This Risk Disclosure Statement (“Statement”) intends to provide an overview of the potential risks associated with virtual assets and the use of the services provided by LBK EXCHANGE FZE (“LBank”/ “Company”/ “we”/ “us”/ “our”) by users (“you”/ “your”). LBank is licensed by the Dubai Virtual Assets Regulatory Authority (“VARA”) to undertake Virtual Assets ‘Exchange Services’ (“Services”) and this Statement has been prepared in accordance with VARA’s licensing conditions as well as all applicable UAE regulations, guidance and international best practices. LBank may make amendments to this Statement, as may be deemed appropriate, necessary, or if directed by the VARA and/or the concerned regulators.
This Statement provides an overview of general risks associated with using our Services but doesn't cover each and every risk or how they might impact you individually. There might be other risks we haven't mentioned or foreseen. The intent of this Statement is to emphasize the material risks tied to trading virtual assets and using our Services rather than diving into the details of each risk.
We urge you to read and comprehend this Statement before trading virtual assets or availing our Services. By engaging with our Services, you recognize and agree to the risks described in this Statement and any other risks linked to trading virtual assets. You are requested to evaluate these risks independently and make investment choices based on your analysis, resources, research, and experience. Any decision regarding investments or strategies is entirely your responsibility. Be aware that LBank won't be accountable for any loss or damage, direct or indirect, resulting from the mentioned risks or related events.
Any and all capitalized terms not defined in this Statement shall have the same meaning and construction as in LBank’s Client Agreement (the “Agreement”) and/or Terms of Use (“Terms”) and this Statement should be read in conjunction with the Agreement and Terms.
1. SUSPENSION OF SERVICES
You acknowledge and understand that we may experience system interruptions or delays due to outages, power loss, telecommunications failure, disasters, cyberattacks, system malfunctions, or other events and such interruptions or delays may affect our Services to you temporarily. We do not guarantee that our Services will be completely free from harm and uninterrupted and/or available at any particular time or that Services will not be subject to unplanned service outages or network congestion. In the event of any disruptions, we retain the discretion to make appropriate modifications or adjustments to our Services. This can range from changing the payment terms to cancelling orders altogether. Further, during such suspensions, you may not be able to access your virtual assets. Our decision in these scenarios will be based on what we deem fit. Our client agreement specifies the situations in which Services may be temporarily suspended.
2. GENERAL INVESTMENT RISKS:
a) Market condition risks: The valuation of a virtual asset which are bought or sold by you may be influenced by market conditions, which may be either favourable or adverse.
b) Divestment concerns: Certain virtual assets may pose challenges during divestment, such as lack of liquidity, making them tough to sell, or fetching a price lower than the acquisition cost when you aim to divest.
3. DEFAULT AND CONTRACT TERMINATION:
In the event of a default on your part or if we determine that you have failed or are likely to fail to meet your obligations, we reserve the right to close, terminate, suspend, or modify any transaction. Any outstanding charges or payments due from you may be adjusted against other payment obligations between us.
4. RISKS RELATED TO VIRTUAL ASSETS:
a) Virtual assets are not legal tenders: Virtual assets, often termed cryptocurrencies or digital currencies, are not recognized as official currencies in many jurisdictions and are not backed by central banks or governments. They may not be accepted or recognized in certain situations.
b) Market risk: The value of virtual assets can be influenced by broad market movements, external events, and global economic changes, resulting in potential losses. Engaging in virtual asset trading exposes users to profound market risks, underpinned by erratic price volatility. The volatility in this space is so significant that valuations can shift dramatically, and often suddenly, without any preceding indicators. Predicting whether the value trajectory of a particular virtual asset will be upwards, downwards, or if it could potentially become worthless, remains a challenge. Historical performance charts are not reliable yardsticks for forecasting future trends. Given the unpredictable nature of this market, holding onto virtual assets demands vigilance. You should be cautious about holding virtual assets and are warned that you should pay close attention to your position and holdings, and how you may be impacted by sudden and adverse shifts in trading and other market activities. Investment in virtual assets involves significant risks and it is possible that you may lose a proportion or substantial part of all of your investment. You should not invest funds that you are not prepared to lose in their entirety. Performance of virtual assets is subject to various factors, and you should carefully consider whether you can afford to bear the risks of investing in virtual assets.
