Stellar Lumens (XLM) - Crypto Asset Statement

PLEASE READ THIS CAREFUL. BY PROCEEDING TO TRANSACT XLM, YOU ACKNOWLEDGE AND ACCEPT THE STATEMENTS SET OUT BELOW.

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 XLM. We created this summary to help you understand the basics of XLM as well as some of the risks involved in trading in XLM. While we tried to describe the key features of XLM, this summary isn’t meant to tell you everything you’d want to know before investing in XLM. You should also do your own research on XLM to make sure you are comfortable investing in it.

Description of XLM

History of XLM

Stellar is a blockchain-based payments network, built with the vision of connecting traditional and decentralized financial systems from around the world. 

Jed McCaleb—MtGox’s founder and Ripple’s co-founder —introduced the Stellar project in 2014 with Joyce Kim, a former lawyer. The Stellar Development Foundation (SDF), a non-profit organization, was established in July 2014, with Stripe CEO Patrick Collison, as a collaborator. Before Stellar’s official launch in 2015, McCaleb sought alpha testers through his ‘Secret Bitcoin Project’ website. 

Stripe led Stellar’s seed funding round, investing $3 million. Out of the initial release of 100 billion Lumens (then called stellar), 25% was allotted for the ecosystem’s contemporary non-profit contributors. In 2017, the SDF founded Lightyear—Stellar’s commercial wing and announced a $2 million (in Lumens) grant. As a part of the Stellar Partnership Grant Program, the award was meant to incentivize Stellar-based project development.

What is XLM used for

Initially, the XLM token was “intended solely” for the network’s internal transactions, primarily as a security mechanism. While Stellar account holders have to maintain a minimum balance of 1 Lumen, every transaction costs a minimal fee in XLM. The amount is insignificant from the perspective of overhead end-user cost but is an adequate deterrent to large-scale, malicious activities. 

However, Lumen’s usability has diversified over time, and it’s now usable for transactional purposes outside the Stellar network. XLM holders can use their tokens for global payments and transfers, as well as for trading of centralized and decentralized crypto-exchanges. Especially, the minimal fee makes XLM a preferable asset for making micro and cross-border transactions. 

Lumens can also be leveraged as the intermediary asset for conversions between otherwise illiquid assets and between fiat.

How XLM works

Lumens are secured using the underlying blockchain’s Stellar Consensus Protocol (SCP), a Byzantine Fault Tolerant (BFT) alternative to Proof-of-Work (PoW). The underlying concept is known as the Federated Byzantine Agreement and was conceived before Bitcoin’s release. 

Apart from incentivizing the network to use standard software for optimum interoperability, Lumen-based transactions do not involve mining. Instead, a transaction is considered valid if it achieves the predefined quorum of votes from the network’s validator nodes (Basic or Full).

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 XLM. We describe many of these general risks in the risk statement we publish on our website that you have already acknowledged, including risks relating to: (i) short history; (ii) volatility in the price of crypto assets and loss of liquidity; (iii) potential decrease in global demand for crypto assets; (iv) The blockchains on which crypto assets operate may temporarily or permanently fork or halt; airdrops; (v) issues with the cryptography underlying the Crypto networks; (vi) custodial wallet systems; (vii) uncertainty in regulation and future financial institution support; (viii) currency risks; (ix) concentration risks; (x) electronic trading and dependence on the internet; (xi) cyber security risks; (xii) inadequate due diligence; (xiii) Ndax’s reliance on vendors and third-party service providers; (xiv) liquidity constraints; (xv) no voting rights; (xvi) lack of investor protection insurance; (xvii) commissions and other charges for trading; (xviii) no advise; (xix) transfers; (xx) beta features; (xxi) unforeseeable risks; and (xxii) conflicts of interest. We also point out a risk that is specific to XLM below. While we tried to describe the key risks associated with XLM here and in our risk statement, these aren’t all of the risks associated with trading in XLM. You should also do your own research on XLM to make sure you are comfortable investing in it. 

Loss of Validators 

The Stellar Consensus Protocol does not offer rewards to the individuals who help achieve consensus. Energy is consumed to run nodes and validate the system, so without financial incentive, there is no guarantee that individuals will continue to act as validators. This characteristic may cause the Stellar Network to eventually slow or experience delays. In May 2019, the Stellar Network went offline for approximately two hours, and, in April 2021, some transactions failed after approximately half the nodes went offline. 

Potential for Centralization 

In 2020, the Stellar Development Foundation held more than half of all XLM, causing some to question whether the project was truly decentralized. Although a distribution plan was announced to eventually reduce their control, the Stellar Development Foundation has previously exerted their influence over the supply of XLM. In April 2017, it burned roughly 2 billion XLM after discovering an inflationary bug, and, in November 2019, it burned another 50 billion XLM.

Conflict of Interest Disclosure

Ndax has assessed potential conflicts of interest associated with the offering, and ongoing availability of XLM through the Platform. As of the date of this statement, Ndax has not identified any actual, material, or reasonably foreseeable conflict of interest that would be expected to impair our ability to act in the best interests of clients or to make fair, objective, and independent decisions regarding XLM. Ndax maintains policies and procedures designed to identify, manage, and address conflicts of interest on an ongoing basis and will update our disclosures if any material conflict is identified in the future. For additional information about the material conflicts of interest identified by us, please refer to our Conflicts of Interest Statement, the latest version of which can be found on our Website.

Regulatory Information  

Ndax is a registered investment dealer under securities legislation in all provinces and territories of Canada, and is a member of the Canadian Investment Regulatory Organization (CIRO) and of the Canadian Investor Protection Fund (CIPF). Ndax is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Ndax Canada Inc. dated December 19, 2024 (found here) and under the terms and conditions imposed by CIRO on Ndax’s membership with CIRO (found here). Any fiat currency held in users’ accounts is protected by CIPF’s Investment Dealer Fund in accordance with its Coverage Policy. However, CIPF coverage does not extend to any virtual assets held in users accounts. These assets are not eligible for deposit insurance or any protection from the Canada Deposit Insurance Corporation (CDIC) or CIPF. 

Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada do not apply in respect of a misrepresentation in this Crypto Asset Statement. 

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

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

Last Updated: August 11, 2026