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 ADA. We created this summary to help you understand the basics of ADA as well as some of the risks involved in trading it. While we tried to describe the key features of ADA here, this summary isn’t meant to tell you everything you’d want to know before investing in ADA. You should also do your own research on ADA to make sure you are comfortable investing in it.
Description of ADA
ADA is the native token of the Cardano network (the “Cardano Network”). The Cardano Network is an open-source, smart-contract platform. The development of the Cardano Network is overseen by the Cardano Foundation, an independent non-profit organization. The Cardano Foundation works closely with Input Output HK (“IOHK”) and EMURGO, which provide development support to the Cardano Foundation. The founders of IOHK, Charles Hoskinson and Jeremy Wood, were the initial creators of the Cardano Network.
Through the use of layered design, the Cardano Network has implemented or intends to implement a number of innovative features, such as network delegation, sidechains and light client data structures. The Cardano Network uses a proof-of-stake (“PoS”) protocol consensus mechanism called “Ouroboros” to validate transactions on network.
Ouroboros processes transaction blocks by dividing blockchains into “epochs,” which are further divided into “time slots.” A “slot leader” is elected for each time slot and is responsible for adding a block to the chain. Ouroboros distributes network control across stake pools (i.e., node operators with the infrastructure required to ensure a consistent and reliable connection to the network). For each time slot, a stake pool is assigned as the slot leader, and is rewarded for adding a block to the chain. ADA holders may delegate their stake to a specific stake pool, increasing its chance of being selected as the slot leader, and share in the stake pool’s rewards. The use of PoS protocols is generally more energy efficient than using proof of work protocols, which is what is deployed on the Bitcoin network, and the Cardano Foundation suggests that the other features of Ouroboros make it a more scalable and secure consensus mechanism than others.
The Cardano Network competes directly with the Ethereum network and similar projects for market share. Like the Ethereum Network, the Cardano Network will implement an additional application layer that significantly lowers the entry barrier for developers to create their own smart contracts and decentralized applications (“dapps”). Developers on the Cardano Network will be able to program dapps with far fewer restrictions compared to the Bitcoin network. Dapps are not governed by any central body and are instead controlled by the logic written into the smart contract, which self-executes once its predefined terms are met. The Cardano Network anticipates supporting dapps on the Cardano Network through the use of Plutus, a purpose-built smart contract development language and execution platform using the functional programming language Haskell, and Marlowe, a high-level, domain-specific language for financial contracts which is built on Plutus.
The Cardano foundation also anticipates that features such as sidechains and voting mechanisms will be implemented on the Cardano Network. Sidechains are new blockchains that are interoperable with a main blockchain. Sidechains can be used as a “sharding” mechanism by off-loading work from a main blockchain onto a sidechain to increase the capacity of the network. In terms of voting and governance, it is intended that users of the Cardano Network will be able to introduce improvement proposals that can be voted on by stakeholders.
Like ether, the native digital currency for the Ethereum network, ADA can function as a means of exchange and/or a store of value, with its value also being influenced by the additional use cases associated with its network.
Like other crypto assets, there are some general risks associated with investing in ADA. 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 a risk that is specific to ADA below. While we tried to describe the key risks associated with ADA here and in our risk statement, these aren’t all of the risks associated with trading in ADA. You should also do your own research on ADA to make sure you are comfortable investing in it.
Concentration of ADA Holdings
Approximately 20% of the ADA ownership is held by the Cardano Foundation, IOHK and EMURGO. As a result, these entities control a significant vote related to planning and decision making of the foundation. A high level of ownership by these entities may adversely affect the price of ADA 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 ADA 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 ADA, including an opinion that ADA is not itself a security and/or derivative.
The Cardano Network uses stake pool delegation, which is essentially a voting and reputation system to secure the network and validate transactions. Stake pool delegation relies on stake pools to verify transactions included in each new block. Stake pools are incentivized with ADA rewards in exchange for verifying transactions. To ensure compliance with the protocol rules, validators must “stake” assets, thus risking loss of the staked rewards should the stake pool fail to comply with the rules of the blockchain.
Stake pool delegation allow for users to participate in staking without operating a node. Instead, holders may delegate the right to stake their assets to a stake pool. These staked assets do not leave the holder’s wallet as delegation only permits the stake pool to stake the owner’s assets on their behalf. As stake pools amass larger amounts of stake delegations from different token holders, this acts as “proof” to the network that the stake pools’ consensus votes are trustworthy. Once a stake pool verifies a block of transactions, subject to any fees charged by the stake pool, the stake pool and all of its delegators split the ADA reward proportionally to each delegator’s share of all assets delegated to the stake pool.
Bitbuy provides staking functionality for users in respect of ADA, allowing users to delegate their ADA to approved validators and earn the applicable staking rewards. However, there are various risks associated with staking and such risks are in addition to the generalized risks pertaining to ADA described below, all of which continue to apply to ADA staked through the Bitbuy platform.
Stake pools are node operators that verify the accuracy of data being recorded on the network. Stake pools are rewarded with newly issued ADA and the reward is based on the current inflation rate, the total number of ADA staked on the network and the blocks verified by the stake pool. Stake pools also charge a commission which is deducted before any rewards are distributed to the holders of staked ADA. Each time rewards are issued, the commission is deposited in the stake pools account and the remaining rewards are simultaneously deposited in all of the stake accounts that are delegated to that stake pool, proportionally to the amount of actively delegated stake in each account.
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 epoch lasts roughly five days.
Bonding and Unboding Periods
When you delegate ADA, the delegated ADA is not eligible to earn staking rewards until the completion of the 5 epoch bonding period. ADA is not subject to an unboding period.
Staking Rewards and Fees
The Cardano networks computes and distributes staking rewards once per epoch. If a reward is accrued in a given epoch, it will be issued in the first block of the following epoch. 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 epoch, your share of ADA rewards is proportionate to the amount of ADA that you had staked when the epoch 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.
With respect to any rewards earned on your staked ADA: (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 Service Fee”); 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.
ADA is staked from dedicated accounts held with BitGo, our custodian. BitGo will continue to hold the private keys required to control ADA held in these accounts.