> For the complete documentation index, see [llms.txt](https://docs.midas.app/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.midas.app/legal/investment-risks-1-0-1.md).
# Investment Risks 1-0-1
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*Investing in security tokens involves a high degree of risk, including the risk of a total loss of invested capital. It is important for investors to understand these before engaging. Full risk disclosure can be found in the relevant product documentation. Any decision to invest in security tokens should be based on a consideration of this product documentation as a whole by the investor.*
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Midas is committed to transparency and strives to provide a comprehensive understanding of the risks associated with its products. Click [here](/transparency/asset-transparency.md) for more information on our transparency efforts .
This section outlines the risks inherent to security tokens in general and is provided for illustrative and explanatory purposes. If you are looking for a complete and comprehensive disclosure of risks related to Midas products specifically, please review the "Risk Factors" section of the relevant offering documentation applicable to each product.
Performance Risk
*The value of a security tokens can decrease to zero. Past performance is not indicative of future results. Security tokens are subject to the performance of the assets or strategy including:*
* ***Strategy Risk:**** **security tokens follow diverse strategies, each carrying its own unique risk profile. These strategies are susceptible to liquidity constraints and sudden shifts in market dynamics, which can destabilize the underlying assets and result in a significant loss of principal.*
* ***Market Sentiment and Conditions:**** **security tokens follow the inherent volatility and performance of their underlying reference portfolio or assets. Asset prices may be impacted by macroeconomic events, regulatory changes, and general market sentiment. Sudden market downturns or liquidity shocks can impair the manager's ability to maintain returns, potentially leading to capital losses and preventing investors from redeeming assets at their expected values.*
* ***Counterparty Risk:**** **The performance of security tokens may depend on various third-party platforms including crypto exchanges, DeFi protocols and stablecoin issuers. If these counterparties fail to fulfill their obligations or face insolvency, investors in security tokens may experience reduced liquidity, financial losses, or the inability to access and redeem their assets.*
* ***Leverage and Liquidation Risk:**** **Security tokens that are based on strategies utilising leverage or specific collateralised positions are vulnerable to liquidation if asset prices fall below certain thresholds. In periods of extreme market stress, assets may be liquidated at highly unfavorable prices, which can result in partial or total capital losses for the investor.*
* ***Execution Risk:**** **This risk arises from potential delays or technical failures which prevent the efficient implementation of an investment strategy. Errors in transaction timing or execution can lead to sub-optimal performance and direct financial losses, even when automated systems are in place.*
* ***Manager Risk:**** **The success of any tokenised strategy is deeply tied to the effective operation of internal systems and the discretionary oversight of the strategy manager. Any inefficiencies in risk management, operational failures, or errors in strategic decision-making can lead to the mismanagement of the portfolio and negatively impact the overall value of the investment.*
Duration & Liquidity Risk
*Security tokens may not have a fixed maturity date, meaning investors may only be able to realise value through redemptions or limited secondary market sales, such as over-the-counter (OTC) transactions. There may be no established trading market for specific security tokens, and there is no guarantee that one will develop. When an "Instant Redemption" feature is made available for a specific security token to accelerate settlement, its availability may not be guaranteed.*
Blockchain, Smart Contract and Wallet Risks
*Security tokens rely on blockchain networks and on smart contracts. Malfunctions, forks, or the abandonment of the underlying blockchain (e.g., Ethereum) can materially impact their functionality and value. Any flaws, bugs, or logic errors in the smart contracts of security tokens could lead to protocol failure or the loss of assets. Further the performance of security tokens can be linked to underlying assets and counterparties which are themselves exposed to blockchain and smart contracts risks. Finally, the loss of private keys associated with a digital wallet will result in the irreversible loss of any security token.*
Oracle Risk
*The calculation of the Net Asset Value (NAV) of a security token may depend on third-party data sources and methodologies. These inputs may differ from prices on other trading venues and may be delayed or based on estimates during periods of market volatility.*
Credit Risk
*Subject to the specific issuance documentation of any security token, the investors may be exposed to the creditworthiness of the issuer. For some security tokens a qualified subordination agreement may apply. The qualified subordination means that interest payments and loan repayment to the tokenholder will rank below all other creditors of the company in the event of insolvency, but above the shareholders. Additionally, the tokenholder may not be able to assert claims for interest payments or loan repayment if doing so would lead to the issuer’s insolvency.*
Regulatory Risk
*Security tokens and the underlying distributed ledger technology face an unsettled and rapidly evolving global regulatory landscape. Future laws or enforcement actions could render operations illegal or commercially unviable in certain jurisdictions, potentially forcing the issuer of said security tokens to cease activities or incur significant penalties for non-compliance. There is also the risk that licensing requirements could restrict the issuer’s ability to support the security tokens or that yield-generating structures could be reclassified under restrictive investment fund regulations. Such regulatory shifts may materially impact the marketability and tax treatment of any security token, as well as an investor's ability to buy, hold, or sell their positions.*
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