Built by Dynamic Strategies, WattsWise is a new cycling analytics platform that does what no competitor has managed to do - connect the entire athlete journey from daily training through race-day execution in a single, integrated system. Where existing platforms stop at showing you what happened on yesterday's ride, WattsWise tells you what it means, what to do next, and then guides you through it in real time on your Garmin device.

The Problem with Cycling Analytics Today

Serious cyclists currently cobble together three or four separate tools to manage their training and racing. They track rides on Strava, plan training on TrainingPeaks, analyze power data on intervals.icu, and then manually transcribe race-day targets onto tape stuck to their handlebars.

Each platform does one thing well, but none of them talk to each other, and the athlete is left doing the integration work themselves - copying numbers between apps, cross-referencing charts, and hoping they remembered to update their FTP in every system.

The result is a fragmented experience that punishes the very athletes who take their training most seriously. The more data-driven a cyclist is, the more tools they need, and the more time they spend managing software instead of riding their bike.

WattsWise was built to eliminate that fragmentation entirely.

What WattsWise does

WattsWise is a full-stack cycling analytics platform that covers every stage of the training-to-racing pipeline:

Analytics and Performance Tracking

Every ride synced through Strava or uploaded from a Garmin device is automatically analyzed with the metrics that matter to performance-focused cyclists: Normalized Power, Training Stress Score, Intensity Factor, Variability Index, and Aerobic Decoupling. These are not just numbers on a screen - each metric comes with a plain-language interpretation. Instead of showing "IF: 0.87" and leaving the athlete to figure out what that means, WattsWise tells them "this was a hard tempo effort - good training stimulus for your current build phase."

The platform tracks Chronic Training Load (CTL), Acute Training Load (ATL), and Training Stress Balance (TSB) over time through a Performance Management Chart — the single most important tool for any cyclist managing their fitness. Athletes see at a glance whether they are building fitness, accumulating fatigue, or peaking for an event.

Power curve analysis spans 21 durations from 1-second neuromuscular sprints to 2-hour endurance efforts. Athletes can overlay curves from different training periods to see exactly where their gains are happening - and where they are not. The Aerobic Efficiency Factor trend, which plots power output per heartbeat over weeks and months, provides a clear, honest answer to the question every cyclist asks: "Am I actually getting faster?"

AI Coaching

WattsWise integrates an AI coaching agent that goes beyond generic chatbot advice. The coach has full access to the athlete's ride history, power profile, current fitness metrics, training plan, uploaded courses, and upcoming events. It can answer questions like "Am I ready for my race in three weeks?" by actually checking the athlete's CTL trajectory, projected TSB on race day, and recent power curve trends - then giving a specific, data-backed answer.

The coach can create and adjust training plans, design segment-by-segment race pacing strategies with per-climb power targets, build nutrition timing plans matched to the athlete's preferred foods, and provide weekly training summaries. It is not a scripted FAQ - it is an adaptive agent that reasons about the athlete's actual data in real time.

Training Plans

Training plans in WattsWise are built on established periodization principles from coaches like Coggan, Friel, and Allen. Athletes set their goal (FTP development, VO2max improvement, sprint power, or combined), available training days, and maximum weekly hours. The platform generates structured 4-week mesocycles with progressive overload, built-in recovery weeks, and workouts personalized to the athlete's current power zones.

Plans are not rigid prescriptions. Each week presents a goal and priorities — key interval sessions that should not be skipped, long rides that build endurance, and fill-in volume that fits around work and family commitments. As rides are completed, the platform matches them against planned workouts and tracks completion, adjusting recommendations if the athlete is consistently over- or under-shooting their targets.

Course Planning and Race Strategy

Athletes upload GPX files of their target race courses. WattsWise automatically segments the course into flats, climbs, and descents, classifies climb difficulty from Category 4 through Hors Categorie, and generates an elevation profile with gradient coloring. The platform then builds a segment-by-segment pacing strategy personalized to the athlete's current FTP and fitness level — conservative power targets on early climbs, calculated pushes where the terrain allows it, and recovery windows on descents.

The race strategy integrates nutrition timing directly into the pacing plan. Based on the athlete's preferred foods and the course profile, WattsWise calculates total energy requirements and distributes feeding windows across the route. Easy sections and descents are flagged as optimal eating windows. High-intensity climbs are marked as no-eat zones. The result is a complete race execution plan — not just what watts to ride, but when to eat, what to eat, and how much.

Purpose-Built Garmin Connect IQ App

This is where WattsWise's integrated approach delivers its most tangible advantage. The race plan built on the web does not stay on the web - it pushes directly to a purpose-built Garmin Connect IQ app that runs on Edge 530, 540, 550, 830, 840, 850, 1030, 1040, 1050, and Explore 2 devices.

On race day, the athlete's Garmin displays

• A pacing screen showing the current power target for the current segment, color-coded green when on target and red when drifting. The athlete glances down for one second and knows exactly whether to push harder or ease off.
• A nutrition screen that flashes alerts when a feed window arrives, tells the athlete exactly what to eat ("2 rice cakes + water"), and tracks cumulative carbohydrate intake against the plan. No more guessing whether they have eaten enough.
• A live map with course overlay, showing their position and - in race events - competitor positions updated every second.
• A ten-field data grid showing Normalized Power, Intensity Factor, TSS, W'bal (remaining anaerobic capacity), elapsed time, distance, speed, cadence, heart rate, and current power - all updating at one hertz.

The Garmin app pairs with the web platform using a simple six-digit code. Race plans download before the start. After the ride, the FIT file syncs back through Strava or Garmin Connect automatically. The athlete never transfers a file manually.

Nutrition Planning

WattsWise includes a full nutrition planning system with a library of 20+ common cycling foods - energy gels, rice cakes, dates, fig bars, gummy bears, stroopwafels, PB&J sandwiches, and more - each with detailed macro breakdowns per serving. Athletes mark their race favorites, add custom foods, and the platform calculates carbohydrate delivery rates per hour.

This is not a standalone feature. The nutrition plan feeds directly into the race strategy and then onto the Garmin screen. An athlete who plans their nutrition on the web sees those exact food recommendations appear on their Garmin at the right moment during the race.

Live Racing and Leaderboards

WattsWise supports live racing events where athletes compete on shared courses with real-time GPS tracking and leaderboards. Event organizers place GPS-located prize markers along the course with configurable claim radii and medal tiers — Gold, Silver, Bronze, and Participation. Server-side proximity validation with hash-based verification prevents cheating. Results are optionally settled on the Midnight blockchain for verifiable, tamper-proof race records.

Blockchain Integration - Midnight Network

WattsWise integrates with the Midnight Network, a privacy-preserving blockchain, for race result settlement and an in-app token economy. Race finishes, prize claims, and checkpoint arrivals are recorded on a private ledger, providing cryptographic proof of athletic achievement without exposing personal data.

The WATTS token system rewards consistent training and racing - athletes earn tokens for race medals, FTP milestones, distance achievements, training plan completion, and weekly consistency streaks. Tokens can be spent on premium features, race entries, and AI coaching sessions. This feature is to be implemented

How WattsWise Compares

The cycling analytics market has several established players, each strong in one area but limited in others. WattsWise is designed to replace the combination of tools that serious cyclists currently juggle.

Strava dominates the social layer of cycling - segments, kudos, clubs, and the activity feed that keeps athletes coming back daily. But its analytics are shallow. The paid Summit tier offers a simplified fitness chart and basic power zones, but no coaching interpretation, no training plans, no race pacing, and no device integration beyond standard Strava features. Strava has become a social network that happens to have cycling data, not an analytics platform. WattsWise does not compete with Strava on social — it is the platform athletes open after they have shared their ride on Strava.

TrainingPeaks is the gold standard for structured training and coach-athlete workflows. Its calendar view, TSS tracking, and WKO integration are excellent for coached athletes. But the interface feels dated, onboarding is intimidating for self-coached athletes, the mobile experience is clunky, and race-day features are essentially nonexistent. At $19.99/month for the premium tier, athletes pay a premium price for deep analytics wrapped in a 2012 user experience with no path from training plan to race execution.

Garmin Connect benefits from seamless device integration and useful proprietary metrics like Training Status and Body Battery. But cycling-specific depth is sacrificed because the platform serves runners, swimmers, hikers, and golfers equally. Custom field support is limited, the web app is slow, and coach integration is minimal. Garmin Connect does device ecosystem; WattsWise does cycling intelligence.

intervals.icu is the best free analytics platform available - its PMC chart is excellent, power curve analysis is deep, and the developer ships features quickly. But mobile is an afterthought, and there are no AI coaching features, no race-day tools, and no Garmin app integration. intervals.icu proves the demand for deep analytics. WattsWise delivers that depth with professional presentation, AI-powered interpretation, and the training-to-race pipeline that intervals.icu does not attempt.

Feature Comparison:

Market Niche

WattsWise occupies a specific position in the cycling analytics market: the self-coached, data-driven cyclist who trains and races with power but does not have - or does not want - a human coach.

This is a large and underserved segment. These athletes are too serious for Strava's surface-level analytics but not willing to pay TrainingPeaks prices for a tool that still requires them to interpret their own data. They want the analytical depth of intervals.icu but with modern UX, AI-powered interpretation, and a direct connection from their training to their race-day Garmin screen.

The typical WattsWise user rides 8 to 15 hours per week, owns a power meter, races or participates in sportives and gran fondos, manages their own training, and wants a platform that reduces the cognitive load of being self-coached. They do not need a social feed - they have Strava for that. They need a platform that answers "what should I do today?", "am I getting faster?", and "what watts should I ride on each climb of my target race?" - and then puts those answers on their Garmin.

WattsWise is also positioned for the emerging intersection of cycling and blockchain. The Midnight Network integration provides verifiable race results and a token-based reward system that creates new engagement mechanics without compromising athlete privacy.

Pricing

WattsWise is currently in public beta and free to use. Beta testers receive three months free after the platform's official launch.

Post-launch pricing

• Basic ($9.99/month or $99/year): Performance analytics, CTL/ATL/TSB tracking, power curve analysis, training plans, course planning, nutrition planning, Strava sync
• Premium ($19.99/month or $179/year): Everything in Basic plus AI Coach with agent-powered assistance, natural language training Q&A, adaptive plan adjustments, and priority support

WattsWise accepts both credit card payments through Stripe and cryptocurrency payments through Coinbase Commerce.

WattsWise is built by Dynamic Strategies. The platform reflects the company's approach of combining domain expertise - in this case, established cycling training science from researchers like Andrew Coggan, Joe Friel, and Hunter Allen - with modern software engineering, AI, and blockchain technology to create tools that solve real problems for serious practitioners.

For press inquiries, partnership opportunities visit dynamicstrategies.io

For beta access, visit wattswise.com

Table of Content

Context

A Forward Rate Agreement (FRA) is a type of Interest Rate Derivative used by financial intermediaries and large corporations to manage interest rate risk. FRAs are traded over-the-counter (OTC) and function similarly to Futures, which are traded on organized exchanges like the CME.

We are implementing FRA trading on the Cardano blockchain, primarily to automate the exchange of margin between counterparties. This automation enhances efficiency and reduces counterparty risk. More details on why this is important can be found in our earlier post here

Interest Rate Derivatives are a multi-trillion dollar daily market, with most trading between large financial institutions, corporations, and asset managers. Corporations use them to hedge their interest rate risk on loans, bond issuance, and other liabilities. Asset managers use them to express views on the direction of interest rates.

FRAs vs Futures

FRAs and Futures are very similar to each other, with the FRA being traded over the counter and the Futures having an organized exchanged. Differences and similarities between FRAs and Futures

• FRAs and Futures are very similar in settlement and collateral exchange. The main difference is that Futures have a standardized maturity schedule (Mar, Jun, Sep, Dec of each year ), whereas FRAs do not have a standardized maturity.
• FRAs are bilateral and not exchange-traded, blockchain can enhance transparency, reduce fraud, and ensure automatic settlement. Futures already have clearinghouses mitigating counterparty risk.
• FRAs are tailored contracts, leading to complexities in settlement. A blockchain can standardize and automate settlement through smart contracts. Futures are standardized and benefit less from blockchain for individual contract settlement.
• Implementing blockchain for FRA settlement can demonstrate its benefits in OTC markets before tackling more complex and highly regulated futures markets. Exchanges already have efficient settlement mechanisms for futures, making blockchain an incremental rather than transformative improvement.
• Given their similarities, the price of FRAs can be derived by calibrating an interest rate curve from the prices of Futures. Similarly the risk parameters can also be estimated from the price dynamics of Futures

Contract Terms in a FRA

When two parties trade an Interest Rate FRA, they enter into a contract to fix an interest rate for a specified Notional amount over a future period.

FRAs are cash-settled at maturity, meaning that there is no exchange of Notional amount at the start, nor at the end of the contract. The difference between the contracted rate and the rate prevailing in the market at maturity is settled on a net basis

The two parties agree on:

• Notional Amount (N) - The amount in USD on which interest is calculated (though no actual exchange of principal occurs at the start, nor at maturity).
• Contract Rate (f) - The fixed interest rate agreed upon in the contract.
• Reference Rate (rt) - A floating benchmark rate (e.g., SOFR). This is the reference interest rate at maturity of the FRA. Prior to maturity these are market interest rates calibrated from market data for standard tenors (e.g. from Futures) and interpolated to for the remaining tenor of the FRA contract.
• Settlement Date - A date in the future when the FRA is settled.
• Contract Period (CP) - The period over which the interest rate is measure (e.g. 90 days for 3-month SOFR)

The day count convention is 30/360 which means that each month is 30 days and a year is 360 days.

Settlement Process

Settlement happens at maturity and Posting of margin during the life of the contract prior to maturity. The posting of margin is sometimes referred to as "exchanges of collateral". The settlement amount needs to be calculated for both of these events and is give by:

This settlement amount is from the point of view of a buyer (borrower) who locks into a borrow rate f . For the other party the Settlement amount is symmetrical and is given by

The remaining formulations in this article are symetrica for a buyer and seller of FRA with the St by default being shown from the side of the buyer (borrower)

Settlement at Maturity

At the maturity date, the actual market reference rate (e.g., 3-month SOFR) is compared to the agreed Contract Rate f. The difference determines who makes a payment to whom.

• If the market reference rate exceeds the agreed Contract Rate then the the buyer of the FRA (who agreed to pay a fixed rate) receives a payment from the seller.
• If the market reference rate is lower than the agreed Contract Rate. The seller of the FRA receives a payment from the buyer.

Posting of Margin

To ensure that one of the counterparties does not walk away from their obligation if the market turns against them, the two parties exchange margin throughout the life of the contract.

The posting of margin requires the Settlement amount to be calculated based on prevailing market interest rates rt.

The amount of margin to post is a combination of:

• Initial Margin (IM), which relies on the risk sensitivity of the FRA contract and the Risk Parameter that is calculated by the Risk engine. IM is the same amount for buyer and seller of a FRA

Where the risk sensitivity is given by

• Total Margin (TM) - which is also sometimes referred to as Margin Requirement - is the difference between the Settlement amount St and the Initial Margin IM

The IM is posted at the start of the contract and the TMt is checked periodically and determines if additional margin will need to be posted, or if any margin can be withdrawn.

The party needs to have enough margin posted into the smart contract to exceed the Total Margin Requirement. Failure to have enough margin posted to the smart contract by the end of the day, grants the other party the right to terminate the contract and keep all margin that has been already posted to the smart contract by both parties.

• If TM < 0 then margin needs to be posted by the party into the contract to at least that amount. This number can fluctuate from day to day and needs to be monitored by both the buyer and the seller.
• If TM > 0 then the expected Settlement amount is greater than the Initial Margin and margin can be withdrawn from the contract. This case occurs when the the Settlement amount is greater than the Initial Margin requirement

kt is the risk threshold that is interpolated from calibrated risk threshold curve K and is given by:

The K is determined by calibrating the volatility of the interest rates from history and adding a conservative factor on top. This is further detailed in the Risk Engine section below

Oracle

The Oracle stores the market interest rate Rt and the Risk parameters Kt at standard tenors. These are calibrated from the markat prices and historic price dynamics (volatility) of Futures.

The Oracle design is aligned with the design adopted by Charlie 3 and has the following characteristics

• The oracle is a smart contract and has an address on the Cardano blockchain
• The market data is stored in a UTXO at the smact contract's address as an Inline Datum
• Other smart contract can read the content of this Inline Datum
• A unique NFT is stored at the UTXO, letting anyone who consumes the information in the Inline Datum that the information is genuine
• Only 1 authorized wallet can consume UTXOs from the smart contract
• Updates to the market data are performed by consuming an existing UTXO and creating a new UTXO at the same address with updated market data in the Inline Datum

Oracle Smart Contract

Sample Aiken code for the Oracle:

validator oracle {
  spend(
    datum: Option<Datum>,
    redeemer: Redeemer,
    _own_ref: OutputReference,
    tx: Transaction,
  ) ->  Bool {
    
    list.has(tx.extra_signatories, #"05ffe34a7ded67d3f4c11113b909f8f9313bcf352fa3aa887c51ca90")

  }

}

The smart contract has the address:

addr_test1wqzdedqpy2ljhf70dw89p399z836dvmgs7sn6qyr0gndu7gp9k7en

Link to the oracle address on a blockchain explorer LINK

Oracle Updated Transaction

When the oracle is update, it consumes an existing UTXO at the smart contract and creates a new UTXO with the updated market rates. Example of this transaction is shown in the printscreen below

This update transaction can be viewed on the blockchain explorer: https://preview.cardanoscan.io/transaction/c86a67c2b2b387dff5a276fdcbc904e92c0aa80a8ae75685daeac6279382b884

Market Data Design

The market data is encoded as an interest rate curve of forward rates, expressed as annualized % with a 360 day count.

The market interest rates are calibrated using the prices of Futures that are traded on the CME Exchange

Market Data Encoding On-Chain

The market data is stored at a UTXO as an Inline Datum. The data is organized as a "list" of "lists" with the following elements

• Maturity of the Forward Interest Rate, converted into a Unix timestamp in milliseconds and encoded as an integer.
• Forward Interest Rate encoded as an integer. The interest rate is multiple by 10,000 and truncated. This gives 4 decimal points of precision
• Risk Parameter encoded as an integer. The risk parameter is multiple by 10,000 and truncated. This gives 4 decimal points of precision

Oracle NFT

The Oracle NFT confirms that the market data at a UTXO is genuine. This NFT sits at the same UTXO as the where the Market Data is stored in the Inline Datum and a smart contract that reads this market data will check if this particular NFT is present at that same UTXO.

The Oracle smart contract imposes that only a wallet with a Public Key Hash 05ffe34a7ded67d3f4c11113b909f8f9313bcf352fa3aa887c51ca90 can consume UTXOs at the Oracle address. No other wallet can retrieve the Oracle NFT from the Oracle address.

This functionality prevents a malicious actor from writing incorrect market data, as it would not have the correct Oracle NFT attached to the UTXO and therefore other smart contract that rely on this market data would discard it.

Pricer

The price gives the market value of the FRA contract at any point in time from inception until maturity. At maturity the Settlement amount of the FRA is given by the Settlement formula

The price of the FRA prior to maturity is also given by the Settlement formula, however the input for the Reference Rate is an interpolated rate from Market Rates (rather than the Reference Rate)

The Price of the FRA is the discounted value of the Settlement amount and is given by the following formula:

Interpolating the Market Rate

The interpolated market rate rt is given by the following formula for a given FRA tenor t

Risk Engine

The risk engine is responsible for estimating the amount of margin that is required to cover potential price changes of the FRA over the course of 2 days. It is used as an input into the Initial Margin IM formula. To calibrate this amount, we used the historic price volatility of Futures.

