1. Introduction

This Digital Asset Risk Disclosure supplements and forms part of the contractual arrangements governing the relationship between Taurus and the Client and must be read in conjunction with the general terms and conditions of Taurus (the “GTC”), the custody regulations (the “Custody Regulations”), the staking terms and conditions, and any other general or special terms of Taurus, as applicable. Taurus reserves the right to adjust and amend this Digital Asset Risk Disclosure at any time and to communicate such changes to the Client in accordance with the GTC.

This Digital Asset Risk Disclosure is separate from and in addition to the disclosure of risk factors by issuers, distributors, counterparties, product manufactuers or other persons and financial services providers involved in the issuance, distribution, trading and other transactions relating to Digital Assets, as may in particular be contained in prospectuses, key information documents (“KID”), white papers, fact sheets and other information sheets and which describe in more detail the risks associated with a particular Digital Asset or category of Digital Asset.

This document does not constitute nor purport to constitute exhaustive disclosure of all relevant risks or other relevant aspects in connection with Digital Assets or transactions in such assets, and may not serve, under any circumstances, as a substitute for professional advice by competent subject matter experts. The brochure Risks Involved in Trading Financial Instruments issued by the Swiss Bankers Association (“SBA”) may provide further information on Digital Assets.

This brochure does not take account of Clients’ individual financial, legal and tax situations. For comprehensive personal advice on your financial situation, please consult, if necessary, an investment advisor, tax, or legal expert.

By trading, transacting, investing in, and/or holding Digital Assets, Clients acknowledge and accept the risks described in this document. Clients understand that the materialization of such risks may result in a total loss of the investment and, potentially, additional losses exceeding the original investment, depending on the type of Digital Asset and the specifics of the investment activity, if any, and the exposure.

Clients who do not understand the information in this documment should seek advice before making any investment or transaction in Digital Assets. Taurus is under no obligation to inform the Client of the materialization or the possible materialization of any of the risks described herein or any other risks relating to Digital Assets.

2. Reasons to invest in Digital Assets

The reasons for investing in Digital Assets are unique to each client. However, the following reasons are often cited among others:

• Diversification
• Investment into distributed ledger technologies
• Loss of confidence in the traditional monetary system
• Investment in tokenized assets/securities
• Capturing additional yield via staking
• Betting on the future: the future of Digital Assets is still largely unknown.

3. Key characteristics

Before investing, the Client should know some important elements about Digital Assets. The elements presented below are only a part of them.

a. Distributed Ledger Technology

Distributed Ledger Technologies (″DLT″) refers to technologies that allow participants (nodes/validators) within a system to propose, validate, and store operations in a synchronised dataset (″Ledger″) that is distributed across nodes in the system securely. It typically exhibits the following characteristics:

• Embedded consensus algorithm

  A distributed ledger includes a ″consensus algorithm″ that allows to add and replicate new entries in the ledger without any trusted third-party validation. In other words, none of the computers making the network needs to be trusted and the consensus algorithm makes sure that all the data entered is accurate.

• Decentralised infrastructure

  A distributed ledger has no single point of failure, which means that if multiple computers participating in the network disappear, the network will continue to function as long as there is one computer.

• Decentralised governance

  A distributed ledger has, in general, no single entity controlling the network or making the rules for the network. The rules are defined in the ″code″ running the distributed ledger.

• Logically centralised

  A distributed ledger is logically centralised which means that every node sees the same state. It can be seen as a one global computer or thousands of dispersed computers that all see the same state.

Blockchain is a specific type of DLT. It describes the fact that data is recorded in blocks which are chained to each other by using cryptography. A block consists of transactions validated by the nodes in the network. Typically, when a block is produced, the block is “completed” (or “hashed”) by using a cryptographic hash function which contains the data of all the transactions in the block, and a reference to the previous block, thus creating a chain or link between the blocks. New blocks are found and added to the chain by special nodes in the network, also referred to as “miners” or “validators”.