c) Irreversible transactions: Given the decentralized nature of virtual asset transactions, once executed, cannot be reversed. To the extent that any of your virtual assets are incorrectly or fraudulently transferred, they are likely to be irretrievable. Furthermore, where virtual assets have been lost, stolen or destroyed under circumstances rendering a party liable to you, then you may have limited recourse against the responsible party and there is a lack of legal precedent surrounding how such arrangements would be treated under law.
d) High price volatility: Virtual assets are intrinsically known for their pronounced volatility when compared to traditional fiat currencies and established commodities like gold and silver. Virtual assets can exhibit extreme price fluctuations within short time frames. This volatility can result in rapid and significant losses, and there's no assurance of profit or maintaining the initial investment. It's not unusual for the value of these digital assets to witness significant upward or downward movements within a 24-hour period. The price and value of virtual assets may also entirely depend on the value that market participants place on them, meaning that any market shift in the confidence of virtual assets may affect their value. Moreover, virtual assets are often not backed by a central bank, a national or international organization, assets, or other forms of credit. Such drastic fluctuations can swiftly translate to considerable losses. Before investing in virtual assets, it's essential to assess whether you're financially equipped to shoulder the risks that come with such unpredictable market.
e) Transferability of virtual assets: There may be circumstances wherein you may not be able to transfer your virtual assets to external virtual asset wallets. These circumstances include, cessation of providing Services in relation to a particular virtual asset by us; virtual asset transfer limits established for your account in accordance with our internal risk and anti-money laundering processes and policies; flagging of destination wallet addresses as tainted/suspicious wallet addresses; system maintenance; suspensions of trading/withdrawals in particular virtual assets required under applicable law, by regulatory authorities or to protect the fair and orderly operation of the market; and other events out of our control.
f) Delays in transactions and transfers: Transfer times for virtual assets can vary due to network congestion, technological issues, or other unforeseen delays, potentially impacting timely order executions. Further, virtual asset transfers are subjected to screening processes by us in line with the applicable regulatory standards and relevant applicable legislation. Certain patterns and sizes of transactions will be subject to enhanced scrutiny which could result in delays or rejection of the transfer request. This may impact your ability to transfer virtual assets in your account.
g) Liquidity risk: Markets for virtual assets have varying degrees of liquidity. Liquidity risk exists when particular investments are difficult to purchase or sell, possibly preventing you from selling out of these illiquid investments at an advantageous price, or at all. There may be situations where selling virtual assets quickly without affecting their market price becomes challenging, especially in less liquid markets or during market disruptions. Thin markets can amplify volatility and cause significant delays in executing trades. Investment markets of this nature are likely to exhibit broader price spreads and heightened responsiveness to buying and selling pressures compared to more actively traded markets. The lack of liquidity can stem from multiple factors, including market conditions, regulatory interventions, technological challenges, or unanticipated events. Such illiquidity could potentially affect the ability to place orders, potentially resulting in losses or delays in accessing funds.
h) Liquidity slippage risk: We make proper efforts and work to monitor and maintain liquidity of virtual assets in relation to which we provide Services. Nevertheless, market conditions might create a lack of liquidity that might create a severe devaluation of the asset or a strong slippage on price when executing an order. You acknowledge and understand that price fluctuation occurring after you place the order can affect its execution price. Further, you acknowledge that limit orders will only be executed when the requested price is achieved rather than the published price. This means that there is a possibility that a limit order is only executed partially (or in certain extreme situations the order is not executed at all).
i) Public record of transactions: Virtual asset transactions are recorded on public ledgers, which may pose privacy concerns despite not directly linking to identities. In the past, flaws in the source code for virtual asset networks have been exposed and exploited, including flaws exposed users’ personal information.
