Important Notice

Crypto-asset trading and custody involves substantial risk and may result in total loss of capital.

This page provides information about the principal risks associated with crypto-assets and BlockRiver AG's services. This is not an exhaustive list of all risks.

Corporate clients must:

• Understand these risks before engaging with our services
• Have appropriate risk management frameworks
• Be capable of bearing potential losses
• Have obtained necessary internal approvals and authorizations

Principal Risks

1. Market and Price Volatility Risk

Description: Crypto-assets experience extreme price volatility and can fluctuate dramatically in value over short time periods.

Implications:

• Prices may decline rapidly and substantially
• High volatility may result in significant losses
• Market movements may be unpredictable and driven by sentiment
• Prices may be affected by factors beyond traditional financial analysis

Example: Bitcoin has historically experienced intraday price swings exceeding 10-20%, with periods of 50%+ declines from peak values.

2. Liquidity Risk

Description: Crypto-asset markets may lack sufficient liquidity to execute transactions at desired prices or at all.

Implications:

• Large transactions may impact market prices significantly
• During periods of market stress, liquidity may evaporate
• It may be impossible to exit positions at favorable prices
• Bid-ask spreads may widen substantially
• OTC markets may have limited liquidity for certain assets or sizes

Mitigation: BlockRiver AG endeavors to provide competitive liquidity but cannot guarantee execution at specific prices or at all, particularly during periods of market disruption.

3. Operational and Technology Risk

Description: Crypto-assets depend on complex technology infrastructure including blockchain networks, exchanges, wallets, and custody solutions.

Implications:

• Technology failures may prevent access to assets or execution of transactions
• Software bugs or vulnerabilities may result in loss of assets
• Blockchain network congestion may delay transactions
• Smart contract failures may result in permanent loss
• System outages may prevent trading or access to custody

Examples:

• Exchange hacks resulting in theft of customer assets
• Blockchain network splits or forks causing uncertainty
• Smart contract exploits draining value from DeFi protocols

4. Cyber Security and Hacking Risk

Description: Crypto-assets are targets for cyber attacks, hacking, and theft.

Implications:

• Private keys or access credentials may be compromised
• Exchanges, custodians, or wallets may be hacked
• Phishing, social engineering, or malware may result in asset loss
• Once stolen, crypto-assets are typically irrecoverable

BlockRiver AG Security: While we implement industry-standard security measures including multi-signature wallets, cold storage, and access controls, no security system is impenetrable.

5. Custody and Loss Risk

Description: Crypto-assets can be permanently lost if private keys are lost, destroyed, or inaccessible.

Implications:

• Loss of private keys results in permanent, irrecoverable loss of assets
• Unlike traditional finance, there is no mechanism to recover lost access
• Custody providers may fail, become insolvent, or be subject to theft
• Segregation of client assets may not be absolute

No Deposit Insurance: Crypto-assets are NOT covered by deposit insurance schemes, investor compensation schemes, or similar protections.

6. Regulatory and Legal Risk

Description: The regulatory treatment of crypto-assets is uncertain, evolving, and varies significantly across jurisdictions.

Implications:

• Regulatory changes may adversely affect the value, legality, or usability of crypto-assets
• Crypto-assets may be banned, restricted, or subject to new requirements
• Tax treatment may change
• Regulatory enforcement actions may disrupt markets or services
• Legal characterization of crypto-assets may be unclear
• Regulatory compliance may become more costly or burdensome

Examples:

• China's ban on crypto-asset trading
• Evolving MiCA regulations in the EU
• Potential securities law application to certain tokens
• AML/CTF requirements restricting privacy-focused assets

7. Counterparty and Credit Risk

Description: Crypto-asset transactions involve reliance on counterparties who may fail to meet their obligations.

Implications:

• Trading counterparties may default on transactions
• Custodians may become insolvent or misappropriate assets
• Stablecoin issuers may fail to maintain backing
• Smart contracts may have counterparty dependencies
• Lack of central clearing increases counterparty exposure

BlockRiver AG as Counterparty: When BlockRiver AG acts as principal in OTC transactions, clients bear counterparty risk to BlockRiver AG. We are not a bank and client assets are not protected by deposit insurance.

8. Irreversibility of Transactions

Description: Blockchain transactions are typically irreversible once confirmed.

