Risk Disclosure Statements

Date: 31^st December 2024

Version: 3.0

Introduction

This Risk Disclosure Statement provides Clients with information about the risks associated with Virtual Assets generally and the Accepted Virtual Assets and Stablecoins accepted by Tungsten. Clients are strongly advised to read this Risk Disclosure Statement carefully before deciding to use any products and services offered by Tungsten.

The risks presented in this statement do not provide an exhaustive list and solely offer a high-level overview of the risks associated with the ownership of Virtual Assets and Stablecoins, in addition to the use of Partner Products. This statement highlights these risks rather than delving into an exhaustive analysis of all potential risks tied to Virtual Assets and Stablecoins. Clients are encouraged to evaluate the appropriateness of Virtual Assets, Stablecoins or Partner Products based on their research, investigations, experience, financial capabilities, and objectives.

Overview of General Risk Associated with Virtual Assets

This Risk Disclosure Statement addresses the risks that are associated with transacting in Virtual Assets below:

1. Virtual Assets are not Legal Tender
2. Trading Risk
3. Loss of Value, Volatility and Uncertainty of Future Performance
4. Past Performance
5. Suitability Risk
6. Market Forces
7. Financial Crime and Cyber Attacks
8. Availability of Virtual Assets
9. Technology Risk
10. Regulatory Risk
11. Settlement Risk
12. Liquidity Risk
13. Privacy Risk
14. Complex Products

Disclosures 

Risks Related to the Services, Virtual Assets, and Accepted Virtual Assets and Stablescoins.

The potential for significant financial losses in the trading of virtual assets is substantial. Consequently, it is imperative that you thoroughly assess whether engaging in such trading aligns with your specific circumstances and financial capabilities. You should be aware of the following:

Virtual Assets are not Legal Tender

Virtual Assets lack central government backing and are not considered legal tender. Accepting a Virtual Asset as payment today does not guarantee its acceptance in the future, and there may be no binding obligation for those who currently accept it to continue doing so. Holders of Virtual Assets place their trust in a digital, decentralised, and partially anonymous system, which relies on peer-to-peer networking and cryptography to uphold its integrity. Neither merchants nor individuals are obligated to accept Virtual Assets as a means of payment in the future.

Trading Risk

You use the Services at your own risk. There can be no assurance that using the Services will provide a positive return or profit, that significant losses will not be incurred, or that your objectives will be achieved. All Contracts between you and the Partner are settled using virtual assets, such as Bitcoin and USD Tether. Having sufficient relevant experience when entering into contracts and transactions is also essential. You should only fund your wallet and trade with Virtual Assets you own and can afford to lose. You may lose a substantial proportion or all of your capital. In addition, using some of our Partner services involves a high risk of loss inherently associated with the available Contracts. As a result, you should carefully consider whether you can afford to bear the risks of loss involved in using these Services.

Loss of Value, Volatility and Uncertainty of Future Performance

The pricing of Virtual Assets may lack robust foundational underpinnings, giving rise to the potential for price volatility and unpredictability when compared to fiat currencies. Historically, Virtual Assets have exhibited significantly higher price volatility than fiat currencies, often with no or limited tangible assets serving as a basis for price determination. This absence of a solid reference can lead to irrational and extreme price fluctuations. In some cases, a Virtual Asset may even lose its entire value as the valuation process remains speculative and uncertain.

Given these heightened risks, it is advisable for clients to consider investing in Virtual Assets only if they are fully prepared to bear the risk of losing their entire investment. Clients who are not familiar with Virtual Assets are strongly encouraged to refrain from transactions and seek professional guidance when deemed necessary.

Past Performance

The value of any Virtual Asset may decrease or increase. Trading or holding Virtual Assets may be susceptible to irrational market forces. Any data on the past performance of a Virtual Asset does not guarantee and may not be a reliable indicator of future performance.

Suitability Risk

Tungsten provides an execution-only service and does not advise on the merits of any particular Trade, trading risk or associated tax consequences, and Tungsten does not provide any other financial, investment or legal advice in connection with the Services.

