VA Trading Risk Disclosure V2

202502

Eddid Securities and Futures Limited

Virtual Asset Trading Risk Disclosure Statement

(Last update: 26/02/2025)

If you wish to trade virtual assets (irrespective of whether they amount to “securities” or “futures contracts” as defined under the Securities and Futures Ordinance  (Cap.571 of the laws of Hong Kong and any subsidiary legislation made thereunder as amended, extended, re-enacted, replaced or superseded from time to time)) (refer as “virtual assets” hereafter), you should read carefully and understand fully the relevant risks associated with the products as mentioned herein.

1.             Issuer Default Risks

Unless expressly stated otherwise, Eddid Securities and Futures Limited (“ESFL”) does not issue virtual assets. Virtual assets are issued by third parties. Investors should read the applicable terms, information and risk disclosures provided by the applicable issuers carefully before entering into any virtual asset transaction. Investors should note that the offering document or product information provided by the issuer have not been subject to scrutiny by any regulatory body.

For any virtual assets authorised by a regulator, investors should note that authorisation does not imply any official recommendation or endorsement of the asset by such regulator, nor does it guarantee the commercial merits of such asset or its performance.

In the event that a virtual asset issuer becomes insolvent and defaults on their issued products, investors will be considered as unsecured creditors and will have no preferential claims to any assets held by the issuer. Investors should therefore pay close attention to the financial strength and credit worthiness of securities issuers and conduct their own assessment on the potential of their project. Since virtual assets are not legal tender and virtual asset products are not be backed by assets or any government and authorities, in the event of issuer bankruptcy or ceasing of operations, their tokens issued may no longer have any value and investors can lose their entire investment. We make no representations or warranties about whether any virtual asset will always continue to trade in the trading platform. Any virtual asset is subject to delisting without prior notice in the sole discretion of us. Investors should seek independent professional advice before making any investment decision.

2.             Market, Liquidity and Conversion Risks

Where virtual asset transactions are denominated in particular virtual asset or fiat currencies other than the primary reference asset of the investors, or where the investors convert virtual assets upon carrying out a virtual asset transaction, there is a risk of the exchange markets moving against the investor, resulting in upon maturity or any earlier dealing the net proceeds may be significantly less than the initial amount in your primary reference asset, and any income or gains may be entirely negated.

The value of a virtual asset may be derived, among other things, from the continued willingness of market participants to exchange fiat currency for that virtual asset, this means that the value of a particular virtual asset may decline, or be completely and permanently lost should the market for that virtual asset disappear. Investors should further note that there is no assurance that a market that existed for a particular virtual asset will continue to exist in the future, or that a person who accepts a virtual asset as payment today will continue to do so in the future.

Liquidity risk is the risk of losses attributable to a lack of liquidity (for example very few active market participants) in a particular market. This is usually indicated by wide bid / offer spreads and very few transactions being carried out in a particular product or market. The risk is that changes in the underlying market price may be infrequent but very large, and that it is not possible to unwind or transfer a particular transaction in a timely manner, at near the price the investor had expected, or at all. Such liquidity risk in an asset may be caused by the absence of buyers, limited buy/sell activity or underdeveloped secondary markets for certain virtual assets. Investors should note that there is no assurance that a person who accepts a virtual asset as payment, will continue to do so in the future.

The investor may also suffer loss as a result of depreciation of the value of the currency paid as a result of foreign exchange controls imposed by the country issuing the foreign currency. Repayment or payment of amounts due to the investor may be delayed or prevented by exchange controls or other actions imposed by governmental or regulatory bodies over currencies which they control or regulate.

3.             Volatility Risks

The volatility and unpredictability of the price of virtual asset relative to other virtual asset or fiat currencies may result in significant losses over a short period of time. Such fluctuations could affect the price of any virtual assets. Any virtual asset may decrease in value or lose all of its value due to various factors including discovery of wrongful conduct, market manipulation on trading, lending or other dealing platforms, change to the nature or properties of the virtual asset, governmental or regulatory activity, legislative changes, suspension or cessation of support for a virtual assets or other exchanges or service providers, public opinions, or other factors outside of our control. Technical advancements, as well as broader economic and political factors, may cause the value of virtual assets to change significantly over a short period of time. Virtual assets are highly risky and investors should exercise caution when trading with any virtual assets.

