Risk Summary

Estimated reading time: 2 mins

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.

2. You should not expect to be protected if something goes wrong

The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.
The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm. Learn more about FOS protection here.

3. You may not be able to sell your investment when you want to

There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.

4. Cryptoasset investments can be complex

Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
You should do your own research before investing. If something sounds too good to be true, it probably is.

5. Don’t put all your eggs in one basket

Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about cryptoassets, visit the FCA’s website here.

General Risk Warning

All financial transactions involve a degree of risk and may result in losses to the client’s capital. Cryptoassets are highly risky and may be riskier, less liquid, more volatile, and more vulnerable to economic, political, market, industry, regulatory and other changes than traditional financial instruments. Besides, the nature of cryptoassets exposes them to an increased risk of fraud or cyberattack.

You should exercise caution in relation to the cryptoasset products and should not enter into transactions unless you fully understand their nature and the risks associated with them and can bear any potential financial losses, including potentially the total loss of funds.

The below list of risks is of a generic nature and is also intended to describe various risk factors associated with cryptoassets. This document is not intended to provide an exhaustive list of risks (or other important factors) associated with an investment in a cryptoasset, and hence, there may be other considerations which should be taken into account before soliciting a cryptoasset service. You should, therefore, refrain from relying exclusively on the risk disclosures set out below as covering all possible risks and should always independently verify that the cryptoasset services or transactions are suitable for you (or, if applicable, your principal) in light of your specific circumstances.

Exchange risks

Estimated reading time: 2 min

Nexo allows clients to trade cryptoassets. It is not liable for any client trading losses nor the performance of any cryptoasset on the platform.

When you exchange sovereign (“fiat”) currency for cryptoasset, your fiat currency will be transferred from your custodian bank, where it is subject to a governmental insurance scheme, to Nexo, where such a scheme is not applicable. If you are exchanging cryptoasset for fiat currency, the fiat currency will be transferred from Nexo to the regulated custodian bank, where the funds will be protected under a governmental insurance scheme. If you are exchanging one cryptoasset for another cryptoasset, all cryptoassets will remain in an unregulated environment.

Cryptoassets on the platform are reviewed by Nexo prior to making them available for trading. The fact that any particular cryptoasset is available for trading on the Nexo platform is not an endorsement of the merits of that cryptoasset. Cryptoassets are still generally considered a high-risk investment, and you need to conduct your own due diligence before investing. Conduct your own research to understand the nature of any cryptoasset you wish to invest in and the risks associated with it.

Nexo does not guarantee an asset will deliver on any of its claims. Nexo’s marketing materials that feature a symbol or logo for a particular cryptoasset may mean this cryptoasset is available to trade on the Nexo platform but does not mean Nexo recommends this particular cryptoasset as a good investment.

A particular cryptoasset’s availability on multiple exchanges only means that it is available to trade on a number of platforms. It does not necessarily mean that it is a good investment and should not serve as an indicator of the liquidity of the said cryptoasset.

Some clients of now-insolvent cryptoasset firms have suffered the complete loss of the cryptoassets they held on that platform. If the cryptoasset platform on which you hold cryptoassets goes bankrupt or insolvent, you might lose those cryptoassets.

Asset Category Risk Overviews

Remember, not all cryptoassets are alike. Before investing, you should ensure you understand the specific risks involved.

Please read our asset risk summaries below to get a better understanding of the key risks for some of the main categories of cryptoassets available on Nexo.

Stablecoins

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk. ‘Stablecoin’ (e.g. USDC, USDT) is the term often used for cryptoassets that claim their value is pegged to certain reserve assets such as a fiat currency (e.g. US Dollars). Stablecoins may use a range of different ways to maintain stability, each with its own risks.

What are the key risks?

You could lose all the money you invest: The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets. The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.

Depegging events: Depegging events may occur with stablecoins that fail to maintain adequate controls and risk mitigants. A depegging event is when the value of the stablecoin no longer matches the value of the underlying asset. This could result in a loss of some or all of your investment. Additionally, if the stablecoin relies on an algorithm to maintain stability (e.g. by adjusting supply based on demand), there’s a risk the algorithm could fail or behave unexpectedly, which might cause the asset to lose its stability and even lose all its value.

Counterparty risk: Where the asset is backed by collateral (e.g. fiat currency), you are relying on a third party to maintain that collateral, which introduces risk if the party becomes insolvent or fails to maintain the necessary collateral.

