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 of Taurus (the “Custody Regulations”) 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 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, 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.

2. Reasons to invest in Digital Assets

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

• Diversification: some Digital Assets, such as payment tokens, can show low correlation with traditional asset classes, and, as such, can bring diversification benefits in an overall portfolio context.
• High risk / high return profile.
• Belief in distributed ledger technologies: there is a consensus that distributed ledger technologies have a similar potential to that of the Internet.
• Loss of confidence in the traditional monetary system.
• Investment in tokenized assets/securities.
• Capturing additional yield sources 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 related to 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 individual participants (nodes/validators) within a system to propose, validate, and store operations in a synchronised dataset (″Ledger″) that is distributed across all 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 database 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 possible form of how data can be stored in such a system: operations (e.g. transactions) are organised in blocks, and a block is attached to the last previously created block. This allows operations and data to be stored without allowing them to be subsequently modified.

There are two main types of distributed ledgers:

• Permissionless or public distributed ledgers

  Anybody, incl. private individuals, can participate in the network by installing the relevant version of the software. Examples are Bitcoin, Ethereum, Ripple etc.

• Permissioned or private distributed ledgers

  Only people invited or accepted to join the network can do so – they need the permission of a trusted authority. Examples are hyperledger, R3 corda or other enterprise blockchain services.

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 such as a blockchain. 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 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, Tezos 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. Swiss law does not specifically qualify 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 a country to another. Taurus draws the client’s attention to the potential consequences resulting from this uncertain qualification, among others in terms of taxation, cross-border and sales limitation, 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 themselves digital assets (for example through websites, crypto-currency exchanges, OTC crypto-brokers, trading applications) or through selected regulated 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/volatility risk

• The price of Digital Assets is highly volatile, i.e. it may rapidly go down or up, on any given day, including on an intraday basis. Investments in Digital Assets are deemed high-risk speculative investments. The risk of material or total loss of assets do exist.
• Digital assets such as cryptocurrencies are traded 24 hours a day, 7 days a week.
• Market prices may be very volatile and sometimes differ materially from the fair value, especially in the case of illiquid/low liquidity digital assets.
• While the volatility of Digital Assets is high and varies significantly, changes and advances in technology, fraud, theft, cyber-attacks, sanctions and regulatory changes, among others, may increase volatility further – elevating the potential of investment gains and losses. In addition, Digital Assets lack the historical track record of traditional assets, currencies or commodities.
• 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.

Market/valuation risk Setting a value to Digital Assets can be difficult depending on which category is chosen and, in some cases, there may not be any proven valuation methods:

• Payment tokens: the price of payment tokens depends on the supply and demand dynamics and does not rely on traditional valuation techniques used for currencies (e.g., PPP) or securities (e.g., discounted cash flows, multiples), which can make it hard to provide an objective value to payment tokens.
• Utility tokens: utility tokens represent a right to consume a service or a product in the future. There are no proven valuation methods. Some of the utility tokens that are being issued have no intrinsic value other than the possibility to use them to access or use a service/product that is to be developed by the issuer. There is no guarantee that the services/products will be successfully developed.
• Asset/security tokens: discounted cash-flow analysis + liquidity or illiquidity premium depending on i) the maturity of company and ii) available trading venues. Asset tokens bear risks related to the underlying company/issuer or asset, in particular liquidity as many of the companies raising funds are private companies not listed on a regular stock market or a multilateral trading facility. See the Swiss Bankers Association standardized information booklet for further details on liquidity and private equity risks. Digital Assets only exist virtually on a computer network and have no physical equivalent. Establishing a value for Digital Assets is difficult as the value depends on the expectation and trust that Digital Assets can be used for future payment transactions (see valuation section above). Among others, persistent high volatility, changes and advances in technology, fraud, theft and cyber-attacks and regulatory changes may prevent the establishment of Digital Assets potentially rendering them worthless.

Market/liquidity risk

• 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.
• The market for the relevant Digital Assets may experience periods of decreased liquidity or even periods of illiquidity, hence under certain market conditions, it may be difficult or totally impossible to liquidate a position.
• There is no guarantee that a private company will conduct an initial public offering or provide an alternative exit strategy for your invested capital.
• In the case of stable coins, there is the risk that the reserves are insufficient (for example due to a fraud or 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 financial market authority or not properly audited (e.g., USDT Tether).

Technology risk

• 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.
• The functioning of Digital Assets relies on open-source software (for unpermissioned distributed ledger). Developers may introduce weaknesses, bugs and programming errors into the open-source software or may stop developing the open-source software (potentially at a critical stage where a security update is required), keeping Digital Assets exposed to weaknesses, programming errors and threats of fraud, theft and cyber-attacks (see also ″Fraud, theft and cyber-attack risk″ below). Therefore there are no warranty that the services offered through platforms will be uninterrupted or error-free.
• Some Digital Assets networks have experienced a surge in the number of transactions over the last few years. 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.
• 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.
• The Client should be aware that any purchase and sale of Digital Assets may be stored in a public distributed ledger and may therefore be visible to the public. Such decentralised public ledger is neither a property of nor under control of Taurus. Information available on the decentralised public ledger may be exploited or misused in unforeseen ways.