Distributed ledgers can either be permissionless (anyone with a node can participate), private (a company or person builds its own distributed ledger for internal purposes) or permissioned (possible to participate by invitation and verification of the participant). Permissionless distributed ledgers typically use public blockchains, meaning that all transactions between distributed ledger addresses are visible to the public.

b. Digital Assets

Digital Assets are digital representations of any types of assets, securities, rights, claims, virtual currencies, fiat currencies, or units of accounts registered on a distributed ledger. They include, but are not limited to cryptocurrencies such as Bitcoin, Ethereum or Litecoin. They can also include securities such as shares or bonds registered on a distributed ledger (i.e. “tokenised securities”, “DLT securities”, “ledger-based securities” or “security tokens” registered on a “securities ledger/register”).

From a regulatory perspective, according to FINMA guidelines for enquiries regarding the regulatory framework for initial coin offerings (“ICOs”) published on 16 February 2018, Digital Assets can be classified in four main categories: payment tokens, utility tokens, asset/security tokens and hybrid tokens.

Digital Asset category	FINMA definition	Main valuation drivers	Examples
Payment tokens	Synonymous with cryptocurrencies and have no further functions or links to other development projects. Payment tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.	Supply and demand Reserves for stable coins	Crytocurrencies: Bitcoin, Ether Stable coins: USDC, USDT Central Bank Digital Currencies ("CBDC")
Utility tokens	Tokens which are intended to provide digital access to an application or service.	Various	ICO tokens
Asset / investment / security tokens	Tokens representing assets such as participations in real physical underlying, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives. This includes tokenized securities, security tokens and ledger-based securities.	Share-like: similar to shares Bond-like: similar to bonds	Ledger-based equity securities of a private company in the form of a CMTA smart contract registered on the Ethereum public mainnet Tokenised debt of a private company in the form of a FA1.2 token registered on the Tezos public mainnet

The individual token classifications are not mutually exclusive. Asset/security and utility tokens can also be classified as payment tokens (referred to as hybrid tokens). In these cases, the classifications are cumulative; in other words, the tokens are deemed to be both securities and means of payment.

c. Non-Fungible Tokens

A Non-Fungible Token (“NFT”) is a unit of data stored on a distributed ledger that certifies a Digital Asset to be unique and therefore not interchangeable. The qualification of the nature of NFTs, in particular whether an NFT is a security or not, is dubious and may vary from one NFT to another or from one jurisdiction to another. Taurus draws the clients’ attention to the potential consequences resulting from this uncertain qualification, among others in terms of taxation, cross-border and sales limitations, restrictions in the admission to trading, etc. possibly even with retroactive effect.

In addition, as an NFT is a claim to an exclusive online location, the said location to which the object’s “ownership” refers itself may be relocated. Then the NFT will not even provide the correct location of supposed ownership. Therefore there is no guarantee that the “object“ the NFT refers to will stay at the same online location during the custody time and the Client may lose his/her/its ownership.

IN NO EVENT SHALL TAURUS BE LIABLE FOR (A) ANY CHANGE IN REGULATIONS CONCERNING THE QUALIFICATION OF NFT AND ITS CONSEQUENCES OF ANY KIND FOR THE CLIENT, OR (B) THE RISK OF LOSS DUE TO THE ABOVE MENTIONNED RELOCATION.

4. How to invest in Digital Assets?

Investors can buy and sell digital assets for example through centralized cryptocurrency exchanges, decentralized finance (“DeFi”) platforms, OTC crypto-brokers, Virtual Asset Service Providers (“VASP”), Crypto Asset Service Providers (“CASP”), crypto ATMs, financial intermediaries, banks and/or broker-dealers.

5. Main risks

The following list highlights some of the main risks linked to Digital Assets, without being exhaustive:

Market risks Market risks are risks that an investment or asset may lose its value partially or in whole.

