true value and risks associated with a particular crypto asset , leading to potential investment mistakes. |
| Technology Risk | Delay of rewards | The validator process may demand significant processing power and specialised equipment to solve complicated cryptographic hash problems (proof-of-work) or significant cost of capital (proof-of-stake) in order to verify blocks of transactions that are updated on the decentralised blockchain ledger. As a result, validators are usually paid with new crypto assets (validator rewards) and share of network revenue (transaction fees paid by users). The new crypto assets are put into circulation when transactionsare added to the blockchain. Therefore, it is an essential component of the construction and maintenance of the blockchain ledger. A decline in validator rewards or significant increases in transaction verification costs may lead to validators switching to other networks, thereby retarding transaction validation and usage. Any issue arising with regard to the relevant crypto asset inflationor transaction confirmation might have a negative effect on the crypto asset's price. |
| Technology Risk | Proof-of-Stake related Risk | A badly built PoS system might massively benefit those who already possess significant shares in it, resulting in wealth growth being disproportionately credited to them. A basic example is leader-based consensus protocols, in which a subcommittee or a selected leader collects all rewards during the protocol's operation, and where the likelihood of being chosen to collect rewards is proportional to the stake, resulting in powerful reward compounding effects. Furthermore, in PoS systems, there is a phenomenon in which larger validators benefit from fewer orphans and less lost effort. Large holders may have a non-proportional influence on the underlying asset's price. |
| Technology Risk | Front-running Risk | A front-runner purchases a crypto asset in anticipation of a large transaction expected to affect its price based on advance nonpublic information. As a result, it is considered a form of market manipulation and insider trading. It is expected that the person who commits a front running activity will predict the price movement of the crypto asset based on the non-public information the person has access to. It is not illegal for some forms of front running, such as index front running, to take place. Through front-running, the front-runners may earn millions of dollars in assets. The most commonly known attack by front-runners is the sandwich attack, where the price of a transaction is manipulated in order to take advantage of the following price fluctuation. |
| Technology Risk | Oracle Risk | An Oracle of Blockchain is an agent that connects blockchains to other systems and enables smart contracts to function depending on inputs and outputs from the real world. Consequently, oracles are a natural target for front-running attacks due to their typical function of supplying off-chain data to blockchain applications. Normally, the oracle collects price data for various assets every hour and feeds it to an exchange contract. These price-data exchanges provide opportunities. For example, if the most recent Oracle report specifies a substantially higher price for any asset, an attacker may purchase assets and instantly resell them after the Oracle report is processed. |
| Technology Risk | Hack Attack Risk |
As crypto asset are very new and involve large sums of money, they are particularly vulnerable to hacker attacks, as has happened in the past with losses of millions of dollars. Security breaches, computer malware and computer hacking attacks have been a prevalent concern in relation to digital assets. The digital assets can be an appealing target to hackers or malware distributors seeking to destroy, damage or steal them and will become more appealing as the relevant ETN grow. To the extent that it is impossible to identify and mitigate or stop new security threats or otherwise adapt to technological changes in the digital asset industry, the underlying digital assets may be subject to theft, loss, destruction or other attack. In a blockchain based on proof-of-work, the most significant hacker attack is a "51% attack" (or "33% attack" for PoS ledgers), in which a single validator or group of validators has majority voting power of the blockchain and double-spends the relevant digital assets. For example, under normal circumstances, new coins in the Bitcoin network are created by mining computers. But, if one participant in the network does have more than 50% of the processing power, it may try to choose the current block, start mining, and then withhold the blocks that are really mined. The old chain will be overtaken when this rival one is broadcast, leaving out all transactions since the fork and undermining the network's immutability. The offending party might potentially ban certain coin addresses or refuse to accept blocks mined by rival network users, ensuring that they never receive a fair share. Regarding Ethereum and other equivalent PoS ledgers, the 33% of staked Ether is the minimum threshold for an attacker as anything greater than that amount may give the attacker the additional abilities such as to prevent the ledger from finalizing transactions. |