The parameter is expected to remain static for extended period of time unless a large increase in volatility is observed in interest rates that exceeds the volatility that prevailed over the previous 4 years.

The parameter should be updated if on any consecutive 2 day period the interest rate moves by more than the previous maximum of 62.5 basis points.

Risk Parameter

The risk parameter is the maximum interest rate move over a 2 day period. It is calculated as the largest 2 day interest rate move from a sample of 6 SOFR futures contracts over the period from May-2021 to Jan-2025

The table above shows that the maximum 2 day move was 0.625 percentage points. We add a conservative factor of 50% on top to further reduce the probability of a market move exceeding this threshold.

To make this parameter flexible to be changed through governance in the future we made two design choices:

• The parameter is encoded in the Oracle together with the market interest rate. This ensures the parameter is written on the blockchain and can be consume by Cardano smart contracts and web interfaces
• The parameter is encoded alongside the interest rate tenors in the Oracle. This makes it possible in the future to make the risk parameter granular to individual tenors. We did not observe material variance in the largest market moves between different futures for the current calibration of the parameter (as can be seen in the table above)
• The parameter update could be further automated in the future by reading the 2 day history from the oracle price history and updating when a new maximum 2 day move is observed

Implementation

The functionality described in this article are implemented at:

Block Margin

Interest Rate FRAs on the Blockchains

Context

Interest Rate Derivatives are a multi-trillion dollar daily market, with most trading between large financial institutions, corporations, and asset managers. Corporations use them to hedge their interest rate risk on loans, bond issuance, and other liabilities. Asset managers use them to express views on the direction of interest rates.

The market is regulated in the US by CFTC under the Dodd-Frank act and in Europe by ESMA under the EMIR regulation. The regulation is prescriptive on the daily margining and clearing requirements for transactions between large and sophisticated counterparties while applying a light touch on smaller transactions and where corporations' total volume falls below certain thresholds.

This regulatory split between sophisticated and less sophisticated counterparties is intentional to limit the build-up of system risk in the market from large institutions while simultaneously avoiding the regulatory burden on smaller corporations and financial institutions - who often don't want to maintain a large back office workforce to deal with daily margining and collateral exchange.

Not doing daily margining, however, comes at a cost. On trades without daily margining, the financial institutions with whom corporates trade need to add extra fees to compensate them for the additional risk and cover the extra capital costs the regulators oblige them to hold on these trades. This is a suboptimal solution as this adds extra costs to both sides, and both the corporates and the financial institutions would prefer to have all trades daily margined. A win-win that is being held back by an operational burden of managing daily margin effectively. Both sides would benefit greatly from doing daily margining on all their trades if this was operationally feasible.

Our platform will bring daily margining and collateral onto the blockchain and turn the daily process into a few clicks. Corporations will be able to settle the trades on the blockchain and have the daily margin switched on automatically. They will monitor the market value of their positions and corresponding margin requirements in a dashboard and, at the end of the day, post more margin from their crypto wallet or redeem margin into their crypto wallet. This will all be done on a Blockchain that supports private transactions.

A working proof-of-concept with corporations will show regulators, and the decision-makers at large financial institutions the benefits of adopting blockchain for these products and advance the conversation of how blockchain can improve the logistics of trading between large and sophisticated counterparties.

After completing the build of settlement and margining of Interest Rates Derivatives on the blockchain, we will then build an Exchange where counterparties can trade these products with a liquidity pool, similar to how thousands of crypto tokens trade on decentralized exchanges (DEXs). This will democratize the Interest Rate Derivative market and give access to smaller participants who are currently priced out due to minimum ticket sizes that are beyond the needs of many. The decentralized exchange will match passive market makers with clients and automate some of the work currently done by financial institutions when providing liquidity.

Building Blocks

We will build a platform for counterparties to settle and manage the margin requirements of Interest Rate Derivatives on a blockchain. We will do this in three steps:

• Build a platform for settling and margining Synthetic Futures
• Extend it to FRAs and FX Forwards
• Extend it to Interest Rate Swaps

The settlement will happen between known counterparties at pre-agreed levels. The platform will include a risk engine that will determine how much margin needs to be exchanged at the end of each day. Smart contracts will codify the terms sheet of the trades and control the margin requirements.

We will add complexity in iterations as we go from more straightforward to more complex products.

Once the platform for settlement and margin is delivered, we will then build a decentralized exchange with market makers providing liquidity at different FRA tenors and corporates trading with the liquidity pools. This will create a market for bespoke swaps and FX Forwards that anyone can execute without calling a broker/dealer and automated settlement and collateral management.

Building blocks: a suitable blockchain, the smart contract, a risk engine, and the platform front and back end.

A Blockchain

A suitable public blockchain with smart contract capability. One that is decentralized, secure, and where transactions are fast and inexpensive.

• Ethereum - decentralized and secure, transactions are 12 seconds, can be expensive for smaller transactions.
• Cardano - decentralized and secure, transactions are 1 to 20 seconds and relatively cheap.
• Layers 2 solutions and other blockchains that rely on the Ethereum Virtual Machine (EVM), such as Polygon, Avalanche, Fantom, and Binance Smart Chain. Cheap transaction costs at a compromise of decentralization

Smart Contracts

Smart contracts will codify the terms of Synthetic Futures, FRAs, FX Forwards and Interest Rate Swaps. In addition, they will determine the tenor, term, notional, rate, and other elements of the term sheet. Execution of the smart contracts is guaranteed; once a trade is registered, there is no ambiguity on the dates and margin conditions. Margin is revalued daily, and if the counterparty does not post additional margin, then the contract is resolved, and the remaining margin returned to each counterparty.

Risk Engine

A risk engine will determine how much margin counterparties need to post for the transactions and revalue daily how much extra margin needs to be posted or if the counterparty can withdraw margin.

Interest Rate Derivatives are margined trades, where each counterparty needs to put up a margin at the start of the trade, which is typically just a tiny fraction of the notional amount. For example, on a 3-month Forward Rate Agreement with 10mn notional, the initial margin might be less than 5%

This margin will vary during the life of the trade, and a risk engine is needed to decide how much initial margin needs to be deposited into the smart contract by each of the counterparties and how much this margin will change over time.

Front-end and Back-end

A front end through which the user will interact with the Smart Contracts. The front end is built to abstract the technicalities of a blockchain from the end user. The back end is the layer between the front end and the blockchain. Because blockchains are highly optimized for efficiency, they need to offload the role of manipulating data into different data structures to a back-end. The back end also manages crypto wallets.

What We Will Build

We will build a platform that lets two counterparties settle synthetic Interest Rate Futures on the blockchain with daily margining. These futures are synthetic because they mimic the behavior of the same Future traded on an exchange but with settlement on the blockchain rather than on an exchange.

Then we will extend the functionality to Forward Rate Agreements (FRAs), an OTC instrument. The FRAs will also be daily margined.

Then we will extend the functionality to Interest Rate Swaps (IRS). Swaps are made up of a sequence of FRAs; therefore, the hedging of IRSs can be done with FRAs.

Synthetic Futures

Taking the example of 3-month SOFT Futures contracts on USD. They are traded on the CME exchange with daily settlements. To bring the settlement and margining of Synthetic Futures onto a blockchain, we will build the following:

• An Oracle to deliver end-of-day settlement prices into the blockchain
• A Smart Contract that accepts the term sheet of each future maturity
• A risk engine that determines how much margin requirement is needed for each Future
• A transaction builder that will post and retrieve margin from the smart contract at end-of-day settlement
• Resolve the smart contact if the required margin is not posted

Forward Rate Agreements (FRAs) and FX Forwards

FRAs and Futures are very similar in settlement and collateral exchange. The main difference is that Futures have a standardized maturity schedule (Mar, Jun, Sep, Dec of each year ), whereas FRAs do not have a standardized maturity.

There are subtle differences in how the yield is calculated, but besides these, a FRA on a SOFR rate is very similar to a Synthetic Future on a SOFR rate.

Therefore to extend Synthetic Futures to FRAs, we will need to build additionally:

• A curve-building method from Future Oracle prices to FRA prices
• Pricer for FRAs

To add FX Forwards, we will need the following:

• An oracle with FX forward rates at different maturities
• Pricer for FX Forwards

On the G10 currencies, the FX forward rates are close to the FX spot rates at shorter maturities. Therefore, we will use the spot rates where the prices for the forward rates are not available.

Interest Rate Swaps (IRS)

Interest Rate Swaps are constructed from FRAs. Therefore trading Swaps is equivalent to trading a series of FRAs. Settling, managing cashflows, and markings on Swaps becomes a problem of managing these on FRAs, which are covered in the previous step

To extend the functionality of the platform to swaps:

• A master Smart Contract linking FRA Smart Contracts

The rest of the infrastructure will rely on individual FRA contracts to manage the settlement and margin.

Proof-of-Concept

We are looking for a partner to test the platform with their client(s). This is an excellent opportunity for a financial institution to test drive the possibility of delivering a classic financial product to its clients using blockchain technology. And be first in line to capture the benefits of DeFi in Interest Rate Derivatives

The platform will be deemed a success if:

• A Synthetic Future is settled within the legal entity, between two desks, or between legal entities of the same group
• A FRA is settled with a client and managed on the blockchain to maturity
• An FX Forward is settled with a client and managed on the blockchain to maturity
• An Interest Rate Swap is traded with a client and managed on the blockchain to the maturity of the first two FRA contracts.

Further Work

Futures, FRAs, Fx Forwards, and Interest Rate Swaps are the building blocks. The platform expansion will then advance across two routes:

• Expand the suite of products on the platform to include Basis Swaps, Xccy Swaps and other reference rates
• Build an Exchange where counterparties can trade with a liquidity pool. This will match passive market makers and active traders and automate some of the work currently done by financial institutions when providing liquidity.

Our Credentials

Dynamic Strategies' management has trading and risk-managing experience in Interest Rate Derivatives acquired at large investment banks over more than a decade. We actively provide liquidity to Decentralized Exchanges (DEXs) and run validator nodes on Layer 1 and Layer 2 blockchains (Ethereum, Binance Smart Chain, Fantom, Avalanche, Polygon), and we develop innovative applications on the blockchain and push the boundaries of what is possible with smart contracts. Our latest achievement has been to extend the functionality of smart contracts to include GPS coordinates. On top of which, we built a Cardano Beam platform and run an annual cycling race using this technology.

Table of Content

The essential components that make up the rig are the board, sail and the fin (under the board). The correct pairing of the board with the sail and fin is crucial for optimal performance because each part affects how the windsurfing rig interacts with wind and water

Board

The board is typically made from lightweight materials like fiberglass or carbon fiber, designed to float on water and provide stability for the rider. It has a non-slip surface where the windsurfer stands, and it often includes foot straps for better control at high speeds. Pairing the board with the appropriate sail and fin helps maintain control, speed, and stability in various wind and water conditions, making for a more enjoyable windsurfing session.

Sail

The size and type of sail determine how much wind you can harness. A larger sail provides more power but is harder to control in high winds, while a smaller sail is better suited for strong wind conditions. Matching the sail size to the board’s volume and width ensures balance and control.

Fin

The fin, located under the board, helps with steering and stability. A larger fin provides more lift and allows better upwind performance, while a smaller fin makes the board more agile and better suited for maneuvers. The right fin size is essential to balance the forces generated by the sail. If the fin is too small for a large sail, the board may lose stability or “spin out” (lose grip in the water).

App

Example of an app to Write and Read NFC tags. These then will recorded on a blockchain and fed into an app to suggest the best rigging combination of Board / Sail / Fin

Conclusion

By registering windsurfing and kitesurfing equipment on a blockchain each piece of gear, from windsurf boards to kites, will be linked to unique metadata stored on the blockchain, allowing users to securely track ownership and equipment characteristics.

The integration of NFC tags allows users to scan their gear and access an app that reads the blockchain-stored metadata. By entering real-time conditions such as wind speed and the rider's weight, the app provides personalized rigging recommendations, optimizing the performance for the current conditions.

Table of Content

Enhancing Competition Integrity

One of the most promising applications of blockchain in windsurfing lies in ensuring the fairness and transparency of competitions. In any competitive sport, the accurate recording of scores, times, and rankings is paramount. Blockchain could provide a decentralized, tamper-proof system for logging race results and performance metrics. Each competitor’s data—whether it be times, distances, or rankings—could be recorded on a blockchain, ensuring that it cannot be altered post-competition.

For example, during a windsurfing race, real-time data from GPS devices and sensors on the boards could be automatically uploaded to the blockchain. This data would then be immutable, providing an indisputable record of each competitor’s performance. Such a system would not only protect against fraud but also foster greater trust among competitors and fans alike.

Equipment Tracking and Provenance

Windsurfing equipment, from boards to sails, is highly specialized and often custom-made. Ensuring the authenticity and provenance of this equipment is crucial, especially in a market where counterfeit or substandard gear could pose risks to safety and performance. Blockchain technology could be used to create a digital record for each piece of equipment, detailing its manufacturing history, ownership changes, and even repair logs.

Manufacturers could register new boards and sails on a blockchain at the point of production, creating a digital certificate of authenticity that follows the equipment throughout its lifecycle. When a windsurfer purchases or resells gear, the blockchain record would update to reflect the transaction. This would give buyers confidence in the equipment’s history and condition, and sellers a trustworthy way to demonstrate the value of their gear.

Streamlining Event Management and Participation

Organizing windsurfing events, particularly those involving international participants, involves significant logistical challenges. Blockchain could simplify these processes by enabling decentralized event management. Smart contracts—self-executing contracts with terms directly written into code—could automate many aspects of event organization.

For instance, event registration, fee payments, and prize distributions could be handled via smart contracts. Participants could sign up for competitions through a blockchain-based platform, with their entry fees automatically held in escrow until the event concludes. Upon completion, the smart contract could automatically distribute prizes based on the immutable competition results stored on the blockchain. This would not only streamline the administrative burden on organizers but also ensure timely and transparent payout

Fostering Environmental Accountability

Windsurfing is deeply connected to the natural environment, and the community is often committed to preserving the oceans and waterways they cherish. Blockchain could play a role in environmental conservation efforts within the sport. For example, windsurfing events could incorporate environmental impact tracking, where data on pollution, waste management, and carbon footprints are recorded on a blockchain.

Sponsors and participants could commit to offsetting their environmental impact, with contributions tracked and verified through blockchain. This would create a transparent system for ensuring that funds intended for environmental initiatives are used as promised, enhancing the credibility of sustainability efforts within the windsurfing community.

Empowering Windsurfers Through Decentralized Platforms

Finally, blockchain could empower individual windsurfers by providing new platforms for content creation, sponsorship, and community engagement. Decentralized social media platforms, built on blockchain, could offer windsurfers a way to share their experiences and achievements without relying on traditional social media giants, who often control data and monetization.

Additionally, blockchain could facilitate direct sponsorship deals between windsurfers and brands. Through smart contracts, windsurfers could automatically receive payments for content that meets certain agreed-upon metrics, such as views or engagement levels. This would create a more equitable and transparent system for monetizing content and securing sponsorships.

Conclusion

While blockchain technology is still evolving, its potential applications in windsurfing are vast and varied. From enhancing competition integrity to promoting environmental sustainability, blockchain could address many of the challenges faced by the sport today. As the windsurfing community continues to embrace innovation, the integration of blockchain technology could be the next wave that drives the sport forward, ensuring it remains fair, transparent, and connected to its natural roots.

The blueprint has been tested by opening a company and drafting a Prospectus for the Fund by following the steps in this blueprint to ensure that they are executable. The company name is registered at the Gibraltar Company House with the name DS Block Ltd. and the Fund is a Private Fund with the name Diversified Digital Asset Investment Fund

Disclaimer:

The information provided in this document is for informational purposes only and should not be construed as financial, investment, legal, or tax advice. Any information provided does not constitute a recommendation or endorsement of any investment strategy, security, or product.

Table of Content

Introduction

The blueprint is composed of 4 sections.

• Legal Status Basics - what type of company and fund
• Documentaion Requirement - to establish a legal enitity in Gibraltar
• Fund Business Plan - how the company will operate
• Fund Prospectus - offer document for fund members

Legal Status Basics

It is crucial to establish proper legal structures for managing investments, especially when dealing with retail investors lacking technical expertise in Digital Assets. Many retail investors prefer entrusting their funds to trusted individuals or companies for investment, necessitating a legal framework to manage these funds legally. Informal arrangements without documentation can lead to legal complications. To address this, various legal structures are available, depending on the jurisdiction.

After reviewing the potential alternatives Gibraltar stood out. Gibraltar is a blockchain-friendly jurisdiction and offers a robust legal framework for Digital Asset funds. Gibraltar enjoys favorable tax status, legal structure options (such as private limited companies and private funds), documentation requirements, and the involvement of service providers like law firms and accounting firms.

Costs associated with setting up and maintaining a fund typically include one-time creation expenses and annual maintenance costs.

The 1st article of the blueprint discusses why a Private Fund in Gibraltar was selected. Link to Article

Establishing a Legal Entity

The 2nd article outlines the necessary documentation requirements for establishing a Limited Company to manage a Private Investment Fund, particularly in the context of Gibraltar.

It provides guidance on various aspects, including registering with a management company, creating a comprehensive business plan, and gathering essential documents such as a notarized passport copy, utility bill, CV, professional reference letter, and bank statement. Additionally, it emphasizes the importance of selecting an appropriate company name and clarifies that a private fund in Gibraltar does not require a special license.

The article identifies key parties involved in the process, such as the management company, legal advisors, and accounting practice. The article highlights the significance of a prospectus, which serves as a crucial legal document to establish the relationship between the fund and potential investors.

Link to the Article

Business Plan

The 3rd article outlines a sample for a fund's business plan, detailing its investment strategy, asset allocation, benchmark, and key risks. It describes how the risk profile of investing in Digital Assets is notably higher than traditional equities, with substantial volatility, but has historically shown larger gains.

The scope primarily focuses on Digital Assets but may occasionally diversify into other asset classes like equities, bonds, and real estate, with cash and FX derivatives used for liquidity management. A benchmark is suggested for the fund as the "Credit Suisse Hedge Fund Index" due to its diverse portfolio. Sample asset allocation is provided and divided into five risk buckets, including stablecoins, cash and carry arbitrage, automated market making, core digital assets, and alternative investments.

The different types of Risks are discussed, such as the blockchain industry uncertainties, smart contract vulnerabilities, operational errors, extreme volatility, protocol-specific risks, and custody concerns.

Link to the Article

Fund Prospectus

The fund's prospectus is the most important document and the one that you need to spend the most of your time and attention. It is a good idea to hire a local law firm to help draft the prospectus as they will be familiar with the topic you need to cover and the optional topics - references are at the bottom of the document.

A prospectus is a formal legal document that provides detailed information about an investment opportunity, such as a securities offering or a mutual fund. It is typically prepared by the issuer or the fund manager and is used to provide potential investors with essential information to make informed investment decisions.

The 4th article is the longest and goes in depth into what might be included in a prospectus with sample wording provided

Link to the Article

Lessons Learned

Bank Account

Opening a bank account is very expensive and there are very few banks that are willing to deal with Digital Asset Funds. Shopping around and finding the least expensive can take a lot of time. The most cost effective option for small funds with less than 2.5mn USD under management is to only accept deposits and process withdrawals in crypto only.