• Emerging market. The market for Digital Assets is still in an emerging and maturing phase which may be subject to elevated volatility and limited transparency and reliability, execution delays or failures, all of which may potentially result in losses or other adverse effects for clients. Investments in markets for Digital Assets are often deemed riskier than in long standing and more mature markets. Furthermore, execution venues for Digital Assets are typically open around the clock, seven days a week, 365 days a year. This means that the Digital Assets are subject to constant market risks as trading never halts, possibly requiring constant monitoring by market participants
• Difficulty to assign a fair value. It can be difficult to determine the fair value of a Digital Asset prior to the investment. Digital Assets are often different from traditional assets in terms of their capital structure and cash flows which makes it difficult to apply traditional valuation models. Digital Assets may not represent ownership or rights to cash flows, but instead often confer access rights to a distributed ledger-based service or application. In this case, it can be difficult to assess the value of the purchased Digital Assets against the value of the service that the Digital Asset can be used to pay with. This carries the risk of paying more for the Digital Asset than it may be worth
• High volatility. The market value of Digital Assets is often volatile. Some of the reasons for the volatility are the small market capitalizations compared to traditional capital markets, the risk of sudden regulatory changes, trend cycles and/or dependencies on the performance of the market for traditional investments
• Connection to traditional financial instruments. The value of Digital Assets may rely on the market value of traditional financial instruments, such as tokenized stock or stablecoins pegged to a fiat currency. Such Digital Assets may have the identical or a similar risk profile as the underlying, replicated, or mirrored traditional financial instrument, thus inheriting the market risks of traditional markets
• Concentration. The market capitalisation of the digital assets industry is mainly led by Bitcoin, which represents more than 50% of the total market capitalisation. A significant position in any Digital Asset other than Bitcoin (and, depending on the case, including Bitcoin) may require several days, weeks or even months to be unwinded with a possible negative effect on the price of the Digital Asset
• Stable coins. Although stable coins are generally deemed to be less volatile than cryptocurrencies, there is a risk of unpegging against fiat currency that may lead to high volatility, or even in some cases a substantial or total loss of funds

Credit and counterparty risks Credit and counterparty risks are risks that a party to a transaction may not be unable to fulfill its obligations toward its counterparty.

• Counterparty default. The credit and counterparty risk faced with Digital Assets counterparties is higher than usual. Digital asset service providers are often not regulated nor supervised like traditional banks and broker-dealers. It is difficult (and often impossible) to assess their financial situation, because audited financial statements are not available. Moroever, those counterparties are not subject to capital adequacy rules, deposit protection, etc. Trading counterparties typically require pre-funding and free-of-payment (“FoP”) settlements
• No redemption. Even if the Digital Assets are delivered to the purchaser, there is no guarantee that the Digital Assets can be redeemed against a fiat currency or a traditional financial instrument by exchanging them to the issuer or a third party
• Issuer. Digital Assets often have no issuer in the traditional sense. As such, holding most Digital Assets in self-custody does not carry traditional credit risk. Nonetheless, credit risk may be present in certain Digital Assets especially in the form of issuer risk. Specifically, the issuer of a Digital Asset may fail to deliver the assets to the purchaser, which means that the credit risk materializes
• Traditional issuer. For traditionally issued financial instruments, such as an exchange-traded financial product that replicates a basket of Digital Assets or tokenized equities, the counterparty risk may also involve the issuer risk of the respective financial instrument

Liquidity risks Liquidity risks are risks that buying or selling an asset may have a price impact on the respective asset. If there is no price impact when buying or selling an asset, the asset holder is not exposed to any or only a low liquidity risks.

• Immature market structure. The markets for Digital Assets are generally undercapitalized relative to traditional markets, as typically fewer market participants are active in these markets. The trading of Digital Assets can be done at various types or execution venues, including, but not limited to, centralized exchanges, decentralized software-based platforms, and peer-to-peer marketplaces. The fragmentation of execution venues may lead to illiquidity, which in turn may cause price fluctuations in Digital Assets, thus making the buying and selling of Digital Assets difficult or even impossible for the asset holder
• Stable coins. In the case of stable coins, there is the risk that the reserves are insufficient (for example due to a fraud, a run or a market liquidity crunch). This may lead to a total impossibility to convert back those stable coins in their equivalent amount either in fiat currencies or in the same stable coins booked on a different distributed ledger. This risk is especially relevant in the case of stable coins not supervised by any regulator and/or not properly audited

Technical and operational risks Technical and operational risks are risks associated with the inadequacy or failure of procedures, humans, technology, and systems, or with external events.