| Technology Risk | Hard Fork Risk | From time to time crypto assets´ networks perform hard forks, which are changes that occur when nodes of the most recent version of a blockchain stop accepting the older version of the blockchain, permanently separating it from the earlier version. Even though hard forks are important for solving security risks found in older versions of the software, a node running on an older version of the blockchain client will not be able to process transactions on the updated version of the protocol, meaning that the older version of the client is not compatible with the updated protocol. For example, the Ethereum merger led to a big drop in its value due to uncertainty about the success of the merger. |
| Technology Risk | Inflation Risk/Protocol Defined Inflation | Protocol-defined inflation corresponds to a predetermined process for creating new crypto assets on a blockchain network. Crypto asset frequently use established protocols and algorithms to regulate the issue of new crypto assets, in contrast to traditional fiat currencies where central banks have the power to control and alter the money supply. A dilution of the crypto asset's value can occur when a significant number of crypto assets are created through inflation and the crypto assets’ supply does not keep pace with demand. A sudden increase in crypto asset supply without a related increase in utility or demand can lead to a downward pressure on a crypto asset's price and will have a negative impact on investor returns as a result. Furthermore, the protocol-defined inflation of crypto asset can generally be predicted to some extent, as the rules governing the crypto assets supply increase are typically pre-programmed into the blockchain protocol. |
| Technology Risk | Inflation risk/Validator Rewards | Inflationary risk: A quick influx of tokens can lead to a rise in the amount of tokens in circulation. The possibility for this increasing supply to outstrip the token's demand might result in inflationary pressure. The purchasing power and potential profits for investors may be reduced over time as the token's value declines as it gets more plentiful. Also, unregulated token emissions might raise questions about the token's future availability. Investors may find it challenging to predict the future token supply and its possible influence on value if the emission schedule or method is imprecise or susceptible to frequent adjustments. Furthermore, the impression and trust of investors may be severely impacted if token emissions are perceived as being excessive or lacking transparency. Investors may lose faith in the token and engage in possible sell-offs if they believe it to be overpriced or artificially inflated. This value decline can be difficult to reverse and may have long-term effects on the token's market position. |
| Technology Risk | Inflation Risk/Air Drop Risk | Air drops in the context of crypto assets refer to the distribution of crypto assets to existing holders of a particular crypto asset. While air drops can be an exciting opportunity for investors to receive additional crypto assets, they also come with certain risks that should be considered. However, the frequent occurrence of air drops can result in market saturation. When multiple crypto assets are distributed through air drops, the supply of crypto assets can increase significantly. This oversupply can potentially dilute the value of existing crypto assets, leading to a decline in their market prices. Investors should consider the potential impact of market saturation when evaluating the value and prospects of an air dropped crypto asset. |
| Technology Risk | Interruption Risk | Crypto asset networks are dependent upon the internet. A disruption of the internet or a crypto asset network would affect the ability to transfer crypto assets, and, consequently, adversely affect their value. Local Internet service outages occur often because many crypto asset holders have undoubtedly experienced a service outage or had their internet connection go down for a while. If a local outage occurs, it might not be possible to use crypto asset until it is possible to connect to the internet once again in order to send transactions to the network. The interruption risk may therefore result in illiquidity and losses for investors. |
| Technology Risk | Lack of Compatibility Risk | Software updates can impact the performance of digital asset or its network. Internal updates within the protocol or external updates on dependencies such as oracles, bridges and updates on dependencies of those services may render the network or application unusable due to lack of compatibility. |
