Standard Investment Risk Language Used in ICO PPM
Risks associated with the Tokens and the UbiquiCoin Ecosystem
The UbiquiCoin Ecosystem may not be widely adopted and may have limited users.
It is possible that the UbiquiCoin Ecosystem will not be used by a large number of individuals, companies and other entities or that there will be limited public interest in the creation and development of its financial ecosystems. Such a lack of use or interest could negatively impact the development of the UbiquiCoin Ecosystem and therefore the potential utility of Tokens.
Alternative networks may be established that compete with or are more widely used than the UbiquiCoin Ecosystem.
It is possible that alternative networks could be established that utilize the same or similar open source code and protocol underlying the UbiquiCoin Ecosystem and attempt to facilitate services that are materially similar to the UbiquiCoin Ecosystem’s services. The UbiquiCoin Ecosystem may compete with these alternative networks, which could negatively impact the UbiquiCoin Ecosystem and the Tokens.
The UbiquiCoin Ecosystem may be the target of malicious cyber attacks or may contain exploitable flaws in its underlying code, which may result in security breaches and the loss or theft of Tokens. If the UbiquiCoin Ecosystem’s security is compromised or if the UbiquiCoin Ecosystem is subjected to attacks that frustrate or thwart our users’ ability to access the UbiquiCoin Ecosystem, their Tokens or the UbiquiCoin Ecosystem products and services, users may cut back on or stop using the UbiquiCoin Ecosystem altogether, which could seriously curtail the utilization of the Tokens and cause a decline in the market price of the Tokens.
The UbiquiCoin Ecosystem structural foundation, the software application and other interfaces or applications built upon the UbiquiCoin Ecosystem are still in an early development stage and are unproven, and there can be no assurances that the UbiquiCoin Ecosystem and the creating, transfer or storage of the Tokens will be uninterrupted or fully secure which may result in a complete loss of users’ Tokens or an unwillingness of users to access, adopt and utilize the UbiquiCoin Ecosystem. Further, the UbiquiCoin Ecosystem may also be the target of malicious attacks seeking to identify and exploit weaknesses in the software or the UbiquiCoin Ecosystem which may result in the loss or theft of Tokens. For example, if UbiquiCoin and the UbiquiCoin Ecosystem are subject to unknown and known security attacks (such as double-spend attacks, 51% attacks, or other malicious attacks), this may materially and adversely affect the UbiquiCoin Ecosystem.
Risks related to blockchain technologies and digital assets
The regulatory regime governing the blockchain technologies, cryptocurrencies, tokens and token offerings such as UbiquiCoin Ecosystem and the Tokens is uncertain, and new regulations or policies may materially adversely affect the development of the UbiquiCoin Ecosystem and the utility of the Tokens
Regulation of tokens (including UbiquiCoin) and token offerings such as this, cryptocurrencies, blockchain technologies, and cryptocurrency exchanges currently is undeveloped and likely to rapidly evolve, varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future, adopt laws, regulations, guidance, or other actions, which may severely impact the development and growth of the UbiquiCoin Ecosystem and the adoption and utility of the Tokens. Failure by the Company or certain users of the UbiquiCoin Ecosystem to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.
As blockchain networks and blockchain assets have grown in popularity and in market size, federal and state agencies have begun to take interest in, and in some cases regulate, their use and operation.
In the case of virtual currencies, state regulators like the New York Department of Financial Services have created new regulatory frameworks. Others, as in Texas, have published guidance on how their existing regulatory regimes apply to virtual currencies. Some states, like New Hampshire, North Carolina, and Washington, have amended their state's statutes to include virtual currencies into existing licensing regimes. Treatment of virtual currencies continues to evolve under federal law as well. The Department of the Treasury, the Securities Exchange Commission, and the Commodity Futures Trading Commission, for example, have published guidance on the treatment of virtual currencies. The IRS released guidance treating virtual currency as property that is not currency for US federal income tax purposes, although there is no indication yet whether other courts or federal or state regulators will follow this classification. Both federal and state agencies have instituted enforcement actions against those violating their interpretation of existing laws.
The regulation of non-currency use of blockchain assets is also uncertain. The CFTC has publicly taken the position that certain blockchain assets are commodities, and the SEC has issued a public report stating federal securities laws require treating some blockchain assets as securities. To the extent that a domestic government or quasi-governmental agency exerts regulatory authority over a blockchain network or asset, the UbiquiCoin Ecosystem and the Tokens may be materially and adversely affected.