Hard fork risk

• Since there is no central body (e.g. a central bank or a government agency) overseeing the development of technology relating to Digital Assets, the functioning of Digital Assets, as well as further improvements of such functioning (e.g. ability to increase number of transactions, reduce processing time, reduce transaction fees, implement security updates), relies on the collaboration and consensus of various stakeholders, among others, developers enhancing the open-source software related to a Digital Asset or so called ″miners″ facilitating the processing of transactions. Any disagreement among stakeholders may result in a split of the Digital Asset network into two or more incompatible versions (such an event called a ″hard fork″).
• As a result, 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 hard 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).
• In addition, hard forks may result in instability of a Digital Asset version and hard forks or the threat of a potential hard fork may prevent the establishment of the corresponding Digital Asset as an accepted long-term medium of exchange.

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 (to name a few: ″51% attack″ where an adversary may take control over Digital Assets technology by providing 51% of the computer power in the Digital Assets network or ″denial of service attack″ where an adversary attempts to make Digital Assets network resources unavailable by overwhelming it with service requests. This may result in significant waiting periods, network congestion and delays during which the Client may be precluded from disposing over the relevant Digital Assets while their value may fluctuate significantly or which may otherwise result in loss or damages).
• Investors in any particular Digital Asset are directly exposed to fraud, theft and cyber-attacks: (i) Any high profile losses as a result of such events (e.g. bankruptcy of the then largest Digital Assets exchange Mt. Gox in February 2014) may raise scepticism over the long-term future of Digital Assets and may prevent the establishment of Digital Assets as an accepted long-term medium of exchange and may increase the volatility and illiquidity of Digital Assets; (ii) any loss resulting from fraud, theft and cyber-attacks relating to hedging party(ies) of the Issuer will be borne by the Investors.
• Digital Assets are subject to a higher risk than usual of market abuse, market manipulation and insider dealing by market participants, due to a lack of regulation, supervision, market control and/or liquidity.

Legal, tax and regulatory risks

• Risk of non-compliance or change of legal and regulatory framework: the legal, tax and regulatory framework governing Digital Assets in and outside of Switzerland is far from settled and continuously evolving. Existing laws and regulations, changes to the legal, tax and regulatory framework and related measures by regulators or other governmental authorities may affect the compliant issuance, domestic and international tradability and transferability or convertibility of the Client’s Digital Assets and may potentially result in a full or partial loss of units or reduction of value (including reduction to zero) thereof.
• Any forthcoming regulatory actions may result in the illegality of some Digital Assets or the implementation of controls relating to the trading (and therefore liquidity) of Digital Assets. In addition, control mechanisms may increase Digital Assets transaction fees significantly (and therefore affecting the bid/offer spread of the Product). Investors should ensure that investing in any Digital Asset complies with their local regulation.

Supervision risk

• As of today, Digital Assets do not have a function as and/or the full characteristics of a legal tender (even if some Digital Assets may be accepted for payment in certain countries or jurisdictions by public institutions) and are currently not supervised by any authority or institution such as a central bank.
• Consequently, there is no authority or institution which may intervene in the Digital Assets market to stabilize the value of Digital Assets or prevent, mitigate or counter-attack irrational price developments of Digital Assets.

Operational risk

• Sending Digital Assets to an incorrect and/or a wrong distributed ledger address leads to a total and irremediable loss of funds. Once a transaction is executed, it is impossible to cancel or reverse this transaction. As a consequence, users shall always check that a destination distributed ledger address is correct before to confirm a transaction.

Credit & counterparty risk

• In the case of tokenized securities, the risk of default or bankruptcy of the underlying issuer is high like for traditional private equity and/or private debt investments.
• OTC crypto-brokers and crypto-currency exchanges (“crypto trading counterparties”) 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 often not available. Moroever, those trading counterparties are not subject to capital adequacy rules, deposit protection, etc. Hence the credit & counterparty risk faced when executing and settling trades with those counterparties is high. Moreover, those trading counterparties typically require pre-funding and free-of-payment (“FoP”) settlements.
• When staking/baking Digital Assets to a third-party validator/staker/baker or equivalent, the client may face counterparty risk depending on the underlying distributed ledger technology (see Staking risks below for more information).

Specific risks related to the custody of Digital Assets Among the Digital Assets class, the following points have to be outlined when it comes to custody of Digital Assets:

• Owning a Digital Asset is equivalent to owning the private key (equivalent to a secret pin) that gives you access to it.
• Losing this private key is equivalent to loosing access to those Digital Assets for ever. There is no central authority to contact to regenerate that private key.
• 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 that clients back-up these private keys and store them securely.

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.

Specific risks related to the staking of Digital Assets Staking is the process of blocking native Digital Assets at the staking address of a validator node in order to participate in a blockchain validation process based on a proof-of-stake consensus mechanism. Participants earn rewards for staking Digital Assets. Proof-of-stake blockchains 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 blocked Digital Assets. Moreover, blockchains 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 can be subject to partial or complete deletion (“slashing”).

The use of staking services entails a number of additional specific risks, such as:

• Technical risk of a malfunction of the staking process: risk of the Digital Assets 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.
• Counterparty risk due to the unclear legal position in the event of bankruptcy: in Switzerland there is currently 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 Digital Assets in bankruptcies in many foreign countries.
• Market risk: as 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, creating a delay in returning blocked Digital Assets. In certain blockchains 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 Digital Assets. The duration of the lock-up may sometimes be non-transparent and unpredictable for customers due to a continuously changing withdrawal queue and number of validators.
• Tax risk: the tax treatment may be unclear in certain situations and jursidictions. Investors shall consult their own tax advisors.

IN SUMMARY, IT IS HIGHLY RECOMMENDED TO ONLY INVEST IN AND/OR STAKE DIGITAL ASSETS THE AMOUNTS THE CLIENT CAN AFFORD TO LOSE ENTIRELY.

6. 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).

7. 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