• Early-stage technology. Technology relating to Digital Assets is still at an early stage and best practices are still being determined and implemented. Digital Assets technology is likely to undergo significant changes in the future. Technological advances in cryptography, code breaking or quantum computing etc, may pose a risk to the security of Digital Assets. In addition, alternative technologies could be established, making some Digital Assets less relevant or obsolete
• Forks. A blockchain fork describes an event which results in two conflicting versions of the original blockchain. There are many reasons for a fork, such as a change in the protocol code or an unplanned protocol code inconsistency due to a software bug. When there is a disagreement about a protocol upgrade, a blockchain network may split into two groups resulting in at least two different blockchains and networks. Following a fork, the Digital Assets of the original blockchain will also exist on the new blockchain. In the event of a fork, there may be significant price fluctuations resulting in a temporary suspension of trading, cyber-attacks on the holders of Digital Assets, or adverse effects on the functionality or convertibility which may result in a full or partial reduction of the value of the Digital Assets involved. Moreover, trading venues on which Digital Assets are traded may suspend (temporarily or indefinitely) the ability to trade a particular version of a Digital Asset. Consequently, the Investors in the Digital Asset may (i) not get exposure (indefinitely) to all versions following a fork and forego the value of one or more versions, or (ii) may get exposure to a version on a delayed basis (in which case that version might have lost a significant part or all of its value)
• Fraud, theft and cyber-attack risk. The particular characteristics of Digital Assets (e.g., only exist virtually on a computer network, transactions in Digital Assets are not reversible and are done anonymously) make it an attractive target for fraud, theft and cyber-attacks. Various tactics have been developed (or weaknesses identified) to steal Digital Assets or disrupt Digital Assets technology
• Replay attacks. The occurrence of forks may lead to replay attacks carried out by third parties. Replay attacks take place when transactions in Digital Assets on a recently forked blockchain are technically valid on both or multiple blockchains. Therefore, a third party may maliciously replicate a previous transaction made on the legacy blockchain on the new blockchain, resulting in the same number of units being transferred on the new blockchain as well
• Loss of private keys. Access to and use of a distributed ledger is based on public-key cryptography using a pair of private and public keys. Without the private key, a user cannot access the distributed ledger and therefore its Digital Assets. Private keys can be stored on various media, such as on paper, software, on hardware wallets, or held with a crypto custodian. Theft, loss, destruction, hacking, or other reasons that render the private key no longer available or recognizable may result in the permanent loss of the corresponding Digital Assets. Having this private key stolen is equivalent to giving full access to the Digital Assets to a malicious person/entity. It is therefore of utmost importance to back-up these private keys and store them securely
• Hacking. Malicious third parties may use methods and means to gain access to private keys. For example, private keys, seed phrases, or relevant passwords that are communicated by e-mail or stored in a text file on an unprotected computer may be intercepted and read by third parties and used to control the distributed ledger address. This may lead to a total loss of the Digital Assets
• Hashing and encryption algorithms. A hashing algorithm is a mathematical function that derives a unique text from input data in a consistent manner. Digital Assets and their protocols may use non-standard, novel, outdated, or faulty hashing algorithms that may lead to vulnerabilities that affect the value of the Digital Assets in question. Furthermore, protocols may use encryption algorithms that may prove faulty or outdated, or only provide weak protection against malicious third parties resulting in such algorithms being compromised. These risks may become particularly relevant as quantum computing capabilities increase
• Use of incorrect distributed ledger addresses. DLT transactions are sent to a distributed ledger address derived from the public key. If an incorrect address is used, it may be impossible to identify the sender or recipient and to reverse the transaction. Clients who intend to deposit Digital Assets with a digital asset services provider are advised to only use the distributed ledger addresses communicated to them. Once a transaction is executed, it is impossible to cancel or reverse this transaction. As a consequence, Clients shall always check that a destination distributed ledger address is correct before to confirm a transaction.
• No possibility to reject funds. When a transaction is made to a distributed ledger address, the owner of the address may not be able to refuse the transaction and thus may not prevent the receipt of Digital Assets. This effectively implies the risks of receiving and holding Digital Assets unwillingly
