Financial instruments and digital assets risk brochure

    This document contains the following sections:



    I. Risks Involved in Trading Financial Instruments

    The following document is an information brochure prepared by the Swiss Bankers Association about the risks involved in trading financial instruments. This brochure is intended to help you make sound investment decisions and compare the various financial instruments.

    PDF Risks Involved in Trading Financial Instruments


    II. Digital Asset Risk Disclosure

    1. Introduction

    This Digital Asset Risk Disclosure supplements and forms part of the contractual arrangements governing the relationship between Taurus and the Client and must be read in conjunction with the general terms and conditions of Taurus (the “GTC”), the custody regulations (the “Custody Regulations”), the staking terms and conditions, and any other general or special terms of Taurus, as applicable. Taurus reserves the right to adjust and amend this Digital Asset Risk Disclosure at any time and to communicate such changes to the Client in accordance with the GTC.

    This Digital Asset Risk Disclosure is separate from and in addition to the disclosure of risk factors by issuers, distributors, counterparties, product manufactuers or other persons and financial services providers involved in the issuance, distribution, trading and other transactions relating to Digital Assets, as may in particular be contained in prospectuses, key information documents (“KID”), white papers, fact sheets and other information sheets and which describe in more detail the risks associated with a particular Digital Asset or category of Digital Asset.

    This document does not constitute nor purport to constitute exhaustive disclosure of all relevant risks or other relevant aspects in connection with Digital Assets or transactions in such assets, and may not serve, under any circumstances, as a substitute for professional advice by competent subject matter experts. The brochure Risks Involved in Trading Financial Instruments issued by the Swiss Bankers Association (“SBA”) may provide further information on Digital Assets.

    This brochure does not take account of Clients’ individual financial, legal and tax situations. For comprehensive personal advice on your financial situation, please consult, if necessary, an investment advisor, tax, or legal expert.

    By trading, transacting, investing in, and/or holding Digital Assets, Clients acknowledge and accept the risks described in this document. Clients understand that the materialization of such risks may result in a total loss of the investment and, potentially, additional losses exceeding the original investment, depending on the type of Digital Asset and the specifics of the investment activity, if any, and the exposure.

    Clients who do not understand the information in this documment should seek advice before making any investment or transaction in Digital Assets. Taurus is under no obligation to inform the Client of the materialization or the possible materialization of any of the risks described herein or any other risks relating to Digital Assets.

    2. Reasons to invest in Digital Assets

    The reasons for investing in Digital Assets are unique to each client. However, the following reasons are often cited among others:

    • Diversification
    • Investment into distributed ledger technologies
    • Loss of confidence in the traditional monetary system
    • Investment in tokenized assets/securities
    • Capturing additional yield via staking
    • Betting on the future: the future of Digital Assets is still largely unknown.

    3. Key characteristics

    Before investing, the Client should know some important elements about Digital Assets. The elements presented below are only a part of them.

    a. Distributed Ledger Technology

    Distributed Ledger Technologies (″DLT″) refers to technologies that allow participants (nodes/validators) within a system to propose, validate, and store operations in a synchronised dataset (″Ledger″) that is distributed across nodes in the system securely. It typically exhibits the following characteristics:

    • Embedded consensus algorithm

      A distributed ledger includes a ″consensus algorithm″ that allows to add and replicate new entries in the ledger without any trusted third-party validation. In other words, none of the computers making the network needs to be trusted and the consensus algorithm makes sure that all the data entered is accurate.

    • Decentralised infrastructure

      A distributed ledger has no single point of failure, which means that if multiple computers participating in the network disappear, the network will continue to function as long as there is one computer.

    • Decentralised governance

      A distributed ledger has, in general, no single entity controlling the network or making the rules for the network. The rules are defined in the ″code″ running the distributed ledger.

    • Logically centralised

      A distributed ledger is logically centralised which means that every node sees the same state. It can be seen as a one global computer or thousands of dispersed computers that all see the same state.

    Blockchain is a specific type of DLT. It describes the fact that data is recorded in blocks which are chained to each other by using cryptography. A block consists of transactions validated by the nodes in the network. Typically, when a block is produced, the block is “completed” (or “hashed”) by using a cryptographic hash function which contains the data of all the transactions in the block, and a reference to the previous block, thus creating a chain or link between the blocks. New blocks are found and added to the chain by special nodes in the network, also referred to as “miners” or “validators”.

    Distributed ledgers can either be permissionless (anyone with a node can participate), private (a company or person builds its own distributed ledger for internal purposes) or permissioned (possible to participate by invitation and verification of the participant). Permissionless distributed ledgers typically use public blockchains, meaning that all transactions between distributed ledger addresses are visible to the public.

    b. Digital Assets

    Digital Assets are digital representations of any types of assets, securities, rights, claims, virtual currencies, fiat currencies, or units of accounts registered on a distributed ledger. They include, but are not limited to cryptocurrencies such as Bitcoin, Ethereum or Litecoin. They can also include securities such as shares or bonds registered on a distributed ledger (i.e. “tokenised securities”, “DLT securities”, “ledger-based securities” or “security tokens” registered on a “securities ledger/register”).

    From a regulatory perspective, according to FINMA guidelines for enquiries regarding the regulatory framework for initial coin offerings (“ICOs”) published on 16 February 2018, Digital Assets can be classified in four main categories: payment tokens, utility tokens, asset/security tokens and hybrid tokens.

    Digital Asset category FINMA definition Main valuation drivers Examples
    Payment tokens

    Synonymous with cryptocurrencies and have no further functions or links to other development projects. Payment tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.

    Supply and demand

    Reserves for stable coins

    Crytocurrencies: Bitcoin, Ether

    Stable coins: USDC, USDT

    Central Bank Digital Currencies ("CBDC")
    Utility tokens Tokens which are intended to provide digital access to an application or service.

    Various

    ICO tokens
    Asset / investment / security tokens Tokens representing assets such as participations in real physical underlying, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives. This includes tokenized securities, security tokens and ledger-based securities.

    Share-like: similar to shares

    Bond-like: similar to bonds

    Ledger-based equity securities of a private company in the form of a CMTA smart contract registered on the Ethereum public mainnet

    Tokenised debt of a private company in the form of a FA1.2 token registered on the Tezos public mainnet
    The individual token classifications are not mutually exclusive. Asset/security and utility tokens can also be classified as payment tokens (referred to as hybrid tokens). In these cases, the classifications are cumulative; in other words, the tokens are deemed to be both securities and means of payment.

    c. Non-Fungible Tokens

    A Non-Fungible Token (“NFT”) is a unit of data stored on a distributed ledger that certifies a Digital Asset to be unique and therefore not interchangeable. The qualification of the nature of NFTs, in particular whether an NFT is a security or not, is dubious and may vary from one NFT to another or from one jurisdiction to another. Taurus draws the clients’ attention to the potential consequences resulting from this uncertain qualification, among others in terms of taxation, cross-border and sales limitations, restrictions in the admission to trading, etc. possibly even with retroactive effect.

