About this Statement
Bitbuy Technologies Inc. (“Bitbuy” or “we”) believes that our users should understand the crypto assets that they are able to trade using our crypto trading platform (the “Platform”). One of the crypto assets we offer on the Platform is Stellar Lumens (“XLM”). We created this summary to help you understand the basics of XLM as well as some of the risks involved in trading it. While we tried to describe the key features of XLM here, this summary isn’t meant to tell you everything you’d want to know before investing in it. You should also do your own research on XLM to make sure you are comfortable investing in it.
Description of XLM
The Stellar Development Foundation, a non-profit launched by Ripple co-founder Jed McCaleb in 2014, created the cryptocurrency known as XLM. XLM were invented to help developing economies participate in cross-border transactions. Whereas crypto assets like bitcoin (“BTC”) are meant to allow purchasers to create, purchase, and trade only BTC, holders of XLM may trade digital representations of all forms of money in a decentralized manner. XLM were created as the native currency necessary to maintain the Stellar Development Foundations’ platform (the “Stellar Network”). Account holders must purchase XLM to maintain minimum account balances and initialize transactions on the Stellar Network, but after that, they can be used to create digital representations of any currency. Companies operating on the Stellar Network have built their own tokens, each based on a different traditional currency, including Canadian dollars, euros, Mexican pesos, Swiss Franc, Argentinian pesos, Nigrerian naira and other currencies.
For example, XLM could be used to purchase a digital representation of a US dollar on the Stellar Network (the “dollar token”). The holder of dollar tokens could publicize that they are willing to exchange one dollar token for one US dollar, thus setting up a 1:1 exchange between the two currencies. Purchasers of dollar tokens would have the equivalent of a US dollar because they would know that eventually, the dollar tokens can be exchanged for traditional currency. In this manner, a Venezuelan citizen can purchase dollar tokens to hold some of their net worth in dollars. The borderless nature of XLM means that anyone can hold the value of a US dollar without owning a US bank account by purchasing dollar tokens. Although the traditional banking system may enable foreigners to engage in similar transactions, these transactions are subject to significant cross-border transaction fees and delays. With XLM and the Stellar Network, individuals worldwide may gain an inexpensive method of sending money around the world.
The value of XLM is often tied to its additional use on the Stellar Network. Like other cryptocurrencies, XLM can function as a means of exchange and/or a store of value.
XLM operates on the Stellar Consensus Protocol, a decentralized, transparent, and immutable public ledger, much like other crypto assets. Key differences exist in the information that is stored and the way in which transactions are verified on the Network. Stellar’s blockchain records two main pieces of information every five seconds: what currencies a stellar account holder owns (e.g., “100 pesos” or “5000 XLM”) and what they are trying to advertise to the rest of the network (e.g., “sell 10 dollar tokens for 50 XLM”).
The Stellar Network uses a unique protocol known as “Federated Byzantine Agreement” to achieve consensus on past transactions and add blocks to its blockchain. With other crypto assets, a block is validated once a minimum number of computer nodes reaches consensus on the answer to a problem (a “quorum”). The Stellar Network reduces the number of people required to reach quorum by relying on smaller subsets of trusted computers. This functionality allows the Stellar Network to process around 1,000 to 1,500 transactions per second, which is 100 to 500x faster than the Bitcoin Network and 50 to 250x faster than the Ethereum Network.
Like other crypto assets, there are some general risks to investing in XLM. We identify many of these general risks in the risk statement we publish on our website. We also point out some risks that are specific to XLM below. While we tried to describe the key risks associated with XLM here and in our risk statement, these aren’t all of the risks associated with trading in XLM. You should also do your own research on XLM to make sure you are comfortable investing in it.
Loss of Validators
The Stellar Consensus Protocol does not offer rewards to the individuals who help achieve consensus. Energy is consumed to run nodes and validate the system, so without financial incentive, there is no guarantee that individuals will continue to act as validators. This characteristic may cause the Stellar Network to eventually slow or experience delays. In May 2019, the Stellar Network went offline for approximately two hours, and, in April 2021, some transactions failed after approximately half the nodes went offline.
Potential for Centralization
In 2020, the Stellar Development Foundation held more than half of all XLM, causing some to question whether the project was truly decentralized. Although a distribution plan was announced to eventually reduce their control, the Stellar Development Foundation has previously exerted their influence over the supply of XLM. In April 2017, it burned roughly 2 billion XLM after discovering an inflationary bug, and, in November 2019, it burned another 50 billion XLM.
How Bitbuy Decides to List Crypto Assets
Bitbuy reviews crypto assets before making them available for trading on the Platform. In making our decision to list a new crypto asset, we consider publicly-available information about the crypto asset, including (among other things) its creation, design, governance, usage, supply, demand, maturity, utility, liquidity, material technical risks and legal and regulatory risks.
To date, we have only made crypto assets available for trading on the Platform which have significant supply, demand and liquidity. In our experience, crypto assets with these qualities tend to also satisfy the other criteria we evaluate as part of our review. That being said, our review process is fulsome and flexible, and we don’t prioritize any one factor over another. You should review the risk statement published on our website for more information about our procedures for determining whether to make a crypto asset available for trading on the Platform.
Bitbuy is offering crypto contracts to purchase and sell XLM in reliance on a prospectus exemption contained in the exemptive relief decision Re Bitbuy Technologies Inc. dated November 30th, 2021. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this Statement.
No Canadian securities regulatory authority has expressed an opinion about XLM, including an opinion that XLM are not itself a security and/or derivative.