About this Summary
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 DOT. We created this summary to help you understand the basics of DOT as well as some of the risks involved in trading it. While we tried to describe the key features of DOT here, this summary isn’t meant to tell you everything you’d want to know before investing in DOT. You should also do your own research on DOT to make sure you are comfortable investing in it.
Description of DOT
DOT is the native token of the Polkadot network ( “Polkadot”). The Polkadot Network is a blockchain network designed to support various interconnected, application-specific sub-chains called “parachains” (short for parallelized chains). Dr. Gavin Wood (the co-founder of the Ethereum network) and Robert Habermeier are the co-founders of Polkadot. The development of Polkadot is overseen by the Web3 Foundation, an independent non-profit organization.
Polkadot is designed to facilitate the transfer of data between multiple unrelated blockchains. This process works through the interaction of three types of blockchains. The first is called the “relay chain,” which is the main blockchain of Polkadot. The relay chain helps map addresses to account information, coordinate communications and provide consensus through a pooled security mechanism utilizing a proof-of-stake (“PoS”) protocol. All validators stake their DOTs and produced blocks directly on the relay-chain. The relay chain lacks features like smart contracts and instead is designed to be a minimal protocol to connect other network participants and provide transaction finality. The second type of chains are the parachains. Parachains are used to collect and process transactions while using the relay chain for finality. Polkadot does not restrict the design and structure of parachains. Parachains can be application-specific or support particular features such as privacy or scalability. The third type of blockchains are known as “bridges.” Bridges allow Polkadot to communicate with other blockchains, like the Ethereum network and the Bitcoin Network.
As noted above, DOT is the native token of Polkadot. DOT serves three primary functions. The first function of DOT is to entitle holders to control the governance of the platform. Some functions that are included under the governance mechanism include determining the fees of the network, the addition or removal of parachains and exceptional events such as upgrades and fixes to Polkadot. Second, DOT is used to facilitate the consensus mechanism that underpins Polkadot. For the platform to function and allow for valid transactions to be carried out across parachains, Polkadot relies on holders of DOT to play active roles. Participants put their DOT at risk (via staking) to perform these functions and are rewarded for doing so. Finally, DOT can be locked (or “bonded”) for a set time period in order to facilitate the creation of a new parachain in the network. There is no maximum supply of DOT and Polkadot has been programmed to allow for annual inflation of about 10%.
Staking Rewards and Fees
Staking rewards are computed and distributed after each successful era. If a reward is accrued after during an era, it will be issued immediately upon the completion of the era. When rewards are received by Bitbuy, Bitbuy will provide statements to users indicating the amount of the rewards that the user is entitled to as well as the total rewards that were earned and any fees payable. For each era, your share of DOT rewards is proportionate to the amount of DOT that you had staked when the era began.
Each crypto asset for which Bitbuy provides staking services is subject to specific fees because of the unique nature of each blockchain network. These fees are calculated on a percentage basis in relation to the amount of rewards earned. Bitbuy’s service fee may be up to 30% of net rewards earned by a user (as more fully described in ourfee schedule.
With respect to any rewards earned on your staked DOT: (i) Bitbuy’s custodian, BitGo, will be entitled to a fee and may pay a portion of that fee to any third-party service provider it selects to act as validator; (ii) any remaining portion of the rewards (the “Net Rewards”) will be delivered to one of Bitbuy’s custodial wallets with BitGo; (iii) Bitbuy will be entitled to a fee of 30% in respect of the Net Rewards (the “Bitbuy Services Fees”); and (iv) after the Bitbuy Service Fee has been paid, your account will be credited with any remaining portion of the rewards, and, subject to any unbonding, lock-up or cooling-down period, you will be able to hold, sell or withdraw your rewards.
Currently, the third-party service provider we use is our custodian, BitGo. BitGo is regulated as a trust company under the Division of Banking in South Dakota. Pursuant to Bitbuy’s relationship with BitGo, BitGo may act as the validator in respect of staked crypto assets or may select a third-party service provider to act as the validator. BitGo currently has a contractual relationship with Figment, whereby Figment acts as validator for the crypto assets stored in Bitbuy’s custodial wallets with BitGo. Headquartered in Toronto, Figment is one of the world’s largest blockchain infrastructure and services providers.
Each era, which is the period of time during which validators earn era points, lasts one day.
Validators miss out on DOT rewards if they fail to participate when called upon, and their existing stake can be destroyed if they behave dishonestly.
Bitbuy may, at its sole discretion, transfer reimbursements for slashing penalties it receives from BitGo to its users less any administrative costs or expenses Bitbuy incurs in reimbursing users. In the event a supported Polkadot validator is slashed, Bitbuy has no obligation to replace any lost SOL or otherwise provide any compensation for any losses. Negative impacts of slashing will be allocated to all clients using the staking service in proportion to the amount of SOL they had staked.
Like other crypto assets, there are some general risks associated with investing in DOT. We describe many of these general risks in the risk statement we publish on our website, including risks relating to: (i) volatility; (ii) access, loss or theft, (iii) control of processing power; (iv) settlement of transactions on crypto asset networks; (v) momentum pricing; (vi) private keys; (vii) internet disruptions; (viii) faulty code; (ix) network development and support; (x) regulatory risk; (xi) network forks; (xii) air drops; (xiii) voting rights; (xiv) cybersecurity incidents and other systems and technology problems; and (xv) unforeseeable risks. We also point out some risks that are specific to DOT below. While we tried to describe the key risks associated with DOT here and in our risk statement, these aren’t all of the risks associated with trading in DOT. You should also do your own research on DOT to make sure you are comfortable investing in it.
Dependence on Polkadot Developers
While many contributors to Polkadot are employed by companies in the industry, most of them are not directly compensated for helping to maintain the network. As a result, there are no contracts or guarantees that they will continue to contribute to Polkadot.
Concentration of DOT Holdings
Approximately 42% of DOT currently in circulation is held by the top 20 wallet holders. As a result, they control a significant vote related to planning and decision making of the network. A high level of ownership by the Web3 Foundation may adversely affect the price of DOT itself.
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 DOT 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 DOT, including an opinion that DOT is not itself a security and/or derivative.