    In addition, as an NFT is a claim to an exclusive online location, the said location to which the object’s “ownership” refers itself may be relocated. Then the NFT will not even provide the correct location of supposed ownership. Therefore there is no guarantee that the “object“ the NFT refers to will stay at the same online location during the custody time and the Client may lose his/her/its ownership.

    IN NO EVENT SHALL TAURUS BE LIABLE FOR (A) ANY CHANGE IN REGULATIONS CONCERNING THE QUALIFICATION OF NFT AND ITS CONSEQUENCES OF ANY KIND FOR THE CLIENT, OR (B) THE RISK OF LOSS DUE TO THE ABOVE MENTIONNED RELOCATION.

    4. How to invest in Digital Assets?

    Investors can buy and sell digital assets for example through centralized cryptocurrency exchanges, decentralized finance (“DeFi”) platforms, OTC crypto-brokers, Virtual Asset Service Providers (“VASP”), Crypto Asset Service Providers (“CASP”), crypto ATMs, financial intermediaries, banks and/or broker-dealers.

    5. Main risks

    The following list highlights some of the main risks linked to Digital Assets, without being exhaustive:

    Market risks Market risks are risks that an investment or asset may lose its value partially or in whole.

    • Emerging market. The market for Digital Assets is still in an emerging and maturing phase which may be subject to elevated volatility and limited transparency and reliability, execution delays or failures, all of which may potentially result in losses or other adverse effects for clients. Investments in markets for Digital Assets are often deemed riskier than in long standing and more mature markets. Furthermore, execution venues for Digital Assets are typically open around the clock, seven days a week, 365 days a year. This means that the Digital Assets are subject to constant market risks as trading never halts, possibly requiring constant monitoring by market participants
    • Difficulty to assign a fair value. It can be difficult to determine the fair value of a Digital Asset prior to the investment. Digital Assets are often different from traditional assets in terms of their capital structure and cash flows which makes it difficult to apply traditional valuation models. Digital Assets may not represent ownership or rights to cash flows, but instead often confer access rights to a distributed ledger-based service or application. In this case, it can be difficult to assess the value of the purchased Digital Assets against the value of the service that the Digital Asset can be used to pay with. This carries the risk of paying more for the Digital Asset than it may be worth
    • High volatility. The market value of Digital Assets is often volatile. Some of the reasons for the volatility are the small market capitalizations compared to traditional capital markets, the risk of sudden regulatory changes, trend cycles and/or dependencies on the performance of the market for traditional investments
    • Connection to traditional financial instruments. The value of Digital Assets may rely on the market value of traditional financial instruments, such as tokenized stock or stablecoins pegged to a fiat currency. Such Digital Assets may have the identical or a similar risk profile as the underlying, replicated, or mirrored traditional financial instrument, thus inheriting the market risks of traditional markets
    • Concentration. The market capitalisation of the digital assets industry is mainly led by Bitcoin, which represents more than 50% of the total market capitalisation. A significant position in any Digital Asset other than Bitcoin (and, depending on the case, including Bitcoin) may require several days, weeks or even months to be unwinded with a possible negative effect on the price of the Digital Asset
    • Stable coins. Although stable coins are generally deemed to be less volatile than cryptocurrencies, there is a risk of unpegging against fiat currency that may lead to high volatility, or even in some cases a substantial or total loss of funds

    Credit and counterparty risks Credit and counterparty risks are risks that a party to a transaction may not be unable to fulfill its obligations toward its counterparty.

    • Counterparty default. The credit and counterparty risk faced with Digital Assets counterparties is higher than usual. Digital asset service providers are often not regulated nor supervised like traditional banks and broker-dealers. It is difficult (and often impossible) to assess their financial situation, because audited financial statements are not available. Moroever, those counterparties are not subject to capital adequacy rules, deposit protection, etc. Trading counterparties typically require pre-funding and free-of-payment (“FoP”) settlements
    • No redemption. Even if the Digital Assets are delivered to the purchaser, there is no guarantee that the Digital Assets can be redeemed against a fiat currency or a traditional financial instrument by exchanging them to the issuer or a third party
    • Issuer. Digital Assets often have no issuer in the traditional sense. As such, holding most Digital Assets in self-custody does not carry traditional credit risk. Nonetheless, credit risk may be present in certain Digital Assets especially in the form of issuer risk. Specifically, the issuer of a Digital Asset may fail to deliver the assets to the purchaser, which means that the credit risk materializes
    • Traditional issuer. For traditionally issued financial instruments, such as an exchange-traded financial product that replicates a basket of Digital Assets or tokenized equities, the counterparty risk may also involve the issuer risk of the respective financial instrument

    Liquidity risks Liquidity risks are risks that buying or selling an asset may have a price impact on the respective asset. If there is no price impact when buying or selling an asset, the asset holder is not exposed to any or only a low liquidity risks.

    • Immature market structure. The markets for Digital Assets are generally undercapitalized relative to traditional markets, as typically fewer market participants are active in these markets. The trading of Digital Assets can be done at various types or execution venues, including, but not limited to, centralized exchanges, decentralized software-based platforms, and peer-to-peer marketplaces. The fragmentation of execution venues may lead to illiquidity, which in turn may cause price fluctuations in Digital Assets, thus making the buying and selling of Digital Assets difficult or even impossible for the asset holder
    • Stable coins. In the case of stable coins, there is the risk that the reserves are insufficient (for example due to a fraud, a run or a market liquidity crunch). This may lead to a total impossibility to convert back those stable coins in their equivalent amount either in fiat currencies or in the same stable coins booked on a different distributed ledger. This risk is especially relevant in the case of stable coins not supervised by any regulator and/or not properly audited

    Technical and operational risks Technical and operational risks are risks associated with the inadequacy or failure of procedures, humans, technology, and systems, or with external events.