Redemption risk: If the asset claims to be redeemable for underlying collateral, there is the risk that the redemption process will not work as expected, e.g. in times of market volatility or due to operational issues.

Collateral risk: There’s a risk that the value of the collateral could decline or become volatile, affecting the stability of the asset (e.g. where the collateral is another type(s) of cryptoasset(s)).

Exchange rate fluctuations: Lots of stablecoins are denominated in US Dollars, meaning you will be exposed to movements in the USD:GBP exchange rate.

DeFi tokens

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high-risk. Decentralised Finance (or ‘DeFi’) tokens (e.g. UNI, AAVE) are cryptoassets pegged to financial applications and protocols built on decentralised blockchain technology.

What are the key risks?

You could lose all the money you invest: The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets. The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.

Smart contract risk: DeFi relies heavily on smart contracts. Even a minor coding error or oversight can lead to a contract being exploited, potentially resulting in significant losses for DeFi tokens.

Regulatory risk: DeFi operates in a decentralised manner, often without intermediaries or financial crime controls. Regulatory bodies across jurisdictions might introduce new regulations impacting the use, value, or legality of certain DeFi protocols or assets. If a regulator deemed the activity to be in breach of regulation, this could seriously impact token value.

Rug-pulls/Exit scams: Some DeFi projects might be launched by anonymous or pseudonymous teams, increasing the risk of "rug pulls" where developers abandon the project and withdraw funds, leaving investors with worthless tokens.

Data/oracle risk: DeFi protocols often rely on external data sources or ‘oracles’. Manipulation or inaccuracies in these data sources can lead to unintended financial outcomes within the protocols.

Protocol complexity: The complexity of some DeFi protocols can make it difficult for average users to fully understand the mechanisms and associated risks.

Meme Coins

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk. ‘Meme coins’ (e.g. DOGE and SHIB) are cryptoassets whose value is driven primarily by community interest and online trends.

What are the key risks?

Volatility risk: Meme coins can have extreme price volatility, often experiencing rapid and unpredictable price fluctuations within short periods. The value of meme coins can be influenced by social media trends, celebrity endorsements, and other factors unrelated to traditional investment fundamentals.

Lack of utility: Meme coins often lack intrinsic value or utility, being primarily driven by community interest, online trends, and speculative trading.

Market manipulation: Meme coins may be susceptible to increased risk of market manipulation, including ‘pump-and-dump’ schemes, where the price is artificially inflated, followed by a sudden crash.

Lack of transparency: Meme coins may have limited available information about their development teams, goals, and financials. This lack of transparency can make it challenging to assess the credibility and potential of a meme coin accurately.

Emotional investing: Meme coins often garner strong emotional reactions from investors, leading to impulsive decisions. Emotional trading activity can amplify losses.

Staked Cryptoassets

Estimated reading time: 1 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk. Staked cryptoassets (e.g. staked ETH - NETH) are locked on the relevant blockchain protocol in order to secure the network and earn rewards.

What are the key risks?

Liquidity risk: Some protocols require staked assets to be locked for a period of time, which can prevent you from accessing or selling your assets quickly.

APY not guaranteed: The yield or reward rate you get from staking your assets is determined by the relevant protocol and is not guaranteed and may vary over time.

Protocol risks: Staking protocols are often continually evolving. Changes or updates to the consensus mechanism can introduce new vulnerabilities or unforeseen outcomes.

Utility Tokens

Estimated reading time: 1 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

Utility tokens, also known as user tokens or app coins, represent future access to a company's product or service. They are not designed as investments.

Regulatory risks: Regulatory ambiguity, as they do not fit neatly into traditional regulatory categories.

Development risks: Dependence on the success of the company's product or service, which may not yet exist or may fail. Some crypto projects may, through their products, fail to provide adequate utility for the tokens they issue, leaving adopters with an empty investment.

Trading Risk

Estimated reading time: 1 min

There can be no assurance that the use of the cryptoasset services will provide a positive return or profit, that significant losses will not be incurred, or that your objectives will be achieved. The past performance of assets is not a reliable indicator of future results. If you decide to deal in cryptoassets, you should be aware that you could lose a large amount, or even all, of the money invested.