Time

The time required to set-up a company and draft the Prospectus can take longer than expected. Allow for at least 6 months from engaging the business management company to having a Prospectus to show investors

Custody

Custody of assets is a significant decision, almost bordering on a philosophical choice between managing your assets independently or entrusting them to a third party. Third-party custody services typically charge fees ranging from 0.5% to 2% of your assets, which can be quite expensive. On the other hand, self-custody options include Multiparty Computation (MPC) services like Fireblocks, which start at an annual cost of $6,000 USD, or completely self-managed solutions that are free but require a strong understanding of cryptography and wallet standards. For very small funds, self-custody can be a viable initial option and can later transition to an MPC service as the fund grows.

Table of Content

Registering with a Management Company

The management company will set up a new company for you, and this new company will manage the Digital Assets Fund.

Business Plan

A business plan is the crucial because it serves as a roadmap for how the company will manage its affairs. A well structured business plan gives confidence to service providers and to attract investors.

A sample business plan for company who's primary objective is to manage a Private Investment Fund is provided HERE

Other Documents

A number of other documenst will be requested by the managemen company helping with the set-up of the company and the drafting of the Prospectus for the Private Fund

• Notarized Copy of your Passport
• Certified copy of your utility bill in your name and no older than 2 months
• CV
• A professional reference letter from a lawyer, accountant or bank
• A certified copy of your bank statement no older than 2 months with your name and residential address

Company Name

When selecting a company name for your Crypto fund, the company house in Gibraltar might ask for an additional explanation about the chosen term to verify if it meets any licensing requirement. In general, a financial company in Gibraltar needs to be licensed; therefore, if you choose a name that suggests financial services, then you will need to provide a note explaining how the company will operate.  

A company operating a private fund in Gibraltar does not require a special license.

Parties Involved

• Management Company - The management company should be your main point of contact when setting up the Limited Company
• Legal Advisory - The legal advisors should be engaged to help with drafting and validating the Prospectus document for the Private Fund
• Accounting Practice - The accounting practice should be engaged to produce and file annuals statutory accounts

Contacts for each of the parties are provided in the References section below

Constitutional Documents

These are the documents that set out legal structure and internal governance of a company

Articles of Association

The Articles of Association (often simply called "Articles") are a legal document that outlines the internal rules and regulations governing the operations of a company. They are one of the two key constitutional documents of a company, with the other being the Memorandum of Association. These documents are required when registering a company and must be submitted to the relevant government authority

The model for the articles of association for a company in Gibraltar are provided below.

The Model Articles of Association cover the following sections

• Interpretation and Limitation of Liability
• Director's Powers and Responsibilities
• Decision-Making by Directors
• Appointment of Directors
• Shares and Distributions
• Dividends and Other Distributions
• Capitalization of Profits
• Organization of General Meetings
• Voting at General Meetings
• Administrative Arrangements
• Director's Indemnity and Insurance

The Management company and the Legal advisors provide support when drafting these

Memorandum of Association

The Memorandum of Association is one of the fundamental documents required when establishing a company under common law systems such as in the United Kingdom and many other countries. It serves as a company's charter or constitution and outlines the company's fundamental objectives, powers, and limitations

Opening a Bank Account

The cost to open a bank account for a Digital Assets Private Fund in Gibraltar is very high. The set-up fee is c. 10k EUR plus a maintenance fee of 20k per year. The banks also tend to charge a % of Assets under management. This might be reasonable for a large fund with high volume, but is overly expensive for a small fund.

To open a bank account, you will need to  prepare a letter addressing the following questions. Sample text is provided for each answer you can amend according to your needs.

Incoming Funds

Q: What will be the amount and frequency of incoming funds?

A: The target starting capital for the fund is 2.5mn, to be subscribed by 50 individuals with a minimum investment of 50k each. The majority of this will be via bank transfers in USD, EUR and GBP currencies. The fund has a maximum capacity of 50 investors. After the initial subscription, we estimate additional top-ups to be infrequent and far between. Around 0 to 5 per quarter.  

Outgoing Funds

Q: What will be the amount and frequency of outgoing funds?

A: Fund withdrawals are processed every quarter. Any withdrawals will be batched and processed at or around the quarter ends. The fund is limited to 50 investors. Therefore, we foresee the number of transactions to be below 50 and the amount of all transactions to be below 10% of the fund's net asset value. The minimum lock-up period is 90 days.

Entities receiving funds

Q: Details of Entities that will receive the funds?

A: Withdrawals will be processed to the same bank account from where the funds were deposited into the fund.

Jurisdictions remitting funds

Q: Jurisdictions that will be remitting the incoming funds?

A: Investors and funds are expected to come primarily from the UK, US, Germany, Netherlands and the rest of the EU.

Prospectus

A prospectus is a formal legal document that provides detailed information about an investment opportunity, such as a securities offering or a mutual fund. It is typically prepared by the issuer or the fund manager and is used to provide potential investors with essential information to make informed investment decisions.

The prospectus is an important document that estbalishes the relation between the Fund and the Investors. A detailed review of the sections that should be included in a Prospectus are covered HERE

Reference Letter Template

THIS IS JUST A SPECIMEN LETTER, THE ORIGINAL MUST BE ISSUED BY A
LAWYER, ACCOUNTANT OR BANK AND MUST BE PRINTED ON THEIR LETTER
HEAD

To: <<address of management company>>

Dear Sirs,
Re: Mr ………….
We confirm that Mr …………… of address at ……………………………….. has been
personally known to this firm for a period in excess of years and that we consider them
of good financial standing and repute.
In accordance with standard practice, although this reference is given in good faith no
responsibility is to attach to the writer or this firm in respect thereof.
Yours faithfully

Signature

................

References

Corporate Governance Code for Crypto Funds - GFIA

Gibro - Business Management Company in Gibraltar

Perez Rodriguez Trenado LLP - Legal Advisors in Gibraltar

Numerica - Accountany practice in Gibraltar

A prospectus is a formal legal document that provides detailed information about an investment opportunity, such as a securities offering or a mutual fund. It is typically prepared by the issuer or the fund manager and is used to provide potential investors with essential information to make informed investment decisions.

In the context of a Digital Assets investment fund, a prospectus serves several important purposes:

• Disclosure of Information: A prospectus discloses comprehensive information about the crypto investment fund, including its investment strategy, objectives, risks involved, fees and expenses, historical performance, and the legal and regulatory framework within which the fund operates. This information helps potential investors understand the nature of the investment, evaluate its suitability for their financial goals, and assess the risks associated with it.
• Transparency and Investor Protection: By providing detailed and accurate information, a prospectus promotes transparency and investor protection. It ensures that investors have access to essential facts about the fund, enabling them to make informed decisions based on complete and reliable information.
• Compliance with Regulatory Requirements: In many jurisdictions, the offering of investment funds, including crypto funds, is subject to regulatory oversight. Issuing a prospectus is often a legal requirement to comply with securities regulations. The prospectus must adhere to specific guidelines and standards set by regulatory authorities to protect investors' interests and maintain market integrity.
• Marketing and Investor Confidence: A well-prepared prospectus can serve as a marketing tool to attract potential investors. It provides credibility to the investment fund by demonstrating a commitment to transparency and professionalism. A prospectus also helps build investor confidence by ensuring that the fund is managed in a responsible and regulated manner.

It's important to note that the specific requirements for a prospectus can vary by jurisdiction and the type of offering. Regulations regarding investments in Digital Assets and funds are still evolving in many countries, and there may be specific rules and guidelines for Digital Asset investment fund prospectuses that differ from traditional investment funds.

For a fund incorporated in Gibraltar, the relevant guiding document for what should be included in the Prospectus is: Corporate Governance Code for Crypto Funds - GFIA

The sections in this document are the standard sections of a prospectus with a description of what it is for and a sample language.

Table of Content

Introduction

This document (hereinafter “Prospectus” or “PPM”) for the establishment of a Private Fund established under the laws and regulations of Gibraltar.

<<Insert Company Name>> (the “Company” and/or “Fund”) to be used interchangeably, is a Private Company Limited by Shares incorporated and registered under the Companies Act 2014 in Gibraltar.  The Company was incorporated on the <<insert incorporation date>> and has incorporation number <<insert incorporation number>>, its registered office is situated at <<Insert Office Address>>.   The Companies shareholders are <<INsert List of Company Shareholders>>and the Companies Directors are <<Insert List of Company Directors>>

The Fund will be considered a Private Scheme under Gibraltar law, meaning it will fall under the meaning of section 293(4)(b) of the Financial Services Act 2019.  Private Fund and Private Scheme may be used interchangeably throughout this PPM.

Under the abovementioned section, the Private Fund will only qualify as such and will not trigger specific licencing or regulatory requirements nor will there be any specific investor qualifications imposed, so long as the Participating shares are only offered to the following (known as the identifiable individuals):

• the offer is addressed to an identifiable category of persons to whom it is directly communicated by the offeror or the offerors appointed agent;
• the members of that category are the only persons who may accept the offer and they are in possession of sufficient information to be able to make a reasonable evaluation of the offer;
• number of persons, in Gibraltar or elsewhere, to whom the offer is communicated does not exceed 50; and
• the offer is made in respect of units in a scheme that is, or on its establishment will be, a private scheme and that will remain as a private scheme for at least one year after the date that the offer is made.

The fund aims to provide investors with exposure to the Cryptocurrency market through a diversified portfolio which will be further particularised within this Prospectus.

Members should be aware of the ability under the Financial Services Act for the Private Fund to turn into an experienced investor fund (“EIF” or “Collective Investor Scheme”) after one year of being a Private Scheme. EIF’s are more suitable for professional, high net worth or experienced investors.  EIF’s must be registered with the Gibraltar Financial Services Commission (“GFSC”), being the regulators of financial services in Gibraltar.

The composition of an EIF includes but may not be limited to the following:

• at least two directors which must be licenced as EIF directors;
• a depositary who acts as a custodian of the Private Funds’ investments and has regulatory duties such as ensuring that cash flows are properly managed (unless it is a closed ended fund) of the GFSC state otherwise; and
• an administrator who must be domiciled and regulated in Gibraltar

Management of the Fund

The Directors of the Fund are <<Insert Director's Name 1>> and <<Insert Director's Name 2>>. The Directors oversee and manage the investment activities of the Fund. The Director will assume the functions of acquisition, management and disposal of the Fund’s investments in pursuit of the investment objective as outlined herein.

<<

Insert Brief Experience of Director 1 and 2 focusing on:

• How they will contribute to the management of the Fund,
• Where they complement each other and
• Their professional experience

>>

Any proposed changes to the Management of the Private Fund or composition of the Board of Directors will be announced to investors at least seven (7) Business Days before such changes come into effect.

The Director may call on the services of other persons and/or advisers to make recommendations in relation to the particular markets in which they specialise and to advise upon how the Fund should invest; however, the Director shall at all times remain responsible for overseeing and managing the investment activities of the Fund.

The Director will have the sole, absolute discretion and overall responsibility to make  the decision as to which investments should be acquired by the Fund and when they should be acquired provided such investments comply with Investment Objective and Asset Allocations of this PPM. Such responsibility includes the discretion to allocate the assets of the Fund to, or withdraw from, any investment of the Fund while observing the investment objective, investment strategy, risk management and restrictions that are contained within this Private Placement Memorandum.

Investment Objectives

The Fund's investment objective is to achieve above-average capital growth and positive returns by investing in Digital Assets while always remaining fully transparent with investors on what investment strategies are to be taken and how funds are to be managed.

The Private Fund seeks to make investments in Digital Assets market more accessible and assist investors who will not be required to pick specific cryptocurrencies or manage a portfolio themselves, which would naturally involve constant monitoring of developments within the industry.

The Fund shall utilise and deploy proprietary trading models and algorithms in pursuit of its investment objective. The Board of Directors may utilise third-party algorithms in pursuit of the Investment Objective. It should be noted that the Fund shall not be limited in the number of algorithms that it chooses to deploy.

The algorithms that the Fund has identified to date have been developed to include many unique and innovative features, taking ideas from many branches of science and engineering. <<Describe specific algorithms that the Fund will use>>

The Fund will seek to employ a disciplined research process to identify potential investments. <<Described the reach process to identify investment opportunities>>

The Fund’s risk management framework will seek to constantly monitor various types of risks with a view to preserving capital of primary importance.

The Digital Assets the Fund trades are typically liquid; however, they are still subject to the volatility inherent in the Digital Asset market.

The Fund may deploy hedging and short-selling strategies at the Investment Director’s sole and absolute discretion. This may include derivatives such as options and futures.

There can be no assurance that the Fund will be able to achieve its investment objective or that investors will receive any return on their capital. Investment results may vary substantially on a daily, monthly, quarterly or annual basis based in part to the volatility of cryptocurrency markets.

Investor Warning

The Board of Directors will at all times put the best interests of the fund at the forefront of their priorities; however, investments in private funds dealing with Digital Assets bear risks which must be taken into account by all investors. Such risks are detailed within this PPM and despite the objective being capital appreciation, no assurance can be made that this will be successful.

Asset Allocation

The percentages of capital allocated to each Core Strategy are subject to the following permissible variables:

• 10% per quarter in each Core Strategy e.g. Stablecoins between 10% and 30%; and
• By more than 10% as long as it is communicated at least 1 full quarter in advance to the investor through the quarterly newsletter

The Board of Directors can introduce New Core Strategies as long as they are sufficiently distinct from all the other ones and are communicated to investors in advance. The differentiating factor will be the correlation in the expected payment profile of the strategy. The decision to introduce a new Core strategy and the % asset allocation will be communicated 1 quarter in advance of its introduction in the Fund’s quarterly Newsletter. For example a new Core Strategy to be introduced in Q3 needs to be communicated to the investors before the end of Q1 to allow the investors 1 quarter to assess its impact on their risk appetite.

Although the Board of Directors will take all reasonable care to ensure that the aforementioned allocations are kept throughout the life-cycle of the Fund, the Board will have ultimate discretion and decision on how such assets are allocated and will have the best interests of the fund in all decisions made.

The initial Asset allocation is to be diversified across five (5) core strategies (the “Core Strategies”).  These will include the following:

Stable Coins

Stablecoins are a type of a Digital Asset designed to have a relatively stable value, usually pegged to a specific asset or a basket of assets. Unlike many other cryptocurrencies like Bitcoin or Ethereum, which can be highly volatile in terms of their value, stablecoins aim to provide a more stable and predictable value, making them suitable for various financial transactions and applications.

There are 3 main categories of stablecoins in which the Fund will invest:

• Fiat-Collateralized Stablecoins: These stablecoins are backed by traditional assets like fiat currencies (e.g., US Dollar, Euro) held in reserves. For every stablecoin issued, a corresponding amount of fiat currency is held in a bank account. This ensures that the value of the stablecoin remains close to the value of the underlying fiat currency. Examples include Tether (USDT) and USD Coin (USDC).
• Crypto-Collateralized Stablecoins: These stablecoins are backed by other cryptocurrencies. The issuing organization holds a reserve of cryptocurrencies and issues stablecoins against that reserve. The value of the reserve should exceed the value of the stablecoins in circulation. Examples include DAI, which is backed by Ethereum and governed by the MakerDAO system and DJED which is backed by ADA the currency of the Cardano blockchain.
• Algorithmic Stablecoins: These stablecoins use algorithms and smart contracts to automatically adjust the supply of the stablecoin to maintain its stability. The goal is to increase or decrease the supply of stablecoins based on market demand and supply, aiming to keep the price stable.

The majority of stablecoins in the market are in USD. The fund may also invest in stablecoins of other currencies. The stablecoins will be lent out on decentralized lending protocols to generate a stable yield. The yield varies between 0% and 20% per year, depending on market conditions. High yield is usually achieved in rising markets when there is in high demand for leverage trading.

Risk Warning

Stablecoins aim to provide stability, they are not entirely risk-free. Factors such as the management of reserves, regulatory challenges, and changes in underlying assets can impact the stability and credibility of stablecoin projects.

Stablecoins, especially those pegged to fiat currencies, might fall under regulatory scrutiny as they are seen as digital representations of traditional money. Changes in regulations or legal actions could impact the operation, issuance, or acceptance of stablecoins.

Fiat stablecoins are issued by private companies or organizations that hold the equivalent amount of assets as collateral. There is a risk that the issuer might mismanage the collateral or become insolvent, which could affect the stability and redeemability of the stablecoin. The issuer is also responsible for maintaining a 1:1 convertability between the stablecoin and the fiat currency - this centralized control introduces a risk of censorship, mismanagement, or changes in governance that could impact the stability of the stablecoin.

Crypto-collateralized stablecoins are collateralized by cryptocurrencies or other assets can be exposed to the price volatility of those underlying assets. If the value of the collateral falls significantly, it might not be sufficient to maintain the stability of the stablecoin.

During periods of stress in the market, some stablecoins might have limited liquidity. This could make it difficult to convert stablecoins into other assets or to redeem them at their pegged value.

Lending stablecoins is done on decentralized platforms such as Aave and Compound. These utilize smart contracts to bring lenders and borrowers together. Additionally, most stablecoins operate on blockchain platforms and use smart contracts. Bugs or vulnerabilities in the code could lead to technical issues, such as loss of funds or the inability to redeem stablecoins and to recover the amount lent through these platforms.

Cash & Carry

Cash & Carry is a trading strategy that involves exploiting price differences between a spot market and a futures market for the same underlying Digital Asset. This strategy aims to capture profits by taking advantage of temporary pricing inefficiencies driven by timing differences of supply and demand.

The Spot market is where Digital Assets are bought and sold for immediate delivery. In this market, the asset's price is determined by the current supply and demand dynamics.

The Futures market involves the trading of contracts that obligate traders to buy or sell an asset at a predetermined price and date in the future. The price of a futures contract reflects expectations about the future price of the asset, which may differ from its current spot price.

This strategy takes advantage of the price discrepancies between the spot and futures markets in the following way:

If the futures price is higher than the spot price, the strategy sells the asset in the Future market at the higher spot price and simultaneously buy the Digital Asset in the spot market at a lower price. This results in a profit equal to the price difference between the two markets.

If the futures price is lower than the spot price, the strategy buys the Digital Asset in the Future market at the lower spot price and simultaneously sell the Digital Asset in the Spot market at a higher price. Again, this generates a risk-free profit based on the price difference.

The profit is realised when the price of the Digital Asset converge in the Spot and the Future market, which can happen before maturity of the Future contract if the there is a large change in the market direction, or at maturity.

The futures market usually trades at a premium to the spot market. The return exists as speculators want to bet on the direction of the market without providing the full capital for the trade (use leverage) and are willing to pay a premium for this. Premiums tend to vary between 0% and 30% per year. The largest premiums are usually available during rising markets.

Risk Warning

Timing is crucial in the Cash & Carry strategies. Digital Asset markets operate 24/7, and price discrepancies can arise and disappear within minutes. There is a risk that the trades may not execute in time due to delays in order placement, network congestion, or technical issues on trading platforms. This can result in only one side of the trade being executed at intended levels, or none at all which can lead to losses.

Unwinding the positions can are subject to the same timing risks therefore there is a risk of slippage and execution of a strategy at a loss.

The strategy often involves trading in the Spot and Futures markets on different exchanges. Managing multiple accounts on different exchanges can be complex and requires efficient monitoring and execution. Mistakes in placing orders or incorrect calculations could lead to losses. Additionally, transactions on multiple exchanges or exposes the Fund to the counterparty risk of each exchange. If an exchange becomes insolvent or faces issues with withdrawals, the funds could be at risk and could lead to losses.

Trading fees, withdrawal fees, and other transaction costs can significantly impact the profitability of arbitrage trades. In some cases, these costs could eat into your potential gains or even turn a profitable strategy into a loss.

Automated Market Making

Automated Market Making are a type of decentralized financial protocol used in blockchain-based platforms to facilitate the exchange of cryptocurrencies and other digital assets. They provide an automated and algorithmic way of determining asset prices and executing trades without relying on traditional order books or intermediaries like centralized exchanges.