4.             Trading Suspension Risks

During the suspension of trading of the virtual assets, investors and potential investors cannot buy and sell units in the trading platform. In terms of providing a fair and orderly market with regarding the interests of investors, the trading platform may suspend the trading whenever it is appropriate. If the trading is suspended, the subscription and redemption of such virtual assets or securities may also be suspended. It may also be difficult or impossible to liquidate a position in the virtual assets under certain circumstances. Certain Airdrops, Forks or Network Events may occur rapidly and affect our ability to conduct a virtual asset transaction. Information relating to such events may be difficult to ascertain ahead of time and may be subject to limited oversight by any third party who is capable of intervening to stabilise the network.

5.             Investor Compensation Risks

The protection offered by the Investor Compensation Fund under the Securities and Futures Ordinance does not apply to transactions involving virtual assets (irrespective of the nature of the tokens). The protection offered by the Deposit Protection Scheme in Hong Kong does not apply to any virtual assets or fiat currency held in an Account. Investors should note that any virtual assets or fiat currency held in an Account are not protected deposits.

This means that virtual asset transactions and virtual assets may have reduced level or type of protection compared to other products and asset classes afforded by the laws of Hong Kong.

6.             Not a Bank Deposit under Applicable Laws

Any fiat currencies or virtual assets held by ESFL and/or the Associated Entity are not held as “deposits” within the meaning of the Banking Ordinance (Cap. 155 of the Laws of Hong Kong), nor as any other regulated product or service under applicable laws. Without limitation, neither ESFL is not regulated by the Hong Kong Monetary Authority in respect of the foregoing.

7.             Jurisdiction Risks

Residents, Tax residents or persons having a relevant connection with certain jurisdictions are excluded from carrying out virtual asset transactions. Changes in the investor’s place of domicile or the applicable laws may result in the investor violating any legal or regulatory requirements of the applicable jurisdiction. The investor is responsible for ensuring that any virtual assets transaction is, and remains lawful despite changes to applicable laws, the investor’s place of domicile and circumstances.

8.             Country Risks

If a virtual asset transaction is made in respect of virtual assets issued by a party subject to foreign laws or transactions made on markets in other jurisdictions, including markets formally linked to a domestic market, recovery of the sums invested and any profits or gains may be reduced, delayed or prevented by exchange controls, debt moratorium or other actions imposed by the government or other official bodies. Before conducting any virtual asset transaction, the investor should satisfy himself as to the sufficiency of his understanding of any rules or laws relevant to the particular virtual asset transactions.

Investors should note that their local regulatory authority will be unable to compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions where the investor’s transactions have been effected. It is the sole responsibility of the investor to obtain independent advice about the different types of redress available in both the investor’s home jurisdiction and other relevant jurisdictions before starting to trade. If the investor’s country of residence imposes restrictions on virtual asset transactions, ESFL may be required to discontinue your access to the Account, and may not be permitted to transfer virtual assets back to you or permit you to transfer virtual assets from the Account to yourself or others, until such time as the regulatory environment permits us to do so.

9.             Legal and Regulatory Risks

Legal and documentation risks include the risk that transactions and/or their related framework arrangements may not be legally enforceable or that the conduct of the parties violates applicable laws and regulations. There is also legal uncertainty on whether virtual assets can be regarded as “property” under the law. This may affect the nature and enforceability of your interest in such virtual asset.  Legislative and regulatory changes may adversely affect the use, transfer, exchange, and value of virtual assets. You are solely responsible for knowing and understanding how the laws applicable to you or your property, rights or assets or tax the virtual assets you trade or the leverage you provide.

10.         Regulatory Measures

Securities may be overseen by the legal and regulatory authorities of a number of jurisdictions globally. ESFL may receive notices, queries, warnings, requests or rulings from one or more authorities upon short notice, or may even be ordered to suspend or terminate any action in connection with any securities as a whole without prior notice. Furthermore, many aspects of the securities involve untested areas of law and regulation, and could be subject to new laws or regulations. Therefore, their legal and regulatory outcome in all relevant jurisdictions is not possible to predict. The planning, development, marketing, promotion, execution or otherwise of the virtual assets may be seriously affected, hindered, postponed or terminated as a result of such new laws and/or regulations. Since regulatory policies can change with or without prior notice, any existing regulatory permissions for or tolerance of virtual assets in any jurisdiction may be withdrawn without warning. Cryptographic-tokens and cryptocurrencies could be deemed from time to time as a commodity or virtual commodity, a digital asset or even as money, securities or currency in various jurisdictions and therefore the securities could be prohibited from being entered into, traded or held in certain jurisdictions pursuant to local regulations. In turn, the virtual assets could be deemed to be a regulated or restricted product. There is no guarantee that the virtual assets can maintain any particular legal or regulatory status in any particular jurisdiction at any time.