Nexo will make the best efforts to choose high-quality cryptoassets and provide reliable exchange services but will not be responsible for trading losses. You must trade with caution and never risk more than what you can afford to lose.

Depending on the underlying technology and the features of particular cryptoassets, transactions in cryptoassets might be irreversible. Consequently, losses due to accidental or erroneous transactions may not be recoverable.

Volatility Risk

Estimated reading time: 2 min

The price of a cryptoasset is based on its perceived value and is subject to changes in sentiment, which makes the price of these products highly unpredictable and volatile when compared to financial instruments such as stocks and bonds. The extreme volatility and unpredictability of the price of a cryptoasset relative to fiat currencies may result in a total loss of the investment over a short period of time.

Several factors may affect the price of cryptoassets, including, inter alia:

the total number of cryptoassets in existence,
global demand and supply,
interest rates and currency exchange rates, including the rates at which cryptoassets may be exchanged for fiat currencies,
fiat currency withdrawal and deposit policies of cryptoasset exchanges and liquidity of such cryptoasset exchanges,
cyber theft of cryptoassets from online digital wallet providers, or news of such theft from such providers or from individuals’ digital wallets,
regulatory measures, if any, that restrict the use of cryptoassets as a form of payment or the purchase of cryptoassets on the market,
the availability and popularity of businesses that provide cryptoasset-related services,
increased competition from other forms of cryptoasset or payment services,
global or regional political, economic or financial events and situations, and
fees associated with processing a cryptoasset transaction.

Certain cryptoassets have experienced daily price volatility of more than 20%. Besides, cryptoasset markets are open 24 hours a day, seven days a week. As a result, rapid price changes might occur at any time, including outside of normal business hours.

Therefore, there is a high volatility risk, and holders may suffer large losses. You should not deal in cryptoassets unless you understand their nature and the extent of your exposure to risk.

Valuation Risk

Estimated reading time: 1 min

Cryptoassets can be traded through privately negotiated transactions and through numerous cryptoasset exchanges and intermediaries around the world, each with its own pricing mechanism and/or order book. The lack of a centralised pricing source poses a variety of valuation challenges. There is, therefore, a risk that investors will not receive a fair and accurate price when buying or selling cryptoassets.

The value of a cryptoasset may be derived from the continued willingness of market participants to exchange fiat currency for a cryptoasset, which means that the value of a particular cryptoasset may be completely and permanently lost should the market for that cryptoasset disappear. There is no assurance that a person who accepts a cryptoasset as payment today will continue to do so in the future.

Liquidity Risk

Estimated reading time: 1 min

The liquidity of the cryptoasset market will depend on, inter alia, supply and demand and the commercial and speculative interest in the market for these products. Thinly traded or illiquid markets have a potentially increased risk of loss because they can experience high volatility of prices, and, in such markets, market participants may find it impossible to liquidate market positions except at very unfavourable prices. Also, the lack of liquidity in any market for cryptoassets may result in delays in order execution, and some orders may not be executed at all. These effects may be exacerbated where an order is larger. There is no guarantee that the markets for any cryptoasset will be active and liquid or permit you to establish or liquidate positions when desired or at favourable prices.

Political, Legal and Regulatory Risk

Estimated reading time: 2 min

The performance of a cryptoasset or the possibility to purchase, sell, or repurchase may be affected by changes in general economic conditions and uncertainties such as political developments, changes in government policies, laws, or regulations (including regarding taxation), the imposition of restrictions on the transfer of capital and changes in regulatory requirements.

The regulatory environment concerning cryptoassets and other digital assets continues to develop, and legislative and regulatory changes may adversely affect the use, transfer, exchange and value of cryptoassets. The application and interpretation of existing laws and regulations are often largely untested, and there is a lack of certainty as to how they will be applied. New laws and regulations that apply to blockchain technology, digital assets, and related service providers will be promulgated in the future, and no assurance can be given that any such changes will not adversely affect digital assets generally or the cryptoasset services.

It is not possible to predict how such changes would affect the price and liquidity of digital assets or cryptoasset services generally. Regulatory actions could negatively impact cryptoassets and other digital assets in various ways, including, for purposes of illustration only, through a determination (with retrospective or prospective effect) that cryptoassets are regulated financial instruments requiring registration or licensing in certain jurisdictions.

Operational Disruptions/Settlement Risk

Estimated reading time: 1 min

Some cryptoasset transactions may be deemed to be executed only when recorded and confirmed by the platform operator, which may not necessarily be the time at which the client initiates the transaction.