    • Early-stage technology. Technology relating to Digital Assets is still at an early stage and best practices are still being determined and implemented. Digital Assets technology is likely to undergo significant changes in the future. Technological advances in cryptography, code breaking or quantum computing etc, may pose a risk to the security of Digital Assets. In addition, alternative technologies could be established, making some Digital Assets less relevant or obsolete
    • Forks. A blockchain fork describes an event which results in two conflicting versions of the original blockchain. There are many reasons for a fork, such as a change in the protocol code or an unplanned protocol code inconsistency due to a software bug. When there is a disagreement about a protocol upgrade, a blockchain network may split into two groups resulting in at least two different blockchains and networks. Following a fork, the Digital Assets of the original blockchain will also exist on the new blockchain. In the event of a fork, there may be significant price fluctuations resulting in a temporary suspension of trading, cyber-attacks on the holders of Digital Assets, or adverse effects on the functionality or convertibility which may result in a full or partial reduction of the value of the Digital Assets involved. Moreover, trading venues on which Digital Assets are traded may suspend (temporarily or indefinitely) the ability to trade a particular version of a Digital Asset. Consequently, the Investors in the Digital Asset may (i) not get exposure (indefinitely) to all versions following a fork and forego the value of one or more versions, or (ii) may get exposure to a version on a delayed basis (in which case that version might have lost a significant part or all of its value)
    • Fraud, theft and cyber-attack risk. The particular characteristics of Digital Assets (e.g., only exist virtually on a computer network, transactions in Digital Assets are not reversible and are done anonymously) make it an attractive target for fraud, theft and cyber-attacks. Various tactics have been developed (or weaknesses identified) to steal Digital Assets or disrupt Digital Assets technology
    • Replay attacks. The occurrence of forks may lead to replay attacks carried out by third parties. Replay attacks take place when transactions in Digital Assets on a recently forked blockchain are technically valid on both or multiple blockchains. Therefore, a third party may maliciously replicate a previous transaction made on the legacy blockchain on the new blockchain, resulting in the same number of units being transferred on the new blockchain as well
    • Loss of private keys. Access to and use of a distributed ledger is based on public-key cryptography using a pair of private and public keys. Without the private key, a user cannot access the distributed ledger and therefore its Digital Assets. Private keys can be stored on various media, such as on paper, software, on hardware wallets, or held with a crypto custodian. Theft, loss, destruction, hacking, or other reasons that render the private key no longer available or recognizable may result in the permanent loss of the corresponding Digital Assets. Having this private key stolen is equivalent to giving full access to the Digital Assets to a malicious person/entity. It is therefore of utmost importance to back-up these private keys and store them securely
    • Hacking. Malicious third parties may use methods and means to gain access to private keys. For example, private keys, seed phrases, or relevant passwords that are communicated by e-mail or stored in a text file on an unprotected computer may be intercepted and read by third parties and used to control the distributed ledger address. This may lead to a total loss of the Digital Assets
    • Hashing and encryption algorithms. A hashing algorithm is a mathematical function that derives a unique text from input data in a consistent manner. Digital Assets and their protocols may use non-standard, novel, outdated, or faulty hashing algorithms that may lead to vulnerabilities that affect the value of the Digital Assets in question. Furthermore, protocols may use encryption algorithms that may prove faulty or outdated, or only provide weak protection against malicious third parties resulting in such algorithms being compromised. These risks may become particularly relevant as quantum computing capabilities increase
    • Use of incorrect distributed ledger addresses. DLT transactions are sent to a distributed ledger address derived from the public key. If an incorrect address is used, it may be impossible to identify the sender or recipient and to reverse the transaction. Clients who intend to deposit Digital Assets with a digital asset services provider are advised to only use the distributed ledger addresses communicated to them. Once a transaction is executed, it is impossible to cancel or reverse this transaction. As a consequence, Clients shall always check that a destination distributed ledger address is correct before to confirm a transaction.
    • No possibility to reject funds. When a transaction is made to a distributed ledger address, the owner of the address may not be able to refuse the transaction and thus may not prevent the receipt of Digital Assets. This effectively implies the risks of receiving and holding Digital Assets unwillingly
    • Third party dependency. Execution and settlement of transactions in Digital Assets may depend on the specifications of the relevant DLT, including the participation of third parties in the relevant network, such as miners or validators. Delays or failures to execute, process or settle transactions may potentially result in losses or other adverse effects for users of the network, such as waiting times when depositing with or withdrawing Digital Assets from a crypto services provider
    • Inability to exercise rights and seize opportunities. Digital Assets may confer legal or actual rights and opportunities to their holders. Rights and opportunities may include the use as a means of paymentor as a stake in Proof-of-Stake distributed ledger protocols, or the exercise of governance-related rightswith respect to the development of a distributed ledger protocol. Depending on how and where the Digital Assets are stored or used, the holder may not be able to exercise such rights or seize such opportunities
    • Consensus attacks. A decentralized consensus is required to validate transactions and blocks and secure the distributed ledger. The validation may require computing power (Proof-of-Work), stake (Proof-of-Stake), or some other form of proof, depending on the applicable consensus mechanism. Therefore, it may be possible for a participant with significant computing power or stake to effectively manipulate the consensus mechanism. Such centralized power may result in various types of attacks, such as double-spending Digital Assets or censoring transactions of third parties
    • Weaknesses in smart contracts. The existence, functionality, and transferability of Digital Assets may depend on smart contracts deployed on the distributed ledger. Smart contracts are based on computer code whose operation is triggered by a user or another smart contract. Interactions with smart contracts may often be very complex and mostly irreversible. The computer code may be faulty or hacked or may be changed by the deployer, or someone else, by updating or replacing existing smart contracts. The logic of smart contracts may be exploited by third parties, such as by manipulating off-chain price oracles that feed false data into a smart contract. The use of a smart contract potentially depends on the underlying network being available and not congested
    • Decentralized Finance (DeFi). The use of DeFi applications, such as decentralized exchanges or borrowing platforms, may entail special risks, including, but not limited to, risks related to smart contracts, operational security, such as the use of admin keys by the developers, or someone else, to control a DeFi application, dependencies on other components and smart contracts of DeFi, the use of external (off-chain) data through oracles, increased illicit activities, and scalability issues
    • Weaknesses in open-source software. Digital Assets are typically based on open-source software that is freely accessible and may be copied, used, or modified by anyone at any time. While open-source software development may have many advantages, bugs, vulnerabilities and deliberately embedded malfunctions may exist and affect the security of Digital Assets when holding or transacting in them. The development of open-source software may be discontinued at any time, which may also affect the long-term security of Digital Assets
    • Staking lock-up periods. Depending on the Proof-of-Stake distributed ledger protocol there may be lock-up periods during which users will not have access to the Digital Assets they stake. This may result in the temporary illiquidity of such Digital Assets. Clients of staking services providers may also be affected by lock-up periods when instructing such providers to stake their Digital Assets
    • Slashing in staking. Proof-of-Stake distributed ledger protocols may embed a “slashing mechanism” to prevent validator misconduct and thus to promote network stability and security. If a validator behaves dishonestly or otherwise violates the protocol rules, it may risk losing the staking rewards and/or a certain amount of the Digital Assets staked in the protocol, potentially leading to a total loss of the Digital Assets. Clients of staking services providers may also be affected by slashing when instructing such providers to stake their Digital Assets
    • Data protection. Users of permissionless distributed ledgers should be aware that any transfer of Digital Assets will be recorded in a public distributed transaction register and can therefore be viewed by third parties not involved in the transfer. Such information may be processed, exploited, or misused by third parties. It may be possible for third parties to reconstruct a relationship between a distributed ledger address and the identity of its owner
    • Throughput limitations. Some Digital Assets networks may experience surges in the number of transactions. An increasing number of transactions coupled with the inability to implement changes to Digital Assets technology may result in a slower processing time of Digital Assets transactions (potentially days to verify a transaction) and/or a substantial increase in Digital Assets transaction fees paid to so called ″miners″ (when relevant) for facilitating the processing of transactions.
    • Irreversibility. Base layer transactions on a DLT or other distributed ledger are irreversible and final and the history of transactions is computationally impractical to modify. As a consequence, if the Client initiates or requests a transfer of Digital Assets using an incorrect distributed ledger address, it will be impossible to identify the recipient and reverse the defective transaction.

    Legal and regulatory risks Legal and regulatory risks are risks that uncertain legal treatment or change in current legislation may materially affect an investment or asset.

