List of Risks

1. The value of investments and the returns obtained from them may experience significant upward and downward variations and the entire amount invested may be lost. 

2. Investments in early-stage projects involve a high level of risk, so it is necessary to properly understand their business model. 

3. The crypto-assets in the scope of this Circular are not covered by client protection mechanisms such as the Deposit Guarantee Fund or the Investor Guarantee Fund. 

4. The prices of crypto-assets are established without any mechanisms that ensure their correct formation, such as those used in regulated securities markets. 

5. Many crypto-assets may lack the liquidity necessary to allow an investment to be unwound without significant losses, since their distribution among investors, both retail and professional, can be very limited. 

6. Distributed ledger technologies are still in an early stage of development as many of these networks have been created very recently, so they may not be sufficiently tested and there may be significant failures in their operation and security. 

7. The registration of transactions in networks based on distributed ledger technologies is carried out through consensus protocols that may be susceptible to attacks that attempt to modify the register. If they were to be successful there would be no alternative register that backs up the transactions and hence the balances corresponding to the public keys and therefore all the crypto-assets could be lost 

8. The anonymity that crypto-assets can make them a target for cyber criminals, since if credentials or private keys are stolen the crypto-assets may be transferred to addresses that make their recovery difficult or impossible. 

9. The custody of crypto-assets is a large responsibility since they can be lost in their entirety in the event of theft or loss of private keys. The entity that carries out the custody of the advertised crypto-assets, the country in which it is carried out and the applicable legal framework must be identified. 

10. The acceptance of crypto-assets as a means of exchange is still very limited and there is no obligation to accept them. 

11. When the service provider is not established in a European Union country, the resolution of any conflict could be costly and fall outside the jurisdiction of a European Union authority. 

12. When the investor does not have the crypto-assets, as they are in the service provider’s digital wallets and with no access to their private keys, this will be indicated and the investor's rights in relation to the crypto-assets duly stated.

Cryptoassets are diverse and do not all rely on the same principles. Before investing, please take the time to read our summary of the specific risks involved with the main types of cryptoassets available on SwissBorg, to ensure you understand the key risks and are able to take steps to mitigate them.

1. “Stablecoins” are cryptoassets that claim their value is linked to certain assets such as a fiat currency (e.g. US Dollar). The purpose of a stablecoin like USDC is usually to maintain a one-to-one (1:1) valuation with the US Dollar. Stablecoins use different ways to maintain stability, each with their own risks.

• Counterparty risk: If the stablecoin is backed by collateral (e.g. cash) you are relying on a third party to maintain that collateral which introduces risk if this party becomes insolvent or fails to maintain the necessary collateral.  
• Redemption risk: If the stablecoin claims to be redeemable (e.g for the underlying collateral), there is risk that redemption might not be possible or only in part, due in particular to market volatility or operational issues.
• Collateral risk: The value of the collateral may fluctuate, affecting the stability of the stablecoin (especially if the collateral is another cryptoasset).
• FX risk: Most stablecoins are “pegged” to a fiat currency, meaning you could be exposed to movements in the exchange rate with the currency you are mainly exposed to.
• Algorithm risk: If the stablecoin uses an algorithm to maintain stability, there is a risk that the algorithm could fail or experience fluctuations, which might cause instability and loss of value of the stablecoin. 

2. Decentralised Finance (or “DeFi”) tokens are cryptoassets linked to financial applications and protocols built on decentralised blockchains.

• Smart contract risk: DeFi is built on smart contracts. A coding error or oversight in a smart contract can lead to an exploit or a bug, potentially resulting in significant losses.
• Regulatory risk: DeFi operates in a decentralised manner, often without intermediaries or financial crime controls. New regulations might prevent the use of DeFi tokens or create regulatory constraints impacting their value and liquidity.
• Rug-pulls/Exit scams: Some DeFi tokens might be issued by anonymous teams, increasing the risk of "rug pulls" where developers abandon the project and withdraw funds, leading to a crash in the token value.
• Data/oracle risk: DeFi protocols often rely on external data sources called “oracles”. Manipulation or inaccuracies in these data sources could heavily impact the operations of the protocol.
• Protocol complexity: Most DeFi protocols are very complex, especially when different blockchain protocols are involved, which makes it difficult for neophyte or even average users to fully understand the mechanisms and associated risks.

3. Wrapped crypto-assets are tokenised representations of other cryptoassets. They generally aim at facilitating compatibility and interaction across different blockchain protocols. 

• Smart contract risk: Wrapped tokens rely on smart contracts to ensure their value remains pegged to the cryptoasset they represent. A coding error or oversight in the smart contract can lead to an exploit or a bug, potentially resulting in significant losses.
• Collateral risk: The value of a wrapped token is generally backed by an equivalent amount of the cryptoasset it represents. If the backing mechanism fails, the wrapped token might lose its value.
• Custodial risk: Wrapped tokens are representing cryptoassets that may be held in custody by a third party. There is a risk that this third-party mismanages the assets, becomes insolvent or is subjected to fraud or hacking, which could affect the underlying cryptoassets and, thus, the value of the wrapped tokens.
• Bridging risk: Wrapped tokens are often used to bridge assets between different blockchain ecosystems. These bridges may suffer technical issues, hampering the ability to transfer or use the tokens as intended.
• Pricing disparity: There might be a discrepancy between the price of the wrapped token and the price of the cryptoasset it represents due to market inefficiencies or liquidity issues.

4. “Meme coins” are cryptoassets whose value is driven primarily by community interest and online trends.

• Volatility risk: Meme coins can be very volatile, often experiencing rapid and unpredictable price fluctuations within short periods. The value of meme coins can be influenced by social media trends, general interest, celebrity endorsements, and other factors unrelated to traditional investment fundamentals.
• Lack of utility: Meme coins usually don’t have any intrinsic value or utility, being primarily driven by trends and speculative trading.
• Market manipulation: Meme coins may be susceptible to increased risk of market manipulation including ‘pump-and-dump’ schemes, where the price is artificially inflated followed by a sudden crash.
• Lack of transparency: Meme coins generally disclose limited information about their teams, goals and financials, making it challenging to assess their credibility and potential.

5. Staked cryptoassets are cryptoassets locked on a blockchain protocol in order to secure the network and earn rewards.

• Slashing risk: The validator can be penalised by the network for malfeasance, whether intentional or due to software issues, resulting in a potential loss.
• Liquidity risk: Some protocols require staked assets to be locked for a period or time, which prevents you from disposing of your assets, for example selling them immediately.  
• Performance risk: The yield or reward is determined by the relevant protocol, not guaranteed, and varies over time.
• Protocol risks: Changes or updates to the consensus mechanism may introduce bugs, vulnerabilities or unforeseen outcomes.

6. Early-investment tokens are cryptoassets (usually utility tokens) newly issued by an early-stage project.

• Liquidity risk: Early-investment tokens are usually non-listed tokens. They might never be listed on centralised or decentralised exchange platforms, therefore you might not be able to find a market to sell your assets.
• Performance risk: Early-investment tokens are usually issued by non-mature projects. The value of the tokens is linked to the credibility of the project and the team. The inability of the project to grow and/or any financial or technical difficulty affecting the project could result in a loss of value of the early-investment token.
• Lack of transparency: Non-listed tokens are subject to fewer transparency requirements. Limited transparency about the project’s goals and financials can make it challenging to assess the tokens’ credibility and potential.