The information contained in this Crypto Asset Statement was last updated on March 23, 2023.
No securities regulatory authority in Canada has expressed an opinion about arbitrum or any of the other Crypto Contracts or Crypto Assets made available through Newton Crypto Ltd. (Newton) on the Newton Platform, including an opinion that arbitrum itself is not a security and/or derivative. Changes to applicable law may adversely affect the use, transfer, exchange, or value of any of your crypto assets, and such changes may be sudden and without notice.
Newton is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Newton Crypto Ltd. dated August 15, 2022. 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 Crypto Asset Statement or the Newton Platform Risk Statement.
This overview provides a summary of certain risks associated with arbitrum and is not an exhaustive description or summary of these risks and, in addition, does not take into account an individual’s particular situation or risk tolerance. Investors are encouraged to conduct their own research prior to trading any crypto asset.
Newton users should read the Newton Platform Risk Statement for additional discussion of general risks associated with crypto assets made available through the Newton platform. A copy of the Newton Platform Risk Statement acknowledged by you is available in your account in the “Statements & Reports” section.
Token Description & Project Background
Arbitrum was founded by Offchain Labs and was first introduced in 2021 as a layer 2 scaling solution for the Ethereum network. Arbitrum is an “optimistic rollup”, which is a type of scaling solution that leverages the security of the parent chain (in this case, the Ethereum blockchain) as well as maintaining full compatibility with the parent chain to allow smart contracts that were written for Ethereum to be deployed on Arbitrum with minimal changes.
Arbitrum can allow for transactions to execute for a fraction of the gas fees as on the Ethereum blockchain as well as at a much higher “transactions per second” (TPS) count. In addition to its scalability features, Arbitrum also provides other benefits such as improved privacy, security, and composability.
Offchain Labs was co-founded in 2018 by Edward Felten, Steven Goldfeder, and Harry Kalodner, who are all computer science professors at Princeton University.
As of March 2023, Arbitrum has gained significant traction in the Ethereum ecosystem, with many dApps and DeFi protocols already deploying on its network. It has also attracted notable investors, including Mark Cuban, Pantera Capital, and Sequoia Capital, among others.
ARB is the official governance token for the Arbitrum network. Holders of ARB can participate in voting on proposals to upgrade the network, as well as any other proposed changes that affect the network. The ARB token was airdropped to users in March 2023. The eligibility of users who received the airdrop is dependent on the amount of interaction the user had with the Arbitrum network in the past. The airdrop is distributed based on a system where points would be rewarded in proportion to how much the user interacted with the network before, and the amount of tokens airdropped to the user would then be proportional to the amount of points the user had.
* Currently, Newton does not provide its users with the ability to participate in the governance functions of ARB.
Risks of Arbitrum
Like an investment in other crypto assets, an investment in ARB includes the following general risks: (i) volatility risk and liquidity risk, (ii) short history risk, (iii) demand risk, (iv) forking risk, (v) code defects, (vi) regulatory risk, (vii) electronic trading risk, and (viii) cyber security risk.
As for Arbitrum specifically, here are some potential risks to be aware of when using the Arbitrum network:
Centralization Risk: The Arbitrum network is operated by a set of validators, who are responsible for processing transactions and maintaining the network. If the validators become centralized or controlled by a small group of actors, it could compromise the network's security and decentralization.
Security Risk: Although Arbitrum relies on Ethereum's security guarantees, it is still a relatively new technology and may be vulnerable to attacks such as smart contract vulnerabilities or consensus attacks. Any vulnerabilities in the system could result in the loss of funds or other negative consequences.
Bridge Risk: A bridge is a dApp used to transfer digital assets from one network to another. In recent years, bridges from various different crypto projects have been the target of cyber attacks, with many attacks succeeding and causing the loss of funds for the network. The complexity of building a bridge means that extra care must be taken during the development of bridges.
Economic Risk: Arbitrum's success relies on the adoption of its network by users and developers. If it fails to attract sufficient adoption, it may not be economically viable in the long run.
Network Congestion: While Arbitrum is designed to be more scalable than the Ethereum network, it is still subject to congestion during times of high network usage. This could lead to slower transaction times or higher gas fees.
Governance Risk: The governance structure of the Arbitrum network is still developing, and it is unclear how decisions will be made or how the community will be involved in the decision-making process. This could lead to governance issues or conflicts in the future.
It's important to note that these risks are not unique to Arbitrum and are inherent in any blockchain technology. However, it's important to understand and evaluate these risks before using the network.
For additional information of general risks associated with crypto assets, you may refer to the Newton Platform Risk Statement. In terms of specific risks, as Arbitrum is one of the longest-standing crypto assets and its community base is widely decentralized, there is no central working group or authority to disclose material information to the public regarding Arbitrum.
Please note that these risks and the associated summaries or overviews provided for each herein are not intended to be an exhaustive discussion pertaining to all such risks and, in addition, there may be other risks that come with exposure to Arbitrum. We encourage all Newton users to perform their own due diligence to assess the risks associated with Arbitrum and to determine whether this level of risk is acceptable to them. Neither Arbitrum nor Newton guarantees the value of Arbitrum, and holders of Arbitrum will not have any recourse to Arbitrum or Newton if the value of Arbitrum declines for any reason whatsoever.
Newton’s Evaluation Process
Newton has reviewed and assessed Arbitrum prior to making it available on the Newton Platform and has concluded that Arbitrum is not a security or derivative under Canadian securities legislation; however, there is a risk that this conclusion could change in the future and that, in such event, Newton will be required to halt, suspend, and then remove Arbitrum from its platform as described in the Newton Platform Risk Statement.
Further, as indicated above, no Canadian securities regulatory authority has expressed an opinion about Arbitrum, including an opinion that Arbitrum is not itself a security and/or derivative.
Based on publicly available information Newton has reviewed Arbitrum, including, but not limited to, a review of the following:
- The creation, governance, usage, and design of Arbitrum, including the source code, security, and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that created Arbitrum.
- The supply, demand, maturity, utility, and liquidity of Arbitrum.
- Material technical risks associated with Arbitrum, including any code defects, security breaches and other threats concerning Arbitrum and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them.
- Legal and regulatory risks associated with Arbitrum, including (i) any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of arbitrum, and (ii) statements made by any securities regulatory authorities in Canada, other regulators in IOSCO-member jurisdictions, or the regulator with the most significant connection to arbitrum about whether arbitrum or generally about whether the type of crypto asset, is a security and/or derivative.
A link to the Arbitrum White Paper is available at the following link.