    • Legal uncertainties. The legal and regulatory framework surrounding Digital Assets may still be uncertain in many countries, and Digital Assets may be subject to different legal and regulatory rules across those countries. In particular, it may be unclear under applicable laws who is entitled to what rights in relation to Digital Assets, including ownership rights. The inconsistent treatment and potential legal measures expose holders of Digital Assets as well as crypto services providers to the risks of non-compliance with applicable laws and/or non-enforceability of rights under such laws, which may ultimately affect the value of the Digital Asset
    • No legal tender or inability to redeem. Users should be aware that Digital Assets, in particular payment tokens, may offer less legal certainty than traditional fiat currencies. There is typically no obligation to accept Digital Assets as a means of payment, as they are not legal tender, and as they are not issued by a central bank or government. In addition, stablecoins issued by private market participants may not be redeemable in full or at all due to insufficient or illiquid backing
    • Changing legislation and supervisory practice. The legal and regulatory landscape regarding Digital Assets in and outside of Switzerland is constantly evolving and changing. Government authorities may within their jurisdiction classify or change existing classifications of Digital Assets. This may result in a Digital Asset being delisted from an execution venue or no longer being offered for trading by a crypto services provider, or in rights associated with Digital Assets no longer being recognized by law. If countries prohibit or restrict trading and/or holding Digital Assets, this may result in the inability to sell and/or hold such Digital Assets, ultimately affecting their value.
    • Classification. Depending on the applicable laws and regulations, Digital Assets may be classified differently and result in different rules being applicable to them, to holders of such Digital Assets, or to services providers that offer them to their clients. Crypto service providers may classify or periodically reclassify Digital Assets depending on the specific circumstances. This may result in them offering such Digital Assets to their clients on a limited basis or not at all. This may be the case, in particular, if new circumstances cause the provider to reclassify a payment token as an asset token
    • Tokenization. Where Digital Assets are intended to constitute, embed, or represent legal rights and/or obligations, the legal effectiveness of such construct may be subject to differing rules in the potentially relevant jurisdictions, including the jurisdiction of the issuer or the holder of the relevant Digital Asset. There is a risk that tokenization of the underlying rights and/or obligations and/or the transfer of such rights and/or obligations by transfer of a Digital Asset may not be legally effective and that, consequently, the Digital Assets may not include the expected rights and/or obligations, potentially resulting in a full or partial loss of value of the respective Digital Assets
    • Bankruptcy treatment. The treatment of Digital Assets in the event of bankruptcy or a similar event is subject to special provisions under Swiss law. While recent legislation has improved legal certainty, it is still open how the new provisions will be applied in the event of bankruptcy of a crypto custodian in practice
    • Risk of abusive market conduct. Traditional markets and trading venues are subject to a high degree of regulations that aim to promote fair and transparent markets. The market for Digital Assets is still emerging and subject to a varying degree of regulation. As such, not all market participants observe standards that are comparable to the market conduct rules of traditional markets, which intend to prevent fraud, market manipulation and insider trading
    • Risk of fraudulent and other malicious behavior. The market for Digital Assets has shown to attract fraudulent and malicious actors that may target market participants in various ways, such as hacking their IT infrastructure, including wallet software, tricking them into revealing confidential information, misusing their credentials and identities, or pretending to do something that is not realor plausible
    • Poor transparency and investor protection. Digital Assets may not be listed on or admitted to trading at a regulated trading venue, and their issuers may not be required to disclose information relevant to investment or other decisions. Therefore, holders of Digital Assets may not benefit from the same rules and regulations that apply to listed companies and/or in traditional markets for the purpose of protecting investors.
    • Legal obligations. Changing legal and regulatory frameworks may result in Digital Assets or transactions being treated or classified differently by authorities in any jurisdiction at any given time. Depending on their domicile, users may have different legal obligations associated with holding, purchasing, or selling Digital Assets or using certain services with respect to Digital Assets. Such obligations may include legal and regulatory obligations, tax obligations or other requirements. Failure to comply may result in legal actions and sanctions, including criminal sanctions, or otherwise affect holders of Digital Assets
    • Tainted assets. Transactions in Digital Assets on public distributed ledgers can be traced back to previous distributed ledger addresses and through forensic investigations potentially to their owners. Digital Assets that are attributable to criminal activities may thus be considered tainted by crypto services providers and/or authorities. As a result, Digital Assets are at risk of being seized or at least made unusable by courts, which may affect the value of the relevant Digital Assets
    • Supervisory measures. Digital Assets, their issuers or developers, users, execution venues, crypto services providers, or other parties involved in the industry may be subject to regulatory investigations, injunctions or other measures which may potentially result in a full or partial loss of the value of Digital Assets or impact the ability to offer them to clients or otherwise affect holders of such assets. Such measures may also prevent, restrict, or prohibit users from trading and/or holding Digital Assets.

    In the case of tokenized securities, security tokens, ledger-based securities or DLT securities, investors and issuers shall be aware of multiple additional differences and risks compared to traditional securities, such as intermerdiated securities disclosed on Risks involved in tokenized securities.

    Staking is the process of staking native Digital Assets in favor of a validator node in order to participate in a distributed ledger validation process based on a proof-of-stake (“PoS”) consensus mechanism. Participants earn rewards for staking Digital Assets.

    PoS distributed ledgers differ in that in some cases the inverse process of unstaking involves a variable lock-up/exit period, which means there is a delay in returning staked Digital Assets. Moreover, distributed ledgers sometimes create negative incentives for maintaining compliant validation activity, in that in the event of a validator node behaving improperly Digital Assets that have been locked by staking, and/or associated staking rewards, can be subject to partial or complete deletion (“slashing”).

    Staking entails a number of specific risks, such as:

    • Slashing risk. Risk of the Digital Assets (asset slashing) and/or staking rewards (reward slashing) being slashed due to misconduct by the validator node (slashing risk) or risk of suffering penalties imposed automatically, for example if the validator node goes offline due to technical problems or a lack of adequate business continuity management
    • Lock-up. Risk that it may not be possible to sell staked Digital Assets at the right time in a volatile period if the unstaking process includes a lockup/exit period, creating a delay in returning blocked staked Digital Assets. In certain distributed ledgers such as Ethereum, the lock-up period is longer if the number of unstaking orders rises, which can lead to very long lock-up periods in a crisis and temporarily make it technically impossible to sell the staked Digital Assets. The duration of the lock-up period may sometimes be non transparent and unpredictable for clients due to a continuously changing withdrawal queue and number of validators
    • Legal uncertainties in the event of bankruptcy. Counterparty risk due to the unclear legal treatment of staked Digital Assets in the event of bankruptcy. For example, in Switzerland, there is currently a legal uncertainty about the treatment of staked Digital Assets in bankruptcies in certain situations. This legal uncertainty is even greater if the custody or staking is delegated to foreign institutions, as there are often no specific regulations on the treatment of staked Digital Assets in bankruptcies in many foreign countries
    • Critical bugs. Some staking protocols may require the transfer of Digital Assets into smart contracts on the underlying network that are not under anyone’s control. As such, any malfunction, unintended function or unexpected functioning of the staking protocols and/or ’staking assets’ networks may consequently cause staking services to malfunction or function in an unexpected or unintended manner. Hackers and other groups or organizations may attempt to interfere with staking protocols, staking services and staked Digital Assets in any number of ways, including, without limitation, denial of service attacks, sybil attacks, spoofing, smurfing, malware attacks or consensus-based attacks. Critical bugs including, but not limited to, the ones described above may result in a loss of part or all staked Digital Assets
    • Tax risk. The tax treatment of staking may be unclear in certain situations and jurisdictions. Investors shall consult their own local tax advisors.