• Third party dependency. Execution and settlement of transactions in Digital Assets may depend on the specifications of the relevant DLT, including the participation of third parties in the relevant network, such as miners or validators. Delays or failures to execute, process or settle transactions may potentially result in losses or other adverse effects for users of the network, such as waiting times when depositing with or withdrawing Digital Assets from a crypto services provider
• Inability to exercise rights and seize opportunities. Digital Assets may confer legal or actual rights and opportunities to their holders. Rights and opportunities may include the use as a means of paymentor as a stake in Proof-of-Stake distributed ledger protocols, or the exercise of governance-related rightswith respect to the development of a distributed ledger protocol. Depending on how and where the Digital Assets are stored or used, the holder may not be able to exercise such rights or seize such opportunities
• Consensus attacks. A decentralized consensus is required to validate transactions and blocks and secure the distributed ledger. The validation may require computing power (Proof-of-Work), stake (Proof-of-Stake), or some other form of proof, depending on the applicable consensus mechanism. Therefore, it may be possible for a participant with significant computing power or stake to effectively manipulate the consensus mechanism. Such centralized power may result in various types of attacks, such as double-spending Digital Assets or censoring transactions of third parties
• Weaknesses in smart contracts. The existence, functionality, and transferability of Digital Assets may depend on smart contracts deployed on the distributed ledger. Smart contracts are based on computer code whose operation is triggered by a user or another smart contract. Interactions with smart contracts may often be very complex and mostly irreversible. The computer code may be faulty or hacked or may be changed by the deployer, or someone else, by updating or replacing existing smart contracts. The logic of smart contracts may be exploited by third parties, such as by manipulating off-chain price oracles that feed false data into a smart contract. The use of a smart contract potentially depends on the underlying network being available and not congested
• Decentralized Finance (DeFi). The use of DeFi applications, such as decentralized exchanges or borrowing platforms, may entail special risks, including, but not limited to, risks related to smart contracts, operational security, such as the use of admin keys by the developers, or someone else, to control a DeFi application, dependencies on other components and smart contracts of DeFi, the use of external (off-chain) data through oracles, increased illicit activities, and scalability issues
• Weaknesses in open-source software. Digital Assets are typically based on open-source software that is freely accessible and may be copied, used, or modified by anyone at any time. While open-source software development may have many advantages, bugs, vulnerabilities and deliberately embedded malfunctions may exist and affect the security of Digital Assets when holding or transacting in them. The development of open-source software may be discontinued at any time, which may also affect the long-term security of Digital Assets
• Staking lock-up periods. Depending on the Proof-of-Stake distributed ledger protocol there may be lock-up periods during which users will not have access to the Digital Assets they stake. This may result in the temporary illiquidity of such Digital Assets. Clients of staking services providers may also be affected by lock-up periods when instructing such providers to stake their Digital Assets
• Slashing in staking. Proof-of-Stake distributed ledger protocols may embed a “slashing mechanism” to prevent validator misconduct and thus to promote network stability and security. If a validator behaves dishonestly or otherwise violates the protocol rules, it may risk losing the staking rewards and/or a certain amount of the Digital Assets staked in the protocol, potentially leading to a total loss of the Digital Assets. Clients of staking services providers may also be affected by slashing when instructing such providers to stake their Digital Assets
• Data protection. Users of permissionless distributed ledgers should be aware that any transfer of Digital Assets will be recorded in a public distributed transaction register and can therefore be viewed by third parties not involved in the transfer. Such information may be processed, exploited, or misused by third parties. It may be possible for third parties to reconstruct a relationship between a distributed ledger address and the identity of its owner
• Throughput limitations. Some Digital Assets networks may experience surges in the number of transactions. An increasing number of transactions coupled with the inability to implement changes to Digital Assets technology may result in a slower processing time of Digital Assets transactions (potentially days to verify a transaction) and/or a substantial increase in Digital Assets transaction fees paid to so called ″miners″ (when relevant) for facilitating the processing of transactions.
• Irreversibility. Base layer transactions on a DLT or other distributed ledger are irreversible and final and the history of transactions is computationally impractical to modify. As a consequence, if the Client initiates or requests a transfer of Digital Assets using an incorrect distributed ledger address, it will be impossible to identify the recipient and reverse the defective transaction.