Tungsten acts as a platform for providing custody of Virtual Assets and arranging for the execution of orders by Clients for Partner’s products. 

Tungsten is therefore not responsible for assessing whether:

a. the Services are suitable for a Client; or

b. any Product partner is suitable for a Client’s needs.

Any information provided on the Tungsten Platform is for information purposes only and is not, nor intended to be, financial advice, investment advice, financial advisory services, a trading recommendation or any other advice.

Tungsten does not warrant the accuracy, completeness or usefulness of such information, and such information should not be considered. A Client is solely responsible for determining whether any Product Partner is appropriate.

By utilising Tungsten services, each Client represents that they have sufficient knowledge, market sophistication, professional advice and experience to make their own evaluation of the merits and risks of any Product Partner or any underlying Virtual Asset. Tungsten will, however provide an assessment that enables each Client to assess if they have sufficient knowledge, market sophistication, professional advice and experience to make their own evaluation.

Market Forces

Engaging in Virtual Asset trading can be vulnerable to irrational market dynamics, including speculative bubbles, manipulation, fraudulent activities, and scams.

Financial Crime and Cyber Attacks

Financial crimes and cyber-attacks pose a higher risk within the Virtual Asset ecosystem due to its digital and decentralised nature. For instance, a 51% attack, carried out by an individual or group controlling over 50% of the network’s mining hash rate, can disrupt new block creation, manipulate payment histories, and compromise funds.

Clients are susceptible to malware, counterfeit addresses, and various cyber threats associated with holding Virtual Assets. It’s crucial to exercise caution with passwords and verify addresses and URLs.

Private keys may be vulnerable to hacking, theft, or loss. Ownership of the relevant Virtual Asset hinges on the possession of the private key. In many cases, there is no mechanism for recovering lost or stolen Virtual Assets, and transactions are often irreversible. Sending Virtual Assets to the wrong address, whether through incorrect entry or other means, can result in permanent loss with little to no chance of recovery. Losses incurred from fraudulent or accidental transactions may not be retrievable.

Virtual Assets may be subject to fraud, manipulation, theft, including through hacks and other targeted schemes and may not benefit from legal protections.

Furthermore, Virtual Assets can be exploited for illicit purposes, such as money laundering, financing terrorism, or other unlawful activities.

Availability of Virtual Assets

Approval from the FSRA is mandatory for the inclusion of Virtual Asset on Tungsten’s platform. The FSRA retains the authority to revoke this approval at its discretion in accordance with its supervisory responsibilities. Delisting of any Virtual Asset can occur without prior notification or consent.

Likewise, any Virtual Asset resulting from a Hard Fork or comparable alterations to a Virtual Asset’s protocols will secure prior approval from the FSRA before becoming accessible on the Platform.

Technology Risk

The foundation of the software protocols governing Virtual Assets are typically open source, indicating that Tungsten has no authority over their development and control. Furthermore, these software protocols are susceptible to abrupt and substantial alterations that can significantly influence the availability, usability, or value of a specific Virtual Asset.

These modifications might encompass events such as a “fork,” a “rollback,” or an “airdrop,” each of which has the potential to impact the value of the Virtual Asset. Virtual Assets heavily rely on emerging technologies, including distributed ledger technologies, for functions like anonymity, irreversible transactions, accidental transactions, transaction recording, and settlement.

Transactions involving Virtual Assets on the blockchain hinge on the proper operation of intricate software, which heightens the risk of interruptions or impediments in accessing or using Virtual Assets. Neglecting this aspect may result in clients being unable to access or utilise Virtual Assets

Regulatory Risk

Numerous trading platforms and services related to Virtual Assets operate without comprehensive regulation, or they might be subject to limited regulatory oversight. Therefore, clients should exercise prudence in selecting their counterparties by conducting thorough due diligence. The regulatory landscape for Virtual Assets exhibits significant disparities between different jurisdictions, including variations between the ADGM and other regions within the UAE.

It’s important to note that any regulatory modifications or actions undertaken by the FSRA or non-ADGM regulatory authorities can potentially have adverse consequences on the utilisation, transfer, exchange, and value of Virtual Assets. Regulatory frameworks governing Virtual Assets can undergo sudden and frequent changes, contingent on the specific jurisdiction in question.