Blockchain networks also face an uncertain regulatory landscape in many foreign jurisdictions such as the European Union, China and Russia. Various foreign jurisdictions may, in the near future, adopt laws, regulations or directives that affect the UbiquiCoin Ecosystem. Such laws, regulations or directives may conflict with those of the United States or may directly and negatively impact our business. The effect of any future regulatory change is impossible to predict, but such change could be substantial and materially adverse to the development and growth of the UbiquiCoin Ecosystem and the adoption and utility of the Tokens.
New or changing laws and regulations or interpretations of existing laws and regulations, in the United States and other jurisdictions, may materially and adversely impact the value of the currency in which the Tokens may be exchanged, the liquidity of the Tokens, the ability to access marketplaces or exchanges on which to trade the Tokens, and the structure, rights and transferability of Tokens.
This Issuance of UbiquiCoin May Constitute the Issuance of a “Security” Under U.S. Federal Securities Laws
On July 25, 2017, the United States Securities and Exchange Commission (the “Commission”) issued a Report of Investigation under Section 21(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) describing an SEC investigation of The DAO, a virtual organization, and its use of distributed ledger or blockchain technology to facilitate the offer and sale of DAO Tokens to raise capital. The Commission applied existing U.S. federal securities laws to this new paradigm, determining that DAO Tokens were securities. The Commission stressed that those who offer and sell securities in the U.S. are required to comply with federal securities laws, regardless of whether those securities are purchased with virtual currencies or distributed with blockchain technology. The Commission’s announcement, and the related Report, may be found here: https://www.sec.gov/news/press-release/2017-131
As noted by the Commission, the issuance of tokens represents a new paradigm and the application of the federal securities laws to this new paradigm is very fact specific. If UbiquiCoin’s Progressive Coins were deemed to be a security under U.S. federal securities laws then, prior to the issuance of Progressive Coins pursuant to the SAFT, we may be required to register such issuance under the Securities Act. The registration of Progressive Coins under the Securities Act would result in significant delay in the issuance of Progressive Coins and would require us to incur substantial additional expense.
The Offering may be subject to registration under the Securities Exchange Act of 1934 if the Company has assets above $10 million and more than 2,000 Investors participate in the Offering
Companies with total assets above $10 million and more than 2,000 holders of record of its equity securities, or 500 holders of record of its equity securities who are not accredited investors, must register that class of equity securities with the SEC under the Exchange Act. With the capital raised from the Offering, UbiquiCoin may surpass $10 million in assets as it builds out the UbiquiCoin Ecosystem. Furthermore, the SAFTs are likely considered a security under U.S. securities law and because there is the possibility that this Offering may surpass 2,000 Investors, Protocol Labs may have more than 2,000 holders of record of its equity securities following the Offering. It is possible that the SAFT is not an equity security even if it is a security. If these two conditions are met then UbiquiCoin will have to register this Offering with the SEC, which will be a laborious and expensive process. If such registration takes place, much of the information regarding this Offering will be available to the public. UbiquiCoin would have the ability to avoid registration in such a scenario if the SAFTs convert into the Tokens prior to the last day of UbiquiCoin’s fiscal year, but, due to the unpredictable nature of complex software development such as the UbiquiCoin Ecosystem, there is no guarantee that the UbiquiCoin Ecosystem will have launched by such a date.
The Investors will have no control and the Company may only have limited control.
UbiquiCoin is comprised of technologies that depend on a network of computers to run certain software programs to process transactions. Because of this decentralized model, the Company has limited control over UbiquiCoin and the UbiquiCoin Ecosystem once launched. In addition, the Investors are not and will not be entitled, to vote or be deemed the holder of capital stock of the Company for any purpose, nor will anything be construed to confer on the Investors any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings, or to receive subscription rights or otherwise.
There may be occasions when certain individuals involved in the development and launch of the UbiquiCoin Ecosystem may encounter potential conflicts of interest, such that said party may avoid a loss, or even realize a gain, when other Investors in the Pre-sale or in UbiquiCoin are suffering losses.