AMMs are a byproduct of Blockchain technology. They allow for funds to provide liquidity to other traders and investors in Digital Assets and receive a fee for this service. This is similar to the role of financial institutions when they stand ready to buy and sell securities to their clients. Liquidity providers earn rewards in the form of fees for contributing their Digital Assets to the pool. Fees are collected from traders who perform swaps, and they are distributed proportionally among liquidity providers based on their share of the pool. This strategy has historically generated between 10 to 60% in fees and performs best in volatile and rising markets.

AMMs operate using liquidity pools, which are pools of funds supplied by users who want to participate in trading. These users, known as liquidity providers, deposit pairs of assets into the pool, such as ETH/USDC or BTC/USDT.

The fundamental idea behind AMMs is to maintain a constant equation that balances the values of the assets in the liquidity pool. The equation varies based on the specific AMM algorithm being used. For example, the most well-known AMM, the Constant Product Market Maker (also known as the "x*y=k" equation), is used in protocols like Uniswap.

Instead of relying on order books where buyers and sellers place their bids and asks, AMMs use their constant equations to determine the price of an asset relative to another within the liquidity pool. The more a specific asset is bought, the more its price increases relative to the other asset. When an investor wants to exchange one Digital Asset for another, they interact with the AMM by sending their Digital Asset to the liquidity pool. The AMM automatically calculates the amount of the other Digital Asset they will receive based on the current price determined by the constant equation.

Popular AMM protocols include Uniswap, SushiSwap, PancakeSwap, and Balancer, each with its own unique algorithm and features. AMMs have greatly contributed to the growth of Decentralized Finance (DeFi)by enabling more efficient and decentralized trading, as well as providing opportunities for users to earn passive income through liquidity provision.

The main risk of the strategy is a falling market. In a falling market, the investors will tend to sell to the liquidity provide the asset that is losing in value. Therefore the inventory value that the liquidity provider holds will lose value in USD terms in a falling market. The strategy can lose more than an equivalent investment in the asset without engaging in providing liquidity.

The Board of Directors will continuously monitor the performance of AMM protocols and the Digital Assets available for trading on each and invest in those showing the highest risk/reward potential

Risk Warning

Like all blockchain-based systems, AMMs run on smart contracts. If there are vulnerabilities in the code, malicious actors can exploit these vulnerabilities to steal funds or disrupt the functioning of the protocol. Several instances of smart contract hacks and exploits have affected AMMs in the past.

AMMs are a new technology with fast changing technologies that provide the interface between the smart contracts and and the users operating them. Users interacting with AMMs can potentially make mistakes when executing trades or providing liquidity, leading to the loss of their funds. The irreversible nature of blockchain transactions means that errors cannot be easily undone.

During periods of high network congestion, transactions can be delayed or have higher fees, affecting the usability of the AMM.

While providing liquidity can earn fees, these rewards might not always offset potential losses from impermanent loss or unfavorable market conditions. The AMM strategies work best in volatile markets and where the market is moving sideways. During bull and bear markets they perform worse than buying and holding the underlying asset.

As the DeFi landscape evolves, new AMM protocols are introduced, leading to increased competition. This can affect the liquidity and profitability of strategies that rely on providing liquidity to AMMs. Additionally as more liquidity is provided to AMMs the markets becomes more stable and the amount of fees that these strategies generate reduces.

The regulatory environment for DeFi and AMMs is still evolving. Changes in regulations or legal actions could impact the operation and availability of AMM platforms.

Core Digital Assets

This will be held in Digital Assets the top 10 by Market Value such as Bitcoin, Ethereum, Cardano and Polygon.

Digital assets provide low correlation to traditional financial markets, they can serve as a hedge against market volatility and economic uncertainties. The historical growth of Digital Assets underscores their potential for substantial returns. Early adopters who recognized the disruptive potential of blockchain technology and its application in digital currencies have reaped significant rewards. Moreover, the ongoing evolution of the digital asset landscape promises further innovation and novel investment opportunities, enabling investors to participate in cutting-edge industries and technologies.

Blockchains and Digital Assets grant individuals unprecedented control over their financial holdings. They are built on decentralized networks, eliminating the need for intermediaries like banks and providing direct ownership and control. This financial autonomy aligned with ideals of self-sovereignty and economic empowerment, allows its users to navigate the global economy with greater agency. Additionally, the rise of decentralized finance (DeFi) platforms further demonstrates the transformative potential of digital assets. Through lending, borrowing, yield farming, and more, investors can participate in novel financial services that challenge traditional paradigms and offer new avenues for generating returns.

Allocating a portion of the portfolio to digital assets is a move to hold exposure to innovative technologies, uncorrelated returns, and newfound financial autonomy. While the risks are real and regulatory landscapes are evolving, the potential benefits are equally noteworthy. As the world continues its digital transformation, embracing the opportunities presented by digital assets can position investors at the forefront of a new era in finance and technology.

Those assets that provide staking returns will be staked. Participants who stake their Digital Assets in Proof of Stake blockchains are rewarded for their contribution to network security and consensus. These rewards typically come in the form of additional tokens issued by the network or a portion of transaction fees paid by users.

Staking returns vary between 0 and 7% per year. The main risk in this investment is market direction. These assets lose value in a falling market and gain value in a rising value.

Risk Warning

Digital Assets are based on blockchain technology and smart contracts. Bugs, vulnerabilities, and errors in the underlying code can lead to financial losses or exploitation of assets.

Staking returns offer a way for holders of certain digital assets to earn passive income while contributing to the security and operation of blockchain networks. However, this comes with risks that are specific to each blockchain

Participating in staking requires technical knowledge and the ability to manage and secure your staking infrastructure. Errors in setting up and maintaining validators or staking nodes can lead to missed rewards or other issues. In the worst-case scenario, if a network experiences a critical vulnerability or a malicious attack, your staked tokens could be at risk of being lost or stolen.

Staking also requires ongoing monitoring and management to ensure that the staked assets remain secure and effectively earning rewards.

The regulatory landscape for Digital Assets and staking is still evolving, and changes in regulations could impact the legality of both.

Alternative Investments & Macro Hedges

This will be invested in crypto assets with smaller market capitalizations that are not part of the top 10 and into non-crypto strategies. A small portion of the assets value will be used to buy protection against large-scale fluctuations in the market that can impact a portfolio's overall performance

Investing a small portion of the assets in Alternative Digital Assets can improve the overall performance of the fund, but it also has its risks.

Alternative Digital Assets introduce innovative technologies in the areas such as smart contracts, privacy features, and scalability solutions and they tend to inovate faster than the established Digital Assets in the top 10. Therefore, Investing in these projects can expose you to cutting-edge developments in the blockchain and cryptocurrency space. Thorough research, however, is crucial. Investigate the team behind the Alternative Digital Asset, its technology, use case, adoption rate, and community support are a few of the checks that will be performed before making an investment

Some Alternative Digital Assets in the past have experienced rapid price appreciation, leading to significant returns for early investors (such as Polygon and Fantom). Identify promising projects with strong fundamentals can bring substantial gains.

Markets tend to move in trends and are effected by sentiment, especially the market for Digital Assets. If certain altcoins are gaining attention and traction due to market trends or community excitement, they might present investment opportunities. The Board of Directors will monitor social media channels and investors sentiment to take positions in Digital Assets that are have better odds of appreciating on rapidly changing sentiment and macroeconomic environment.

Risk Warning

Alternative Digital Assets are generally riskier than well-established cryptocurrencies like Bitcoin. Many altcoins fail or become obsolete due to poor execution, lack of adoption, or regulatory challenges. Their prices can be extremely volatile, leading to significant price fluctuations over short periods. This volatility can result in both substantial gains and substantial losses.

Alternative Digital Assets have a great risk of scams and frauds and there is a substantial risk of loosing the whole investment in them.

The Regulatory environments for Alternative Digital Assets is  can change quickly, impacting their legality and market viability which can cause a substantial, or total loss of invested funds.

Investor Warning

Despite the above giving an indication as to the allocation of assets and how these will be diversified, the Board of Directors will at all times have absolute and unfettered discretion to modify, amend and recalibrate percentages listed to ensure that the objectives of the fund are met.

Investors must recognise that there are inherent limitations on all trading methods due to the complexity, confidentiality and, in the case of the discretionary features of such approaches, the indefinite nature of such methods. In addition, the description of the trading strategies must be qualified by the fact that trading approaches are continually changing, as are the markets in the underlying investments.

The above is a general description of the asset allocation including details as to the principal types of investments in which the Fund may invest, trading techniques that may be employed, the investment criteria that the Fund plans to apply, and the policy that it has established with respect to the composition of the investment portfolio. The description is merely a summary and investors and/or potential investors should not assume that any descriptions of the specific activities in which the Fund may engage are intended in any way to limit the general descriptions of types of investment activities which the Fund may undertake or the allocation of capital among such investments.

Positions

The Fund expects to have the following number of average Positions across its portfolio but this is subject to change and shall not be construed by any potential investors as an rigid and constant rule, markets may dictate that more/less positions may be required:

• Stable Coins - 10 positions
• Cash & Carry - 10 positions
• Automated Market Making - 20 positions
• Core Crypto Assets - 20 positions
• Alternative Investments & Macro Hedges - 30 positions

The Board of Directors shall meet not less than once per quarter to review and analyse the average positions held by the Fund and will closely monitor these at all times to review the allocation strategy of the Fund, the risk management and ensure that both the strategy and risk align with the investment objectives highlighted herein.

Irrespective of the above the Investment Director and Board of Directors will have sole and absolute discretion to determine average positions and this may be subject to changes throughout the lifecycle of the fund.

Data Privacy Notice

In accordance with Gibraltar and/or European Data Protection Legislation, including but not necessarily limited to the Data Protection Act 2004 (“DPA”) and General Data Protection Regulation (2016/697/EU) (“GDPR”) together (the “Data Protection Legislation”).   The Company being the data controller for the purposes of this PPM and the ongoing relationship thereafter with investors, must provide you with information on how the personal data that you provide as part of your application to subscribe for shares will be processed.

Terms used but not defined in this Privacy Notice shall have the meanings ascribed to them in the Data Protection Legislation.

Where your details are provided to the Company as a consequence of your investment in the Company, the Company, acting as data controller may itself (or through a third party such as an appointed Administrator, Secretary or Investment Manager) process your personal information or that of your directors, officers, employees or ultimate beneficial owners. Although the Fund at the initial stage may not be appointing an Administrator, the Board of Directors may at a future date appoint an Administrator and such Administrator may become the data controller. We will notify investors if this occurs.

Purpose of processing and legal basis

The personal data collected from you at the point of investment or provided to the Company on a third parties behalf may be processed by the Company, the Investment Manager/Director or the Administrator (or any of its affiliates, employees, delegates or sub-contractors) for the following reasons:

• To facilitate in the opening of your account with the Company, the management and administration of your shares;
• To ensure that up to date records are kept and maintained;
• In order to carry out anti-money laundering or counter terrorist financing checks or any other similar checks to ensure that the Company meets its legal obligations relating to the prevention of fraud, money laundering, terrorist financing, bribery, corruption, tax evasion and to prevent the provision of financial and other services to persons who may be subject to economic or trade sanctions, on an on‐going basis, in accordance with the Company's procedures and policies and legal commitments.
• to report tax related information to tax authorities in Gibraltar or elsewhere where the need arises.
• Carrying out of statistical analysis and market research

Your consent is not required for any of the foregoing processing reasons above.

Disclosures to third parties and/or data processors

The Company may from time to time disclose your personal information as follows:

• to third parties identified in the PPM and to entities that are companies within the same group of companies to third parties listed in this PPM in order to process the data for the above-mentioned purposes.
• To other third parties such as auditors of the Company or agents of the Administrator (if any) and/or Secretaries whom may process the information for anti-money laundering purposes and investor due diligence checks in order to comply with legal and/or regulatory commitments.
• To competent authorities (including tax), courts, bodies as required by law or requested or to affiliates for internal investigations or reporting.

Transfers outside EEA

The disclosure of personal information to the third parties set out above may involve the transfer of data to India and other jurisdictions outside the European Economic Area ("EEA") in accordance with the requirements of the GDPR. Such countries may not have the same data protection laws as your jurisdiction

Retention Period

The Company and any other third party entitled to process data under this Data Notice will retain your data for as long as required in order to provide services or perform investigations or comply with legal/regulatory requirements.

Your rights

Please note that you have the following rights under the GDPR in relation to your personal information:

• You have a right to be informed of your rights under Data Protection Law and how your personal data is used.
• You have a right of access to and the right to amend and rectify your personal data.
• You have the right to have any incomplete personal data completed.
• You have a right to lodge a complaint with a supervisory authority, in particular in the Member State of your habitual residence, place of work or place of the alleged infringement if you consider that the processing of personal data relating to you carried out by the Company infringes the GDPR.
• You have a right to request that your personal information is erased (in certain specific circumstances).
• You have a right to restrict processing (in certain specific circumstances).
• You have a right to data portability (in certain specific circumstances).
• You also have the right to object to processing where personal data is being processed for marketing purposes and also where the Company is processing personal data for legitimate interests.

Failing to provide information/data

We will not be able to accept an application for subscription from you if you fail to or decline to provide information/data as this is required for us to manage and administer your holding in the Company and so the Company can comply with its legal, regulatory and tax requirements.

Security of your data

The Company takes every effort to ensure your personal data is stored and processed securely in order to ensure that no person or entity has unauthorised access to alter, disclose or destroy the data/information provided.

Investor Requirements

There are no specific investor qualifications under the Financial Services Act in respect of Private Schemes. Investor qualifications may be introduced where a Private Fund is, after a year of trading, converted into an EIF.

Each investor must, upon subscribing, invest a minimum of <<Insert Minimum Investment Amount>> USD, or its equivalent in other currency or Digital Assets.  This is a requirement set by the Board of Directors.

The Board of Directors reserves the discretion to consider investments below this threshold on a case-by-case basis. Investors who wish to invest less than  <<Insert Minimum Investment Amount>>  USD can still be considered if they can demonstrate that they bring other tangible benefits to the fund. These benefits could include strategic partnerships, industry expertise, access to valuable networks, or other resources that can contribute positively to the fund's objectives and performance.

The decision to accept investors below the minimum investment amount will be based on a thorough evaluation of the potential benefits they can bring and their alignment with the fund's goals. The board of directors will assess each situation individually and make a determination on whether to accept such investors. This approach allows the fund to remain flexible and open to opportunities beyond just the monetary investment, recognizing the value of non-financial contributions that certain investors can offer.

Life Cycle of the Fund

The Fund will be formed by virtue of the Company’s incorporation under Gibraltar legislation.  This PPM and the Company’s constitutional documents such as the certificate of incorporation, memorandum and articles of association shall when taken together constitute the main documents relating to the Fund.

All seed money for the setup and initial investment into the Fund has been secured.

The Fund will be open-ended and investors, subject to terms set out in this PPM, shall be able to buy and sell shares based on the Funds NAV at any time. There will be no limitation on the frequency of subscriptions.

Restrictions of the Fund

The Fund may use leverage for hedging risks. The fund may also use futures and other derivative instruments to take directional positions in Digital Assets.

The Fund shall not invest in anything that is not listed within the asset allocation/investment strategy.

The Fund will not invest in any of the following assets:

• <<Insert Prohibited asset class 1>>
• <<Insert Prohibited asset class 2>>

Service Providers

Exchanges

<<List the Legal Names and Legal addresses of Exchanges>>

Brokers

<<List the Legal Names and Legal addresses of Brokers>>

Bankers

<<List the Legal Names and Legal addresses of Bankers>>

Administrators

<<List the Legal Names and Legal addresses of Administrators>>

Secretaries

<<List the Legal Names and Legal addresses of Secretaries>>

Legal Advisors

<<List the Legal Names and Legal addresses of Legal Advisors>>

Subscriptions & Redemptions

Redemptions from the Fund will be processed quarterly subject to the requirement that Redemption requests must be received in writing to the Board of Directors no later than 30 days before the end of each relevant quarter.

The notice periods are required in order to avoid mass redemptions within a short space of time.

Assets from one or more of the Core Strategies will be sold proportionally to satisfy Redemption requests.

There will be no Redemption thresholds.

Investors will be able to transfer their shares to either another investor or to another third party which would be classified as one of the identifiable class of members or to another company of which the ultimate beneficial owner is classified as one of the identifiable class of members.

Common Reporting Standard (CRS)

The Common Reporting Standard (CRS) is an international standard for the automatic exchange of financial account information between participating countries. It was developed by the Organisation for Economic Co-operation and Development (OECD) to combat tax evasion and promote global tax transparency.  The main purposes are to ensure that all foreign interests held by individuals are reported to their home jurisdiction.

Gibraltar transposed council directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards to mandatory automatic exchange of information in the field of taxation and in order to give effect to the aforementioned, Gibraltar adopted the International Co-operation (Improvement of International Tax Compliance) Regulations 2016.

The above recognises CRS and therefore the Fund may be required to identify and report financial accounts/investments held by foreign residents to their local tax authorities

Foreign Account Tax & Compliance Act (FATCA)

The Foreign Account Tax & Compliance Act (“FATCA”) is recognised in Gibraltar. Gibraltar entered a model 1 intergovernmental agreement with the United States regarding FATCA.

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS generally using Form 8938, Statement of Specified Foreign Financial Assets. The aggregate value of these assets must exceed $50,000 to be reportable, in general, but in some cases, the threshold may be higher.

It can be said that FATCA mirrors CRS in functionality and the purposes of both are fairly similar in that they ensure that foreign interests/assets held by individuals are reported to their home jurisdiction.

The agreement allows for information exchange between Gibraltar’s financial institutions and the IRS.  Gibraltar based financial institutions are required to identify and report information on accounts held by U.S taxpayers to the Gibraltar authorities who then in turn will exchange such information with the IRS.

Alternative Investment Fund Managers Directive (AIFMD)

The Alternative Investment Fund Managers Directive (AIFMD) is a regulatory framework established by the European Union (EU) to regulate and supervise alternative investment fund managers (AIFMs) and the alternative investment funds (AIFs) they manage.

Despite Gibraltar not being within the European Union, Gibraltar has transposed AIFMD into domestic legislation.

As part of Gibraltar’s implementation of AIFMD, the GFSC as Gibraltar’s regulatory authority have oversight of compliance with authorisations, ongoing compliance, reporting and other similar measured implemented by the AIFMD.

AIFM’s in Gibraltar must meet the regulatory requirements set out by the GFSC to ensure that they operate at all times within the framework of AIFMD.

Net Asset Value (NAV)

The NAV of the Private Scheme shall be equal to the total assets of the Private Scheme, including but not limited to all crypto assets and FIAT held less total liabilities of the Private Scheme.

The Board of Directors shall calculate the NAV of the Private Scheme on the first day of each quarter, unless it is agreed otherwise.   Investors shall receive communications on what the NAV of the Private Scheme is within 5 Business Days of the Boards of Directors calculation.

The valuation of Crypto Assets fundamentally depends on their intricate nature, one of the key considerations to take into account is whether a specific crypto asset grants its owner the right to cash flow in the future or not (i.e. liquidity percentage of the crypto asset).  If so, this naturally increases the value.

The above has been taken into account by the Board of Directors and the diversification of the assets have been done in a way which both minimises the risks whilst at the same time ensures that the NAV of the Private Scheme increases over time.

The value of the crypto funds held by the Private Scheme shall be determined by analysing various trading venues (exchanges) to come to a Fair Market Price on each specific Crypto Asset unless it is otherwise determined by the Director(s) that a different method be used, should a different method be used, this will be communicated to Investors 7 Business Days prior to any change.