Furthermore, it’s crucial to recognise that the list of risks provided above is not exhaustive, and there may be additional unforeseeable risks. Subject to applicable legal requirements and the terms outlined in your agreement with us, we bear no responsibility for any losses, irrespective of their nature, arising from your use of our services.

Settlement Risk

When engaging in virtual asset transactions, it is important to understand the unique risks associated with this evolving and decentralized ecosystem. Virtual asset transfers may not always be transferable between different platforms, wallets, or systems due to technical compatibility issues, regulatory restrictions, or network-specific limitations. Additionally, some transfers of virtual assets, such as blockchain-based transactions, are irreversible once confirmed. This means that errors, fraudulent transactions, or unintended transfers cannot typically be undone or refunded.

The decentralized nature of virtual assets may also limit your ability to recover funds in the event of loss, theft, or error. Furthermore, market volatility and liquidity constraints can impact the tradability and value of certain virtual assets. We strongly recommend that you thoroughly research the mechanics of the transaction, the technology involved, and the regulatory framework governing the virtual assets you engage with.

If you are unsure about any aspect of virtual asset transactions, seek professional advice before proceeding.

Liquidity Risk

Markets for digital assets can differ significantly in terms of liquidity. While some markets are highly liquid, others may have limited trading activity, making them less liquid. In less liquid markets, price volatility can be heightened. There is no assurance that an active market will always exist to facilitate the buying, selling, or trading of digital assets or related products. Additionally, markets for digital assets can emerge or disappear suddenly, further impacting their availability. You acknowledge and accept the risk that liquidating your digital assets may not always be possible.

Privacy Risk

When engaging in virtual asset transactions, it is important to understand that certain transactions may not be private. Many virtual asset transactions are recorded on public Distributed Ledger Technologies (DLTs), such as blockchains, which are transparent by design. These records may include details such as transaction amounts, dates, wallet addresses, and other information that can potentially be traced or analyzed.

While the identity of the parties involved is often not explicitly recorded, advanced analytics and regulatory measures may link on-chain activity to individuals or entities. This transparency is a core feature of many DLTs but may not align with expectations of privacy.

By proceeding with virtual asset transactions, you acknowledge and accept that your activity may be permanently recorded on public ledgers and may be accessible for analysis by third parties, including regulators and blockchain explorers. Consider the implications of this transparency and take appropriate measures to safeguard your information where necessary.

Complex Products

The use of Complex Products through Product Partners such as Futures Contracts, Derivatives, Structured Products, Swaps, Synthetic, and Leveraged may not be suitable for all Clients. Complex Products provided by Product Partners are designed for sophisticated and knowledgeable clients. Exercise extreme caution when considering using Complex Products and engaging Product Partners if you understand how they work.

CLIENTS WHO DO NOT UNDERSTAND COMPLEX PRODUCTS SHOULD NOT ENGAGE IN COMPLEX PRODUCTS OFFERED BY PRODUCT PARTNERS.

TUNGSTEN DOES NOT TAKE ANY RESPONSIBILITY WHATSOEVER FOR ANY LOSSES OR DAMAGE INCURRED AS A RESULT OF YOUR USE OF ANY COMPLEX PRODUCT OFFERED THROUGH THE PLATFORM OR YOUR FAILURE TO UNDERSTAND THE RISKS ASSOCIATED WITH COMPLEX PRODUCT PROVIDED BY PRODUCT PARTNERS.

Specific Risks Associated with Stablecoins

Tungsten exclusively serves as a custodian for Stablecoin operations and holds no role as an issuer, operator, manager, or beneficiary of any Stablecoin. Consequently, prior to engaging in any Stablecoin transactions or trading, it is advisable to thoroughly examine the project page for comprehensive insights and to remain informed about the specific terms and conditions set forth by the issuer of the respective Stablecoin.