    8. No deposit insurance

    Investors are made aware that securities (incl. tokenized securities), credit balances not held in a government-issued currency (e.g. units of cryptocurrencies) and cryptocurrency units in a cryptocurrency securities account are not covered by deposit insurance schemes (e.g. esisuisse in Switzerland).

    9. Adequacy of investment in Digital Assets with financial objectives

    Investors willing to have exposure to Digital Assets should ensure their profile matches with the below characteristics of the asset class. Investors should seek advice from their investment advisors if they have any questions on the appropriateness of their profiles with the investment in Digital Assets, as well as to enhance their successful selection of opportunities within the asset class, according to their financial objectives and their risk tolerance.

    Target clients Retail, Professional and Institutional
    Knowledge and experience

    Intermediate and Expert
    Ability to bear losses

    Total loss of capital possible

    Not recommended to clients with no loss of capital possible.

    Total insolvency, default or bankruptcy of Issuers possible.
    Risk reward profile High risk
    Investment objective

    Diversification

    General asset accumulation

    Growth

    Hedge against systemic risk
    Investment horizon

    Short term (for speculation purpose only)

    Medium to long term


    III. Risks involved in tokenized securities / assets

    TAURUS SA DRAWS THE EXPLICIT ATTENTION OF ISSUERS/INVESTORS REGARDING SOME OF THE MAIN RISKS INVOLVED IN THE USE, CUSTODY, TRADING, ISSUANCE OR INVESTMENT IN TOKENIZED SECURITIES/ASSETS, SECURITY TOKENS, ASSET/INVESTMENT TOKENS, DLT SECURITIES AND/OR LEDGER-BASED SECURITIES (“TOKENIZED SECURITIES”). THE BELOW LIST IS NOT EXHAUSTIVE.

    To understand the risks associated with tokenized securities/assets (e.g., tokenized shares issued by a Swiss corporation, ledger-based securities, DLT securities), each issuer/investor should thoroughly and in detail assess and analyze this document. Prospective issuers/investors should carefully consider each of the risks described below and all of the other information in this document before deciding to issue/invest in tokenized securities. Issuers’ business, financial condition and results of operations could be materially adversely affected by any of these risks. As a result, the price of tokenized securities may decline and investors may lose their investment. The risks described below are not the only ones applicable to the issuer. Additional risks that are not known at this time, or that may be currently considered as immaterial based on regular risk assessment, could significantly impair the issuer’s business activities and have a material adverse effect on the issuer’s business, financial condition or results of operations. The order in which these risks are presented is not intended to provide an indication of the likelihood of occurrence nor of their severity or significance. Therefore, only prospective issuers/investors who are fully aware of the risks described in this document and who are financially able to bear the possible loss of their entire investment should consider investing in tokenized securities.

    Securities (e.g., shares, bonds, participation certificates) are typically associated with tokens, i.e. digital tokens recorded on a blockchain (e.g., public Ethereum mainnet). Tokenized securities are not expected to be deposited with professional custodians (such as banks, brokers or central securities depositaries) as is the case for most securities issued by public companies, and no main register of intermediated securities under the Swiss Federal Act on Intermediated Securities are maintained. As a result, the ownership of tokenized securities is not determined by credits on a securities account held by a professional custodian pursuant to the Swiss Federal Act on Intermediated Securities, but on the record of the digital tokens associated with those securities on a decentralized ledger maintained by a community of users.

    To date, there are no court precedents regarding the acquisition or transfer of tokenized securities. In addition, the Swiss legislator may adopt new rules regarding the acquisition or transfer of tokenized securities, the impact of which cannot be predicted. Such acquisition or transfer is therefore subject to legal uncertainties that are more significant than for non-tokenized securities.

    If a court were to decide that a transfer on the relevant blockchain is not sufficient to transfer the rights and obligations associated with tokenized securities, the validity of transfers of tokenized securities effected by transferring the relevant tokens on a blockchain may be challenged.

    These factors, and the resulting uncertainty regarding tokenized securities and tokens/digital assets in general, may significantly affect the price and ability of investors to acquire or dispose of tokenized securities. In addition, if tokenized securities become more difficult to acquire or transfer, we may be forced to rely on other ways of raising capital, which may be significantly more expensive. This could materially affect our ability to execute our strategy and our prospects.

    Securities are associated with digital tokens recorded on a blockchain

    Securities, once issued, are associated with tokens, i.e. digital tokens, which are recorded on the public version of a blockchain. The issuer has adopted internal regulations, pursuant to which the tokens and the underlying tokenized securities are tied to each other in a manner that prevents tokenized securities from being transferred without the corresponding tokens and vice-versa.

    The tokens are created and managed under the terms of a so-called “smart contract”, i.e. computer code that defines the manner in which digital tokens can be created, transferred and cancelled. Smart contracts are non-trivial pieces of computer code and their interactions with the blockchain for which they have been created are complex. It cannot be excluded that the computer code for the smart contract used by the issuer contains flaws, errors, defects and bugs, which may disable some functionality of the tokens, expose tokenholders’ information or otherwise be harmful to the tokenholders or the issuer. Investors contemplating an investment in tokenized securities should review the functioning of the smart contract underpinning the tokens and seek advice from third party experts, if necessary, to understand it before acquiring tokenized securities. Should the smart contract based on which the tokens are operated cease to function for any reason, the ability of existing holders of tokenized securities to transfer such securities to third parties or the ability of the acquirers of tokenized securities to exercise the rights associated with such tokenized securities may be impaired. The regulations that an issuer has adopted to associate tokenized securities with tokens make it possible for the issuer to cancel existing tokens and to issue replacement tokens or to issue tokenized securities in a different form (e.g. in the form of paper certificates). Such an operation may however complicate the transfer of tokenized securities or the exercise of the rights associated with newly acquired tokenized securities.

    Blockchain technology (e.g., Ethereum) is new and untested and subject to known and unknown risks, including the risks set out below:

    The blockchain source code could be updated, amended, altered or modified from time to time by the developers and/or the community of users. There can be no guarantee that such update, amendment, alteration or modification will not adversely affect the functionality of tokens.