| Technology Risk | Manufacturing Risk | The transaction validation process demands significant processing power and specialized equipment to solve complicated cryptographic hash problems in order to verify blocks of transactions that are updated on the decentralized blockchain ledger. As a result, validators are paid with Bitcoin, which is put into circulation when these problems are solved. Therefore, it is an essential component of the construction and maintenance of the blockchain ledger. A decline in validator rewards or significant increases in transaction verification costs may lead to validators switching to other networks, thereby retarding transaction validation and usage. Any hiccup in Bitcoin production or transaction confirmation might have a negative effect on the asset's price. |
| Technology Risk | Monolithic Chain Risk | A monolithic blockchain, then, is one in which nodes are responsible for transmitting data, performing transactions, and reaching consensus all inside the same block. Monolithic blockchains cover all of the essential aspects or duties of a blockchain system internally; hence, as part of its fundamental consensus layer, a monolithic blockchain assumes crucial qualities such as data availability, settlement, and execution. Unlike other chains, the monolithic chains take care of execution, data availability, and consensus all at once. While it allows for faster transactions and greater scalability, it puts decentralization and security at risk, particularly since the hardware requirements for validator nodes are high. Monolithic chains suffer from the limitation of block space due to all use cases and DApps competing for it. The resource compartmentalization and efficient pricing cannot be achieved in modular chains. |
| Technology Risk | Novel-Consensus mechanism risks: Proof of History risk | The Proof of History protocol (PoH) refers to a method of incorporating time itself into the blockchain, with the aim of minimizing the load on the network nodes during the processing of blocks. There is no doubt that timestamping is fundamental to a traditional blockchain, especially since it informs the network about the sequence of transactions in a block right from the moment the block is created. Since Proof of History uses the Verifiable Delay Function, which determines the time based on historical events, this is not necessary. However, because each transaction requires a digest verification and Solana's operation uses no memory other than the transaction message itself, the transactions may be parallelized individually. Thus, the amount of cores available on the system is likely to limit performance. |
| Technology Risk | Non-Autonomy Risk | For example, Polygon is a blockchain network that has been developed on top of the Ethereum blockchain as a means of delivering a cheaper Ethereum experience. The functionality of Polygon is dependent on Ethereum in the sense that only applications developed for Ethereum can be deployed on MATIC, so Polygon and Ethereum are running on the same technology. It is important that Ethereum remains successful over the long term and that more DApps are built on Ethereum's Blockchain, which will have a positive impact on Polygon's future. There isn't really a competition between Polygon and Ethereum, however, Polygon's mission is to leverage the Polygon network in order to build infrastructure that is capable of dealing with Ethereum mass adoption, so in fact, Polygon is more dependent on Ethereum than Ethereum is on Polygon. Due to these reasons, Polygon can be considered as a Layer 2 solution that resides on top of Ethereum. In other words, if the Ethereum platform was to suffer from serious disruptions or to cease to exist in the future, then Polygon is likely to lose its value as a result. |
| Technology Risk | Infrastructure change Risk | In an effort to make its network more sustainable, in September 2022 The proof-of-stake layer was integrated with by ETH and accepted. Environmental organizations have widely criticized Proof of Work, which was previously utilized by ETH, for its high energy consumption, particularly as nations attempt to cut their emissions in response to climate change. This occurs mostly because validators won't have a financial incentive to operate computers constantly; as a result, the network's energy consumption will decrease by almost 99%. Consequently, this greatly reduces the number of computers needed to maintain the blockchain and can make Ethereum less productive. For example, when Ethereum merged to proof of stake it greatly reduced the number of hardware required to maintain the blockchain and made mining unnecessary. |
| Technology Risk | Slashing validator risk | In some cases, malicious validators double sign because they try to reverse certain transactions. The software can also be misconfigured or have an issue that causes non-malicious double signing. The act of punishing or reprimanding validators who violate the crypto staking rule is referred to as "crypto slashing." Slashing's goal is to encourage proper conduct, procedure adherence, reliable availability, and responsibility. It encourages users of a blockchain network to behave honorably and prevent nefarious activity. In other words, a validator gains profit by approving transactions and incrementing the blockchain with new blocks. When a validator joins, they have to stake a certain amount of the network's cryptocurrency; this acts as collateral for their honesty. However, a validator could act maliciously, such as by double-spending or omitting transaction validation. |