Some cryptoasset exchanges have suffered severe operational problems, such as trading or settlement disruptions. During these disruptions, consumers have been unable to buy and sell cryptoassets at the moment they intended to and have suffered losses due to the price fluctuation of cryptoassets held during the period of disruption.

Lack of Exit Options

Estimated reading time: 1 min

Investors are at risk of being unable to trade in cryptoassets or exchange them for traditional fiat currencies for a long period of time. Investors may, therefore, suffer losses in the process.

Systemic Risk

Estimated reading time: 1 min

Since the market for digital assets is still very small compared to other market segments, a problem in one of the cryptoassets can impact the market value of the entire virtual financial assets market. The value of different cryptoassets is still strongly correlated. A negative impact on any cryptoasset can have an impact on the value of another.

Lack of Customer Protection Risk

Estimated reading time: 1 min

Cryptoassets and cryptoassets are not money, fiat currency or legal tender and are not backed by the government and authorities. They may or may not be considered “property” under the law of different jurisdictions, and such legal uncertainty may affect the nature and enforceability of a client’s interest in such a cryptoasset. The protection offered by the investor compensation schemes in some jurisdictions might not apply to transactions involving cryptoassets, irrespective of the nature of the tokens. Transactions in cryptoassets may be irreversible, and accordingly, losses due to fraudulent or accidental transactions may not be recoverable.

Technology Risk

Estimated reading time: 1 min

Cryptoasset networks’ functionality relies on technology. The relatively new and rapidly evolving technology underlying cryptoassets introduces unique risks. Technological disruptions may affect cryptoasset operations, which may adversely affect the cryptoasset industry. The nature of cryptoassets means that any technological difficulties experienced by the platform operator may prevent clients from accessing their cryptoassets.

For example, a unique private key is required to access, use or transfer a cryptoasset on a blockchain or distributed ledger. The loss, theft or destruction of a private key may result in an irreversible loss of the cryptoassets associated with this private key.

System errors may occur while using the Nexo website and/or applications. Risks associated with utilising the Internet-based trading system include but are not limited to hardware, software, and Internet connection failure. Risks resulting from any system failure could mean that orders may be delayed or fail.

Cybersecurity Risk

Estimated reading time: 2 min

Cryptoassets involve the storage and transmission of investors’ proprietary information, and security breaches could cause a risk of loss or misuse of this information, and of resulting claims, fines and litigation. The cryptoassets may be subject to a variety of cyber-attacks, which may continue to occur from time to time.

An attack or a breach of security could result in a substantial, immediate and irreversible loss for market participants that trade in cryptoassets, including through the loss of private data, unauthorised trades, an interruption in potential trading for an extended period of time, significant legal and financial exposure, damage to reputation, and a loss of confidence in security measures, any of which could have a material adverse effect on the financial results and business of the issuer of the cryptoasset.

Attackers can also manipulate the cryptoasset market. Moreover, markets for cryptoassets might not be subject to oversight by any supervisory, prudential or other regulators that impose minimum financial or business conduct standards or that require minimum cybersecurity protections. Additionally, attackers can target platforms that buy and sell cryptoassets and digital wallets that hold cryptoassets.

A minor cybersecurity event in a cryptoasset is likely to result in downward price pressure on that product and potentially other cryptoassets.

Insufficient, Inaccurate and/or Misleading Information Disclosure Risk

Estimated reading time: 1 min

Information regarding any specific cryptoasset may be missing, inaccurate, incomplete and/or unclear with respect to the project and its risks. Documents may be highly technical and require sophisticated knowledge to understand the characteristics of a particular cryptoasset. Besides, the offering documents or product information provided by the issuers of some of the cryptoassets might not have been subject to scrutiny by any regulatory body.

Third-Party Risk

Estimated reading time: 1 min

Third parties may be involved in the provision of Nexo services. These may include payment service providers, electronic money institutions, custodians, market makers and banking partners. You may be subject to the terms & conditions of these third parties, and Nexo may not be liable for any loss that these third parties may cause to you.

Nexo will carry out the necessary due diligence and third-party risk analysis and assessments where feasible and information is available to ensure this risk is mitigated as much as possible. However, Nexo cannot fully eliminate risks emanating from the involvement of third parties.