j) Market manipulation and fraud risk: The virtual asset market is vulnerable to manipulative practices and fraud, including Ponzi schemes, pump-and-dump schemes, and other illicit activities that can distort prices and market integrity. Such targeted schemes may result in the loss of virtual assets or a decrease in or loss of all value of your virtual assets, and you may not benefit from legal protections.
k) Cyber Risk: Virtual assets may not always be transferable or transactions in virtual assets may be irreversible, and, accordingly, losses due to theft, fraudulent or accidental transactions may not be recoverable. The nature of digital currency may lead to an increased risk of fraud or cyber-attack. Any individual virtual asset may change or otherwise cease to operate as expected due to changes made to its underlying technology, changes made using its underlying technology, or changes resulting from an attack.
l) Increased cyber-attack risk: Virtual asset platforms and wallets are enticing targets for hackers. Virtual assets, by their inherent nature, are especially susceptible to cyber threats. The digital space in which they operate makes them prime targets for various malevolent activities. Hackers and fraudulent entities often set their sights on these assets, orchestrating sophisticated attacks. These can include inter-alia:
a. Distributed Denial of Service (“DDoS”): Overwhelming services by flooding them with information requests;
b. Sybil attacks: A malicious actor takes over multiple nodes in a network, essentially gaining undue influence;
c. Phishing: Deceptive attempts to gather sensitive data by impersonating trustworthy entities;
d. Social engineering: Manipulating individuals into divulging confidential information;
e. Hacking: Unauthorized intrusion into systems or networks;
f. Smurfing: Flooding networks with traffic by spoofing an IP address;
g. Malware: Malicious software designed to damage, disrupt or gain unauthorized access;
h. Fork: This may occur if virtual asset developers suggest changes to a particular virtual asset software and the updated software is not compatible with the original software and a sufficient number (but not necessarily a majority) of users and miners elect not to migrate to the updated software. This would result in two versions of virtual asset networks running in parallel and a split of the blockchain underlying the virtual asset network;
i. Majority-mining, consensus-based or other mining attacks: Exploiting the consensus mechanism of blockchain networks to gain control including but not limited to double-spend attacks, majority mining power attacks, “selfish-mining” attacks, and rare condition attacks; and
j. Spoofing: Disguising communication from an unknown source as coming from a trusted one.
The decentralized and digital structure of virtual assets and the underlying distributed ledger technology amplifies the potential risks associated with cyber threats. If these attacks are successful, they could lead to significant losses, including the potential complete loss of your virtual assets. Moreover, legal protections may not apply to such targeted malicious acts.
m) Account security risk: Failure to use robust security practices can render your accounts vulnerable. This includes risks from phishing, malware, and other malicious activities. Unauthorised access may be gained by third parties of your login credentials to gain access to your account, including through carelessness or forgetfulness by the account holder, or the third-party obtaining control over another device or account used by you in connection with any enhanced security measures enabled for your account. It is not possible to eliminate all security risks. You acknowledge and accept that you are responsible for keeping your account and log-in details safe, and you may be responsible for all the transactions conducted through your account, whether authorised by you or not. You may not benefit from legal protections in such situations.
You can take the following measures to protect your keys and/or seed phrases from misuse or unauthorised access:
(i) Enable Two-Factor Authentication (2FA): This adds an extra layer of security by requiring a second verification step, such as a unique code sent to your mobile device;
(ii) Secure Storage of Keys and Seed Phrases: You may use offline or hardware wallets designed specifically for storing virtual assets. Additionally, keys should be saved offline and never revealed in plaintext to anyone, ideally keys should be stored in lockers;
(iii) Backup and Recovery: Keys and seed phrases should be regularly backed up. You should store backups in multiple secure locations, preferably encrypted and offline, to protect against physical loss or damage;
(iv) Monitor Account Activity: We encourage you to monitor your account activity regularly and report any suspicious transactions or unauthorized access to us immediately.