| Technology Risk | Quantum Risk | In quantum computers, information is processed differently than in conventional computers. In this kind of computing, qubits, which are equivalent to normal bits but for Quantum computing, are used to execute multidimensional quantum computations on a quantum computer. In order to achieve exponential growth in processing capability, qubits need to be added one after another. Classical computers are suitable for everyday tasks and have low error rates. Quantum computers are suited for higher-level tasks like simulations, data analysis. Therefore, there is a concern related to quantum computers, namely that they might break some of the cryptographic protocols currently deployed, specifically digital signatures. Since of advancements in the creation of quantum computers and algorithms, post-quantum cryptography has lately attracted extensive interest. Because the Avalanche network concept allows for unlimited number of VMs, it can support a quantum-resistant virtual machine with an appropriate digital signature method. Given this architecture, it is simple to add a new virtual machine that adds quantum safe cryptographic primitives to the system. |
| Technology Risk | Adversary Risk | The adversaries of Avalanche have complete access to the state of every single correct node at all times, knows the selections of all correct nodes, and may update its own state at any moment. Except for the capacity to directly alter the state of a correct node or manipulate communication between correct nodes, this adversary is all powerful. |
| Technology Risk | Data Losses Risk | Some cryptocurrencies make use of blockchain technology. This implies that every bitcoin transaction ever done is recorded on a single blockchain, preserving its full history. Unlike other competitors, AVAX deletes old transaction history. However, this can be detrimental by deleting information that might be needed to trace possible irregularities or damage to currency buyers. |
| Technology Risk | Use case chain Risk | For example, Real-time payments (RTP) is a use-case where transactions are initiated and paid near instantaneous. The digital infrastructure that enables real-time payments is known as a real-time payments rail. Essentially, a payment rail is a platform that enables all digital money transfers to go between payers and payees, regardless of country, currency, digital payment method, or whether they are businesses or consumers. Depending on the payment type, speed, technology, or geographic location, each payment rail carries out this process differently. Because transactions might take a long time to settle, some cryptocurrencies aren't always the best option for real-time payments. Consequently, they are inappropriate for certain commercial purposes. |
| Technology Risk | Cyber Attack Risk | The asset and its service providers may be at risk for operational and information security risks as a result of a cyberattack or cybersecurity breach, including one that affects the blockchain network. The asset may suffer a variety of negative effects from a cybersecurity breach, whether deliberate or unintentional, including a loss of proprietary information, the theft or corruption of data stored online or digitally, denial-of-service attacks on websites or network resources, and the unauthorized disclosure of confidential information. |
| Technology Risk | Transaction Risk | Bitcoin transactions are not reversible. Once a transaction has been verified and recorded in a block that is added to the Bitcoin Blockchain, an incorrect transfer of cryptocurrency, such as bitcoin, or a theft of bitcoin generally will not be reversible and the Issuer may not be capable of seeking compensation for any such transfer or theft. To the extent that the Issuer is unable to successfully seek redress for such error or theft, such loss could adversely affect an investment in the Issuer. For instance, this implies that a bitcoin transaction cannot be stopped or reversed if it is sent to the wrong address. The only person with access to your bitcoin and the ability to send it back is the person in charge of the address where it was transmitted. There is no way to recover the bitcoin if the owner cannot be located or won't give it back. The issue is that people are prone to making mistakes, and one of the most common mistakes made while transmitting cryptocurrency is that users occasionally enter the incorrect blockchain address. This is a major issue since it means the cash will end up in the wrong the individual's wallet or to an incorrect location and disappear forever. |
| Technology Risk | Key Management Risk | Users must handle private keys in decentralized identification systems, which has shown to be an untenable burden in bitcoin. It is believed that over 4,000,000 Bitcoin were lost permanently due to key management issues, and many users deposit their crypto holdings with exchanges, hurting decentralization. Nonetheless, the user must ensure that the keys required for security are available, safe, and may not be compromised. There is a lengthy history of blockchain security incidents leading to digital coin theft, and it is rapidly developing. However, most of these breaches might have been avoided or significantly reduced if security best practices had been followed. |
