Asset specific risks

Publicado em 7 de out. de 2023
Please review the following risks which may apply to certain cryptoassets listed on the OKX exchange (To review asset categories specific risks, please visit asset categories' specific risks article).
Risk Risk Category Description
Third party holdings Counterparty Risk Certain tokens may rely on assets held with third parties which may or may not not be verifiable or visible to the token holder. Legal recourse to any pledged assets may be limited.
Transparency and Auditing Enterprise Risk There may be a lack of transparency in the construct of certain tokens or no audits performed on any part of the enterprise. Collateral pools, assets or proof of reserves may be opaque or unverifiable. Audit statements could be unreliable if from an untrusted source.
Model of Operation Enterprise Risk Cryptocurrencies may use intricate network or business models that are not fully comprehensible to token holders, resulting in misinformed decisions.
Founders / Foundation / Developers / Community Enterprise Risk Decentralized crypto projects can have founders / foundation / developers who may exert undue influence on the project outcome. These founders / foundation / developers may be anonymous which can lead to an increase in enterprise risk. Disagreements within the Founders / Foundation / Community can lead to events such as forks or dilution which could lead to diminishing the value of previously established assets. Network validators may prioritize their own interests, which may not always align with the overall health or decentralization of the network.
Governance Token activity Enterprise Risk Certain tokens oversee and secure the governance of the protocol. However the activities within the protocol are implicitly linked with a governance token.  The performance, legal and regulatory status of these activities may change at any time which could adversely affect a governance token's value.
Platform Interoperability Enterprise Risk Interactions between multiple DeFi protocols create a situation where a vulnerability or breakdown in one protocol can trigger a cascading effect, affecting other interconnected platforms.
On-Off Ramps Enterprise Risk Although certain tokens may claim to allow any of a simple conversion back to an original wrapped token, a redemption or a fiat on-off ramp, there could be circumstances where converting the token becomes challenging or unfeasible which could affect its value.
Environmental Concerns Environmental and Sustainability Risk Certain tokens may use a energy-intensive consensus mechanism, raising environmental concerns about it's carbon footprint.
Lack of Regulation Legal & Regulatory Risk The regulatory environment for cryptocurrencies is still evolving, which results in a lack of consumer protection, uncertainty and potential legal challenges.
Regulatory Changes Legal & Regulatory Risk Governments and regulatory bodies around the world can introduce new regulations or ban certain aspects of the cryptocurrency market, affecting its legality and viability which could affect token liquidity and/or value.
Lack of Consumer Protections Legal & Regulatory Risk Unlike traditional financial systems, cryptocurrencies often lack consumer protections, such as insurance on deposits, that can help recover lost funds.
Legal and Tax Implications Legal & Regulatory Risk The tax treatment of cryptocurrencies varies by jurisdiction, and navigating the tax implications of trading or holding cryptocurrencies can be complex. Token holders must make themselves aware of thier own tax obligations.
Decentralised Exchange (DEX) concerns Legal & Regulatory Risk Certain tokens may be used for operating a decentralised exchange platform which may contain additional risks:
1. The platform may allow users to participate whom have not been vetted or verified and therefore expose the possibility that users are interacting with sanctioned entities.
2. The platform may be accessible in jurisdictions where some or all the exchange activity should be regulated. If a local regulator deemed the platform activity to be in breach of local regulation, they may request cessation or termination of the service which could affect token liquidity and/or value.
Derivatives concerns Legal & Regulatory Risk Certain tokens may be used for operating a platform that offers derivatives. Derivatives may be a regulated activity in the jurisdictions from where it is accessible. Local regulators may request that the platform ceases operations in their jurisdiction which could affect token liquidity and/or value.
Borrowing/Lending concerns Legal & Regulatory Risk Certain tokens may be used for operating a platform which offers borrowing and lending services which may be a regulated activity in the jurisdictions from where it is accessible. If a local regulator takes action against the platform, this could affect token liquidity and/or value.
Staking concerns Legal & Regulatory Risk Certain tokens may give rise to rewards generated from securing a network or protocol. Certain jurisdictions may consider such activity as regulated activity and adverse regulatory findings could affect token liquidity and/or value.
Tokens classified as Securities Legal & Regulatory Risk Sharing revenues or other protocol features could result in the token being classified as a security. Legal or Regulatory classifications of a token as a security could affect token liquidity and/or value.
Derivatives leverage Market Risk Derivatives are high risk and speculative and offer leverage to magnify trading risks and returns. Margin call requirements may be made quickly or frequently, especially in times of high volatility and if derivatives holders cannot meet them, positions may be closed out and any shortfall may be borne by the holder. This risk is not directly borne by the platform operating token holder.
