Risk Factors
We must be clear, owning an asset on cypher is not owning a share of or rights to an underlying asset. It in no way impacts the capitalization of an asset and is simply a peer-to-peer vote on how much a trader is willing to buy or sell an underlying asset for at contract expiration. When users acquire an asset, there is no investment of money, common enterprise, or any reasonable expectation of profits derived from the efforts of others. For the time-being, trades are settled by the payment of cryptocurrency only.
Jurisdictional overreach by regulators and governments. The cypher protocol is designed to be increasingly and eventually fully decentralized. During initial stages of existence, some parts of the protocol will be centralized to some degree such as market selection and website design and maintenance. While the nature of the protocol is peer to peer and dependent upon decentralized operations, governments may look to the citizenship and / or domicile of software development contributors as a link to jurisdiction. As such, the following items may affect operations of the protocol:
  • Changes in the legislative or regulatory environment, or actions by governments or regulators, including fines, orders, or consent decrees;
  • Regulatory changes that impact our ability to offer certain products or services;
  • Adverse legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal proceeding and enforcement-related costs
Government crackdowns on all cryptocurrency. Some countries have been exploring or implementing outright bans on “cryptocurrencies.” While cypher uses underlying blockchain technology to permit trading of digital assets, we may face pressure as a result. This should be mitigated by the decentralized nature of the protocol and its inherent censorship resistance.
Community governance may lead to unintended changes. The shift to a fully decentralized, community governed model may lead to decisions that adversely affect the long-term success of the protocol.
Protocol bugs. Despite the aim to have at least one independent audits of the protocol by a leading firm, exploits in the software or incentive structure may exist. While we do not maintain custody of any funds, success depends on the proper alignment of architecture with incentives. As at the date hereof, the cypher protocol is still under development and its design concepts, consensus mechanisms, algorithms, codes, and other technical details and parameters may be constantly and frequently updated and changed. Although these documents contain the most current information relating to the cypher protocol, they are not absolutely complete and may still be adjusted and updated by the cypher team from time to time. The cypher team has neither the ability nor obligation to keep users informed of every detail (including development progress and expected milestones) regarding the project to develop the cypher protocol, hence insufficient information disclosure is inevitable and reasonable.
Market volatility could cause cascading defaults. Trading assets that are inherently volatile with leverage can present increased default / liquidation risk. This is mitigated by a backstop waterfall that draws on (i) having overcollateralized positions, (ii) market-specific insurance funds funded by a portion of protocol fees, (iii) a global guaranty fund.
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