UK Risk Summary

Estimated reading time 2 min

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.
• The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm.

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.
• Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay.

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.

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.

Asset Category Overviews

Stablecoins

Crypto-assets whose value is pegged to fiat currency or other reserve assets. Risks include counterparty risk, redemption risk, collateral risk, FX risk, and algorithm risk.

DeFi Tokens

Linked to decentralized finance protocols. Risks include smart contract risk, regulatory risk, rug-pulls, oracle risk, and complexity.

Wrapped Tokens

Tokenized representations of other assets. Risks include smart contract risk, collateral risk, custodial risk, bridging risk, and pricing disparity.

Meme Coins

Driven primarily by community interest. Risks include volatility risk, lack of utility, market manipulation, lack of transparency, and emotional investing.

Staked Assets

Locked on protocols to secure networks. Risks include:

• Slashing risk: Network may penalize your validator for errors, causing loss of assets.
• Liquidity risk: Assets locked for extended periods cannot be accessed or sold quickly.
• APY not guaranteed: Reward rates are determined by protocols and fluctuate over time.
• Protocol risk: Network updates and changes may introduce new vulnerabilities or unforeseen outcomes.
• Smart contract risk: Vulnerabilities in staking contracts could be exploited, resulting in loss of staked funds or rewards.

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.

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