Borrowing/Lending leverage Market Risk Borrowing/Lending is high risk and speculative and offer leverage to magnify trading risks and returns. Margin call requirements may be made quickly or frequently, especially in times of high volatility and if participants cannot meet them, their positions may be closed out and any shortfall may be borne by that participant. This risk is not directly borne by the platform operating token holder.
Staking rewards and slashing Market Risk Certain tokens may give rise to rewards generated from securing a network or protocol. These rewards may not be as advertised or predicted. Staked tokens can be forfeited ('slashed') if used in a way that contradicts participation rules of the concerned project.
Liquidity Issues Market Risk The cryptocurrency market can suffer from low liquidity, making it difficult to buy or sell desired amounts and/or without significantly impacting the price.
Low Token Liquidity Market Risk Certain tokens may be identified as having low liquidity which could materially impact the price and/or the ability to buy and sell.
Volatility Market Risk Cryptocurrency markets are known for their extreme price volatility, with values often experiencing rapid and unpredictable fluctuations.
High Token Volatility Market Risk Certain tokens may be identified as having high price volatility
Market Manipulation Market Risk Due to the technological complexity, low volumes and the decentralised nature of cryptocurrencies, there is a risk of market manipulation by some market participants who can influence prices.
Competition Market Risk The cryptocurrency market is highly competitive, and new projects are being launched regularly. This can lead to the proliferation of similar projects, making it difficult to predict which ones will succeed.
Market Sentiment Market Risk Cryptocurrency prices can be heavily influenced by market sentiment, news, and social media. FUD (fear, uncertainty, doubt) and FOMO (fear of missing out) can drive irrational price movements and create reputational risk.
Limited Adoption Market Risk Despite growing acceptance, some cryptocurrencies still can have limited real-world use cases and adoption, which could impact their long-term value.
Misleading Information and Hype Market Risk The cryptocurrency space is filled with misinformation and hype, making it challenging to make informed investment decisions.
Stablecoin depegging Market Risk Certain tokens, known as "stablecoins" may attempt to link its value to a specific fiat currency or index. The pegs in so-called "stablecoins" have historically been challenged resulting in potential/realised losses for holders. So called "stablecoins" depend on complex algorithmic outputs, reserves that may not be demonstrably proven or accessible or redemption mechanisms that do not perform as expected.
Valuation complexity Market Risk Given their novelty, the evolving technology involved and lack of traditional asset structure, valuing crypto assets can be very difficult or impossible. This means valuations are determined by demand that is at risk of manipulation in various ways.
Security Breaches Operational and Security Risk Cryptocurrency ecosystems are susceptible to hacking and security breaches, leading to the loss of token and funds.
Fraud and Scams Operational and Security Risk The crypto space has been associated with various fraudulent schemes, including rug pulls, fake initial coin offerings (ICOs), phishing attacks.
Loss of Private Keys Operational and Security Risk Cryptocurrencies are stored in digital wallets secured by private keys. If you lose your private key or it's compromised, you can lose access to your funds permanently.
Technological Risks Technology Risk Cryptocurrencies rely on complex technology, and there's a risk of software bugs, vulnerabilities, or disincentives that could impact the usability and value of a cryptocurrency.
Irreversible Transactions Technology Risk Cryptocurrency transactions are irreversible. If you send funds to the wrong address or fall victim to a scam, you might not be able to recover your funds.
Dependency on Technology Technology Risk Investments in cryptocurrencies are dependent on the continued development and maintenance of underlying blockchain technology. Certain so called "stablecoins" may depend on algorithmic outputs.
Smart Contract Vulnerability Technology Risk Certain tokens may derive its value from reliance on a programmable smart contract: The presence of software bugs remains a possibility even following a thorough code audit and can lead to unintended and potentially harmful outcomes, such as funds being lost, stolen, or locked in the contract.
Third Party Dependency Technology Risk Certain tokens may use third parties for components in their software. Certain components within the system may contain software defects. Failure to maintain updates could expose the protocol to security and technical risks.
Network Capture Risk Technology Risk Depending on a number of elements such as network validation methodology, centralisation/decentralization and network privacy, cryptocurrencies can be vulnerable to control or manipulated by a single entity, a group of entities, or a central authority.
Data sourcing and reliability Technology Risk DeFi protocols frequently depend on external data sources or oracles, and any tampering or inaccuracies in these data streams can result in a lack of trust and reliability in the protocols.
Alleged SEC Security Legal & Regulatory Risk The SEC has alleged that certain tokens are a security.  A legal ruling against such a token in the USA could affect token liquidity and/or value.