Implications:

• Errors in transaction details (address, amount) cannot be corrected
• Sending assets to an incorrect address results in permanent loss
• Fraudulent transactions cannot be reversed
• Unlike traditional payment systems, there is no recourse or chargeback mechanism

Client Responsibility: Clients must carefully verify all transaction details before execution. BlockRiver AG is not responsible for errors in client-provided instructions.

9. Regulatory Status Risk

Description: BlockRiver AG is a VQF-regulated Swiss entity, not a bank or MiCA-authorized provider.

Implications:

• BlockRiver AG does not have FINMA supervision as a bank or securities dealer
• BlockRiver AG does not hold MiCA authorization
• Services may not be available or legal in all jurisdictions
• Clients may have limited regulatory recourse
• Clients in certain jurisdictions may face restrictions on using non-licensed providers

Client Due Diligence: Clients must determine whether use of BlockRiver AG's services complies with regulations in their jurisdiction.

10. Concentration Risk

Description: Crypto-asset markets are concentrated among relatively few assets, exchanges, and participants.

Implications:

• Failure of a major exchange or service provider may disrupt entire markets
• Concentration of holdings among few wallets may impact prices
• Limited number of institutional-grade service providers
• Contagion risk from failures spreading across the ecosystem

Examples:

• Mt. Gox collapse affecting Bitcoin markets
• FTX bankruptcy causing widespread market disruption
• TerraUSD/Luna collapse impacting stablecoin confidence

11. Stablecoin-Specific Risks

Description: Stablecoins may not maintain their peg to reference assets and may face unique risks.

Implications:

• "Stable" value is not guaranteed and depegging may occur
• Reserve backing may be insufficient, non-transparent, or illiquid
• Regulatory action may restrict issuance or redemption
• Bank runs may occur during periods of uncertainty
• Algorithmic stablecoins may fail catastrophically

Examples:

• TerraUSD losing its peg and collapsing to near-zero
• USDC briefly depegging following Silicon Valley Bank failure
• Regulatory investigations of stablecoin issuers

12. Tax Risk

Description: The tax treatment of crypto-assets is complex, evolving, and varies by jurisdiction.

Implications:

• Tax obligations may be unclear or subject to interpretation
• Taxable events may occur more frequently than with traditional assets
• Record keeping requirements may be burdensome
• Tax rates and treatment may change
• International tax issues may arise
• Reporting requirements may be extensive

Client Responsibility: Clients are solely responsible for determining and complying with their tax obligations. BlockRiver AG does not provide tax advice. Clients should consult qualified tax advisors.

13. Fork and Chain Split Risk

Description: Blockchain networks may undergo forks or splits resulting in multiple competing versions.

Implications:

• Assets may be duplicated across multiple chains
• Uncertainty about which chain represents the "true" asset
• Value may be divided between competing chains
• Replay attacks may occur
• Service providers may support different versions

BlockRiver AG Policy: BlockRiver AG will determine which fork or chain to support at its sole discretion and is not obligated to support all versions.

14. Market Manipulation Risk

Description: Crypto-asset markets may be subject to manipulation due to limited regulation and concentrated holdings.

Implications:

• Prices may be artificially inflated or suppressed
• Pump and dump schemes may occur
• Wash trading may create false liquidity impression
• Insider trading may occur without consequence
• Limited regulatory oversight compared to traditional markets

15. Intellectual Property and Protocol Risk

Description: Crypto-assets depend on open-source software and protocols that may have vulnerabilities or disputes.

Implications:

• Protocol changes may adversely affect functionality or value
• Intellectual property disputes may arise
• Developer abandonment may leave protocols unmaintained
• Governance disputes may lead to forks or uncertainty
• Security vulnerabilities may be discovered

16. Macro-Economic and Correlation Risk

Description: Crypto-assets may become increasingly correlated with traditional financial markets, reducing diversification benefits.

Implications:

• Crypto-assets may decline in tandem with traditional assets
• Macroeconomic factors may drive crypto prices
• Interest rate changes may affect valuations
• Correlation with risk assets may increase
• Safe haven properties may not materialize

17. Environmental, Social, and Governance (ESG) Risks

Description: Crypto-assets, particularly those using proof-of-work consensus, have environmental impacts.