Legal and regulatory risks Legal and regulatory risks are risks that uncertain legal treatment or change in current legislation may materially affect an investment or asset.

• Legal uncertainties. The legal and regulatory framework surrounding Digital Assets may still be uncertain in many countries, and Digital Assets may be subject to different legal and regulatory rules across those countries. In particular, it may be unclear under applicable laws who is entitled to what rights in relation to Digital Assets, including ownership rights. The inconsistent treatment and potential legal measures expose holders of Digital Assets as well as crypto services providers to the risks of non-compliance with applicable laws and/or non-enforceability of rights under such laws, which may ultimately affect the value of the Digital Asset
• No legal tender or inability to redeem. Users should be aware that Digital Assets, in particular payment tokens, may offer less legal certainty than traditional fiat currencies. There is typically no obligation to accept Digital Assets as a means of payment, as they are not legal tender, and as they are not issued by a central bank or government. In addition, stablecoins issued by private market participants may not be redeemable in full or at all due to insufficient or illiquid backing
• Changing legislation and supervisory practice. The legal and regulatory landscape regarding Digital Assets in and outside of Switzerland is constantly evolving and changing. Government authorities may within their jurisdiction classify or change existing classifications of Digital Assets. This may result in a Digital Asset being delisted from an execution venue or no longer being offered for trading by a crypto services provider, or in rights associated with Digital Assets no longer being recognized by law. If countries prohibit or restrict trading and/or holding Digital Assets, this may result in the inability to sell and/or hold such Digital Assets, ultimately affecting their value.
• Classification. Depending on the applicable laws and regulations, Digital Assets may be classified differently and result in different rules being applicable to them, to holders of such Digital Assets, or to services providers that offer them to their clients. Crypto service providers may classify or periodically reclassify Digital Assets depending on the specific circumstances. This may result in them offering such Digital Assets to their clients on a limited basis or not at all. This may be the case, in particular, if new circumstances cause the provider to reclassify a payment token as an asset token
• Tokenization. Where Digital Assets are intended to constitute, embed, or represent legal rights and/or obligations, the legal effectiveness of such construct may be subject to differing rules in the potentially relevant jurisdictions, including the jurisdiction of the issuer or the holder of the relevant Digital Asset. There is a risk that tokenization of the underlying rights and/or obligations and/or the transfer of such rights and/or obligations by transfer of a Digital Asset may not be legally effective and that, consequently, the Digital Assets may not include the expected rights and/or obligations, potentially resulting in a full or partial loss of value of the respective Digital Assets
• Bankruptcy treatment. The treatment of Digital Assets in the event of bankruptcy or a similar event is subject to special provisions under Swiss law. While recent legislation has improved legal certainty, it is still open how the new provisions will be applied in the event of bankruptcy of a crypto custodian in practice
• Risk of abusive market conduct. Traditional markets and trading venues are subject to a high degree of regulations that aim to promote fair and transparent markets. The market for Digital Assets is still emerging and subject to a varying degree of regulation. As such, not all market participants observe standards that are comparable to the market conduct rules of traditional markets, which intend to prevent fraud, market manipulation and insider trading
• Risk of fraudulent and other malicious behavior. The market for Digital Assets has shown to attract fraudulent and malicious actors that may target market participants in various ways, such as hacking their IT infrastructure, including wallet software, tricking them into revealing confidential information, misusing their credentials and identities, or pretending to do something that is not realor plausible
• Poor transparency and investor protection. Digital Assets may not be listed on or admitted to trading at a regulated trading venue, and their issuers may not be required to disclose information relevant to investment or other decisions. Therefore, holders of Digital Assets may not benefit from the same rules and regulations that apply to listed companies and/or in traditional markets for the purpose of protecting investors.
• Legal obligations. Changing legal and regulatory frameworks may result in Digital Assets or transactions being treated or classified differently by authorities in any jurisdiction at any given time. Depending on their domicile, users may have different legal obligations associated with holding, purchasing, or selling Digital Assets or using certain services with respect to Digital Assets. Such obligations may include legal and regulatory obligations, tax obligations or other requirements. Failure to comply may result in legal actions and sanctions, including criminal sanctions, or otherwise affect holders of Digital Assets
• Tainted assets. Transactions in Digital Assets on public distributed ledgers can be traced back to previous distributed ledger addresses and through forensic investigations potentially to their owners. Digital Assets that are attributable to criminal activities may thus be considered tainted by crypto services providers and/or authorities. As a result, Digital Assets are at risk of being seized or at least made unusable by courts, which may affect the value of the relevant Digital Assets
• Supervisory measures. Digital Assets, their issuers or developers, users, execution venues, crypto services providers, or other parties involved in the industry may be subject to regulatory investigations, injunctions or other measures which may potentially result in a full or partial loss of the value of Digital Assets or impact the ability to offer them to clients or otherwise affect holders of such assets. Such measures may also prevent, restrict, or prohibit users from trading and/or holding Digital Assets.