11.         Risks of Assets Received or Held outside Hong Kong

Virtual assets and fiat currency received or held by ESFL and/or the Associated Entity outside Hong Kong are subject to applicable laws of the relevant overseas jurisdictions, which may be different from the Securities and Futures Ordinance and the rules made thereunder. Consequently, such assets may not enjoy the same protection as that conferred on some of the assets received or held in Hong Kong.

12.         Risks Relating to Authorised Persons

There are substantial risks in allowing another person to trade or operate an Account, and it is possible that Instructions could be given by persons who are not properly authorised. You accept all of the risks of such an operation and irrevocably release us from all liabilities arising out of or in connection with such Instructions.

13.         Virtual Assets may be Complex Products

Virtual assets may be complex products by virtue that the terms, features and/or risk are not understood due to the complex structure, novelty and reliance on technological features.

14.         Commissions and Fees

The investor should obtain details of all fees, costs, charges, expenses and commissions for which he will be liable before conducting any virtual asset transaction. If any of the foregoing is unclear to the investor, it is the responsibility of the investor to clarify such fees, costs, charges, expenses and commissions before entering into the virtual asset transaction.

The fees, costs, charges, expenses and commissions to be paid by the investor will vary depending on a variety of factors, including the nature of the investor’s relationship with ESFL in relation to the relevant services, the transaction size, complexity and type of asset.

15.         Tax Treatment and Accounting

Some virtual asset transactions may be subject to the tax laws and regulations in an applicable jurisdiction. The tax treatment and accounting of virtual assets is a largely untested area of law and practice that is subject to changes. Tax treatment of virtual assets may vary amongst jurisdictions. ESFL may receive queries, notices, requests or summons from tax authorities and as a result may be required to furnish certain information about the virtual asset transaction.

Among the accounting profession, there are no agreed standards and practices for how an auditor can perform assurance procedures to obtain sufficient audit evidence for the existence and ownership of the virtual assets, and ascertain the reasonableness of the valuations.

If you are unsure about the tax implications of your virtual asset transactions, you should seek independent professional advice before carrying out a virtual asset transaction.

16.         Inflation Risks

Virtual assets may, either because of the inherent design of the virtual assets or through Forks, Airdrops or Network Events, not be a fixed supply of assets. Where additional virtual assets are created, their price may decline due to inflationary effects of the increased amount of total virtual assets available.

17.         Concentration Risks

At any point in time, one or more persons may directly or indirectly control significant portions of the total supply of any particular virtual asset. Acting individually or in concert, these holders may have significant influence, and may be able to influence or cause Forks or Network Events which may have a detrimental effect on price, value or functionality of the virtual assets. Network Participants may make decisions that are not in your best interest as a holder of virtual assets.

18.         Conflicts of Interest

ESFL or other virtual asset trading service providers may be acting as agents for you as well as acting as principals against you. ESFL or other relevant service providers may facilitate the initial distribution of virtual assets and secondary market trading. If these operations are not under the purview of any regulator, it would be difficult to detect, monitor and manage conflicts of interest.

19.         Cryptographic Protection

Cryptography is evolving and there can be no guarantee of security at all times. Advancement in cryptography technologies and techniques, including but not limited to code cracking, the development of artificial intelligence and/or quantum computers, could be identified as risks to all cryptography-based and/or blockchain based systems including the underlying assets of the virtual assets. The security of our trading platform cannot be guaranteed as the future of cryptography or security innovations is unpredictable.

20.         Loss of Private Key is Permanent and Irreversible

The investor should note that virtual assets not received nor held by ESFL and/or the Associated Entity in an Account is the investor’s sole responsibility, and that the investor alone is responsible for securing his private key for any address with respect to such virtual assets. Any loss of control of the private key will permanently and irreversibly deny the investor access to such virtual assets. Neither ESFL nor any other person will be able to retrieve or protect the virtual assets not held by ESFL and/or the Associated Entity in an Account. Once lost, the investor will not be able to transfer such virtual assets to any other address or wallet. This means that the investor will also not be able to realize any value or utility that the virtual assets may hold now or in future.