The Board of Directors shall meet once a quarter, notice of which will be given 7 Business Days in advance to investors, and will access liquidity of the markets and establish a reserve to cover estimated costs on closing down relevant position.  The reserve in question will be included in the valuation of the Fund and may include things such as price and/or time slippage, bid/offer spreads, fees and unwinding of hedges.

Possible Effects on NAV

There are currently no accounting standards as to how Private Funds within the crypto space should value its crypto assets as crypto assets are neither financial instruments nor fiat currencies.

At the time of this PPM being drafted, crypto assets are not supported by any central Governmental organisations nor are there any Governmental databases that value crypto assets.

The Board of Directors have adopted the abovementioned valuation methods, which for the purposes of this PPM detail how crypto assets within the Fund will be valued in the absence of internationally recognised accounting principles within this sector.

Investor Warning

Despite the foregoing mentioning that there are no foreseeable changes to Gibraltar legislation regarding funds, investors must at all times acknowledge and understand that there is always the risk of Regulation/Legal Protections being revoked at any time and other risks such as volatility, price fluctuations, market manipulation and security risks can undermine the Fund and have an effect on the NAV of the Fund.

Conflict of Interest

Prospective investors should be aware that there may be situations in which each and all of the counterparties/service providers could encounter a conflict of interest in connection with the Company and/or the Fund. Should a conflict of interest actually arise, the Board of Directors will endeavour to ensure that it is resolved fairly, providing that any such party who may have such a direct or indirect conflict of interest declares such an interest in resolving such conflict. Irrespective of the aforementioned, nothing in this PPM shall be construed as preventing any of the Board of Directors, the Gibraltar Legal Advisor, the Company Secretary and the Auditor from holding similar positions for other companies or investment funds, with or without similar investment objective and investment strategy that may be in conflict with the Company and/or the Fund.

The Board of Directors and persons connected thereto may hold commercial interests in the success of the Company and/or the Fund. The Board of Directors may be engaged in other substantial activities apart from the activities with respect to the Company and may devote to the Fund only as much time as is reasonably necessary, in their judgement, for its management.

Without limiting the generality of the foregoing, the Director may act as the investment adviser or investment manager for others, may manage funds or capital for others, may have, make and maintain investments in its own name or through other entities, and may serve as officer, director, consultant, partner or stockholder of one or more investment funds, partnerships, securities firms or advisory firms.

The Board of Director and other investors may introduce potential investments to the Fund and be paid a commission/introducers fee by such investments for introducing them to the Fund. The Fund may consider investments in entities or projects in which the Board of Director have an interest or in which they hold shares. If the Fund proceeds to make such investments, such transactions will be on an arm’s length basis. The Board of Director may therefore hold shares or an interest in a company in which the Fund invests.

The Fund may invest in investments where the Board of Director and/or persons associated with the Board of Director, may have an interest and/or may be a shareholder (major or otherwise). Post-acquisition the Board of Director will manage the Investment Asset in the normal way with others Assets.

The Board of Director may, at their sole and absolute discretion, pay fees to promoters and/or introducers from the Management Fees and/or Performance Fees that it receives from the Fund.

The Company Secretary provide company secretarial to other funds and experienced investor funds and will be remunerated in respect of such services. The Administrator and Company Secretary will, however, have regard to their obligations under their respective agreements with the Fund and, in particular, to their obligations to act in the best interests of the Fund so far as practicable, having regard to their obligations to other clients where potential conflicts of interest may arise.

Taxation

Gibraltar is known as a lower tax jurisdiction and has relatively low corporate tax set at 12.5% as of July 2023, the latter tax bracket would apply to the Fund.  All income which accrues or derives outside of Gibraltar will not be liable to taxation.

In addition, Gibraltar does not have levy any Value Added Tax, or Capital Gains Tax and there is also no Dividend or Withholding Tax for non-Gibraltar residents.

In most cases, Gibraltar based Funds will not have income accruing or deriving in Gibraltar and in such cases will not be subject to Gibraltar taxation.

Notwithstanding all the above, prospective investors in the Fund should familiarise themselves with and, where appropriate, take advice from their Professional Advisor/s on the laws and regulations (such as those relating to taxation and exchange controls) applicable to the subscription for, and the holding and realisation of, Participating Shares in the places of their citizenship, residence and domicile. The tax consequences for each prospective investor in the Fund of acquiring, holding, redeeming or disposing of Participating Shares will depend upon the relevant laws of any jurisdiction to which the prospective investor in the Fund is subject. Investors and prospective investors in the Fund should seek their own professional advice from their Professional Advisor/s as to this, as well as to any relevant exchange control or other laws and regulations.

There can be no assurance, that in the future the Company and/or the Fund will not be liable to taxation in Gibraltar. Should the income of the Company and/or the Fund be deemed to accrue in or derive from Gibraltar. In particular, there can be no guarantee that the Government of Gibraltar may not in the future be required to change the tax system in Gibraltar to the detriment of companies such as the Fund. No warranty is given or implied regarding the applicability or interpretation of the tax laws in any jurisdiction.

Corporate Governance

Effective and efficient corporate governance shall play a crucial role in ensuring that there are effective and responsible management systems in place for the Fund.

The main goals and objectives of the Fund are to ensure capital appreciation for its investors, but in order to succeed on this, the Board of Directors shall ensure transparency, accountability and protection of the investors interests, in order to ensure the foregoing, the Fund will adopt the following important principles:

Diverse board composition/experience - Ensuring the Board of Directors have a diverse range of skills, experience and expertise will aid in the success of the Fund.

Fiduciary duty of directors - The Board of Directors will owe a fiduciary duty to act in the best interests of the fund and its investors.

Risk management - Robust risk management frameworks are in place to identify, assess, and mitigate risks associated with the Fund's investments, operations, and regulatory compliance.

Investor protections  - The Board of Directors shall prioritise investor protection by providing clear and accurate information about its investment strategies, risks, and performance. Disclosures should be transparent, timely, and easily understandable.

Member Ratification

The Board of Directors must at all times act in the best interests of the Private Fund and although the Board of Directors will bear ultimate responsibility in deciding which investment strategies are to be employed, the Board nonetheless appreciate that it is imperative to ensure that new strategies which are to be adopted align at all times with the Private Fund’s overarching asset allocation criteria.  This ensures that all investment decisions made by the Board of Directors are consistent will the Private Funds published objectives and risk management framework herein specified.

In order to achieve true transparency for investors and due to the fact that the Board of Directors recognise the value that each investor brings to the table, the Board will have the authority to request feedback from investors regarding both new and existing investment strategies and these will be taken into account by the Board of Directors.

Furthermore, investors will be kept informed of any material changes in the Private Funds investment strategy shall be communicated to them no less than once each quarter.   The Board of Directors will ensure that such reporting continues and that investors are kept abreast at all times of any shifts in strategies.

Monthly Newsletter

The Board of Directors embrace the idea of continuous dialogue and communication with investors.  To achieve this, the Board of Directors will produce a quarterly newsletter that serves as a vital communication channel. The newsletter will encompass the following key components:

Performance Review: The newsletter will include a comprehensive overview of the fund's performance for the previous quarter and year. This will encompass data on returns, asset allocation, portfolio performance, and any significant market trends that impacted the fund's performance.

Market Insights: The Board of Directors will provide a forward-looking perspective on the market landscape. This section will highlight potential risks and opportunities anticipated in the upcoming quarter or year. This could encompass analysis of industry trends, macroeconomic indicators, and any pertinent geopolitical factors that might influence the market.

Risk Assessment: The board will outline the identified risks that could impact the fund's performance and provide insight into how these risks are being managed and mitigated. This helps investors to be aware of the potential challenges and the fund's strategies to address them.

Opportunities: Alongside risk assessment, the newsletter will also discuss the potential opportunities the Board of Directors sees in the market. This could involve emerging sectors, technologies, or other investment avenues that align with the fund's strategy.

Administrative Changes: Important updates regarding changes in the fund's administration, management team, or any alterations in the investment strategy will be communicated to the investors through the newsletter. Transparency about such changes helps maintain investor confidence.

Asset Allocation: A detailed breakdown of the changes in asset allocation for the next quarters. This can include information on shifts in percentages allocated to various asset classes as well as New Core Strategies.

Contact Information: The newsletter will provide contact details for investors to reach out with further inquiries or feedback. This ensures that investors can easily get in touch with the Board of Directors for any additional information they might need.

The newsletters will also provide an opportunity for investors to contribute their own ideas and perspectives, enabling a collaborative exchange of information and fostering a sense of engagement and involvement among the investor community.

Fees, Charges & Expenses

Initial Origination Costs

The Company is responsible for paying its initial organisation expenses including expenses relating to the establishment of the Company in Gibraltar, the negotiation and preparation of the contracts to which it is a party, the fees and expenses of its professional advisers and professional fees in connection with the drafting of the Fund’s Private Placement Memorandum and the establishment of the Fund.

The initial organisation costs are anticipated to be in the region of 30,000 USD. Such organisational costs and expenses may be amortised over a period of time not exceeding 60 months commencing from January 2024. The initial organisation costs that have been paid by the Board ofDirector will be reimbursed by the Fund to the Board ofDirector over the amortization period.

Operational Costs

The Board of Directors will control all of the Company’s costs and they will ensure that any costs incurred in respect of services provided to the Company are reasonable and properly incurred. The Board of Director has the option, at its sole and absolute discretion, to pay the fees and expenses of the Company, as it sees fit (including but not limited to the administration fees, company secretarial fees and all other fees incurred by the Company).

The Management and Performance fees collected by the Fund will be used to pay for Operational. Should the cumulative Management and Performance fees fall short of sufficiently covering the aforementioned expenses, the deficit will be addressed by deducting the required amount from the Net Asset Value (NAV) of the fund.

Custody Costs

Due to self-custody, the custody fees at inception will be nil.  Notwithstanding this, the Board of Directors will consider migrating to a Multi Computation Platform such a Fireblocks where the minimum custody fee will be $6,000 per annum, this however, will not be used at inception but will remain a consideration based on growth of the Private Fund.

Secretary Fees

The Secretary has been paid by the Investment Director in respect of the incorporation and set up of the Company. The Secretary charges the Fund £3,500 per annum for the provision of the registered office and company secretary and an annual Companies House filing fee. All other company secretarial services will be provided on a time spent basis at in accordance with the Secretary’s standard terms and conditions.

Bank Fees

The Board of Directors will pay commercial rates and charges to its Bank. At the Board of Directors’s discretion, some or all of the Fund’s costs in respect of the Bank’s fees may be paid and absorbed by the BoardDirector from the Management and Performance fees.

Trading Costs

The Fund may, at the discretion of the Directors, bear the expense of trading costs. Trading costs shall include data fees, software licenses, research fees and such other fees incidental to  the Fund’s trading operations.

Management fee

The Board of Directors are entitled to be paid a Management fee. The Management fee will be equal to a 2% of the Fund’s net asset value per annum.  The Management fee will be payable on a monthly  basis and will be paid on the last day of each month.

Performance fee

The Board of Directors are entitled to be paid a Performance fee.  The Performance fee will be set as 20% of the Fund's profits. The Performance fee shall be payable on the 30^th June of each Financial Year. The Fund Profits shall be construed as any increase in the high watermark of the Fund. The high watermark will be set at the highest level the fund's NAV has reached since the inception or since the last performance fee was paid.  Where the Funds NAV increases and surpasses the high watermark, the Board of Directors shall be eligible to receive a performance fee calculated at 20% of the Fund's profits.

The Board of Directors reserves the right to waive in whole or in part the Performance Fee payable. For the sake of clarity Performance Fees will not start to accrue until the investment activity in pursuit of the Fund’s investment objective has commenced.

The Performance Fee is calculated on individual investor basis so that each investor is charged a Performance Fee which equates precisely with their performance and as a percentage of investment profits. This method of calculation is intended to ensure as far as possible that any Performance Fee paid to the Board of Directors is charged only to investors who’s investment has appreciated in value.

The Fund may enter into side letter arrangements with specific Shareholders granting she/he/it/them preferential investment terms by waiving all or some of Management and/or Performance Fees (as applicable). The waiver of some or all of such fees will not affect the value of the investors not having received such preferential investment terms.

The waiving of such Management Fees and/or Performance Fees will result in the NAV being higher than it would be should such Management Fees and/or Performance Fees have been charged.

The Board of Directors may, at their sole and absolute discretion, pay fees to introducers from its Management Fee and/or Performance Fee. For the sake of clarity, these fees will not be payable by the Fund and therefore the Fund will not incur any additional fees, charges nor expenses as a result of the Investment Director paying any such fees.

Equalisation

Equalisation is an accounting methodology for open-ended funds that pay performance fees. It is designed to ensure that (i) the investment manager is paid the correct performance fee; (ii) the investors only pay based on their respective uplift; (iii) the Performance fees are fairly allocated between each investor in the fund.

By using Equalisation, each individual investor who invests in the Fund will, over the course of the Fund’s lifetime, be individually assessed and charged only for their own Performance fee liability. This process helps avoid the possibility that any investor will be unduly advantaged or penalised.

The Fund will use the Series of Shares Equalisation Method with an Equalisation period of 1 month.

Series Accounting requires the Fund to issue a new series of shares each time there is a subscription. At the end of every month, when calculating the NAV per Participating Share, the Performance Fee accruals, if any, are applied to each of the series of share separately corresponding to their respective performance.

Each series will have the same rights attached to them but will have a different issue date and different Net Asset Value. Accordingly, Performance Fees are calculated on a series-by-series basis.

The first Participating Shares issued at Fund launch will be issued as the Lead Series Shares. Each of the subsequent investment into the fund will be issued a new Series and will be consolidated into the Lead Series, at the end of every accounting period. A Performance fee has been paid for each of the Series, including the Lead Series. Each investor effectively sells or exchanges their subsequent Series Shares for Lead Series Shares, and the process repeats in the next accounting period.

Capitalisation

The initial set-up costs will be capitalised and spread over the next five years so as to not affect the profit and loss accounts of the Company and/or NAV of the Fund.

Fundamental Changes

In the event of a fundamental change, as determined by the Board of Directors from time to time which materially impacts the operations, rights or interests of investors, the Board of Directors shall provide prompt notice to all holders of Participating Shares regarding such changes.

For the purposes of this PPM, a Fundamental Change shall include, but shall not be limited to the following:

• any material change to the terms contained within this PPM except those permissible or which the Board have ultimate discretion to change from time to time as specified in this PPM;
• regulatory changes in Gibraltar regarding Private Funds;
• any material security breaches which the Fund is subject to;
• any event such as bankruptcy, insolvency, liquidation or significant financial distress of any major counterparty which the Fund deals with and which as a result may affect the funds ability to fulfil its obligations to investors; and
• any change in ownership of the underlying Company.

In the event of a Fundamental Change, those holding a Participating Share or Shares in the Fund may, at their sole discretion take the following action:

• Continue with their participation;
• Request a redemption subject to redemption notice periods as outlined in this PPM;
• Engage with the Board of Directors in good-faith in order to come to an agreement on amendments or modifications which may be required in order to address or prevent future issues of a similar nature.

Risk Factors

An investment in any Fund will involve varied and significant degrees of risk, including, but not limited to, those risks described below, risks are further exacerbated by virtue of the fact that the investments are in part on Cryptocurrency which are known historically to involve a myriad of risks which much be taken into account by all potential investors.

Each investor must be capable of evaluating the risks of the Fund for themselves and understanding the said risks or instructing professional advisors to seek their independent advice on investments.  Furthermore, investors should undertake their own due diligence on the Board of Directors and on the company where necessary.

Although there are no qualification requirements under Gibraltar legislation on who may become an investor of a Private Scheme, each prospective investor shall ensure that they have read through this memorandum, fully understood the information contained within this memorandum and if thought necessary by them, instruct legal, tax and financial advisors before committing to the investment.

The non-exhaustive list of risk factors is listed below each taken in turn.

Cryptocurrency Market Volatility

Cryptocurrencies are known for their volatility and can experience significant price fluctuations. The value of the Fund's investments may be adversely affected by market volatility this must be noted by all potential investors.

Digital assets (cryptocurrency) were only introduced fairly recently, the medium to long term of the digital assets is subject to many complex factors which are often difficult to evaluate and ascertain, potential investors should be aware of, and understand the common risks involved in investing within this industry.

Cryptocurrency may still be experiencing a bubble or may experience a bubble again in the future. Extreme volatility in the future, including further declines in the trading prices of bitcoin, could have a material adverse effect on the value of the Interests and the Interests could lose all or substantially all of their value.

Speculators and investors who seek to profit from trading and holding cryptocurrency generate a significant portion of cryptocurrency demand. Such speculation regarding the potential future appreciation in the value of bitcoin may cause the price of bitcoin to increase.

Conversely, a decrease in demand for or speculative interest regarding bitcoin may cause the price to decline. The volatility of the price of bitcoin, particularly arising from speculative activity, may have a negative impact on the performance of the Partnership.

Extreme Market Volatility may lead to decrease of the Private Funds NAV either temporarily or permanently.

Regulatory and Legal Risks

Regulatory actions, legal restrictions, and government policies can impact the cryptocurrency market and affect the value of the Fund's investments.  Despite the above, His Majesty’s Government of Gibraltar (HMGoG) has welcomed Cryptocurrency and embraced it as part of the economy of Gibraltar.  This has led to Gibraltar being a market leader when it comes to funds and regulation of Cryptocurrency and digital assets.  Notwithstanding HMGoG’ stance on Cryptocurrency, no one can foresee any future regulatory action or legal restrictions and despite these not being a foreseeable risk at the time of this PPM being drafted, they are nonetheless inherent risks which must be borne in mind by potential investors.

Legal and regulatory risks pose significant considerations for those investing within the Cryptocurrency space, demanding careful attention and proactive compliance measures. The regulatory landscape surrounding cryptocurrencies is complex and rapidly evolving, with differing approaches across jurisdictions.

Funds must navigate potential challenges related to licensing, registration, and compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. Changes in regulations or the introduction of new laws can impact the operation and viability of these funds, potentially requiring them to adapt their structures or face legal consequences.

As a Fund we must monitor and comply with securities laws, tax regulations, and any other applicable financial regulations to ensure their activities remain within the boundaries permissible by law.

Cybersecurity and hacking risks

Increases in technology have led to an increase in cybersecurity risks and incidents. Generally, cybersecurity threats can occur from, but are not limited to, gaining unauthorised access to systems and misappropriating assets or sensitive information, corrupting data and/or causing operation disruption.

Private Funds, entrusted with managing digital assets and sensitive financial information, have become enticing targets for sophisticated threat actors seeking to exploit vulnerabilities for illicit gains.  One prevalent risk is the threat of hacking and unauthorized access to digital wallets or exchange platforms.

Cybercriminals employ various tactics, including phishing attacks, malware distribution, and social engineering, to deceive unsuspecting victims into divulging login credentials or compromising their security measures. Once inside, hackers can abscond with substantial amounts of funds, wreak havoc on the fund's operations, or manipulate transactions for their benefit. Moreover, the nascent and rapidly evolving nature of the crypto landscape means that cybersecurity practices struggle to keep pace with emerging threats.

Vulnerabilities in smart contracts, decentralized applications, or even underlying blockchain protocols can be exploited, potentially leading to substantial financial losses or reputational damage.  Additionally, the interconnectedness of the crypto ecosystem poses systemic risks, where a breach in one entity can have cascading effects on others.  To mitigate these risks, the Fund will prioritize robust security measures such as multi-factor authentication, encryption protocols, regular security audits, and employee education on best practices. Implementing stringent access controls, utilizing cold storage solutions, and partnering with reputable cybersecurity firms can provide an additional layer of defence.