    Changes to the protocol that govern the blockchain may result in the development of parallel chains of blocks (so-called “hard forks”) when some of the blockchain’s nodes are validating transactions on the basis of the old version of the protocol, while other nodes are validating transactions on the basis of the new protocol. The smart contract governing the issuer’s tokenized securities makes it possible for the issuer to “freeze” the digital tokens associated with tokenized securities (i.e. to prevent execution of transactions on the blockchain) until the issuer has made a decision as to which version of the protocol it will support. In the event of such a freeze, holders of frozen tokenized securities will not be in a position to transfer their tokenized securities. Such a freeze may however occur after the hard fork has started to take effect. This could lead to significant uncertainties as to the ownership of tokenized securities which have been transferred (by way of the token) immediately before the freeze has been implemented.

    Blockchain technology functions based on concepts belonging to asymmetric cryptography, or public key cryptography. Scientific research regarding blockchain technology is still at an early stage. Code cracking or technical advances such as the development of quantum computers, could present a risk for all blockchain technology. This could result in the theft, loss, disappearance, destruction or devaluation of tokens.

    Hackers or other groups or organizations may attempt to interfere with wallets maintained by tokenholders in any number of ways, including without limitation denial of service attacks, Sybil attacks, spoofing, smurfing, malware attacks or consensus based attacks. In addition, the blockchain is susceptible to mining attacks, including but not limited to double-spend attacks, majority mining power attacks (or “51% attacks”), “selfish-mining” attacks, and race condition attacks.

    Information about DLT securities and ledger-based securities according to Swiss law

    According to the Swiss Financial Market Infrastructure Act, DLT securities are securities in the form of: (a) ledger-based securities (Art. 973d CO); or (b) other uncertificated securities that are held in distributed electronic registers and use technological processes to give the creditors, but not the obligor, power of disposal over the uncertificated security.

    A ledger-based security is a right which, in accordance with an agreement between the parties:

    1. is registered in a securities ledger in accordance with the conditions described below; and
    2. may be exercised and transferred to others only via this securities ledger.

    The securities ledger must meet the following requirements:

    1. It uses technological processes to give the creditors, but not the obligor, power of disposal over their rights.
    2. Its integrity is secured through adequate technical and organisational measures, such as joint management by several independent participants, to protect it from unauthorised modification.
    3. The content of the rights, the functioning of the ledger and the “registration agreemen”t are recorded in the ledger or in linked accompanying data.
    4. Creditors can view relevant information and ledger entries, and check the integrity of the ledger contents relating to themselves without intervention by a third party.

    The obligor must ensure that the securities ledger is organised in accordance with its intended purpose. In particular, it must be ensured that the ledger operates in accordance with the “registration agreement” at all times. The transfer of the ledger-based security is subject to the provisions of the “registration agreement”.

    Information regarding the governance and use of the public Ethereum mainnet (or similar) as securities ledger for ledger-based securities/DLT securities according to Swiss law

    The Ethereum distributed ledger technology is a technology that allows the operation of a distributed ledger, i.e. a ledger that is not kept by a trusted intermediary, but by a community of independent participants. The distributed ledger technology, as implemented on the Ethereum distributed ledger is based on complex mathematical and cryptography concepts, which are described in this document at a high level only. The technology makes it possible to keep records of data relating to persons whose identity is protected by asymmetric cryptographic methods. Such methods are based on the interplay between a public key and a private key, which are two numbers that are mathematically related. The public key (often referred to as the “distributed ledger address”) is available to all ledger participants, while the private key must remain secret. The holder of the private key can generate “signature messages” that can be identified as authentic (i.e. as having been generated with the private key) by the ledger participants. Such signature messages can be used to initiate “transactions”, i.e. new entries in the ledger. In a distributed ledger that functions as a “blockchain”, the participants validate transactions in blocks, by adding a new set of data to a chain of pre-existing blocks. Each ledger participant maintains its own copy of the ledger, and updates such copy when a participant includes a new “block” in a manner consistent with the chain’s protocol. This regime aims to ensure the transparency and immutability of the transactions recorded in the ledger.

    For Ethereum, the distributed ledger has two functions. The first is related to Ether (or ETH). Ether is a cryptocurrency (or digital currency) that is recorded and traded on the distributed ledger. Users of the distributed ledger can trade Ethers on the distributed ledger and use such Ethers as a means of payment. The second is the use of “smart contracts”. The distributed ledger allows for the creation of computer codes called “smart contracts”, which can perform a large number of functions, including creating a record of digital tokens on distributed ledger addresses. A “token” is an entry in a register that is maintained by means of the smart contract. Each token is attributed to a particular distributed ledger address. The fact that the register maintained through the smart contract contains a corresponding entry is evidence that a token is attributed to the relevant distributed ledger address. Entries in the distributed ledger are validated by a large number of participants. Any person or entity may act as validator and validate transactions in the distributed ledger, subject to technical requirements unrelated to the identity of the person or entity (e.g. technical infrastructure requirements and/or minimum amount of Ethers “staked” (i.e. locked on a distributed ledger address for a certain period of time)). More information about Ethereum and its governance are available at the following link.

    Blockchain technology is recent. In many jurisdictions, the legal and regulatory regime applicable in case of use of that technology in the financial sector remains debated, and regulatory actions by the Swiss or foreign governments restricting the ability to use the technology in the manner contemplated by the issuer cannot be excluded. To associate tokenized securities with digital tokens, the issuer shall typically be relying on a legal tokenization model, developed and published by an association, such as for example the Capital Markets and Technology Association (CMTA), a nongovernmental organization based in Geneva, Switzerland. The legal aspects of the tokenization of securities are however debated in Switzerland, and no court decision has been published on the topic. Disputes regarding certain aspects of the acquisition and transfer of tokenized securities in the form of digital tokens, such as for example the validity of transfers, cannot therefore be excluded. Court decisions, depending on their content, may result in the issuer having to cancel the digital tokens associated with tokenized securities, and to issue tokenized securities in a different form (e.g. in the form of paper certificates). This could restrict the ability of the holders of tokenized securities to transfer such securities.

    Inability of holders of non-voting shares to influence the decisions of the issuer

    In the case of non-voting shares (e.g., participation certificates), holders of tokenized securities are not able to exert significant influence over the election of the issuer’s directors or independent auditors, or the appropriation of the issuer’s earnings (and in particular the distribution of dividends). Holders of tokenized securities have none of the rights generally associated with voting rights under Swiss corporation law, such as the right to request the holding of a general meeting of shareholders, the placement of items of the agenda of a general meeting of shareholders or the right to ask questions or to make proposals on the occasion of such meeting. Accordingly, the holders of the issuer’s voting shares will continue to be able to exert voting control and will be able to elect all of the issuer directors, to determine the outcome of any matter being voted upon by shareholders, including the declaration of dividends, amendments to the issuer’s articles of association, capital increases or decreases, the conversion of voting shares into non-voting shares, mergers and other important matters.

    The traditional framework for combatting anti-money laundering and terrorist financing does not apply to tokenized securities

    The offering and the safe-keeping of tokenized securities may be carried out without the involvement of professional custodians, but through the transfer of digital tokens recorded on a decentralized ledger. The mechanisms generally applicable for the prevention of money laundering and terrorist financing do therefore generally not apply.