21.         Reliance on the Internet and Other and Technology-related Risks 

Virtual asset transactions rely heavily on the internet and other technologies. However, the public nature of the internet means that either parts of the internet or the entire internet may be unreliable or unavailable at any given time. Further, interruption, delay, corruption or loss of data, the loss of confidentiality in the transmission of data, or the transmission of malware may occur when transmitting data via the internet and/or other technologies. The result of the above may be that your virtual asset transaction is not executed according to your Instructions, at the desired time, or not at all.

The nature of virtual assets also means that any technological difficulties experienced by the Virtual Asset Exchange may prevent investors from accessing their virtual assets. No authentication, verification or computer security technology is completely secure or safe.

The internet or other electronic media (including without limitation electronic devices, services of third-party telecom service providers such as mobile phones or other handheld trading devices) are an inherently unreliable form of communication, and such unreliability may be beyond Virtual Asset Exchange’s control.

Any information (including any document) transmitted, or communication or transactions made, over the internet or through other electronic media (including electronic devices, services of third party telecommunication service providers such as mobile phones or other handheld trading devices or interactive voice response systems) may be subject to interruption, transmission blackout, delayed transmission due to data volume, internet traffic, market volatility or incorrect data transmission (including incorrect price quotation) or stoppage of price data feed due to the public nature of the internet or other electronic media.

Tokenisation products make use of distributed ledger technology (DLT) as digital record-keeping, where common archetypes of networks includes private-permissioned, public-permissioned and public-permissionless. Where public-permissionless is an open, public network and is lack of restrictions for public access and the open nature of these networks, investors may suffer substantial losses without recourse and may also have practical difficulties recovering their assets or pursuing claims for losses in the event of theft, hacking or other cyberattacks. Furthermore, if there are events like coding errors, bugs or vulnerabilities that could result in loss of tokens, unauthorized operations, or system failures, that may introduce additional security risks.

22.         Transactions Deemed Executed Only when Recorded or Confirmed

Some virtual assets transactions may be deemed to be executed only when recorded and confirmed by Virtual Asset Exchange, which may not necessarily be the time at which the investors initiate the transaction.

23.         Risks Relating to Timing

A virtual asset transaction is binding upon completion of the steps described in the Terms and Conditions of Virtual Asset Dealing Services. Following this, the virtual asset transaction will not be reversed. There is a risk that the final binding virtual asset transaction does not occur at the same time as Instructions are provided. You may suffer loss due to the fact that a virtual asset transaction is not carried out at the desired time.

24.         Unauthorised Access

Unauthorised third parties may access or use your Account and effect virtual asset transactions without your knowledge or authorisation, whether by obtaining control over another device or account used by you, or by other methods.

25.         Irreversible Transactions

Transactions in virtual assets may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable. Investors should note that once a transaction has been verified and recorded on a blockchain, loss or stolen virtual assets generally will not be reversible. This means accidental or fraudulent transactions in respect of virtual assets may not be recoverable.

26.      Risks associated with tokenized class(es) of shares

(a)    Blockchain technology risk – The blockchain technology is relatively new and is subject to various threats or risks that can adversely impact the Sub-Fund. There is a possibility that security measures of blockchains can be compromised and thereby resulting in the unauthorized alteration of the blockchain or the tokens that may disrupt the operation of the Sub-Fund. Furthermore, a blockchain network may experience a “fork” (i.e., “split”) of the network, which would result in the existence of two or more versions of the blockchain network running in parallel with duplication of the same token, but with each version’s native asset lacking interchangeability, potentially competing with each other for users and other participants. Where a fork occurs, the Manager, in consultation with the Custodian and the Administrator, will act in the best interest of investors and have the sole discretion to determine which of the resulting blockchain networks will continue to be used and which will be discontinued. There is also a risk of undiscovered technical flaws associated with systems utilizing blockchain technology. In addition, there is a possibility that new technologies or services that inhibit access to, or utility of, a blockchain may emerge.

(b)    Digital asset security risks – The loss or theft of the private key of an Eligible Distributor will compromise its Digital Wallet and expose its corresponding investor(s) to risk of misappropriation of digital assets associated with the wallet.

(c)     Cybersecurity risks – The Digital Platform contains the complete transaction history of the tokenized shares and certain data on the blockchain utilized is available to the public. Personal identifying information of investors is maintained separately by the Manager, the Tokenization Agent, Digital Platform Operator and the Eligible Distributors (as the case may be) and is not available to the public. However, in the case of data security breaches where such personal identifying information is exposed to the public, such information can be used to determine a shareholder’s identity and investing history in the Sub-Fund.