Liquidity risks

Given that cryptocurrencies are a relatively new asset with limited trading history, markets for certain cryptocurrencies may be less liquid and more volatile than longer established assets/products.

Liquidity risks loom as a crucial consideration within the realm of crypto funds, demanding meticulous attention and strategic planning. The unique nature of cryptocurrencies, with their decentralized infrastructure and fragmented trading platforms, presents inherent challenges in terms of liquidity.

The liquidity of a crypto fund depends on the availability and depth of markets for buying and selling digital assets. Unlike traditional financial markets, the crypto market can experience bouts of illiquidity and extreme price volatility, leading to potential difficulties in executing trades at desired prices or volumes.

Further to the above, the absence of a central clearinghouse or established regulatory framework [in many other jurisdictions] introduces further uncertainty. Fluctuations in investor sentiment, sudden regulatory changes, or technological disruptions can amplify liquidity risks and make it challenging for crypto funds to meet redemption requests or rebalance their portfolios effectively.

Prudent management of liquidity is extremely important and the Board of Directors will take this into consideration in everything that is done.  The Funds must carefully assess the liquidity profile of the underlying assets, maintain appropriate reserves, and implement robust risk management measures.

Operational risks

Operational risks commonly associated with Funds involved in and around Cryptocurrency include technical glitches or system failures within exchanges, trading platforms, or digital wallets can disrupt fund activities, leading to potential financial losses or delays in accessing funds. Human errors, such as mismanagement of private keys or mishandling of sensitive information, can also pose operational risks.

Furthermore, the evolving nature of the cryptocurrency landscape presents challenges in terms of scalability and infrastructure.  When transaction volumes increase, networks can experience congestion or slowdowns, affecting the speed and efficiency of the Funds operations. Additionally, the reliance on third-party service providers, such as custodians or technology vendors, introduces risks related to their performance, security protocols, and regulatory compliance.

The Board of Directors will adopt and implement robust operational processes and controls, including redundant systems, backup plans, and regular system audits.

Currency Risk

The Fund may invest in cryptocurrencies denominated in different currencies, exposing it to exchange rate fluctuations and currency risk.

The exchange rate risk is a prominent concern, cryptocurrencies (including stable coins) often trade on various global exchanges and can experience much price disparity between various platforms, although such disparity is not common with stablecoins.   Fluctuations in exchange rates between cryptocurrencies and FIAT currencies can often lead to substantial gains, but can also lead to substantial losses, this is part and parcel with the fluctuations associated within the industry.

FIAT currency devaluation or inflation also poses risks to investors when FIAT currencies experience rapid devaluation or high inflation the purchasing power often diminishes, albeit to a certain percentile.  Cryptocurrencies can also pose similar risks and the cryptocurrencies value can also experience significant changes in value during economically uncertain times.

Although the emergence of stablecoins has addressed volatility to a certain extent by securing their value to a specific FIAT currency even these stablecoins are not immune to such risks and evidence of this has been seen in recent years with the huge increases and decreases which have been seen with BTC, for example.

Counterparty Risk

A variety of counterparty risks arise which may affect the Fund and must be carefully considered and managed. Counterparty risk is the possibility of monetary loss or business interruption caused by the behaviour or failure of a counterparty with whom the fund transacts.

The risk connected to cryptocurrency exchanges and trading platforms is a key counterparty risk in the crypto field.   Although the risks associated with custodians for example, are mitigated by virtue of the fact that the Fund will operate on a self-custody basis.

Anti-Money Laundering and Terrorist Financing risks

Private funds, especially those dealing within the Crypto asset space and despite their rapid growth and increasing popularity, face a multitude of significant anti-money laundering (AML) risks that demand stringent attention. The unique characteristics of cryptocurrencies, such as their pseudonymity, borderless nature, and decentralized infrastructure, present inherent challenges in mitigating AML risks effectively.

The anonymity offered by these digital assets enables potential wrongdoers to obscure their identities and obfuscate the origin and movement of funds, thereby facilitating illicit activities like money laundering, terrorist financing, and other financial crimes. The complex and evolving regulatory landscape surrounding cryptocurrencies further amplifies these risks, as traditional AML frameworks struggle to adapt to the unique nuances and technology-driven nature of virtual currencies.

Private Funds must therefore ensure that they implement robust and comprehensive AML measures, including thorough customer due diligence processes, enhanced transaction monitoring, and suspicious activity reporting, to combat these risks effectively. The Board must also stay updated on emerging AML trends, enhance information sharing, and ensure compliance with evolving regulatory requirements.

Market and Economic Risks

The performance of the Fund may be influenced by general economic conditions, geopolitical events, and market trends that affect the overall cryptocurrency market, the Fund is not immune to the multitude of market and economic risks, which demand careful consideration and navigation.

Cryptocurrencies, characterized by their volatility and decentralized nature, are susceptible to a range of market risks. Rapid price fluctuations driven by factors such as market sentiment, regulatory developments, technological advancements, and investor speculation can pose significant challenges for investors and cryptocurrency funds.

Although regulation in Gibraltar affords a great degree of protection from manipulation, fraudulent schemes, and market abuse, further heightening the risk profile, mitigation is still required.

In addition to market risks, cryptocurrencies face economic risks rooted in macroeconomic factors. Economic downturns, geopolitical uncertainties, inflation, and monetary policy shifts can all impact the value and adoption of cryptocurrencies. As these digital assets strive for mainstream acceptance, their vulnerability to global economic forces must be acknowledged and managed.

In light of the above, the Fund must employ risk management strategies, diversify its portfolios, the Board must stay informed about market trends, and adopt robust risk mitigation practices to navigate these inherent challenges successfully.

Investor Warning

Although every effort has been made by the Board of Directors to ensure that a full list of the main risks posed toward the fund are clear, the above is non-exhaustive and there may be other risks which are not described above which are later encountered and this may affect your investment.

Risk Management & Mitigation

Risk management and mitigation will be in place for all known risks and all efforts will be made to reduce and mitigate the risks.  Below we list the main risk management and mitigation procedures in place which the Board of Directors have identified as the most prominent risks facing the Fund.  The Board will ensure ongoing and periodic monitoring of these risks including the evolving legal, regulatory and economic environment.

Custody of Assets

The fund will use self-custody for the majority of the crypto assets through a combination of Multi-signature and Hardware wallets. Two factor authentication, High Security Physical Vaults and high security Operating system will be used, the former of which requires 2 out of 3 signatures sign off on transactions.  Where this is not feasible the board of directors will need to gain access to a computer located in a secure physical location to execute trades.

Multi-Signature Wallets (MS)

A Multisig wallet is a type of digital wallet used to secure and manage cryptocurrencies or digital assets. It incorporates the concept of multiple signatures to authorize transactions, providing enhanced security and control compared to traditional single-signature wallets.  Usually two of three signatories will be required to sign off on any given transaction, this will be the case in respect of this Fund.  If this is not possible due to any reason, then the transaction must be signed off by using a physically stored and secured computer.

Hardware Wallets (HW)

Hardware wallets are physical devices specifically designed to securely store private keys and facilitate the secure management of cryptocurrencies. It provides an offline, isolated environment for key storage and transaction signing, offering an added layer of security compared to software or online wallets.

Overall, hardware wallets provide a convenient and secure way to store cryptocurrencies, offering protection against online threats such as hacking, malware, or phishing attacks. They are particularly recommended for individuals who hold significant amounts of cryptocurrency or prioritize robust security measures for their digital assets.

Physical Security

Physical security is an essential aspect of holding custody of crypto assets. While digital security measures protect against online threats, physical security measures safeguard against physical theft or damage to the devices or storage media used to store cryptocurrency.

All transactions are executed from the vault, on a dedicated computer reserved for managing the Fund's crypto investments.

Investments are managed through a Multisig wallet where a signature is required from 2 out of 3 devices. For the minority of assets where Multisig is not technically supported the transaction will be signed from a hardware wallet. Multisig will be used on the majority of assets and strategies as shown in the table below.

The vault is located at a secure location, access to which is only granted to the Fund's Board of Directors. Diversification is also a valuable tool when it comes to security.  The Board of Directors have agreed to diversify the custody of each asset as follows:

Risk Warning

The use of smart contract multi-signature wallets for Digital Asset is highly experimental and could result in a partial or total loss of any Digital Assets of the Fund held in the same. Cryptocurrency Exchanges and Cryptocurrency Wallet Providers may not have suitable security measures in place to protect Fund assets or may be subject to cybercrime or events of default and/or insolvency that trigger a sharing of losses across all customers of the same and this may seriously impact the Fund.

Hardware wallets are considered one of the most secure methods for storing and managing cryptocurrencies and other digital assets. While hardware wallets provide a high level of security, no solution is completely risk-free. Hardware wallets often require software to interact with your computer or mobile device. If the software has vulnerabilities or is compromised, it could potentially lead to loss of funds.

Two-factor authentication (2FA) is a security mechanism that adds an extra layer of protection to your online accounts by requiring two different forms of verification before granting access. While 2FA is generally considered more secure than relying solely on a password it does not protect against software hacks, or other vulnerabilities of exchanges and platforms where trades are done.

Cybersecurity

The Private Fund will implement several safeguards to protect the Private Fund from Cybersecurity threats, including the most prominent threats to Crypto assets which include misappropriation and theft.

The Board of Directors will remain vigilant and alert to the threat of hackers at all times.  All assets which are not used for trading and/or are passively held will be kept in cold storage or may, if converted to tradition FIAT be held in a traditional bank account in the name of the Company as per the code of conduct of the GFIA.

Multi-sig wallets and Hardware wallets will also reduce the risk of misappropriation, theft or malware attacks significantly.  The aforementioned management of risks are crucial in order to safeguard investor assets and protect the fund's operations.

The Fund as mentioned will always require the multi-factor authentication through Multi-Sig wallets and encryption, helping to fortify the fund's digital infrastructure.

The Board will undertake or instruct third parties to undertake security audits and penetration testing which may identify vulnerabilities and allow for timely remediation.

Contingency planning for cybersecurity breaches

The Board of Directors have also incorporated an incident response plan which will allow the Board, to the best of their ability, to protect assets in the event of a cybersecurity breach.

<<Describe contingency Plan>>

Smart Contract Risks

The highest-profile security incidents in the DeFi sector are enabled by the vulnerabilities in smart contracts.  As much as 50% of all losses in the crypto markets stem from failings in smart contracts.

Developing smart contracts requires sophistication and knowledge that developers might overlook. This is coupled with smart contract immutability - once a smart contract is launched, it is almost impossible to fix errors.

In order to mitigate the above risks which are intrinsically linked to smart contracts, the Fund will only use DeFi platforms audited by at least one reputable audit company and DeFi platforms that have been active for at least a year and have a high Total Value Locked (“TVL”).

These two conditions decrease the likelihood of errors in smart contracts as hackers have the incentive to steal large amounts of funds and operate in a competition between themselves.

The Board of Directors will adopt both of these measures and invest capital in DeFi platforms that have been audited by at least one audit, that have been operating for at least a year and have a TVL of no less than $30 million USD.

Liquidity Risks

The fund will not invest in any asset where its percentage of assets held would be greater than 10% at inception or 20% at any time. Should this 20% limit be breached, the position will be wound down, and capital allocated to an alternative DeFi protocol, venue or strategy.

Redemptions from the Fund will be processed quarterly, and the request for redemption needs to have been received at least 30 days before the end of the quarter. Assets will be sold proportionally from each strategy to satisfy the redemption.

The period of notice required for redemptions has been introduced in order to assist with liquidity.   In order to avoid mass-redemptions which could put a strain on liquidity, prior notice will need to be given so that it gives the Board of Directors time to deal with requests and ensure that remaining assets held within the Fund are not affected significantly.

Liquidity Testing

The Board of Directors will conduct regular assessments of the Funds liquidity position to identify any potential liquidity gaps or imbalances which can be resolved by further diversification or other means.  These assessments will be conducted not less than once per quarter, unless the Board of Directors convene and believe that further assessments are warranted or required.

Stress Testing

The Board of Directors will ensure that regular stress tests are performed on the Fund's liquidity position to simulate adverse market conditions and assess the impact on liquidity.  These tests will help the Board of Directors identify potential vulnerabilities and ensures that the fund can withstand liquidity shocks.

Reviews and Audits

Should the need arise, the Board of Directors will ensure that independent audits are carried out to identify potential weaknesses or areas for improvement.

Counterparty Risks

Counterparty risk surfaces in the "Cash and Carry" strategy, where the fund will be using the exchange Deribit.  Risks may arise due to the exchange’s solvency, security vulnerabilities, operational reliability, or regulatory compliance. The exchange, like any other exchange, may suffer security breaches, hacks, or insolvency, resulting in potential loss or inaccessibility of funds held on the platform.

Notwithstanding the above, Deribit is a well-established and reputable exchange.  The Board of Directors will continually monitor its relationship with Deribit and keep tabs on the financial health, security practices and compliance statuses of Deribit and any future third party that the Fund may enter a contractual agreement with.

Risks are further mitigated by the fact that Deribit has an insurance fund to cover losses from the defaults of its members.  Deribit has operated uninterruptedly since 2019 and has paid out losses throughout previous cryptocurrency crashes.

Deribit publishes the value of its insurance fund in real-time, and the board of directors will continuously monitor it and unwind the strategy if the fund drops by more than twenty percent (20%).

Anti-Money Laundering Risks

Customer due diligence will be performed upon on-boarding into the Fund, the investors will need to provide documentation which will satisfy the Board of Directors as to identification, proof of address and proof of source of funds (together the “Minimum CDD”).

To mitigate risks on AML and other associated risks, withdrawals will only be processed to the same bank account used for the initial deposit from investors. Where more than one bank is used to make the initial investment/deposit, the withdrawals will be processed to the accounts proportional to the deposits.

The Board of Directors reserve the right to retain the funds due for withdrawal until satisfaction of all relevant due diligence measures.   The Board of Directors will also have the right to reject any investors who do not meet the Minimum CDD.   Notwithstanding the aforementioned, satisfying the Minimum CDD does not automatically imply acceptance as an investor.

World checks and ongoing CDD checks may be carried on investors from time to time to adhere with all Anti-Money Laundering and Counter Terrorist Financing legislation and regulations in Gibraltar as implemented or amended from time to time.

The Fund will also keep detailed records of all transactions for a minimum period of five (5) years.

As with all matters regarding this PPM, Anti-Money Laundering will be governed by and construed with Gibraltar law.

Regulatory

Gibraltar, where the Fund will be based has become a hub and global leader in Cryptocurrency regulation.  Cryptocurrency exchanges, funds and other vehicles are recognised under the Financial Services Act 2019 and other regulations pertaining to it.  Gibraltar’s law is based on the English common law system and thus gives investors and other individuals wishing to do business in Gibraltar an element of certainty.

Having a jurisdiction of choice like Gibraltar which brings certainty to the table minimises various risks significantly.  In particular, when/if the Fund is converted to an EIF which would then include a further added layer of security by way of licencing requirements with Gibraltar’s regulator, the GFSC.

Governing Law & Jurisdiction

This agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the law of Gibraltar.

Each party irrevocably agrees that the courts of Gibraltar shall have exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this agreement or its subject matter or formation.

Investment Warning

The above is non-exhaustive, there may be other methods used in order to manage or mitigate against risks posed.   Directors have absolute discretion on what measures are used to protect the fund and investors against risks.  In any event, the above-listed management and mitigation of risks may still not give absolute certainty on security and mitigation of risks.

Disclaimer

This PPM is confidential nothing in this memorandum is intended to endorse or urge a particular course of action to be taken.  You should consult with an appropriate professional for specific advice rendered on the basis of your situation including but not limited to professional tax and investment advice.  The information and/or any commentary on the law and regulations contained in this PPM are only intended as a general statement and overview and are provided for information/guidance purposes only and no action should be taken in reliance on it without independent legal advice. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequence of relying on it, is assumed by the author.  This memorandum does not constitute and should not be replaced with legal, accounting or tax advice.

Appendices

Subscription Checklist

Individual Self-Certification Form

Entity Self-Certification Form

Redemption Form

The material targets a workshop spanning 4 to 8 days. It covers the basics for those who don’t know what a blockchain is and up to the point where the more tech-minded participants set up a Cardano node and learn how to interact with it and run smart contracts.

The material has two parts:

• The first part runs over the first 2 to 4 days and is for the general public, covering the blockchain basics and how Cardano fits into it.
• The second part runs over the second 2 to 4 days and targets the more hands-on for those who want to learn how to interact with and build on Cardano.

The following is a schedule of an example workshop running over four days.

The material marked with <<Talking Notes>> links to the talking notes for the tutor. We advise reviewing the talking notes well before the workshop and digesting their content to lead a discussion with the students.

The material marked with <<Slides>> links to the slides that can be used during the workshop to position the talking topics in front of the students. The content synced between the slides and the talking notes.

The material marked with <<MATERIAL PREPARED>> contains instructions on for the hands-on sessions where students will be interacting with a computer terminal. This can be shared with the students as a link for them to follow and copy/paste some of the commands.

Workshop Day 1

Introduction to Blockchain Technology

8:30 - Reception and sign-in of participants

9:00 - <<Talking Notes>> Introduction to Blockchains. What is a blockchain, what are blocks, what are transactions, who maintain the blockchain, and how is it different from a centralized infrastructure? <<Slides>>

10:45 - Coffee Break

11:00 - <<Talking Notes>> Use cases for blockchains. What blockchains are currently used for (DeFi, Lending, Identity management, Logistics) and Industries for large-scale adoption? <<Slides>>

12:30 - Lunch

14:00 - <<Talking Notes>> Largest Public Blockchains - Bitcoin, Ethereum, Cardano, etc. Similarities and differences. <<Slides>>

15:45 - Coffee Break

16:00 - <<Talking Notes>> DeFi, Lending and Remittances. A deep dive into how they work. <<Slides>>

17:30 - Q&A, Refreshments, and Socializing

Workshop Day 2

Cardano Ecosystem

8:30 - Reception and sign-in of participants

9:00 - <<Talking Notes>> What is Cardano, and how is it different from the other blockchains? The roadmap and the key deliverables at each of the phases. <<Slides>>

10:00 - <<Talking Notes>> The trilemma of Decentralization, Scalability, and Security - where does Cardano fit in? <<Slides>>

10:45 - Coffee Break

11:00 - <<Talking Notes>> Building blocks of Cardano - node, stake pools, wallets, UTXOs, smart contracts, on-chain vs off-chain. <<Slides>>

12:30 - Lunch

14:00 - <<Talking Notes>> Projects Building on Cardano, Djed, and Catalyst. Explore what some do with students to understand what is being built on Cardano and how to get involved. <<Slides>>

15:30 - Coffee

16:00 - Summary of the two days followed by the speech from organizers

17:30 - Q&A, Refreshments and socializing

Workshop Day 3

The third day targets the more technical participants who want to understand how the Cardano ecosystem works. After this day, the intention is that the users will be armed with the necessary knowledge to start exploring the Cardano ecosystem by themselves. For this, the participants will require a computer lab.

Participants will need to preregister to participate on the third day and demonstrate basic knowledge of how computers work and experience working with a terminal. Those struggling with a terminal but still want to participate can work through a series of tutorials before registering.

8:30 - Reception and sign-in of participants

9:00 - <<MATERIAL PREPARED>> Discuss the plan for the next two days and what we aim to achieve.