Stablecoins are structured to maintain a 1:1 peg to fiat currency through collateralisation. Nevertheless, it’s vital to note that Stablecoins do not fall under the umbrella of any deposit insurance protection scheme, and the existence of fiat currency reserves does not provide an absolute assurance of redemption. In scenarios of exceptionally high demand, there is the potential that the reserves might prove insufficient or temporarily inaccessible for redemption. Additionally, market volatility spikes can result in instances where the price of a Stablecoin diverges from the underlying fiat currency.

Alterations in regulations or regulatory measures taken by the FSRA or regulatory authorities outside the ADGM jurisdiction could potentially have adverse repercussions on the utilisation, transfer, exchange, and valuation of Virtual Assets. The regulatory framework surrounding Virtual Assets may undergo sudden and recurrent modifications contingent on the specific jurisdiction in question.

It is important to acknowledge that the list of risks mentioned above is not exhaustive, and there might also be unforeseeable risks. In compliance with applicable legal provisions and the terms delineated in your agreement with us, we bear no responsibility for any losses, regardless of their nature, stemming from your utilisation of our services.

USDC Specific Risks 

Introduced in 2018, USD Coin (USDC) ranks among the prominent fiat-backed stablecoins. USDC is a centralised token issued by the Centre Consortium, initially established by Coinbase and Circle Financial. Each USDC is specifically structured to be backed by USD collateral, safeguarded in reserve by reputable, regulated financial institutions in the United States. Circle willingly discloses monthly financial reports outlining the assets held in reserve.

Nonetheless, it’s essential to understand that USDC does not fall under the umbrella of any deposit insurance protection scheme. The presence of a USD reserve does not guarantee redemption. In scenarios of exceptionally high demand, there is the potential that the reserves may prove inadequate or temporarily inaccessible for redemption.

Given that USDC aims to provide price stability, secured by assets denominated in USD or their equivalent, it’s crucial to acknowledge that changes in the use, transfer, redemption, or potential tax implications for USDC holders may occur due to evolving control and regulatory rules governing such currencies or assets.

Decisions regarding the support and execution of USDC transactions in specific countries, as well as the eligibility and appropriateness of individuals engaging in these transactions, rest with the Centre Consortium. This entails a potential risk of the UAE being excluded from supported countries, and certain users may encounter transaction restrictions. In such instances, Tungsten may cease to accept, remove, or suspend USDC for transactions.

USDT Specific Risks

Introduced in 2014, Tether (USDT) is one of the most widely recognised fiat-backed stablecoins. USDT is issued by Tether Limited, a subsidiary of the British Viegin Islands-based company iFinex Inc., which also operates the Bitfinex cryptocurrency exchange. Each USDT token is designed to maintain a 1:1 value with the US dollar, backed by reserves that Tether asserts include cash, cash equivalents, and other assets. Tether periodically publishes attestations regarding its reserve holdings, although these have faced scrutiny over transparency and adequacy.

It is important to note that USDT is not protected by any deposit insurance scheme. The existence of reserves does not guarantee redemption, particularly in periods of high withdrawal demand or financial instability. There may be situations where the reserves are insufficient or temporarily unavailable for redemption.

USDT seeks to maintain price stability by pegging its value to USD-backed assets; however, changes in regulations, policies, or tax implications related to stablecoins or digital assets may impact its use, transferability, and redemption options. This is particularly pertinent as stablecoins face increasing regulatory oversight in many jurisdictions, including the UAE.

Decisions concerning the acceptance, support, and execution of USDT transactions in specific regions, as well as the eligibility of users, are at the discretion of Tether Limited. This creates potential risks, such as the UAE being excluded from supported countries or restrictions imposed on certain user groups. In such cases, Tungsten may choose to cease, restrict, or suspend the use of USDT for transactions.

For additional information or assistance, please do not hesitate to reach out to our Customer Support team via email at support@tungsten.ae.