(d)    Delay risks – Delays in transaction processing can occur on the blockchain utilized for the tokenized shares. During a delay, it will not be possible to record transactions in the tokenized shares on the blockchain which may create discrepancies between on-chain and off-chain records, thereby impacting investors’ ability to subscribe or redeem the tokenized shares. Delay risk may have adverse impact on both subscription and redemption processes of the tokenized shares.

(e)    Regulatory risks – As the use of blockchain technology is relatively new and still evolving, Hong Kong regulations regarding blockchain are evolving and subject to development that may negatively impact the operation of the Sub-Fund in relation to the administration and offering of the tokenized shares.

(f)     Potential challenges in application of existing laws – There are differences in the way tokenized shares are dealt with and recorded, compared to traditional funds are their means of distribution. This can make the resolution of issues concerning tokenized shares more complex and difficult under existing laws.

(g)    Operational and Technical Risks – Smart contracts used for tokenization may contain coding errors, bugs, or vulnerabilities that could result in loss of tokens, unauthorized operations, or system failures and may introduce additional security risks. Integration between traditional fund administration systems and blockchain infrastructure may face operational disruptions. Furthermore, the Sub-Fund relies on multiple parties to facilitate the administration and offering of the tokenized shares and maintain the relevant operating infrastructure (e.g. software, systems and smart contract technology). Such operations may be adversely impacted if any such party ceases to provide the relevant services or fails. Business continuity plans may prove inadequate in blockchain-specific scenarios.

27.         Ownership risks

VAs are generally not backed by physical assets or guaranteed by the any issuing institution. As such, they have no intrinsic value. VAs may not confer the same level of legal rights as ownership of a traditional asset, and there exists legal uncertainty on whether VAs can be regarded as “property” under the law. This may have in impact on claims over ownership of VAs. 

28.         Money-laundering risk

VAs are generally transacted or held on an anonymous basis. In particular, VA trading platforms which allow conversions between VAs and fiat currencies are inherently susceptible to higher risks of money laundering and terrorist financing. VA investments may be the subject of law enforcement action as a result of criminal activities and investors may not be able to recover any of their investments as a result.

29.         Risks associated with virtual asset trading platforms (as distributors)
The virtual asset trading platforms on which tokenized shares may be offered are relatively newly established. The use of virtual asset trading platforms may expose investors to counterparty risks, liquidity risks and operational risks. Moreover, virtual asset trading platforms are also common targets of cybercriminals.

30.         Other Important Notes

In addition to the above, investors should also note:

(a)          the continuing evolution of virtual assets and how this may be affected by global regulatory developments;

(b)          most trading, lending or other dealing platforms and custodians of virtual assets are presently unregulated;

(c)           counterparty risks when effecting transactions with issuers, private buyers and sellers or through trading, lending or other dealing platforms;

(d)          risk of the loss of virtual assets, especially if held in hot wallets; and

(e)          new risks which may arise from investing in new types of virtual assets or market participants’ engagement in more complex transaction strategies.

Disclaimer

No Investment Advice

This document has been issued by ESFL for reference and information purposes only. You should not rely on this document alone to make any investment decision but should read carefully the related offering documentation and any other relevant documentation, in particular, detailed risks relating to each product contained in such documents.  ESFL does not recommend that any virtual assets should be bought, sold, or held by you. You should not deal in virtual assets unless you conduct your own due diligence and understand the nature of the product and the extent of the exposure to risk. ESFL will not be responsible or liable for any loss caused by the investment in any products mentioned herein. You should not only consider the information contained neither in this document nor in the offering documentation but should also consider your own financial position and particular circumstances before making any investment decision. In case of doubt, you are strongly advised to obtain independent professional advice. In conducting any Virtual Asset trading activities, if ESFL solicit the sale of or recommend any product including any virtual assets to you, the product must be reasonably suitable for you having regard to your financial situation, investment experience and investment objectives. No other provision of this agreement or any other document ESFL may ask you to sign and no statement ESFL may ask you to make derogates from this clause.

Accuracy of Information

ESFL will endeavor to ensure accuracy of all information contained in this document although it will not hold any responsibility for any missing or wrong information. ESFL provides all information as is. The information contained in this document regarding securities are based on the information available on the websites of the Hong Kong Securities and Futures Commission, the Hong Kong Stock Exchange and the Hong Kong Monetary Authority.  The contents of this material have not been reviewed by the Securities and Futures Commissions of Hong Kong or any regulatory authority. You understand that you are using any and all information contained in this document at your own risk.