9:30 - <<MATERIAL PREPARED>> Launching the virtual machine and making sure the packages are installed

10:30 - <<MATERIAL PREPARED>> Launch a Cardano node, configure and set topology information to connect it to the rest of the network (Preview Testnet).

12:00 - <<MATERIAL PREPARED>> Create an address and fund it with tADA. Discuss what the different keys are and how they are generated

13:30 - Lunch

15:00 - <<MATERIAL PREPARED>> Discuss the differences between different wallets. Advantages and disadvantages of each. Install a web wallet and send transactions to and from the address created in the morning

15:45 - Coffee Break

16:00 - <<MATERIAL PREPARED>> Native assets and NFTs. Mint tokens and mint an NFT with the favourite picture from each participant

17:30 - Q&A, Refreshments and socializing

Workshop Day 4

Cardano Hands-On continued

8:30 - Reception and sign-in of participants

9:00 - <<MATERIAL PREPARED>> What is a Smart Contract? Build and run an “always succeeds” contract, send some ADA and then redeem. Explain what UTXO, Datum, Redeemer, and Context are.

10:45 - Coffee Break

11:00 - <<MATERIAL PREPARED>> Continue with the Smart Contracts topic and review the available resources for participants to start exploring themselves. Cardano Forum, Stackexchage, Discord, Telegram channels, Explorer, Plutus Pioneer program

12:30 - Lunch

14:00 - Assignment and time to explore and ask technical questions. The assignment is to create an address, fund it with tADA, build an AlwaysSucceed script, send ada, and then redeem it from a web wallet. The adventurous student might want to try to do this using the Aiken, or one of the other languages of Cardano

17:30 - <<MATERIAL PREPARED>> Hading out of certificates of participation and Closing remarks

License

This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.

License

This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.

Table of Content

Cardano Developer Portal

A good place to get started: Link

Plutus Pioneer Program

If you want to learn Plutus in depth then this program consisting of 10 lectures with 1h+ videos and assignments.

Documentation of Plutus functions. Useful if you need to dig into what each function within Plutus does.

https://playground.plutus.iohkdev.io/doc/haddock/index.html

Cardano Stack Exchange

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This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.

Smart contracts on Cardano are designed to be highly programmable, which means they can be customized to suit the specific needs of a particular use case. They are also designed to be highly secure, as they are executed on a decentralized network of nodes that validate each transaction.

Table of Content

Introduction

Smart contracts on Cardano are self-executing contracts that automate the execution of a contract agreement between two or more parties. They are powered by the Cardano blockchain, which provides a secure and decentralized platform for executing these contracts.

One of the unique features of smart contracts on Cardano is the ability to execute them off-chain. This means that the contract can be executed without requiring every node on the network to validate the transaction. This makes the execution of the contract faster and more efficient.

Available Programming Languages

• Aiken - for on-chain validator scripts only: a language & toolchain favouring developer experience.
• Marlowe - a domain-specific language, it covers the world of financial contracts.
• opshin - a programming language for generic Smart Contracts based on Python.
• Plutus - a platform to write full applications that interact with the Cardano blockchain.
• plu-ts - Typescript-embedded smart contract programming language and a transaction creation library.

The Plutus programing language, which Haskell heavily inspires, has been the default standard for developing smart contracts on Cardano. Haskell has several advantages but has a steep learning curve and a small universe of developers proficient in it.

Aiken is the up-and-coming programming language that has generated much excitement for its ease of use (relative to Haskell) and improved dev experience.

Advantages of Haskell

Here are some advantages of Haskell for smart contracts:

• Safety and security: Haskell is a strongly typed language, which means that it provides a high level of type safety. This helps to catch errors at compile-time rather than run-time, which reduces the risk of security vulnerabilities in the smart contract.
• Functional programming: Haskell is a functional programming language, which means that it uses a declarative style of programming. This makes it easier to reason about the code and reduces the risk of side effects that can cause bugs and vulnerabilities.
• Modularity: Haskell is designed to be modular, which means that it makes it easy to break down complex code into smaller, more manageable components. This can help to improve the readability, maintainability, and reusability of smart contract code.
• High performance: Haskell is known for its high performance, which makes it suitable for building smart contracts that require high computational power. It is also designed to work well with parallel processing, which can improve the efficiency of smart contract execution.
• Formally verified libraries: Haskell has a large and active community that has developed many high-quality libraries for smart contract development. Many of these libraries have been formally verified, which provides additional assurance that they are secure and free from bugs and vulnerabilities.

Disadvantages of Haskell

While Haskell is a powerful language for smart contract development, it also has some disadvantages that can make it less suitable for certain use cases. Here are some disadvantages of Haskell for smart contracts:

• Steep learning curve: Haskell is a complex language that can be difficult to learn for developers who are not familiar with functional programming. This can make it challenging for new developers to get up to speed and start building smart contracts.
• Limited community: Although Haskell has a dedicated community, it is relatively small compared to other programming languages. This means that finding support and resources for smart contract development in Haskell can be more difficult.
• Limited tooling: There are fewer tools and frameworks available for Haskell compared to other programming languages. This can make it more challenging to develop, test, and deploy smart contracts.
• Limited interoperability: Haskell is not as widely supported as other programming languages, which can make it more difficult to integrate with other systems and platforms.

While Haskell has many benefits for smart contract development, it may not be the best choice for all use cases. Developers should carefully consider their specific needs and requirements before choosing a programming language for smart contract development.

Aiken

Aiken emerges as a promising alternative to the Haskell Plutus platform for developing and deploying smart contracts on Cardano. Designed with usability, security, and performance in mind, Aiken offers a more accessible and familiar syntax to developers, reducing the learning curve associated with Haskell-based Plutus. The language is tailored to address the unique requirements of on-chain smart contract execution while ensuring compatibility with off-chain processes and external tools. Aiken’s open source and collaborative development environment, along with the support from the Cardano Foundation, ensures continuous improvement and feature enhancements.

It is a pure functional programming language that offers developers a modern and efficient environment for building smart contracts on Cardano. With a toolkit for working with Plutus, Aiken streamlines smart contract development and fosters an open source ecosystem. Designed to provide a user-friendly experience, Aiken makes it easier than ever to create decentralized applications (dApps) and implement advanced blockchain solutions.

Aiken addresses the disadvantages of Haskell by offering a more approachable platform, a modern development environment, compatibility with Plutus and seamless off-chain interoperability with any language stack. This allows developers to write and deploy smart contracts on Cardano using a functional programming language that shares similarities with Haskell, ensuring full integration with Cardano’s features and benefits, while also retaining freedom for their off-chain infrastructure.

Smart Contract Basics

When developing smart contracts on Cardano there are 4 concepts that must be always kept in mind: validators, datums, redeemers and script context

Validators

A validator is a piece of code that defines the rules for determining whether a transaction is valid or not. It is written in the Plutus programming language and executed on the Cardano blockchain.

The validator is associated with a particular output of a transaction, and it specifies the conditions that must be met for that output to be spent in a subsequent transaction. For example, a validator might require that a certain condition be met, such as a particular party providing a valid digital signature, before the output can be spent.

The validator can also take into account additional data associated with the output, such as datum and redeemer, to help determine whether a transaction is valid.

Datum

A datum is a piece of data that is associated with a particular output of a transaction. It is used to provide additional context or information to the validator when evaluating whether a transaction is valid.

An example of how datum can be used is in a simple crowdfunding smart contract. The contract might require a certain amount of ADA to be contributed by a certain date in order for the campaign to be successful. Each contributor would create an output with the specified amount of ADA, and a corresponding datum containing their contribution amount and any other relevant information.

When the deadline arrives, the validator for the smart contract would evaluate the outputs and data associated with them to determine whether the campaign was successful. The validator would check the total amount of ADA contributed, the deadline, and any other conditions specified in the contract to determine whether the campaign was successful or not.

In this example, the datum provides additional information to the validator that is used to determine whether the campaign was successful. Without the datum, the validator would not have enough information to determine whether the conditions of the contract had been met.

Redeemer

A a redeemer is a piece of data that is included in a transaction when attempting to spend a particular output of a contract. The redeemer is used to provide additional context or information to the validator when evaluating whether the transaction is valid or not.

For example, let's say you have a smart contract that represents a simple escrow agreement between two parties. The contract requires that one party must deposit a certain amount of ADA, and the other party must provide proof that they have fulfilled their obligations before the funds are released.

In this case, the redeemer could be used to provide the proof of fulfillment. For instance, the party that fulfilled their obligations could include a digital signature in the redeemer to prove that they have completed the required tasks. The validator would then check the redeemer, along with any other relevant data, to determine whether the transaction is valid and the funds can be released.

Another example of a redeemer could be a secret code that is required to unlock a particular output. The redeemer would include the code, and the validator would check it to determine whether the transaction is valid and the output can be spent.

Script Context

The script context refers to the environment in which a validator, datum, and redeemer are evaluated. It provides relevant information about the current state of the blockchain, such as the current block height, the inputs and outputs of the transaction being validated, and other relevant data.

For example. Suppose we want to create a smart contract that allows Alice to send some ADA to Bob, but only if certain conditions are met. Specifically, we want to require that Alice must have a minimum balance of 100 ADA, and she must provide a secret key that matches a predetermined value.

To implement this logic, we would write a validator function in Plutus that checks whether the current transaction meets these conditions. The validator function would take as input the current script context, the datum associated with the output being spent, and the redeemer provided with the transaction.

The script context would provide information about the current block height and the inputs and outputs of the transaction being validated. The datum would contain any additional data associated with the output, such as a hash of the secret key required to spend the output. The redeemer would contain the secret key itself.

Using this information, the validator function would check whether Alice's balance is at least 100 ADA, and whether the provided secret key matches the predetermined value. If both conditions are met, the validator function would return True, indicating that the transaction is valid. Otherwise, it would return False, indicating that the transaction is invalid.

Run a Smart Contract

The purpose of this section is to get familiar with operating with the Cardano infrastructure, and you will need the node that has been set up in previous steps

Always Succeeds Script

An always succeed script is like the "Hello World" of Cardano smart contracts. It gets the feet dirty with running your first validator. We will work through an example of how to lock some ADA in a validator that always returns "True".

The Haskell source code for the AlwaysSucceed script is very long and contains information that we would not have time to grasp in a day. Therefore here is just the relevant part of it in Haskell

{-# INLINABLE mkValidator #-}
mkValidator :: Data -> Data -> Data -> ()
mkValidator _ _ _ = ()

It accepts:

• Datum with type Data
• Redeemer with type Data
• Script Context with type Data

And always returns True. So what ever assets are locked at that script will always get released by the first person who sends a transaction to the address of the validator requesting them.

A similar script that always returns an error and works like a "black hole" where anything that gets sent is always burned could look something like this

{-# INLINABLE mkValidator #-}
mkValidator :: Data -> Data -> Data -> ()
mkValidator _ _ _ = traceError "BURNT!"

Script CBORHex

The Script CBORHex is a format used to represent Plutus scripts in binary form. CBOR stands for Concise Binary Object Representation, which is a binary serialization format used to encode data structures in a compact and efficient way.

The Script CBORHex format is used to represent the Plutus script as a sequence of bytes, which can then be stored on the blockchain or transmitted over the network. The format is designed to be compact and efficient, while still allowing for easy parsing and decoding of the script.

To create a Script CBORHex representation of a Plutus script, the script is first compiled into a binary format using the Plutus compiler. This binary format is then encoded in CBOR format, which produces a sequence of bytes that can be represented as a hexadecimal string.

The Script CBORHex format is used in several places in Cardano, such as when submitting a transaction with a Plutus script as one of its inputs or outputs. The format allows the script to be stored and transmitted efficiently, while still retaining all of the necessary information for executing the script on the blockchain.

Compiling the Script source file to CBORHex requires to set-up the dev environment, which should be attempted after the workshop and can be done with a Haskell or the Aiken dev environment. Here we just use precompiled script. Save the following code to a file AlwaysSucceeds.plutus in your working directory.

{
    "type": "PlutusScriptV1",
    "description": "",
    "cborHex": "4e4d01000033222220051200120011"
}

Also, note that we are using V1 of the Plutus Script

Script Address

Every smart contract on Cardano has an address that starts with addr... with which any one can interact with, and send assets to the address.

To get the script address run the following command in the terminal in your working directory

cardano-cli address build --payment-script-file AlwaysSucceeds.plutus --testnet-magic 2

This should return the address: addr_test1wpnlxv2xv9a9ucvnvzqakwepzl9ltx7jzgm53av2e9ncv4sysemm8

You can query what assets are currently locked at that address, and you are likely to see quite a lot of UTXO as the same example has been used by many students over the years.

Send ADA to the Script

We will lock some ADA at the script address. First find the UTXO from your wallet that should be consumed. You will get the change back in your wallet.

cardano-cli query utxo \
--address $(cat payment.addr) \
--testnet-magic 2

In our case we got the following UTXO to use:

• TxHash: be07d6c2432a77250f7055925de6a6446be1759621f93f5986fd4033e5fef6cd
• TxIx: 0
• Amount: 10000000000

We also need to set the Datum hash to something. The necessary conditions of Plutus scripts is that each one must have a datum - otherwise the assets can't be redeemed from that scripts. We set a random number of 8763176

DATUM_HASH=$(cardano-cli transaction hash-script-data --script-data-value "8763176")

Now lets build and submit the transaction to send a 35 ADA, which is 35 000 000 lovelaces

cardano-cli transaction build \
    --tx-in be07d6c2432a77250f7055925de6a6446be1759621f93f5986fd4033e5fef6cd#0 \
    --tx-out addr_test1wpnlxv2xv9a9ucvnvzqakwepzl9ltx7jzgm53av2e9ncv4sysemm8+35000000 \
    --tx-out-datum-hash ${DATUM_HASH} \
    --change-address=addr_test1qr93nus5fartwuxdt4qqmk8d3ddnq2rjl4wmwwrntwqxry7qf70znkl0agtyha2lqrqmahjj06wc9srfyxj9ydzx440qyw5s7r \
    --testnet-magic 2 \
    --out-file tx.build \
    --alonzo-era

cardano-cli transaction sign \
    --tx-body-file tx.build \
    --signing-key-file payment.skey \
    --testnet-magic 2 \
    --out-file tx.signed

cardano-cli transaction submit --tx-file tx.signed --testnet-magic 2

If all went well you should receive a message Transaction successfully submitted.

You can find the UTXO of the new transaction by running

cardano-cli transaction txid --tx-file tx.signed

Which, in our case, gave this transaction id 582e2cf3fd1486ef0c47071f5394da0f1fad9de82d606667e375ed312399a358 and check this on one of the explorers e.g. https://preview.cardanoscan.io/

Collateral

When trying to consume UTxOs locked in a script, you need to provide collateral that will cover the costs if validation fails. So we will send a 5 ADA to ourselves first that we can use as collateral when redeeming from the script

This is also a good practice for building and sending transactions on Cardano. Find an available UTXO in your wallet

cardano-cli query utxo \
--address $(cat payment.addr) \
--testnet-magic 2

Then send yourself 5 ADA

cardano-cli transaction build \
--tx-in 582e2cf3fd1486ef0c47071f5394da0f1fad9de82d606667e375ed312399a358#1 \
--tx-out addr_test1qr93nus5fartwuxdt4qqmk8d3ddnq2rjl4wmwwrntwqxry7qf70znkl0agtyha2lqrqmahjj06wc9srfyxj9ydzx440qyw5s7r+5000000 \
--change-address=addr_test1qr93nus5fartwuxdt4qqmk8d3ddnq2rjl4wmwwrntwqxry7qf70znkl0agtyha2lqrqmahjj06wc9srfyxj9ydzx440qyw5s7r \
--testnet-magic 2 \
--out-file tx.build \
--alonzo-era

cardano-cli transaction sign \
--tx-body-file tx.build \
--signing-key-file payment.skey \
--out-file tx.signed

cardano-cli transaction submit --tx-file tx.signed --testnet-magic 2

After successfully submitting the transaction, wait a few seconds and check if the UTXOs at your wallet have been updated. You should now see 2 UTXOs

The UTXO with 5 ADA we will use as collateral when redeeming from Plutus scripts.

Redeem ADA from Script

Now is the time to do the reverse - to redeem the ADA that we have locked at a script address. First lets check if the transaction that we sent in the previous step is actually sitting at the script address. We will search for 35 000 000 lovelaces

cardano-cli query utxo --address addr_test1wpnlxv2xv9a9ucvnvzqakwepzl9ltx7jzgm53av2e9ncv4sysemm8 --testnet-magic 2 | grep 35000000

The returned UTXO should be the same as your transaction Id from the previous step.

Get the latest protocol parameters. This dictates how much it costs to interact with scripts

cardano-cli query protocol-parameters --testnet-magic 2 > params.json

Build and submit the transaction

cardano-cli transaction build \
    --tx-in 3b40e22fbf8a533abc6815ab4cda4d0142702cd4eaaa90d51f345932959f0408#0 \
    --tx-in 582e2cf3fd1486ef0c47071f5394da0f1fad9de82d606667e375ed312399a358#0 \
    --tx-in-datum-value "8763176" \
    --tx-in-redeemer-value "123" \
    --tx-in-script-file AlwaysSucceeds.plutus \
    --tx-in-collateral=3b40e22fbf8a533abc6815ab4cda4d0142702cd4eaaa90d51f345932959f0408#0 \
    --change-address=addr_test1qr93nus5fartwuxdt4qqmk8d3ddnq2rjl4wmwwrntwqxry7qf70znkl0agtyha2lqrqmahjj06wc9srfyxj9ydzx440qyw5s7r \
    --tx-out addr_test1qr93nus5fartwuxdt4qqmk8d3ddnq2rjl4wmwwrntwqxry7qf70znkl0agtyha2lqrqmahjj06wc9srfyxj9ydzx440qyw5s7r+35000000 \
    --tx-out-datum-hash 1b83bc2af36aa9d9c6e212caf57b11b40f865c67029dcec1b91035577177571a \
    --out-file tx.build \
    --testnet-magic 2 \
    --protocol-params-file "params.json" \
    --alonzo-era

cardano-cli transaction sign \
    --tx-body-file tx.build \
    --signing-key-file payment.skey \
    --testnet-magic 2 \
    --out-file tx.signed

cardano-cli transaction submit --tx-file tx.signed --testnet-magic 2

Find the transaction Id which you can then check the status in an explorer

cardano-cli transaction txid --tx-file tx.signed

If everything went through correctly then you should see 35 ADA in your wallet in a few seconds. Note that the transaction fee has been deducted from the collateral value as we included its UTXO as one of the inputs. And the 35 ADA still has the datum attached to it as we included its hash in the tx-out-datum-hash when building the transaction.

Conclusion

This section provided an introduction to operating with the Cardano infrastructure by walking through an example of an Always Succeed Script. We covered the concept of the Haskell source code for the script, the Script CBORHex format, the script address, and how to send and redeem ADA from the script. We also learned about the concept of providing collateral when consuming UTXOs locked in a script and the importance of checking the latest protocol parameters. By following the steps provided in this section, the reader should have gained a basic understanding of how to work with Plutus scripts and interact with the Cardano blockchain.

References

Smart Contracts - Cardano Developer Docs

Aiken - AdaPulse

UTXO handbook

Plutus Pioneer Program - Github

Always Succeed script - Plutus Pioneer Program

Always Succeed script - readthedocs

Helper Shell Scripts - Plutus Pioneer Program

License

This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.