n) Legal risk: The regulatory framework for virtual assets is evolving and can change without notice. Changes in laws and regulations by VARA and/or any relevant regulatory authority may materially affect the value, price, use, transfer, exchange, operation, acceptance, control, and/or access of virtual assets. Customers should seek legal advice where necessary and engage with the relevant experts before entering into any contractual agreements to ensure they are in compliance with the local regulatory requirements. Furthermore, you are expected to carefully review all terms and conditions and understand their rights and obligations
o) Enforcement action: Regulatory bodies may take action against virtual asset platforms or users, leading to potential disruptions, losses, or legal consequences. In circumstances where there are regulatory interventions, changes to the legal landscape, or situations making our operations untenable or financially unviable in a particular jurisdiction, we may decide to halt our Services. This may result in you losing access to your account and may further result in the loss of any virtual assets stored or held on your account.
p) Third party risks and outages: Relying on third-party platforms or services introduces the risk of platform outages or malfunctions, which can impact the execution and placing orders or asset access. Third parties including payment service providers, liquidity providers, custodians, IT service providers and banking partners may be involved in the provision of our Services. You may be subject to the terms and conditions of these third parties. You acknowledge and understand that you may suffer losses incurred from the actions of third parties, including those engaged or partnered by us for the provision of our own Services to you and those engaged by yourself for the use of our Services (e.g., the banking services or wallet services you use), as well as those neither engaged by you nor by us. While the performance of these providers is monitored on a constant basis, an outage at one of the Company’s partners could affect you in the short-term. To the extent possible under the applicable legislation, we shall not be held responsible for any loss that these third parties may cause you when you are using our Services.
q) Information technology risk: There are risks associated with utilizing an internet-based system including, but not limited to, the failure of hardware, software, and internet connections, the risk of malicious software introduction. We do not control signal power, reception, routing via the internet, configuration of your equipment or the reliability of your connection. Failure of the foregoing may result in your transaction either not being executed according to your instructions, or not executed at all. Furthermore, when you communicate with us via electronic communication, you should be aware that electronic communications may fail, be delayed, be unsecure and/or not reach the intended destination.
r) Valuation: Valuating virtual assets is complex due to their volatile nature, lack of a centralized pricing source, and evolving use cases. Assigning a clear-cut value to a virtual asset can be challenging. Factors like significant price fluctuations, differences in prices across various exchanges, and liquidity disparities can cause notable deviations in valuations. It's not uncommon to see the price of a virtual asset on one platform differ considerably from its price on another due to these liquidity variances. Weighted average prices might also not truly reflect an asset's real value. While we make reasonable efforts to establish reliable pricing policies and practices, the evolving nature of the secondary markets and possible regulatory changes mean that there can be unforeseen impacts on virtual asset values. You acknowledge and understand that we can't guarantee that our provided price for any virtual asset will always be better than prices on other exchanges or platforms.
s) No investment advice: While we provide a platform for virtual asset transactions, we do not offer investment or personal advice. We sometimes provide factual information, information about transaction procedures and information about the potential risks. No communication or information provided to you by the Company is intended as, or shall be considered or construed as, investment advice, financial advice, trading advice, or any other sort of advice. All investment decisions should be made based on personal research, risk tolerance, and financial situation.
t) Taxation risks: The tax characterization of virtual assets is uncertain. You must seek your own tax advice in connection with acquisition, storage, transfer and use of any virtual asset, which may result in adverse tax consequences to you, including, without limitation, withholding taxes, transfer taxes, value added taxes, income taxes and similar taxes, levies, duties or other charges and tax reporting requirements. It is your responsibility to report and pay any taxes that may arise from transacting using our Services, and you acknowledge that we do not provide tax advice in relation to any transaction carried out using our Services. You are encouraged to seek professional and personal legal and tax advice regarding the above and before making any virtual asset transaction.
u) Third party custody risks: Having virtual assets on deposit or with any third party, including those under a client asset account with a third-party custodian has inherent risks. These risks include security breaches, risk of contractual breach, and risk of loss and risk arising from bankruptcy. You should be wary of allowing third parties to hold your property for any reason.
v) Unanticipated risks: The risks described herein are neither intended to be a comprehensive nor an exhaustive list of risk factors. You remain responsible for taking care to understand the technology, economic and legal nature of virtual assets and for carefully managing your exposure in accordance with that understanding and your risk appetite for innovative, volatile and speculative new technologies and virtual assets.