There may be occasions when certain individuals involved in the development and launch of the UbiquiCoin Ecosystem may encounter potential conflicts of interest in connection with this Offering, such that said party may avoid a loss, or even realize a gain, when other Investors are suffering losses. Investors in SAFTs may also have conflicting investment, tax, and other interests with respect to SAFT investments, which may arise from the terms of the SAFT, UbiquiCoin’s code, the UbiquiCoin Ecosystem, or other token pre-sales, or other factors. Decisions made by the key employees of UbiquiCoin on such matters may be more beneficial for some Investors than for others.
Investors may lack information for monitoring their investment.
The Investor may not be able to obtain all information it would want regarding UbiquiCoin, Progressive Coins, or the UbiquiCoin Ecosystem, on a timely basis or at all. It is possible that the Investor may not be aware on a timely basis of material adverse changes that have occurred with respect to certain of its investments. As a result of these difficulties, as well as other uncertainties, an Investor may not have accurate or accessible information about the UbiquiCoin Ecosystem.
UbiquiCoin has no history.
Progressive Coins will be a newly formed token and UbiquiCoin has no operating history. Each SAFT should be evaluated on the basis that UbiquiCoin or any third party’s assessment of the prospects of the UbiquiCoin Ecosystem may not prove accurate, and that UbiquiCoin will not achieve its investment objective. Past performance of UbiquiCoin, or any similar token or SAFT, is not predictive of future results.
If the UbiquiCoin Ecosystem is unable to satisfy data protection, security, privacy, and other government- and industry-specific requirements, its growth could be harmed.
There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises could harm the UbiquiCoin Ecosystem’s reputation, erode user confidence in the effectiveness of its security measures, negatively impact its ability to attract new users, or cause existing users to stop using the UbiquiCoin Ecosystem.
The further development and acceptance of blockchain networks, including the UbiquiCoin Ecosystem, which are part of a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of blockchain networks and blockchain assets would have an adverse material effect on the successful development and adoption of the UbiquiCoin Ecosystem and the Tokens.
The growth of the blockchain industry in general, as well as the blockchain networks with which the UbiquiCoin Ecosystem will rely and interact, is subject to a high degree of uncertainty. The factors affecting the further development of the cryptocurrency industry, as well as blockchain networks, include, without limitation:
• Worldwide growth in the adoption and use of blockchain technologies;
• Government and quasi-government regulation of blockchain assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;
• The maintenance and development of the open-source software protocol of blockchain networks;
• Changes in consumer demographics and public tastes and preferences;
• The availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using fiat currencies or existing networks;
• General economic conditions and the regulatory environment relating to cryptocurrencies; or
The prices of blockchain assets are extremely volatile. Fluctuations in the price of digital assets could materially and adversely affect our business, and the Tokens may also be subject to significant price volatility.
The prices of blockchain assets such as Bitcoin have historically been subject to dramatic fluctuations and are highly volatile, and the market price of the Tokens may also be highly volatile. Several factors may influence the market price of the Tokens, including, but not limited to:
• Global blockchain asset supply;
• Global blockchain asset demand, which can be influenced by the growth of retail merchants' and commercial businesses' acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online blockchain asset exchanges and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use;
• Investors’ expectations with respect to the rate of inflation;
• Changes in the software, software requirements or hardware requirements underlying the UbiquiCoin Ecosystem;
• Changes in the rights, obligations, incentives, or rewards for the various participants in the UbiquiCoin Ecosystem;
• Interest rates;
• Currency exchange rates, including the rates at which digital assets may be exchanged for fiat currencies;
• Fiat currency withdrawal and deposit policies of blockchain asset exchanges on which the Tokens may be traded and liquidity on such exchanges;
• Interruptions in service from or failures of major blockchain asset exchanges on which the Tokens may be traded;
• Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in the UbiquiCoin Ecosystem or Tokens or other blockchain assets;
• Monetary policies of governments, trade restrictions, currency devaluations and revaluations;
• Regulatory measures, if any, that affect the use of blockchain assets such as the Tokens;
• The maintenance and development of the open-source software protocol of the UbiquiCoin Ecosystem;
• Global or regional political, economic or financial events and situations; or
• Expectations among UbiquiCoin Ecosystem or other blockchain assets participants that the value of the Tokens or other blockchain assets will soon change.
A decrease in the price of a single blockchain asset may cause volatility in the entire blockchain asset industry and may affect other blockchain assets including the Tokens. For example, a security breach that affects investor or user confidence in Bitcoin may affect the industry as a whole and may also cause the price of the Tokens and other blockchain assets to fluctuate.