6. Specific risks related to tokenized securities/security tokens/DLT securities

In the case of tokenized securities, security tokens, ledger-based securities or DLT securities, investors and issuers shall be aware of multiple additional differences and risks compared to traditional securities, such as intermerdiated securities disclosed on Risks involved in tokenized securities.

7. Specific risks related to the staking of Digital Assets

Staking is the process of staking native Digital Assets in favor of a validator node in order to participate in a distributed ledger validation process based on a proof-of-stake (“PoS”) consensus mechanism. Participants earn rewards for staking Digital Assets.

PoS distributed ledgers differ in that in some cases the inverse process of unstaking involves a variable lock-up/exit period, which means there is a delay in returning staked Digital Assets. Moreover, distributed ledgers sometimes create negative incentives for maintaining compliant validation activity, in that in the event of a validator node behaving improperly Digital Assets that have been locked by staking, and/or associated staking rewards, can be subject to partial or complete deletion (“slashing”).

Staking entails a number of specific risks, such as:

• Slashing risk. Risk of the Digital Assets (asset slashing) and/or staking rewards (reward slashing) being slashed due to misconduct by the validator node (slashing risk) or risk of suffering penalties imposed automatically, for example if the validator node goes offline due to technical problems or a lack of adequate business continuity management
• Lock-up. Risk that it may not be possible to sell staked Digital Assets at the right time in a volatile period if the unstaking process includes a lockup/exit period, creating a delay in returning blocked staked Digital Assets. In certain distributed ledgers such as Ethereum, the lock-up period is longer if the number of unstaking orders rises, which can lead to very long lock-up periods in a crisis and temporarily make it technically impossible to sell the staked Digital Assets. The duration of the lock-up period may sometimes be non transparent and unpredictable for clients due to a continuously changing withdrawal queue and number of validators
• Legal uncertainties in the event of bankruptcy. Counterparty risk due to the unclear legal treatment of staked Digital Assets in the event of bankruptcy. For example, in Switzerland, there is currently a legal uncertainty about the treatment of staked Digital Assets in bankruptcies in certain situations. This legal uncertainty is even greater if the custody or staking is delegated to foreign institutions, as there are often no specific regulations on the treatment of staked Digital Assets in bankruptcies in many foreign countries
• Critical bugs. Some staking protocols may require the transfer of Digital Assets into smart contracts on the underlying network that are not under anyone’s control. As such, any malfunction, unintended function or unexpected functioning of the staking protocols and/or ’staking assets’ networks may consequently cause staking services to malfunction or function in an unexpected or unintended manner. Hackers and other groups or organizations may attempt to interfere with staking protocols, staking services and staked Digital Assets in any number of ways, including, without limitation, denial of service attacks, sybil attacks, spoofing, smurfing, malware attacks or consensus-based attacks. Critical bugs including, but not limited to, the ones described above may result in a loss of part or all staked Digital Assets
• Tax risk. The tax treatment of staking may be unclear in certain situations and jurisdictions. Investors shall consult their own local tax advisors.

8. No deposit insurance

Investors are made aware that securities (incl. tokenized securities), credit balances not held in a government-issued currency (e.g. units of cryptocurrencies) and cryptocurrency units in a cryptocurrency securities account are not covered by deposit insurance schemes (e.g. esisuisse in Switzerland).

9. Adequacy of investment in Digital Assets with financial objectives

Investors willing to have exposure to Digital Assets should ensure their profile matches with the below characteristics of the asset class. Investors should seek advice from their investment advisors if they have any questions on the appropriateness of their profiles with the investment in Digital Assets, as well as to enhance their successful selection of opportunities within the asset class, according to their financial objectives and their risk tolerance.

Target clients	Retail, Professional and Institutional
Knowledge and experience	Intermediate and Expert
Ability to bear losses	Total loss of capital possible Not recommended to clients with no loss of capital possible. Total insolvency, default or bankruptcy of Issuers possible.
Risk reward profile	High risk
Investment objective	Diversification General asset accumulation Growth Hedge against systemic risk
Investment horizon	Short term (for speculation purpose only) Medium to long term