Coinsquare Capital Markets Ltd. (“Bitbuy”) is offering crypto contracts to purchase and sell Compound (COMP) in reliance on a prospectus exemption granted by the Canadian Securities Administrators (CSA) in the amended and restated exemptive relief decision dated October 11, 2024. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other CSA jurisdictions do not apply in respect of a misrepresentation in this statement to the extent that a crypto contract is distributed under the above-noted prospectus relief.

No securities regulatory authority in Canada or any other jurisdiction has expressed an opinion about any of the crypto assets (or crypto contracts) that are available through Coinsquare Capital Markets Ltd (CCML)’s platform, including an opinion that the crypto assets are not themselves securities and/or derivatives.

Coinsquare Capital Markets Ltd (CCML) has compiled the information contained in this Crypto Asset Statement to the best of its ability based on publicly available information.

Compound was founded in 2017 and is headquartered in San Francisco, California. It is an open-source decentralized finance (DeFi) protocol built on the Ethereum blockchain that enables users to lend and borrow various cryptocurrencies through autonomous liquidity pools. COMP is the native governance token of the protocol, allowing holders to propose and vote on changes to the system, such as adjustments to interest rate models or the addition of new supported assets. The protocol incentivizes participation by distributing rewards to both lenders and borrowers, facilitating a transparent and automated money market.

As with all assets, investing in Compound is not without some general risks. Many of these risks are identified and explained in our Risk Statement. In addition to the general risks, we outline some risks that are specific to Compound below. While we make an effort to identify every source of risk, we encourage you to do your own research and ensure you are comfortable investing in Compound.

Since Compound is a lending protocol that operates using liquidity pools, it is susceptible to potential situations of illiquidity. Suppliers contribute their assets to liquidity pools from which borrowers borrow assets. Each loan reduces the liquidity in the pool. Similarly, when a supplier withdraws their assets, this reduces the liquidity in the pool.

This presents the opportunity for illiquidity, which happens when withdrawals or borrows fail because they exceed the amount of liquidity available in the pool. The creators of Compound anticipated this risk and created an algorithm that modifies dynamic interest rates as liquidity changes. In short, suppliers are incentivized to supply liquidity, and borrowers are incentivized to repay loans when liquidity is low, and the opposite occurs when liquidity is high.

The risk of a “bank run” occurs when liquidity is low and suppliers suddenly and simultaneously attempt to withdraw liquidity from the pool. In this case, multiple withdrawals may fail, causing distrust in the system and potential panic. In a one-off illiquidity event, a single large supplier may be unable to exit immediately, but in “bank run” scenarios, many participants may find their assets temporarily locked until new liquidity enters the pool. Unlike centralized banking systems where government intervention or deposit insurance may mitigate a bank run, DeFi platforms rely entirely on smart contract algorithms. Compound utilizes a dynamic interest rate model designed to incentivize supply and discourage borrowing as liquidity tightens. While Compound has successfully managed various market stress events and the transition to its "Comet" (Compound III) architecture, investors should remain aware that technical or economic shocks can still lead to periods of high utilization and temporary illiquidity.

The regulatory environment for decentralized finance (DeFi) protocols and lending platforms continues to evolve. In Canada, the Canadian Securities Administrators (CSA) have provided increasing clarity regarding crypto-asset trading platforms, though specific long-term frameworks for decentralized lending protocols remain subject to ongoing scrutiny. Globally, regulators are increasingly focused on the intersection of DeFi and traditional financial laws, including potential requirements for AML/KYC and securities registration. Changes in the legal classification of COMP or the protocol's operations could significantly impact its accessibility and market value.

As Compound is primarily an ERC-20 token and protocol operating on the Ethereum network, it is highly dependent on the continued stability, security, and scalability of that blockchain. While Compound has expanded to other networks (such as Polygon and Arbitrum) to mitigate high transaction costs and network congestion, the core governance and majority of its liquidity remain tied to Ethereum. Any fundamental issues, such as network-wide consensus failures or significant congestion, may impact the execution of smart contracts or the value of COMP. Investors should consider these cross-chain dependencies when evaluating the asset.