    To be in a position to determine the source of the capital raised and avoid becoming the recipient of funds of illicit origin, the issuer shall typically rely on AML standards such as for example the “AML Standards for Digital Assets” (in their version of October 2018) adopted by the Capital Markets and Technology Association, a non-governmental organization based in Geneva, Switzerland. Although these standards seem to be sound and reasonable, the Capital Markets and Technology Association is not a governmental or regulatory authority and the standards it issues are not “safe harbors”. Regulatory actions against the issuer under Swiss or foreign regulations against money laundering or terrorist financing cannot consequently be excluded in the future. The issuer may also be restricted in its ability to open or maintain accounts with banks or other regulated financial intermediaries if the manner in which it identifies the source of the capital raised through an offering or future capital raisings is, in the future, deemed inappropriate. If the issuer is subject to investigations or regulatory actions in connection with money laundering or terrorist financing, or if it is unable to open or maintain bank accounts at satisfactory conditions, it may be unable to execute its strategy, face material financial difficulties and may even be forced to cease operations.

    Risk of non-completion of an offering

    The completion of an offering and the issuance of tokenized securities is contingent on the ability of the issuer to place a number of tokenized securities that it considers sufficient at a price that it considers to be satisfactory.

    The issuer’s ability to successfully place tokenized securities depends on many factors, many of which are beyond the issuer’s control, such as general market and economic conditions as well as macro-economic and geopolitical developments. There can consequently be no guarantee that an offering will be completed or that all the offered tokenized securities will be placed in an offering.

    Volatility in the market for and the price of tokenized securities

    The market for and the market price of tokenized securities (to the extent such a market develops) may be highly volatile. Such volatility could be caused not only by the issuer’s operational performance or other events involving the issuer and/or its customers, suppliers or competitors, but also by changes in general conditions in the economy or the financial markets, and the industry in particular. As a result of such fluctuations, holders of tokenized securities may not be able to resell their tokenized securities at or above the offering price and may incur losses.

    Factors that could cause this volatility in the market price of tokenized securities include, but are not limited to: (i) actual or anticipated fluctuations in the issuer’s results of operations or financial condition; (ii) market expectations for the issuer’s financial performance; (iii) investor perception of the success and impact of an offering on the issuer’s strategy; (iv) the entrance of new competitors or new products in the markets of the issuer; (v) actual or anticipated sales of the issuer’s tokenized securities; (vi) the liquidity of the market for tokenized securities; (vii) new laws or regulations or changes in interpretations of existing laws and regulations affecting the business of the issuer; (viii) general market and economic conditions; (ix) sentiment in the industry of the issuer; (x) expiration of the lock-up undertakings; (xi) announcements of developments related to the issuer’s business; (xi) local market conditions.

    Risk of lack of liquid market for tokenized securities

    In many cases, there are no market for tokenized securities, and tokenized securities are not, and will not be, listed on a stock exchange or admitted to trading on a multilateral trading facility (MTF).

    Upon completion of an offering and subject to certain conditions, Taurus SA (as a regulated securities firm) may in some cases agree to trade tokenized securities on the organized trading facility (the “OTF”) that it operates under the name T-DX. The decision of Taurus SA to trade toeknized securities on its OTF is however subject to conditions and may be reversed at any time by Taurus with no guarantee of liquidity at all. As a consequence, there can be no assurance (i) that an active and liquid trading market, or even a market at all, develops or continues, (ii) that the market price of tokenized securities will not decline below the issuance price after completion of an offering or that (iii) prospective investors will be able to sell their tokenized securities quickly or at all.

    The issuance price of tokenized securities is determined solely by the issuer. The issuance price may not be indicative of the market price of the issuer’s tokenized securities after completion of an offering and there can be no assurance that the market price of tokenized securities will reflect the issuer’s actual financial performance or the state of its business, results of operations and/or prospects.

    Lack of analyst coverage

    Tokenized securities are not traded on a stock exchange or a multilateral trading facility. They may be traded on a market that is not systematically followed by professional financial analysts. The unavailability of financial analysts’ coverage may prevent or delay the development of a liquid market for tokenized securities.

    Potential decline in market price of tokenized securities due to the sale of a substantial number of units

    The market price of tokenized securities may decline as a result of future sales of such tokenized securities in the market by members of the board of directors or executive management of the issuer following the expiration of their lock-up undertakings or as a result of a perception that such sales could occur. A shareholder resolution to convert voting shares into tokenized securities may also be perceived as a willingness of holders of voting shares to dispose of their shares in the market, and could also negatively affect the market price of the issuer’s tokenized securities. Such a decline in the market price of tokenized securities may make it more difficult for the issuer to issue equity securities in the future at a time and price that it deems appropriate.

    Non-application of the Swiss rules applicable to listed companies

    Issuers of tokenized securities have typically not requested the listing or admission to trading of their securities or of their tokenized securities on any stock exchange or multilateral trading facility and do not typically contemplate making any such request. If issued, tokenized securities are traded off-exchange exclusively. As a result, the Swiss regulations that apply to issuers that have equity securities listed on a stock exchange in Switzerland do not apply to tokenized securities. In particular, the provisions of the Swiss Financial Market Infrastructure Act (“FMIA”) regarding the mandatory disclosure of large interests in listed companies (Article 120 et seq. FMIA) or public takeovers (Article 125 et seq. FMIA) do not apply. This means, among other things, (i) that the beneficial owners of large interests in the issuer are not be under any duty to make the nature of their interest in the issuer public, (ii) that the provisions of the FMIA designed to guarantee equal treatment and undistorted choice of shareholders in the event of a public takeover offer will not apply if a public takeover offer is made for the shares of the issuer and (iii) that the provisions of the FMIA that require any person who acquires more than one third of the voting rights of a company to make a cash offer at a minimum price for all the listed shares of the company will not apply. Also, the provisions of the FMIA prohibiting insider trading and market manipulation do not apply to the trading of tokenized securities. Swiss authorities have therefore have less legal means to sanction market abuses relating to tokenized securities than they would have had tokenized securities been listed on a stock exchange in Switzerland.

    Risk of loss or theft of the digital tokens associated with tokenized securities

    Control over the issuer’s tokenized securities requires a so-called “private key”, i.e. a code that is paired with the blockchain address on which the digital tokens associated with the relevant tokenized securities have been recorded. Loss or theft of the private key associated with a particular blockchain address makes it impossible for the owner of such private key to identify itself as the legitimate owner of the digital tokens recorded on the relevant blockchain address.

    Contrary to what is the case for securities incorporated into physical certificates, Swiss law does not contemplate any legal means to dissociate securities from the digital tokens with which they have been associated. The issuer’s regulations specify the procedure to be followed if a tokenholder loses access to its digital tokens, e.g. because the corresponding private key has been lost or stolen. The applicable procedure involves the tokenholder being in a position to demonstrate in a manner satisfactory to the issuer that it is the rightful owner of the lost or stolen digital tokens. Such demonstration may be difficult to bring if the tokenholder has not previously identified itself to the issuer as the owner of the blockchain address with which the lost or stolen private key is associated.