Implications:

• Energy consumption may be substantial
• Carbon footprint may be significant
• ESG-focused investors may divest or avoid crypto-assets
• Regulatory restrictions based on environmental concerns
• Reputational risks for companies holding crypto-assets

18. Systemic and Contagion Risk

Description: The crypto-asset ecosystem is interconnected, and failures can spread rapidly.

Implications:

• Failure of major participants may affect entire markets
• Deleveraging cascades may occur
• Stablecoin depegging may trigger broader instability
• Credit crises may emerge from lending/borrowing platforms
• Limited circuit breakers or market stability mechanisms

19. White-Label Software and Technology Risk

Description: BlockRiver AG provides white-label software solutions for crypto-asset services, which involve technology and operational dependencies.

Implications:

• Software may contain bugs, errors, or vulnerabilities
• Third-party dependencies may fail or be discontinued
• Software updates may introduce issues or breaking changes
• Integration with client systems may encounter compatibility issues
• Performance may vary based on client infrastructure
• Software may not meet all client-specific requirements
• Regulatory requirements may change, requiring software modifications
• Technical support may be limited to specified scope

Client Responsibility: Clients using white-label software are responsible for:

• Testing and validating software in their environment
• Ensuring compliance with their applicable regulations
• Implementing appropriate security measures
• Maintaining adequate backup and disaster recovery procedures
• Training their staff on software use

No Guarantee: BlockRiver AG provides software "as is" under the terms of separate licensing agreements. We do not guarantee error-free operation, continuous availability, or suitability for all use cases.

20. Execution and Settlement Risk

Description: OTC crypto-asset transactions involve execution and settlement risks that differ from exchange-traded transactions.

Implications:

• No Central Clearing: OTC transactions are not centrally cleared, increasing counterparty risk
• Settlement Delays: Settlement may take longer than exchange transactions due to blockchain confirmation times
• Price Risk During Settlement: Price may move between trade agreement and settlement
• Failed Settlements: Transactions may fail due to technical issues, insufficient funds, or other factors
• Operational Risk: Manual processes in OTC trading increase operational risk compared to automated exchange trading
• Documentation Risk: Delayed or incomplete trade documentation may create disputes
• No Guarantee of Execution: Agreement to execute a trade does not guarantee successful settlement

OTC vs. Exchange Trading: OTC trading lacks the infrastructure, standardization, and protections of regulated exchanges. Clients should understand these differences before engaging in OTC transactions.

Risk Management

Client Responsibilities:

Corporate clients using BlockRiver AG's services should:

1. Conduct Due Diligence: Thoroughly understand crypto-assets and associated risks before investing

2. Risk Assessment: Evaluate risks in the context of overall portfolio and risk tolerance

3. Internal Controls: Implement appropriate governance, controls, and approvals for crypto-asset activities

4. Position Sizing: Limit crypto-asset exposure to levels consistent with risk capacity

5. Diversification: Avoid over-concentration in any single asset, platform, or counterparty

6. Custody Strategy: Evaluate custody arrangements and consider multi-provider strategies

7. Monitoring: Continuously monitor positions, markets, and regulatory developments

8. Incident Response: Have plans for responding to market disruptions, hacks, or operational issues

9. Professional Advice: Obtain legal, tax, and compliance advice appropriate to your circumstances

10. Documentation: Maintain comprehensive records of transactions, valuations, and decisions

No Guarantee or Assurance

BlockRiver AG provides NO guarantee, assurance, or representation regarding:

• Future performance of crypto-assets
• Availability or pricing of liquidity
• Absence of losses
• Security of assets
• Regulatory treatment
• Suitability for any purpose

Past performance is not indicative of future results.

Updates

This risk disclosure may be updated periodically. Clients are responsible for reviewing current risk disclosures.

New risks may emerge as the crypto-asset ecosystem evolves. This disclosure is not exhaustive.

Document Accessibility:

If you require this document in an alternative format (large print, audio, braille, etc.) or have difficulty accessing any part of our Website, please contact us at privacy@blockriver.com and we will work to accommodate your needs.

Questions

For questions about risks or risk management, contact: Compliance Department: compliance@blockriver.com

By engaging with BlockRiver AG's services, you acknowledge that you understand these risks and accept them. If you do not understand these risks or cannot bear potential losses, you should not use our services.

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