| Technology Risk | New Consensus Mechanism Risk | In order to ensure that a hostile actor can never gain control of the network, the security of the network is inversely associated with the amount of DOTs that validators bet on the network. Such a scenario would severely limit the network's ability to attract more investors. |
| Technology Risk | Wealth Centralization Risk | The Proof of stake (PoS) consensus is a cryptocurrency mechanism where the validation and security of the network are determined by the accounts with the biggest stakes in the network. Using PoS consensus mechanisms, richer individuals or entities can theoretically gain a greater chance of being selected because of the direct association between ownership and selection chance. Consequently, these participants are likely to be rewarded, fueling an environment where the rich acquire wealth. As a result, participants with smaller holdings may leave the network if they can't generate rewards. Moreover, PoS consensus mechanisms may create a situation where the network is not inclusive, as certain members (such as those with larger holdings) may be favored over others, increasing the possibility of centralized power. Staking inefficiently and centralization in smaller networks are weaknesses in PoS consensus mechanisms that could impact stability and integrity. Therefore there is the potential for validator cartels to form and it can lead to concerns around centralization, while exchanges and wallet providers could also theoretically exercise disproportionate control given their large holdings. |
| Technology Risk | Lack of Resources Risk | The PoS mechanism can be inefficient in its use of network-native resources. Considering that crypto assets might be stranded for staking purposes, PoS eliminates the possibility of transferring or spending a certain percentage. A liquidity shortage could arise if token holders hoard their tokens to increase their chance of being selected as validators; this act would lower the speed of transaction rates, and the network could suffer from the lack of circulation. Liquidity is a term used to describe how easily tokens can be swapped for other tokens on cryptocurrency exchanges. In other words, liquidity is a measurement of how easily your digital assets can be turned into cash. Since there is always a massive supply of possible buyers and sellers, you can be confident that you will obtain a fair price for your things since high-liquidity assets have a high trading volume. |
| Technology Risk | Artificial Intelligence Risk | Artificial Intelligence (AI) has rapidly transformed various industries, revolutionizing the way we work, communicate, and even invest. Cryptocurrencies, with their decentralized and digital nature, have gained significant popularity among investors. However, while AI offers numerous benefits, it also poses certain threats to cryptocurrency investors. AI-driven algorithms have the potential to manipulate cryptocurrency markets, posing a significant threat to investors. The immense computational power and data processing capabilities of AI systems allow them to analyze vast amounts of information, including social media sentiment, news articles, and market trends, to predict and influence market movements. AI algorithms are increasingly being employed in algorithmic trading, where transactions are executed automatically based on pre-defined parameters. While algorithmic trading can enhance efficiency and liquidity in the cryptocurrency market, it also introduces potential risks. The speed and complexity of AI algorithms can result in sudden and drastic market fluctuations, making it difficult for human investors to react swiftly. In a scenario where multiple AI-powered trading algorithms interact, the market can become highly volatile and unpredictable, making it challenging for investors to make informed decisions. Additionally, Cryptocurrencies are prone to security vulnerabilities, and AI can exacerbate these risks. AI-powered hacking tools have become more sophisticated, allowing cybercriminals to exploit vulnerabilities in cryptocurrency platforms, wallets, and exchanges. By using AI algorithms, hackers can launch more precise and targeted attacks, potentially compromising the integrity of transactions and stealing investors' funds. Additionally, AI can also be used to generate realistic phishing scams, deceiving investors into revealing sensitive information and compromising their digital assets. |
| Technology Risk | Capital Inefficiency Risk | The PoS mechanism can be inefficient in its use of network-native resources. Given that crypto assets might be locked up for staking purposes, PoS removes the ability to transfer or spend a proportion of the total number of crypto assets in circulation. A liquidity shortage could arise if token holders hoard their tokens to increase their chance of being selected as validators; this act would lower the speed of transaction rates, and the network could suffer from the lack of circulation. |