nealthy has created this Risk Disclosure Statement that includes a detailed description of all material risks related to the nSTBL token being issued.
The risk types defined as material are described below.
Significant deviation in the values of the top stablecoins can impact the index and, as a result, the value of the token which could result in losses for investors. The stablecoin may also depeg meaning the price would not accurately reflect the value of the underlying assets.
Furthermore, nealthy currently defines the identified market price risks as material. The quantitative and qualitative criteria were examined for the assessment. The expected amount of damage within the framework of the risk inventory is below the defined threshold, but individual risks with a high amount of damage were identified. In addition, significant effects on the net assets, liquidity or results of operations are to be expected. No concentration risks have been identified.
nealthy currently defines the identified counterparty risks as material. The quantitative and qualitative criteria were examined for the assessment. The amount of damage expected within the framework of the risk inventory is above the defined threshold. In addition, material effects on the net assets, results of operations, and liquidity position are seen. In this context, there are concentration risks as well as very high/existential damage levels at the level of individual risks.
In the course of trading business, counterparty risks exist in various forms. nealthy distinguishes between settlement and replacement risks. For the types of contacts relevant to the business, nealthy uses the following classification:
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Trading in virtual asset instruments gives rise to contractual receivables from and liabilities to the counterparty.
The delivery of virtual assets is procedurally dependent on the payment of the amount to be made out and vice versa. If the payment is not made as expected, the transfer of the assets is accordingly not carried out and vice versa. The settlement process described avoids the settlement risk in its entirety.
In the digital assets business, a distinction must be made between liquidity providers/other counterparties and customers when assessing counterparty risk. Counterparties and customers. Settlement in the first case is free of payment or delivery, i.e. payment/delivery is always made first by nealthy and only in a second step by the counterparty. Thus, nealthy takes a settlement risk. When settling customer transactions, nealthy distinguishes between "post-trade" settlement and "pre-funding". In the case of post-trade settlement (only for institutional customers), the customer is usually provided with a trading line and the amount of the claim is limited to the amount of the line. Depending on the contractual arrangement, a combination of trading line and collateral in the form of FIAT money or securities is possible here. In this case, the delivery of the crypto securities by nealthy is also procedurally dependent on the payment of the amount outstanding and vice versa. If the payment or delivery by the customer is not carried out, the delivery or payment by nealthy will accordingly also not be carried out. In the case of pre-funding, the customer already holds the amount of money in the amount of the planned net trading volume until settlement before the transaction is concluded. In this way, nealthy uses a settlement process similar to train-by-train in the customer business in order to avoid the settlement risk.
There are generally replacement risks as a result of the settlement risk.
Another form of counterparty risk is to credit institutions with which nealthy holds its deposits. A significant portion of the deposits is held at bank and therefore represents a concentration risk. In extreme cases, the default of a credit institution can lead to a complete loss of these funds. Thus, there is a counterparty default risk with significant effects on the liquidity, earnings and asset situation, which are limited by appropriate control and monitoring measures.
In addition, there is a limited counterparty risk with regard to further receivables from customers and other business partners, namely in the event of non-fulfillment of contractual payment obligations.
nealthy holds crypto assets at various exchanges in the course of its crypto business. In this context, there is a risk of loss of the assets as a result of an economic default.
nealthy holds crypto assets with various custodians or DeFi protocols in the course of its crypto business. In this case, there is a risk of loss of the assets as a result of an economic failure or an IT hack. In cases where the assets are held in trust, this risk exists to a much lesser extent.
nealthy currently defines the identified liquidity risks as material. The quantitative and qualitative criteria were examined for the assessment. The amount of damage expected within the framework of the risk inventory is below the defined threshold. In contrast, there is a potentially significant impact on the liquidity and asset situation. No risk concentrations or individual risks with a high or very high/existential level of damage were identified as part of the risk inventory.
In the virtual asset business, positions from customer business and liquidity provision are also offset by corresponding close-out transactions. There is a liquidity risk in that sufficient funds must be available to cover the margin requirements for the close-out. In the event that no corresponding offsetting transactions are possible, there is an indirect market price risk. Furthermore, sufficient liquidity or crypto assets must be maintained for liquidity provision in order to continuously provide prices on the exchanges and to operate the business without disruptions. In the event of insufficient liquidity or crypto assets, there is an earnings risk due to a reduction in trading volume or temporary interruption of the business.