Custody Disclosure Statement

Safe Custody Provisions

1. While your Accepted Virtual Assets are under Tungsten’s custodial care, you will benefit from the safeguards granted by the Safe Custody Rules found in Conduct of Business Rulebook Chapter 15, in accordance with the FSRA Rules.
2. Tungsten will securely receive and store any Accepted Virtual Assets provided by Clients, with Tungsten serving as the exclusive custodian of the private keys.
3. Tungsten does not offer interest on the Accepted Virtual Assets that are maintained on your behalf.
4. Tungsten will retain the Accepted Virtual Assets of Clients within the ADGM jurisdiction. If Tungsten intends to store Clients’ Accepted Virtual Assets outside the ADGM, Tungsten will notify Clients in advance via email. This notification will include information about the storage location and, if relevant, any distinctions in market practices, insolvency regulations, or legal frameworks in that jurisdiction compared to those of the ADGM.
5. Your Accepted Virtual Assets will be maintained separately from the Accepted Virtual Assets owned by Tungsten.
6. Your Accepted Virtual Assets will not be commingled with the assets of other clients, ensuring their physical segregation from those of other clients.
7. Tungsten will perform a daily reconciliation of the Accepted Virtual Assets it holds on your behalf.
8. If a default event occurs or if, at any point, Tungsten, at its sole discretion, determines that you have not fulfilled your obligations to Tungsten (or Tungsten reasonably anticipates that you may not be able or willing to fulfil them in the future), Tungsten may promptly suspend your access to the Custody Service.

Staking Risk Disclosure

Introduction

This section outlines the specific risks associated with participating in Staking Services. Clients should review these disclosures carefully to understand the potential financial, operational, and technical risks tied to staking.

Staking carries unique risks in addition to the general risks associated with Virtual Assets. By engaging in staking, you acknowledge and accept these risks.

Specific Risks Associated with Staking

1. Lock-Up and Unbonding Periods

• Staking requires locking up Virtual Assets for a period of time, during which these assets cannot be withdrawn, transferred, or traded.
• Unbonding periods, which vary by blockchain protocol (e.g. ETH, SOL, etc), introduce delays in regaining access to your assets once staking ceases.

2. Slashing Penalties

• Blockchain protocols may impose slashing penalties if the Validator providing the nodes for staking engages in misconduct, such as double-signing or extended downtime.
• These penalties can result in a loss of a portion of your staked assets. Tungsten does not assume liability for slashing events.

3. Validator Performance Risks

• Staking rewards are dependent on the performance of validators. Poor performance, downtime, or malicious actions by a Validator can reduce or eliminate rewards and may also result in penalties.
• Tungsten makes reasonable efforts to select and monitor reliable validators but cannot guarantee their performance.

4. Reward Variability

• Staking rewards are determined by blockchain protocols and are subject to variability based on factors such as network participation, inflationary models, and validator performance.
• There is no guarantee of specific returns or any rewards at all.
• Validators provide Annual Percentage Yield (APY) rates which are indicative of the average performance of the validator over the last 30 days.

5. Custodial Risks

• Staking requires Tungsten to control and delegate your assets to validators on your behalf. While stringent security measures are in place, any compromise of these systems could lead to loss or theft.
• Delegating control of your assets inherently increases the risk profile compared to non-custodial staking.

6. Protocol Changes

• Blockchain protocols can undergo changes, such as network upgrades, forks, or slashing rule adjustments, that may affect staking rewards, penalties, or your ability to continue staking.
• Clients should stay informed of protocol updates to assess their impact.

7. Market Risks

• The value of staked Virtual Assets may fluctuate during the staking period. Losses due to market price changes are not mitigated by staking rewards and could result in a net loss.

8. Regulatory Risks

• Regulatory changes or actions may impact staking activities, potentially causing the suspension of staking services or changes in tax implications. Tungsten does not provide tax or legal advice; Clients should consult with a professional for guidance.

General Requirements

Clients will only be permitted to engage in Staking Services if they successfully complete the appropriateness assessment to demonstrate an understanding of the associated risks and ensure that it aligns with financial capabilities and objectives.

