About this Summary

Ndax Canada Inc. (“Ndax”, “we” and “our”) believes that our users should understand the crypto assets that they are able to trade using our crypto trading platform (the “Platform”). One of the crypto assets we offer on the Platform is DOT. We created this summary to help you understand the basics of DOT as well as some of the risks involved in trading in DOT. While we tried to describe the key features of DOT, this summary isn’t meant to tell you everything you’d want to know before investing in DOT. You should also do your own research on DOT to make sure you are comfortable investing in it.

Description of DOT

History of DOT

In 2015, Jutta Steiner founded Parity Technologies and Ethereum’s co-founder, Gavin Wood, and others. Before publishing Polkadot’s nascent code in 2017, Parity started off as a software development endeavor for Ethereum. The Web3 Foundation supports the development of Polkadot, thus playing a similar role as the Ethereum Foundation.

Polkadot’s ICO in 2017 raised $140 million through the sale of DOT tokens. In 2018, Parity released two proofs-of-concept, following which they deployed the first parachain of Polkadot. Backed by the platform’s initial performance, the project further raised around $100 million through private sales. Polkadot’s “initial” version was then launched in May 2020, while token transfers began in August.  

What DOT is used for

The DOT token has three main functions within the Polkadot ecosystem — governance, staking, and bonding.

DOT holders have a say in the platform’s governance. Among other aspects, this involves decisions regarding the network’s fee, upgrades, and maintenance. DOT token holders also decide whether to add a new parachain or remove an existing one.

A Nominated Proof-of-Stake (NPoS) consensus mechanism secures the Polkadot network, which requires nodes to stake DOT tokens. The staked DOT serves as collateral, thus de-incentivizing the network’s validators from verifying invalid or malicious blocks. Contrariwise, as an incentive for desirable behavior, nodes get rewarded for their staked DOTs.

The bonding functionality of DOT tokens facilitates the formation of new Polkadot parachains. When the parachain is active, an amount of DOT tokens remain locked, thus ensuring the user’s skin in the game.

Apart from these network-specific functionalities, DOT can be used like ordinary cryptocurrencies. It can be bought, sold, transferred, and traded on centralized and decentralized exchanges, making it a medium of exchange and an investment asset.  

Certain Staking Services Terms Applicable to DOT

You can cancel your opt-in to the staking services for any crypto-asset within the first four hours of your initial opt-in.

In addition to the other staking terms that you agree to when you opt-in to our staking services, please consult the table below for additional terms that currently apply to the staking service for particular crypto assets at this time. Note that the annual percentage yield (“APY”) is an estimate, and terms are subject to change. All terms in effect are maintained on our website. 

Example: If you have 100 coins staked at 3% APY, the gross reward will be 3 coins for the year. Ndax will earn a fee of 20%, in this case, 0.6 coins and 2.4 coins will be credited to your account based on the payout frequency.

For purposes of the above table:

• “Instant Redemption” may be available for flexible plans on a first-come, first-serve basis, subject to availability. If elected, your opt-out is effective immediately, and you are not entitled to any rewards generated within the reward period. This is subject to Ndax liquidity management provisions to fulfill client instructions to sell or transfer crypto assets prior to the Unbonding period.
• “Standard Redemption” means that your opt-out is delayed for the period of time indicated in the above table, but you collect any rewards generated up to and including those generated within the reward period.
• “Ndax Admin Fee” refers to the percentage fee on the total amount of the reward generated through staking.
• “Bonding Period” refers to the amount of time it takes before you begin to generate staking rewards for that crypto asset from the time you have started staking.
• “Unbounding Period” refers to the amount of time you need to hold your eligible staked crypto assets after opting-in to the staking service before you are able to opt-out.

Risks

Before entering into an agreement (a “Crypto Contract”) with Ndax to buy or sell any crypto assets through the Platform, it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.

Like other crypto assets, there are some general risks associated with investing in DOT. Each of these risks is described in more detail in the Risk Statement provided to you at the time that you open your account with us and is also available online on the Ndax website and app. You should review the Risk Statement.

In addition to the general risks set out in the Risk Statement, we also point out other specific risks to DOT below.  

Dependence on Polkadot Developers  

While many contributors to Polkadot are employed by companies in the industry, most of them are not directly compensated for helping to maintain the network. As a result, there are no contracts or guarantees that they will continue to contribute to Polkadot.

Concentration of DOT Holdings

Approximately 42% of DOT currently in circulation is held by the top 20 wallet holders. As a result, they control a significant vote related to the planning and decision-making of the network. A high level of ownership by the Web3 Foundation may adversely affect the price of DOT itself.  

While we have tried to describe the key risks associated with DOT here and in our Risk Statement, we emphasize that this Crypto Asset Statement is not exhaustive of all of the risks associated with trading in DOT. You should also do your own research on DOT to make sure you are comfortable investing in such a crypto asset.

Risks Specific to Staking DOT  

Prior to staking your crypto assets, you acknowledge that:  

• staked DOT begins to start earning rewards after one day;  
• staked DOT may be withdrawn at any time;  
• given the volatility of crypto assets, the value of your staked DOT when you sell or withdraw it, and the value of any rewards you earn through staking, may be significantly less than their current value;    
• there is no guarantee that you will receive any rewards on staked DOT;    
• past rewards are not indicative of expected future rewards;  
• the rewards you are entitled to may be changed at the discretion of Ndax;  
• you may lose all or a portion of your staked DOT if the validator does not perform as required by the network; and;  
• additional risks can be found in the Risk Statement.  

Regulatory Information  

Ndax is offering Crypto Contracts in accordance with the terms of a pre-registration undertaking dated March 23, 2023, that we entered into with the Canadian securities regulators, while our application for registration in certain Canadian jurisdictions is reviewed. Please note that Ndax is not currently registered under securities or derivatives legislation of Canada and there is no guarantee that registration will be granted.

The statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply in respect of a misrepresentation in this Crypto Asset Statement.

Prior to offering a Crypto Contract on DOT, Ndax assesses whether DOT is a security and/or a derivative under the securities and derivatives laws of Canada. Ndax’s assessment includes a review of the history of the DOT (such as how it was created and its governance structure), its characteristics, its market capitalization, and any regulatory concerns regarding DOT. Based on its assessment, Ndax concluded that DOT is not a security or a derivative. However, there is a risk that this conclusion could change in the future. In that case, Ndax may be required to halt or withdraw DOT from trading on the Platform and stop any future trading of Crypto Contracts based on DOT, and users holding DOT may be required to liquidate their positions, potentially at a significant loss. In this event, users holding positions in DOT will be notified via the Platform or other electronic means and advised of the options available to them and any applicable period to sell or withdraw their positions in DOT.

No Canadian securities regulatory authority has expressed an opinion about DOT, including an opinion that DOT is not itself a security and/or derivative.