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The information contained in this Crypto Asset Statement was last updated on May 23, 2024.

No securities regulatory authority in Canada has expressed an opinion about Ethereum 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 Ethereum 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 March 8, 2024.  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 Ethereum 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

Ethereum is an open-source platform with smart contract functionality that is used to create and run decentralized applications (dApps).  It was founded in 2013 by Vitalik Buterin and developed together with Mihai Alisie, Anthony Di Iorio, Amir Chetrit, Charles Hoskinson, Gavin Wood, Jeffrey Wilcke, and Joseph Lubin.  Buterin wrote the Ethereum whitepaper and published it in November 2013, with development work beginning in January 2014.  Ethereum uses the Proof-of-Work (PoW) consensus mechanism to validate transactions and create new tokens on the Ethereum blockchain.  dApps are digital applications that exist and run on a blockchain or Peer-to-Peer (P2P) network of computers, with no central entity having control over these applications.  They are stored on a blockchain and are automatically executed when predetermined terms and conditions have been met and then verified.

Ether (ETH) is the Ethereum platform’s native token and is used to power the protocol and pay transaction fees on the platform.  Ethereum governance occurs off-chain with a wide variety of stakeholders involved in the process and, therefore, ETH currently does not give any voting rights to its holders.

Currently, plans are in place to shift Ethereum’s consensus mechanism from Proof of Work to Proof of Stake. This upgrade is called The Merge, and is scheduled to take place in Q4 2022.

* Currently, Newton does not provide its users with the ability to participate in the staking of ETH to earn rewards or to participate in governance.

Risks of Ethereum

Like an investment in other crypto assets, an investment in Ethereum 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.

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 Ethereum 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 Ethereum.

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 Ethereum.  We encourage all Newton users to perform their own due diligence to assess the risks associated with Ethereum and to determine whether this level of risk is acceptable to them.  Neither Ethereum nor Newton guarantees the value of Ethereum, and holders of Ethereum will not have any recourse to Ethereum or Newton if the value of Ethereum declines for any reason whatsoever.

Newton’s Evaluation Process

Newton has reviewed and assessed Ethereum prior to making it available on the Newton Platform and has concluded that Ethereum 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 Ethereum 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 Ethereum, including an opinion that Ethereum is not itself a security and/or derivative.

Based on publicly available information Newton has reviewed Ethereum, including, but not limited to, a review of the following:

• The creation, governance, usage, and design of Ethereum, including the source code, security, and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that created Ethereum.
• The supply, demand, maturity, utility, and liquidity of Ethereum.
• Material technical risks associated with Ethereum, including any code defects, security breaches and other threats concerning Ethereum 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 Ethereum, including (i) any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of Ethereum, 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 Ethereum about whether Ethereum, or generally about whether the type of crypto asset, is a security and/or derivative.

A link to the Ethereum White Paper is available at the following link.

Addendum to Crypto Asset Statement (ETH)

How does ETH staking work?
With the transition to Ethereum 2.0 in September 2022, Ethereum now uses a Proof of Stake (PoS) consensus mechanism, where any token holder or group of token holders can stake 32 Ether (ETH) to become a validator on the network. The responsibilities and role of validators are to check transactions, verify on-chain activity, maintain records and produce new blocks on the blockchain. Staking rewards are distributed to validators and delegators who stake their ETH.

For a more detailed general explanation of staking and the associated risks of staking, please refer to the Newton Platform Risk Statement. Additional information regarding staking of ETH on Newton is set out below.

The Shapella Upgrade
The Shapella upgrade took place on April 12, 2023.. The upgrade introduced several improvements to the network with EIP-4895 being the most important update for those currently staking ETH. EIP-4895 will allow users to withdraw their staked ETH along with any staking rewards they have earned over time. As a result of this upgrade, it is now possible to unstake and withdraw staked ETH as well as ETH staking rewards..

Supported Validators
The infrastructure providers of the validator nodes that Newton arranges to stake ETH with and the total fees for staking ETH is set out in our Staking Asset Supplementary Disclosure: Ethereum (ETH).

Approved validators will receive a fee (a Validator Commission) based on a percentage of staking rewards earned from the delegated ETH. The Validator Commission is determined by the respective validators and will be deducted by the Ethereum protocol upon the distribution of staking rewards. The estimated annual percent yield (APY) presented in-app is inclusive of this fee.

Epochs
An epoch is the length of time taken to complete a specific amount of blocks on the blockchain. For the Ethereum protocol, an epoch is the amount of time needed to process 32 slots which is about 6 mins 24 seconds.

Staking Rewards
Staking rewards on Ethereum are computed once per epoch. Rewards accrued in a given epoch are issued to all participants (validators) in the first block of the following epoch to a maximum of 16 participants. If more than 16 validators are eligible to receive rewards, a rewards queue is established, and rewards are distributed to eligible validators according to their position in the queue. Rewards earned while in the queue are batched, then distributed.
When rewards are received, Newton will calculate and distribute your share of ETH staking rewards to your respective account on a weekly basis. For each rewards distribution period , your share of ETH staking rewards is proportional to the amount of ETH that you had staked when the reward period began.

Staking Fees
Newton charges you a fee equal to a percentage of staking rewards to be received by or attributed to your staked ETH. The amount of the fee for staking ETH is set out in our Staking Asset Supplementary Disclosure: Ethereum (ETH) next to “Reward Fee”. This fee includes the Validator Commission described above along with Newton’s staking fee, and is deducted prior to any staking rewards being distributed to your account.

Custody of Staked ETH
ETH staked through Newton’s platform are staked from dedicated wallets with Newton’s custodian (Coinbase Custody Trust Company) with approved validators. Newton’s custodian will continue to hold the private keys or other cryptographic key material required to control staked ETH for so long as these assets are staked. Your staked ETH will not leave Newton’s omnibus accounts with the custodian and your ETH will continue to be attributed to your account.

Slashing
If a validator node “misbehaves”, such as confirming invalid transactions or trying to attack the network, staked ETH may be partially or wholly confiscated in a process called “Slashing”. This is an extremely rare occurrence. If an ETH validator is slashed, the validator will be scheduled to irreversibly exit the network in 36 days. The validator will receive a penalty for each epoch that passes over the course of the 36 days until the validator is ejected from the ETH network. The amount of staked ETH slashed is determined by the number of other validators slashed over the same period. In extreme circumstances, it is possible for a validator to lose the entire balance of their staked ETH. While due diligence is performed on validator operators, Newton cannot guarantee that there is no risk of Slashing. Newton will not be responsible or liable for and will not replace any lost ETH in accordance with the Newton TOU. Please understand the risks of staking ETH and read the Newton Platform Risk Statement.

Staking Asset Supplementary Disclosure: Ethereum (ETH)
Prior to staking any Ethereum (ETH), please review Newton’s Platform Risk Statement and the
Crypto Asset Statement for ETH.

ETH can be staked on the Newton platform. The following is a summary of the key fees, bonding
periods and other relevant factors to staking ETH on Newton’s platform. This disclosure is in
addition to, and should be read with, the risk information provided in Newton’s Platform Risk
Statement and the Crypto Asset Statement for ETH.

* Rewards are expressed as a percentage of units of the crypto asset staked and not the
Canadian dollar value of crypto assets staked.