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

Description of COMP

History of COMP

Serial entrepreneurs Robert Lesher and Geoffrey Hayes founded Compound with an aim to create a protocol that lets users lend and borrow crypto assets with ease. In 2018, the firm received a seed fund of $8.2M from Andreessen Horowitz and Bain Capital Ventures. The platform was launched on the Ethereum blockchain in May 2018, and it received another $25M in funding from other popular investing firms in 2019.

After a successful launch of the platform, the firm launched its native token COMP in 2020. The token was received well by the market and was listed on major exchanges. The total supply of COMP is capped at 10M.

What is COMP used for

Users of Compound can borrow or lend crypto assets on the platform without the need for an intermediary like a bank. Lenders can earn a rate of interest based on how much they deposit. In addition to this, users can also earn COMP tokens as rewards.

COMP is the native governance token of the platform. This means that holders can stake tokens and vote on proposals that dictate the future course of the platform. Holders can also delegate tokens to other users to vote on their behalf. Staking tokens earns the holder more COMP in the form of rewards.

How COMP works

Compound has two major players — lenders and borrowers. The platform connects lenders and borrowers in a seamless manner, without the need for intermediaries.

First, we have lenders or liquidity providers. Anyone who owns crypto assets can become a lender by locking a certain amount of assets into a smart contract. The lenders then immediately start earning interest on the assets they deposit. The rate of interest depends on the demand and supply of the asset they deposit. This process is called yield farming. The assets deposited by the lenders are stored in large liquidity pools and the lenders are given cTokens equivalent to the amount of crypto they store. cTokens can be used just like any other ERC-20 token.

Borrowers who wish to borrow from the platform are first required to lock up collateral greater than the amount they wish to borrow. If the value of the collateral falls below a certain threshold, it is automatically liquidated and the borrowers can keep what they borrowed. Naturally, borrowers need to pay a rate of interest to the platform.

A predetermined amount of COMP tokens are distributed to lenders and borrowers on a daily basis.

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 COMP. 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 COMP below.

Price Dependence on Compound Protocol

As the primary function of COMP is to provide its holders with governance rights in relation to the Compound protocol, COMP’s value is linked to the success of the Compound protocol more generally. In order to be successful, the Compound protocol requires users to both lend to and borrow from its lending pools. Should activity on the Compound protocol decline or should the Compound protocol be subject to bugs, hacking, or price manipulation, it is likely that the value of COMP will also decline.

Regulatory Risk of Decentralized Finance Lending Protocols

The regulation of platforms for lending crypto assets continues to evolve in North America and within foreign jurisdictions. Governmental authorities may implement new regulatory schemes or enforce existing regulatory requirements in a manner that could restrict the use of the Compound protocol and otherwise impact the demand for and value of COMP.

While we have tried to describe the key risks associated with COMP 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 COMP. You should also do your own research on COMP to make sure you are comfortable investing in such a crypto asset.

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 regulator, 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 Statement.

Prior to offering a Crypto Contract on COMP, Ndax assesses whether COMP 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 COMP (such as how it was created and its governance structure), its characteristics, its market capitalization, and any regulatory concerns regarding COMP. Based on its assessment, Ndax concluded that COMP 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 COMP from trading on the Platform and stop any future trading of Crypto Contracts based on COMP, and users holding COMP may be required to liquidate their positions, potentially at a significant loss. In this event, users holding positions in COMP 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 COMP.

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