Definitions

In this disclosure, unless otherwise specified, the words in the table have the following meanings attributed to them:

Term	Meaning
Bonding	the process of telling the PoS network you want to stake Virtual Assets. The bonding period is the amount of time the blockchain delegator waits before their Virtual Assets are bonded and will start to be used to secure the network.
Client	a Legal or Natural Person who uses the Tungsten Platform and to whomTungsten provides its Services. For the avoidance of doubt, a Client may include a Related Party of the Client who has authority to access the platform.
Complex Products	complex products are provided by Product Partners and Tungsten will only arrange and act on an execution basis. The client will engage directly with the Product Partner when choosing a Complex Product. Tungsten does not provide any advice pertaining to any Complex Products.
Derivatives	financial contracts whose value is dependent on an underlying asset, group of assets, or benchmark. Includes options, futures, forwards, and swaps.
Financial Crime	money laundering, terrorist financing, evasion of economic sanctions, tax evasion, bribery and corruption, fraud, behaviour which may amount to “market abuse” (as defined under Applicable Laws and Regulations) as may be applicable to us.
Fork	in respect of a Virtual Asset, an upgrade in the code of a blockchain network, which may, for example, occur as a result of disagreements between stakeholders as to an update to the Virtual Asset’s protocol or from a deliberate effort to revert the blockchain history to a point prior to a cyber-attack.
FSRA	Financial Services Regulatory Authority
Futures Contract	Futures contracts are standardised legal agreements to buy or sell a specific commodity or financial instrument at a predetermined price at a specified time in the future.
Hard Fork	occurs when a blockchain protocol is radically changed such that it becomes incompatible with older versions. Parties taking part in transactions on the old blockchain must upgrade to the new one in order to continue validating transactions. However, the parties that do not upgrade may continue to support and validate transactions on the older blockchain protocol separately. A Hard Fork can be planned, or unplanned (contentious).
Legal Person	any company/entity (that is not an Individual) and their personal representatives
Leveraged	exchange-traded funds that use financial derivatives and debt to amplify the returns of an underlying index. Inverse ETFs aim to earn gains from stock declines by shorting stocks.
Losses	any claim, demand, action, proceeding, liability, expense (including legal and professional expenses), cost, charge, injury, damages, fine, penalty or diminution of value.
Natural person	any individual and their estate and personal representatives.
Order	an instruction made by a Client in relation to a Product Partner.
Platform	the online platform accessed either at Tungsten.ae, or via the API or the mobile application that is operated by Tungsten Custody Solutions Ltd.
Product	a product arranged by Tungsten for Clients.
Product Partner	in a body corporate which is an affiliate body corporate, associated body corporate or related body corporate of Tungsten.
Proof of Stake (PoS)	a consensus mechanism used by blockchain networks to validate transactions, secure the network, and create new blocks. PoS selects validators based on the amount of Virtual Assets they hold and are willing to lock up as collateral, known as a stake.
Related Party	Any individual who is authorised by a client to access the Tungsten Platform
Services	Services provided by Tungsten to Clients, including the use of Tungsten Platform and the custody of Client’s Virtual Assets.
Staking Services	Services provided by Tungsten to Clients involve using third-party validators (node operators) to stake Clients’ Virtual Assets on a proof of stake blockchain.
Structured Products	Customised products that combine securities with derivatives to offer tailored risk-return objectives. Common types include structured notes and market-linked investments.
Swaps	Swaps are a type of derivative contract through which two parties exchange financial instruments or cash flows.
Synthetic	financial instruments created artificially by combining different financial instruments. These can include synthetic CDOs and synthetic ETFs.
Trade	a transaction requested on the Tungsten Platform by a Client in relation to a Product Partner which results in the movement of Virtual Assets.
Tungsten	Tungsten Custody Solutions Ltd, Abu Dhabi Global Market, Abu Dhabi, United Arab Emirates
Unbonding	Unbonding is the action of telling the network you want to unlock your Virtual Assets. The unbonding period is the designated amount of time that a blockchain delegator waits before having access to move the Virtual Assets. It varies between a few days to a few weeks. Staked assets don’t earn rewards during the bonding and unbonding period. Additionally, rewards are subject to the unbonding period and aren’t available for immediate withdrawal.
Virtual Asset	a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value but does not have legal tender status in any jurisdiction. A Virtual Asset isNeither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Virtual Asset; andDistinguished from Fiat Currency and E-Money