Risks
Last updated
Last updated
Investing in mBASIS involves risks, and it is important for investors to fully understand these before engaging. While Midas seeks to minimise risks, the following key factors are highlighted to investors. Full risk disclosure can be found in the Prospectus Documents
The offering is made exclusively on the basis of the information contained in the formal prospectus issued in connection with the offering. The prospectus is available at Prospectus Documents. Any decision to invest in the securities should be based on a consideration of the prospectus as a whole by the investor. The approval of the prospectus by the FMA should not be understood as an endorsement of the quality of the offering.
has been engaged as risk advisor of mBASIS. The risk mandates seeks to track performance of crypto funding rates, while minimizing risk of the collateral.
Edge Capital is a leading market-neutral hedge fund that manages capital for largest fund of funds, institutional investors and leading crypto foundations and treasuries since 2020.
Although mBASIS tokens are non-custodial and permissionless, the collateral used in the basis trading strategy may be held on centralized exchanges. This introduces counterparty risk, as the solvency, regulatory compliance and security of those exchanges are critical to the safety of the assets. Midas takes steps to mitigate this by working with regulated and well-established exchanges, but custodial failures, such as hacks or insolvency, could still result in partial or total losses.
mBASIS relies on multiple counterparties, each introducing its own set of risks:
Custodians: Assets may be held with third-party custodians, and their insolvency, mismanagement, or security breaches could result in asset loss.
Stablecoin Issuers: The strategy utilizes stablecoins, which depend on the solvency and proper functioning of the issuing entities. Any regulatory actions or operational failures at stablecoin issuers could affect mBASIS liquidity and redemption.
Centralised Exchange: spot assets might be held at centralised exchanges, which carry counterparty risks. The future hedge is typically fully exposed to the centralised exchange and introduces risks.
mBASIS relies on the basis trading strategy, which typically earns revenue from positive funding rates in futures markets. However, during certain market conditions, negative funding rates may arise, requiring mBASIS to pay rather than receive funding.
In volatile markets, there’s a risk of positions being liquidated if the value of collateral falls below certain thresholds. For mBASIS, this may occur if market conditions move sharply against the basis trading positions.
When trading cryptocurrencies, the mBASIS strategy may face execution risks due to market volatility and liquidity shortages. Large trades can create price slippage, meaning the executed price may differ from the expected one, negatively impacting the portfolio's value. High volatility can further exacerbate these risks, leading to adverse effects on returns.
Additional risks include the following.
Market Volatility: Sudden price movements in cryptocurrency markets can adversely impact portfolio performance.
Regulatory Changes: The strategy is exposed to potential changes in cryptocurrency regulations, including restrictions on trading, taxation, or usage of specific DeFi platforms. Such changes could impact the liquidity and viability of the strategy.
Operational Risks with Smart Contracts and DeFi Protocols: Smart contracts used in DeFi protocols may contain coding vulnerabilities or be subject to exploits, resulting in potential asset losses. Additionally, operational failures or governance decisions within DeFi protocols could affect their functionality and reliability. While mBASIS selects protocols with high security standards, these risks cannot be entirely eliminated.
You can learn more about the risks of mBASIS by reading the Legal Documents.
A qualified subordination agreement was entered into for all current and future claims of the tokenholders. 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 cannot assert claims for interest payments or loan repayment if doing so would lead to the company’s insolvency. Further details can be found in the prospectus, which is available at Prospectus Documents.