Table of Content

Introduction

The process of minting assets on Cardano is relatively straightforward and can be done using the Cardano command-line interface (CLI) or through third-party tools like the Cardano Token Builder. In this guide, we will look into how to mint assets using the cardano-cli connection to our own cardano-node

Here are the basic steps involved in minting assets on Cardano:

• Create a wallet: You will need to create a Cardano wallet that supports the minting of tokens. We created two wallets in the previous steps which we will use for this.
• Generate a policy: You will need to generate a policy that defines the rules for the token that you want to create. This includes things like the token's name, symbol, total supply, and whether it is divisible or not.
• Mint the token: Once you have generated the policy, you can use the cardano-cli or a third-party tool to mint the token on the Cardano blockchain. This involves submitting a transaction that specifies the policy and the number of tokens to be minted.
• Manage the token: After the token has been minted, you can manage it using your Cardano wallet or a third-party tool. This includes tasks like sending or receiving the token, setting permissions for who can hold or trade the token, and updating the token's policy.

Difference between Tokens and NFTs

What is the difference between native assets and NFTs? From a technical point of view, NFTs are the same as native assets. But some additional characteristics make a native asset truly an NFT:

• It must be 'non-fungible. This means you need to have unique identifiers or attributes attached to a token to make it distinguishable from others.
• NFT's should live on the chain forever. Therefore we need some mechanism to ensure an NFT stays unique and can not be duplicated.

Since asset names are not unique and can be easily duplicated, Cardano NFTs need to be identified by the policyID. This ID is unique and attached permanently to the asset. The policy ID stems from a policy script that defines characteristics such as who can mint tokens and when those actions can be made.

Many NFT projects make the policyID under which the NFTs were minted publicly available, so anyone can differentiate fraudulent/duplicate NFTs from the original tokens.

Some services even offer to register your policyID to detect tokens that feature the same attributes as your token but were minted under a different policy.

IPFS

IPFS is a peer-to-peer (P2P) protocol and network designed to create a decentralized and distributed system for storing and sharing files.

IPFS is an alternative to the traditional client-server model of the internet, where files are stored on central servers and accessed by clients. Instead, IPFS uses a P2P network where files are stored across a distributed network of nodes. This means that files can be accessed quickly and efficiently from multiple locations, reducing the risk of data loss due to a single point of failure.

We will use IPFS to store the image on the internet, to make sure that it is stored in a decentralized manner

Here are some key features and benefits of IPFS:

• Decentralization: IPFS is designed to be a decentralized network, which means that files are stored and accessed from multiple locations instead of a single central server. This reduces the risk of data loss or corruption due to a single point of failure.
• Distributed Storage: IPFS stores files across a distributed network of nodes, which means that files can be accessed quickly and efficiently from multiple locations.
• Content Addressing: IPFS uses content addressing, where files are identified by their content rather than their location. This makes it easier to access and share files, even if the original source is no longer available.
• Version Control: IPFS supports version control, which means that multiple versions of the same file can be stored and accessed.
• Immutable: IPFS is designed to create immutable files that cannot be modified once they are added to the network. This makes it a useful tool for creating permanent archives of data or for storing sensitive information that needs to be protected.

Overall, IPFS is an innovative and powerful technology that offers a range of benefits, including decentralization, distributed storage, content addressing, version control, and immutability.

Pinata IPFS

We will use Pinata for storing the image of the NFT online

Pinata IPFS is a cloud-based platform that provides easy and affordable access to the InterPlanetary File System (IPFS) network. It is designed to simplify the process of storing, sharing, and accessing files on the IPFS network.

With Pinata IPFS, users can upload their files to the platform, which then automatically distributes and replicates the files across multiple IPFS nodes. This ensures that the files are always available, even if one or more nodes go offline.

Create a free account and upload your image that we will turn into an NFT in the next steps.

After you upload your image, you should see a special code that identifies your image on the IPFS, something like this QmPanjt7mQWKmySWddGSvx8iyRDWNSGVn4W3KqHGcE4KiU and you can view it a web browser by constructing a link with it, like this:

https://ipfs.io/ipfs/QmPanjt7mQWKmySWddGSvx8iyRDWNSGVn4W3KqHGcE4KiU

Mint an NFT

Check your Keys

We will do the mint in a very technical way so you get familiar with using the Cardano infrastructure and interacting with the cardano-node. If you are after a quick'n'easy way of minting NFTs on the mainnet then search for a minting service on Cardano, there are multiply available.

You will need the payment keys and the address that you generated earlier in the workshop. Make sure that the following files are present in your working directory:

payment.skey
payment.vkey
payment.addr

Create NFT name

You will need to give your NFT a name. Set this as a variable by running the following in the terminal. The token name should be in hex format. We will set the variable $realtokenname and then convert it to $tokenname (name in hex format)

realtokenname="GUINCHO"
tokenname=$(echo -n $realtokenname | xxd -b -ps -c 80 | tr -d '\n')
tokenamount="1"
fee="0"
output="0"

We also set the token amount at 1 to ensure this is an NFT. The fee amount and output are set as placeholders, for now, they will get populated in the next steps

Set the IPFS code that you received when you uploaded your picture to Pinata IPFS

ipfs_hash="QmPanjt7mQWKmySWddGSvx8iyRDWNSGVn4W3KqHGcE4KiU"

Generate Policy Script

First generate the policy keys

cardano-cli address key-gen \
    --verification-key-file policy.vkey \
    --signing-key-file policy.skey

The policy script will only be valid for a few minutes, after which no additional minting will be possible with the same policy script. For this we need to find out the latest tip of the blockchain and set the deadline a few minutes ahead

cardano-cli query tip --testnet-magic 2
slotnumber=<slot number>

Create the policy.script file

echo "{" >> policy.script
echo "  \"type\": \"all\"," >> policy.script 
echo "  \"scripts\":" >> policy.script 
echo "  [" >> policy.script 
echo "   {" >> policy.script 
echo "     \"type\": \"before\"," >> policy.script 
echo "     \"slot\": $(expr $slotnumber + 43200)" >> policy.script
echo "   }," >> policy.script 
echo "   {" >> policy.script
echo "     \"type\": \"sig\"," >> policy.script 
echo "     \"keyHash\": \"$(cardano-cli address key-hash --payment-verification-key-file policy.vkey)\"" >> policy.script 
echo "   }" >> policy.script
echo "  ]" >> policy.script 
echo "}" >> policy.script

Set the script name to the file name, run this in the teminal

script="policy.script"

Generate the policyID from the policy.script

cardano-cli transaction policyid --script-file policy.script > policyID

Create Metadata

Tokens and NFTs on Cardano are a part of the ledger. Unlike on Ethereum, where metadata can be attached to a token through a smart contract, this isn't possible on Cardano because tokens are native and Cardano uses a UTXO ledger, which makes it hard to directly attach metadata to a token. So the link to the metadata needs to be established differently. Cardano has the ability to send metadata in a transaction, that's the way we can create a link between a token and the metadata. To make the link unique, the metadata should be appended to the same transaction when minting the token or NFT.

The following command creates a file with the Metadata. You should replace the description with something more appropriate to your image (e.g. "my favourite image ...")

echo "{" >> metadata.json
echo "  \"721\": {" >> metadata.json 
echo "    \"$(cat policyID)\": {" >> metadata.json 
echo "      \"$(echo $realtokenname)\": {" >> metadata.json
echo "        \"description\": \"Guincho in Cascais, Portugal, overlooking the Sintra mountain\"," >> metadata.json
echo "        \"name\": \"Guincho NFT\"," >> metadata.json
echo "        \"id\": \"1\"," >> metadata.json
echo "        \"image\": \"ipfs://$(echo $ipfs_hash)\"" >> metadata.json
echo "      }" >> metadata.json
echo "    }" >> metadata.json 
echo "  }" >> metadata.json 
echo "}" >> metadata.json

Build the Minting Transaction

Let's begin building our transaction. Before we start, we will again need some setup to make the transaction building easier. Query your payment address and take note of the different values present.

cardano-cli query utxo \
--address $(cat payment.addr) \
--testnet-magic 2

Your output should look something like this (fictional example):

                           TxHash                                 TxIx        Amount
--------------------------------------------------------------------------------------
b35a4ba9ef3ce21adcd6879d08553642224304704d206c74d3ffb3e6eed3ca28     0        1000000000 lovelace

Since we need each of those values in our transaction, we will store them individually in a corresponding variable:

txhash="b35a4ba9ef3ce21adcd6879d08553642224304704d206c74d3ffb3e6eed3ca28"
txix="0"
funds="1000000000"
policyid=$(cat policyID)
output=1400000

Here we are setting the output value to 1400000 Lovelace which is equivalent to 1.4 ADA. This amount is used because this is the minimum UTxO requirement.

If you're unsure, check if all of the other needed variables for the transaction are set, each echo should return a value, if something is missing, please make sure to go over all of the previous steps:

echo $fee
echo $address
echo $output
echo $tokenamount
echo $policyid
echo $tokenname
echo $slotnumber
echo $script

Build the transaction

cardano-cli transaction build \
--testnet-magic 2 \
--alonzo-era \
--tx-in $txhash#$txix \
--tx-out $address+$output+"$tokenamount $policyid.$tokenname" \
--change-address $address \
--mint="$tokenamount $policyid.$tokenname" \
--minting-script-file $script \
--metadata-json-file metadata.json  \
--invalid-hereafter $(expr $slotnumber + 43200) \
--witness-override 2 \
--out-file matx.raw

If the transaction gives an error and says something like Minimum required UTxO: Lovelace 1448244, then change your output amount to that larger number. After successfully running it should show you the estimated transaction fee Estimated transaction fee: Lovelace 187941

Sign the Transaction

Sign the built transaction with your payment key and the policy key

cardano-cli transaction sign  \
--signing-key-file payment.skey  \
--signing-key-file policy.skey  \
--testnet-magic 1097911063 \
--tx-body-file matx.raw  \
--out-file matx.signed

Submit the Transaction

cardano-cli transaction submit --tx-file matx.signed --testnet-magic 2

If you get Transaction successfully submitted. then it means that everything worked as planned, and your NFT has been minted and will appear in your wallet once the transaction is included in the next block

Check the UTXO at your wallet address, you should see a new line added with the name of your NFT

cardano-cli query utxo \
--address $(cat payment.addr) \
--testnet-magic 2

References

Native Tokens and NFTs on Cardano

Minting NFTs - Cardano Developer Docs

Pinata IPFS

CIP 25 - Cardano Metadata Standard

License

This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.

Table of Content

Introduction

Technically, cryptocurrency is not stored in the wallet ‒ its records live on the blockchain, and can be accessed using unique private keys, which grant the right to make transactions. Losing your private keys means losing access to your digital funds. That is why it is crucial to keep your keys safe and offline.

The difference between the wallet types lies in their security and supported functionality. Paper wallets are the most secure, for example, but not as convenient in use; some wallets support a limited number of currencies, some lack certain features (like delegation, for instance).

Desktop Wallets

Desktop wallets are applications that you can download and install on your computer. The Cardano desktop wallet is Daedalus

Daedalus is a full-node desktop wallet. Daedalus downloads a full copy of the Cardano blockchain and independently validates every transaction in its history. This provides maximum security and completely trustless operation without centrally-hosted third-party servers.

Recommended for Cardano power users

Advantages

• Convenience: You can access your wallet from anywhere as long as you have your device and internet connection.
• Easy to use: They are user-friendly and straightforward to set up, but can take a long time to sync to the blockchain (e.g. 48 hours) as they store a complete copy of the blockchain

Disadvantages

• Security: Your private keys are stored on your device, which makes it vulnerable to hacking and malware attacks.
• Prone to loss: If you lose your device or password, you may lose access to your wallet and cryptocurrency.
• System Requirements: Required a powerful computer and a fast broadband connection

Hardware Wallets

Hardware wallets are physical devices that resemble USB sticks. They are designed to store your private keys offline, making them more secure than software wallets. Examples include Trezor, Ledger, and KeepKey.

Advantages

• High security: Your private keys are stored offline, making them less vulnerable to hacking and malware attacks.
• Portability: You can easily carry them around like a USB stick.
• Compatibility: Most hardware wallets are compatible with multiple cryptocurrencies.

Disadvantages

• Cost: They are relatively expensive compared to software wallets.
• Learning curve: They have a steeper learning curve compared to software wallets.

Paper Wallets

Paper wallets are a physical copy of your public and private keys, printed on paper. More often you store something called the "mnemonic" or "seed" phrase, which is a combination of 15 to 24 words from which then the private and public keys are generated. Paper wallets are typically generated offline and stored securely. You can generate them programmatically using Javascript, or use the NMKR service for convenience.

NMKR - Cardano Paper Wallet

Use NMKRs Cardano Paper Wallet solution to create new ADA paper wallets quickly and easily.

Cardano Paper Wallet

Advantages

• Security: Your private keys are stored offline, making them less vulnerable to hacking and malware attacks.
• Cost: They are free to generate.

Disadvantages

• Prone to loss: They are fragile and can be damaged or lost easily.
• Not user-friendly: They can be challenging to use for those who are not tech-savvy.

Web Wallets

Web wallets are online platforms that enable you to store, send and receive cryptocurrencies through a web browser. There a multiple web wallets to choose from on Cardano

The ones we have personally used are:

• Eternl - Eternl has become the go-to wallet for power users on Cardano.
• Nami - Nami is an open-source and non-custodial wallet on Cardano, which you can connect to your favourite DApps. It is one of the simpler wallets to use for beginners.
• Flint - Flint's lightweight and user-friendly design lets you manage your crypto assets. It is also a gateway into the Milkomeda Layer 2 on Cardano.

There are many other wallets to choose from

Advantages

• Convenience: You can access your wallet from anywhere as long as you have an internet connection.
• Compatibility: Most web wallets support multiple cryptocurrencies.

Disadvantages

• Security: Your private keys are stored online, making them vulnerable to hacking and phishing attacks.
• Control: You do not have complete control over your private keys.
  In conclusion, the type of wallet you choose will depend on your preference for security, convenience, and ease of use. It is essential to understand the advantages and disadvantages of each type before making a decision.

Create a Web Wallet

We will use Eternl Wallet in the rest of the workshop. It has a full set of features that might look overwhelming for first-time users, but after getting used to it, it has some powerful features that can come in handy.

Go to the Eternl website:

Eternl - a Cardano community wallet

A Cardano light wallet.

Eternl

Change the network to Preview

Create a new wallet by clicking Add Wallet in the top left corner. Select Create Wallet

Select a name for the wallet and a strong password

Select Number of Accounts: 1

Make sure no one is looking at your screen in the next step as you will be shown the mnemonic phrase to write down

Write down the mnemonic phrase on a piece of paper and save it securely. You will be asked to insert it again in the following step to make sure you wrote it down correctly

After a few seconds, your wallet will be created. It will have 0 balance which we will top-up in the next session. You can check the wallet's address by going to Receive button

And with this you have created a new Web Wallet to use on the Preview testnet.

References

Cardano Docs - Types of Wallets

Daedalus Wallet

Trezor

Eternl

License

This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.

Table of Content

Introduction

Cardano uses asymmetric encryption for the majority of its encryption. Symmetric encryption, also known as public-key encryption, uses a public key-private key pairing: data encrypted with the private key can only be decrypted with the public key, and vice versa.

To make this concept clear, we can try a visual example.

Imagine a trunk with a lock that two people, Bob and Alice, use to ship documents back and forth. A typical lock has only two states: locked and unlocked. Anyone with a copy of the key can unlock the trunk if it's locked, and vice versa. When Bob locks the trunk and sends it to Alice, he knows that Alice can use her copy of the key to unlock the trunk. This is essentially how what's known as symmetric cryptography works: one secret key is used for both encrypting and decrypting, and both sides of a conversation use the same key.

Now, imagine, instead, that Bob makes a trunk with a special kind of lock. This lock has three states instead of two:

A. Locked, key turned all the way to the left
B. Unlocked, in the middle.
C. Locked, key turned all the way to the right.

Instead of one key, two keys go with this lock:

Key No. 1 can only turn to the left
Key No. 2 can only turn to the right

This means that if the trunk is locked and the key is turned to position A, only key No. 2 can unlock it by turning right, to position B (unlocked). If the trunk is locked in position C, only key No. 1 can unlock it by turning the lock left, to position B.

In other words, either key can lock the trunk – but once it is locked, only the other key can unlock it.

Now let's say Bob makes a few dozen copies of key No. 2, the key that only turns right, and shares them with everyone he knows and anyone who wants a copy, making it his public key. He keeps key No. 1 for himself – it's his private key. What does this accomplish?

Alice can send Bob confidential data via the trunk and be confident that only Bob can unlock it. Once Alice has locked the trunk with the public key, which turns from left to right, only a key that can turn right to left can unlock it. That means only Bob's private key can unlock it.

Alice can be sure that the trunk is actually from Bob, and not an impersonator, if it's locked with his private key. There's only one key that can lock the trunk so that the lock is in position A, or turned all the way to the left: Bob's private key. True, anyone can unlock it with the public key by turning the key to the right, but it's guaranteed that the trunk is from Bob.

Substitute plaintext data for the trunk and cryptographic keys for the physical keys from this analogy, and this is how public key cryptography works. Only the owner of the private key can encrypt data so that the public key decrypts it; meanwhile, anyone can encrypt data with the public key, but only the owner of the private key can decrypt it.

Therefore, anyone can send data securely to the private key owner. Also, anyone can verify that data they receive from the owner of the private key is actually from that source, and not from an impersonator

In Cardano, there are two main key types:

• Address keys
• Node keys

Address Keys

Every user of Cardano can have two sets of keys and addresses:

• Payment Keys and addresses: To send and receive transactions
• Stake Keys and addresses: To control protocol participation, create a stake pool, delegate and receive rewards

Each set of keys has a private and a public key. They are sometimes referred to as .skey and .vkey

Payment Keys

To generate the Payment keys so that we can then receive and make payments we run:

cardano-cli address key-gen \
--verification-key-file payment.vkey \
--signing-key-file payment.skey

This creates two files payment.vkey (the public verification key) and payment.skey (the private signing key).

Generate the hash of a payment verification key. This is a hash of a public key

cardano-cli address key-hash \
--payment-verification-key-file payment.vkey \
--out-file payment.pkh

Stake Keys

Then we need to generate a pair of stake keys. These keys are needed when delegating ADA to a stake pool

cardano-cli stake-address key-gen \
--verification-key-file stake.vkey \
--signing-key-file stake.skey

Both verification keys (payment.vkey and stake.vkey) are used to build the address and the resulting payment address is associated with these keys.

Payment Address

cardano-cli address build \
--payment-verification-key-file payment.vkey \
--stake-verification-key-file stake.vkey \
--out-file payment.addr \
--testnet-magic 2

With the address created you can now receive payments into. The address should look something like this: addr_test1qpkpxq5vn8uvwdkfels8vujft6x80w62lq6suwxck29m23azauccre8p54n33jswltx0wh56kukger4fjjvghtmy8ajquzhlr5

To query the balance of your account:

cardano-cli query utxo \
--address $(cat payment.addr) \
--testnet-magic 2

Stake Address

To generate the stake address to participate in staking

cardano-cli stake-address build \
--stake-verification-key-file stake.vkey \
--out-file stake.addr \
--testnet-magic 2

Test ADA

To get some test ada into your wallet go to the Cardano Faucet and request tADA into the address that you created in the previous step

In a few seconds, you should receive 1 000 tADA at you address. Query the UTXO to check that you have received it

cardano-cli query utxo \
--address $(cat payment.addr) \
--testnet-magic 2

References

Cardano keys - Cardano Docs

What is a Cryptographic Key

How does public key encryption encryption work

Explaining public-key cryptography to non-geeks

Cardano Test ADA Faucet

License

This work is distributed under a Creative Commons Attribution 4.0 International (CC BY 4.0) The license allows you to copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, including commercial, as long as you give appropriate credit to the creator.