In connection with the replacement risk in the event of a counterparty default, there is an indirect liquidity risk especially in Broker Dealer Service business.
In the virtual asset business, liquidity risk exists in various forms. In trading with liquidity providers, this consists of a possible liquidity requirement in the amount of the settlement risk for the acquisition of the crypto assets on the market plus a market risk component.
Market liquidity risk describes the risk that financial instruments can only be bought or sold on the market at a lower-than-expected market price or not at all due to insufficient market liquidity or market depth.
Due to its business model, nealthy also trades assets in markets with low liquidity. Furthermore, in times of stress or unexpected market events, there is a risk that transactions can only be concluded at unfavourable market prices or not at all.
In the virtual asset business, there is only a comparatively small market depth and thus a liquidity risk, especially with so-called "minor" and "exotic" coins or instruments. This is also limited from the outset by the consistent limitation of the positions.
In addition to the liquidity risk indirectly associated with the trading business, there is also the risk of insufficient operating liquidity as a result of fluctuations in income from the trading business and/or increased cash outflows.
The nealthy currently defines operational risks as material. The quantitative and qualitative criteria were examined for the assessment. The amount of damage expected as part of the risk inventory is above the defined threshold. In addition, significant effects on the liquidity, earnings and asset situation are possible. Furthermore, there are concentration risks and individual risks with a very high/existential level of damage.
According to its risk taxonomy, nealthy distinguishes operational risks between:
a. Technology risks,
b. Litigation risks,
c. Human error,
d. External risks, including outsourcing risks.
Operational integrity is essential for nealthy's service quality. Therefore, operational risks, especially technology and outsourcing risks as part of external risks, are of particular importance for trading operations.
Technology risks include the failure of systems critical to the trading business, insufficient system performance, and various information security risks. These risks can have a significant impact on business operations, particularly in the event of major disruptions or temporary failure of the trading systems. This includes financial damage due to a direct loss of income from the trading business, but also indirect financial damage such as reputational damage or claims arising from legal disputes.
In addition, there are risks at the process level, human errors in the execution of processes, and other external risks such as physical damage to material assets and damage caused by fraud in the course of business.
Outsourcing risks are of particular importance for nealthy, since essential IT services, such as automated systems to assist with onboarding and transaction monitoring are outsourced. In addition, there are further outsourcing arrangements for the provision of the technical infrastructure. Any poor performance in the provision of the agreed services may result in a direct impact on the service quality of nealthy and its platform.
nealthy currently defines the identified business risks as material. The quantitative and qualitative criteria were examined for the assessment. The amount of damage expected within the framework of the risk inventory is initially below the defined threshold. However, there are individual risks with a very high/existential level of damage. In addition, notable effects on the liquidity, earnings and asset situation are to be expected.
In terms of business risks, nealthy distinguishes between the dimensions:
a. Economic and geopolitical changes,
b. Strategic Management,
c. Market conditions,
d. Competition,
e. Legal changes
nealthy's business performance is dependent on economic and geopolitical changes, in particular the external conditions formulated in the overall company strategy, such as recession, armed conflicts, de-globalization, the effects of the Covid pandemic, and financial market developments.
In addition, there are strategic management risks arising from decisions with a potentially negative impact on the success of the company. Linked to this are the objectives formulated in the overall company strategy. This includes the risk that the product offering may not meet the requirements of the market's customer.
In addition, there are risks with regard to future market developments. The individual factors are described in the overall company strategy. There is a risk of a decline in market growth and thus insufficient demand from existing customers on the one hand and new customers on the other. This could have a negative impact on the earnings situation with high fixed costs at the same time. The development of the retail business has a significant influence here. Even in a growth scenario, there is a risk of gradually increasing competition and, as a result, market consolidation.
In addition to the aforementioned risks, there is a risk of possible changes in the regulatory, tax or other legal framework conditions that could have a negative effect on the business development of the institute. These could, for example, make trading and investments in virtual assets less attractive for customers or lead to additional cost increases. In this context, a trading ban on particularly resource-consuming cryptocurrencies or comparable legal restrictions with a direct effect on the business would also be conceivable.