    The complete trading history of each digital wallet is available to the general public and it may be possible for members of the public to determine the identity of the holders of tokenized securities

    Tokenized securities are associated with tokens, i.e. digital tokens recorded on the public version of a blockchain (e.g., public Ethereum mainnet). Any trades of tokenized securities are public shortly after such trades are entered into. Although the data made available on the public version of a blockchain is anonymous, it includes the blockchain address of each tokenholder transacting in tokenized securities, and the entire trading history of each blockchain address (including the number of securities traded by each digital wallet, the price of each trade and the balance of the securities held in each digital wallet). As a result, the trading history of each blockchain address is available to the general public. It may be possible for members of the public to determine the identity of the holders of certain blockchain addresses based on publicly available information.

    Potential investors who desire to execute their trades in relative anonymity may find these aspects of tokenized securities unattractive, which may further limit the liquidity in tokenized securities and may have a material adverse effect on the development of any trading market in tokenized securities.

    Transaction fees are payable in the native cryptocurrency of the blockchain

    Tokenized securities are only transferable in the form of digital tokens recorded on a blockchain. For example, on the Ethereum blockchain, every operation of the smart contract is subject to a fee (so-called “gas”), which must be paid in a cryptocurrency called “Ethers”. Gas fee is not only due in the event of transfer of digital tokens from one blockchain address to another but also for other operations, such as the deployment of the smart contract on the blockchain or communications between tokenholders and the issuer (provided that such communications take place through the blockchain by means of the smart contract).

    On a blockchain, operation fees are generally levied on the party that initiates the operation. For transfers of the issuer’s tokenized securities, the fees are levied on the transferor. Because such fees must be paid in the native cryptocurrency of the underlying blockchain, the ability of any holder of a tokenized securities to transfer such tokenized securities requires such holder to own a sufficient quantity of the native cryptocurrency (e.g., Ethers).

    Tokenized securities are often risky illiquid private unlisted investments

    Tokenized securities are often private unlisted investments (e.g., private equity, private debt) that are highly speculative and involve a high degree of risk. Consequently, investors who cannot afford to lose their entire investment should not invest. Investors should carefully consider the risk warnings and disclosures for the investments set out therein and in the subscription documents. The value of an investment may go down as well as up and Investors may not get back their money originally invested (risk of partial or entire loss of the money invested). Investors understand that they may not receive any return on their investment and that private unlisted investments are not a savings product. Typically, Investors should not invest more than 10% of their net worth in private unlisted investments, alternative investments, crowdfunding projects or equivalent. Additionally, Investors will typically receive illiquid and/or restricted membership interests that may be subject to holding period requirements and/or liquidity concerns. Investments in private unlisted securities are highly illiquid (liquidity risk) and those Investors who cannot hold an investment for the long term (at least 10 years) should not invest. Investors may not be able to sell the investment instruments when they wish. Resale of such securities is not guaranteed; it may be uncertain, or even impossible.**

    The tax value of non-listed/private tokenized securities may not be the trade price

    Tokenized securities are often non-listed/private securities that are not admitted for trading on any stock exchange, nor on any multilateral trading facility (MTF). Consequently, the tax value of those kinds of securities may differ significantly from the last trade price on digital asset exchange or organized trading facilities such as TDX. Consequently, investors should seek for proper advice from their own tax advisor. For example for Swiss companies, investors shall ask directly the issuer for the last tax value calculated by the Swiss tax authorities (e.g., calculation in accordance with Circ. 28 published by the Swiss Tax Conference).



    IV. Risks involved in investments in start-ups, early stage businesses and private equity

    1. Risk warning

    Investing in start-ups, early stage businesses and private equity involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio.

    To help you understand the risks involved when investing in shares, mini-bonds and funds, please read the following risk summary. Please invest aware and diversify your investments.

    2. The need for diversification when you invest

    Diversification involves spreading your money across different types of investments with different risks to reduce your overall risk. However, it will not lessen all types of risk. Diversification is an essential part of investing. Investors should only invest a proportion of their available investment funds via Taurus and should balance this with safer, more liquid investments.

    3. Risks when investing in equity or funds

    Investing in shares (also known as equity) does not involve a regular return on your investment, unlike mini-bonds which offer interest paid regularly.

    Investing in a fund may help to diversify your investments and to spread the risk but general risks whileinvesting in equity continue to apply. Further specific risks are set out on the applicable fund pitch page.

    Please bear in mind the following particular risks for equity and fund investments:

    3.1 Loss of investment or tax relief

    The majority of start-up businesses fail or do not scale as planned and therefore investing in these businesses may involve significant risk. It is likely that you may lose all, or part, of your investment. You should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk and increase the chance of an overall return on your investment capital. If a business you invest in fails, neither the company – nor Taurus – will pay you back your investment.

    Tax relief may also be lost due to your personal circumstances or due to the activities of a company.

    3.2 Lack of liquidity

    Liquidity is the ease with which you can sell your shares after you have purchased them. Buying shares cannot be sold easily. Even successful companies rarely list shares on exchanges. In addition, if you purchase certain share classes (e.g. B shares), these may be non-voting shares and may not be attractive to potential buyers.

    3.3 Rarity of dividends

    Dividends are payments made by a business to its shareholders from the company’s profits. Many of the companies admitted to trading are start-ups or early-stage companies, and these companies will rarely pay dividends to their investors. This means that you are unlikely to see a return on your investment until you are able to sell your shares. Profits are typically re-invested into thebusiness to fuel growth and build shareholder value. Businesses have no obligation to pay shareholder dividends.

    3.4 Dilution

    Any investment in shares may be subject to dilution in the future. Dilution occurs when a company issues more shares. Dilution affects every existing shareholder who does not buy any of the new shares being issued. As a result, an existing shareholder’s proportionate shareholding of the company is reduced, or ‘diluted’ - this has an effect on a number of things, including voting, dividends and value.

    Some companies proposing equity investment offer ordinary shares, which may include pre-emption rights that protect an investor from dilution. In this situation, the company must give shareholders with ordinary shares the opportunity to buy additional shares during a subsequent fundraising round so that they can maintain or preserve their shareholding. Please check the Articles of the company to see if the shares you are buying will have these pre-emption rights. Most companies do not offer pre-emption rights for certain share classes (e.g. B shares).

    4. Risks when investing in convertibles

    A convertible is an investment for equity in a company where shares will be issued at a future date. Usually, the shares will be issued when the company completes a larger round of investment. A convertible allows a company to raise equity finance without setting a valuation - the valuation will be set by the subsequent investment round or at an agreed valuation on a longstop date.

    It is important to remember that investing in a convertible is the same level of risk as investing directly for equity in a start-up company and your capital remains at risk.

    It is also important to remember that the terms of convertibles can vary from deal to deal and it is important that you read the applicable terms.

    5. Loss of investment and interest payments

    Issuers, like all businesses, are vulnerable to financial difficultly and investing in mini-bonds may involve significant risk of default. In the event of an issuer being unable or unwilling to meet payments of interest and capital, it is likely that you may lose all, or part, of your initial investment and receive no outstanding or future interest payments.

    If a business you invest in fails, neither the company you invest in – nor Taurus – will pay you back your investment. You should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk.

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