The information contained in this Crypto Asset Statement was last updated on August 15, 2022.
No securities regulatory authority in Canada has expressed an opinion about QCAD 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 QCAD 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 QCAD 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
QCAD (QCAD) was launched as a Canadian dollar stablecoin in February 2020 by Canada Stablecorp Inc., a joint venture entered into by 3iQ, a Canadian crypto asset manager, and Mavennet Systems, a blockchain developer.
QCAD is a stablecoin running on Ethereum (ERC-20) that attempts to maintain a value that is pegged 1:1 to the Canadian dollar. Newton does not support or guarantee QCAD’s peg to the Canadian dollar. Changes in supply and demand of stablecoins may cause stablecoins (including QCAD) to move off their peg.
Risks of QCAD
Like an investment in other crypto assets, an investment in QCAD 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 QCAD 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 QCAD.
Specific Risks of QCAD
QCAD is a fiat-backed stablecoin, which in theory is backed 1-to-1 with cash or cash equivalents for each stablecoin token issued, with the intent of making the token redeemable for fiat currency at the behest of the stablecoin holder. The fiat reserve underlying QCAD is intended to mitigate against the potential of the stablecoin “depegging” from the fiat currency that it is pegged to, i.e. having one unit of the stablecoin being different in value from one unit of the target fiat currency.
Risk of Insufficient Reserves. Fiat-backed stablecoins such as QCAD may become depegged in the scenario that the stablecoin does not have enough fiat cash or cash equivalents to redeem all of the coins that holders have requested to redeem. This is similar to what is called a “bank run” in the traditional finance space when more claims have been issued than the amount of cash the institution has on hand to fulfill those claims. To counter these concerns, some stablecoin issuers work directly with regulators and auditors and publish the results of their audit to show that they indeed hold enough cash and cash equivalents to fulfill all claims; however, due to the relatively new nature of stablecoin structures and reporting on these reserve, there can be no assurances that such publications are accurate or will be sufficient to satisfy the claims of holders of QCAD in the face of significant redemptions.
Liquidity Risks of Reserves. There also exists some risk of the different types of assets used to back some stablecoins. Although some stablecoins label assets as “cash equivalents”, whether an asset should be considered a cash equivalent should be evaluated by those conducting due diligence on the token in question. For example, during times of financial distress, it is possible that “commercial paper” may become illiquid which would significantly impact the value of QCAD.
Solvency Issues of Issuers of Reserve Assets. It is also worth noting that some stablecoins may release data about the proportion of commercial paper backing QCAD, but not disclose the issuers of such commercial paper making it difficult to ascertain the solvency risk of those commercial papers. Solvency issues of issuers whose commercial paper (or any similar instruments) held by QCAD could significantly impair the value of QCAD.
Centralization and Regulatory Risks. Since fiat-backed stablecoins require a centralized issuer, there are financial and regulatory risks associated with the issuer. If the issuer of a stablecoin is found to be non-compliant with their local rules and/or regulations, this could cause the integrity or redeemability of the stablecoin to be called into question, thereby introducing the risk of a depegging event. Likewise, if a stablecoin issuer is to encounter difficulties from a financial or operational perspective such as becoming insolvent or having to slow or pause operations, this also introduces the risk of a depegging event for their issued stablecoin, which could significantly impact the value of the related stablecoin.
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 QCAD. We encourage all Newton users to perform their own due diligence to assess the risks associated with QCAD and to determine whether this level of risk is acceptable to them. Neither QCAD nor Newton guarantees the value of QCAD, and holders of QCAD will not have any recourse to QCAD or Newton if the value of QCAD declines for any reason whatsoever.
Newton’s Evaluation Process
Newton has reviewed and assessed QCAD prior to making it available on the Newton Platform and has concluded that QCAD 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 QCAD 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 QCAD, including an opinion that QCAD is not itself a security and/or derivative.
Based on publicly available information Newton has reviewed QCAD, including, but not limited to, a review of the following:
- The creation, governance, usage, and design of QCAD, including the source code, security, and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that created QCAD.
- The supply, demand, maturity, utility, and liquidity of QCAD.
- Material technical risks associated with QCAD, including any code defects, security breaches and other threats concerning QCAD 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 QCAD, including (i) any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of QCAD, 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 QCAD about whether QCAD, or generally about whether the type of crypto asset, is a security and/or derivative.