Risk Disclosure
Hybond Risk Disclosure
Warning Statements, Disclosures and Risk Factors
Warning Statements and Disclosures
(i) Each of BNY Mellon, its Associates, each Fund, Administrator and Manager (the "BNY Fund Parties") shall not be liable and/or responsible to any of the customers of the Company (including the purchasers of the HYBOND token), or to intermediaries (if any) engaged in the distribution of the HYBOND token ("Product"). Any holders of the HYBOND token will not be treated as the holder of any shares in the BNY Mellon Global Short-Dated High Yield Bond Fund ("Fund").
(ii) The Company has no authority to act as agent, placement agent or distributor of the BNY Fund Parties. The Product has been independently developed by the Company and shall not be deemed to create a partnership or joint venture with the BNY Fund Parties.
(iii) Investors should consider the investment objectives, risks, charges, and expenses of any financial product carefully before investing.
(iv) The use of any Fund names in connection with the Product does not imply any affiliation with, or endorsement by, any third party. References in the Product User Agreement or the Website to specific companies and platforms are for illustrative purposes only.
(v) The BNY Fund Parties do not and do not purport to make, and hereby disclaims, all representations, warranties or undertaking to any entity or person (including without limitation warranties as to the accuracy, completeness, timeliness, or reliability of the contents of the Product User Agreement or the Website, or any other materials published by the Company). To the maximum extent permitted by law, the BNY Fund Parties, shall not be liable for any indirect, special, incidental, consequential or other losses of any kind, in tort, contract or otherwise (including, without limitation, any liability arising from default or negligence on the part of any of them, or any loss of revenue, income or profits, and loss of use or data) arising from the use of the Product, or any other materials published, or its contents (including without limitation any errors or omissions) or otherwise arising in connection with the same. Prospective acquirors of the Product should carefully consider and evaluate all risks and uncertainties (including financial and legal risks and uncertainties) associated with the distribution of the Product.
The Product:
(a) does not represent or confer on the holder of the Products any right of any form with respect to the BNY Fund Parties, or its revenues or assets, including without limitation any right to receive future dividends, revenue, shares, ownership right or stake, share or security, any voting, distribution, redemption, liquidation, proprietary (including all forms of intellectual property or licence rights), right to receive accounts, financial statements or other financial data, the right to requisition or participate in shareholder meetings, the right to nominate a director, or other financial or legal rights or equivalent rights, or intellectual property rights or any other form of participation in or relating to the Product, the Company, the distributor and/or their service providers;
(b) is not intended to be a representation of money (including electronic money), security, commodity, bond, debt instrument, unit in a collective investment scheme or any other kind of financial instrument or investment;
(c) does not provide the Product holder with any ownership or other interest in the Fund. Notwithstanding the Product distribution, users have no economic or legal right over or beneficial interest in the assets of the Fund.
(vi) Each of the BNY Fund Parties does not take part in the development, creation, maintenance and trading of the Products.
(vii) Each of the BNY Fund Parties is not the issuer, distributor, placement agent of the Products, and the Products are not sponsored, recommended, endorsed, guaranteed or otherwise financially backed by any of the BNY Fund Parties.
Risk Factors
1) HYBOND Reserves risk: HYBOND Reserves comprise the shares of the BNY Mellon Global Short-Dated High Yield Bond Fund which is an open-end fund incorporated in Ireland that aims to deliver positive returns greater than the Cash Benchmark on a rolling 3-year basis. The fund invests primarily in high-yielding bonds with maturities or expected maturities within 3 years, focusing on visible cashflows and issuers seeking to refinance their debt within a two-year time horizon. The strategy emphasizes credit risk management by avoiding lower-rated CCC-category issuers (except subordinated debt of higher-rated companies), targeting an attractive risk-adjusted yield profile with historically low default rates compared to the broader high yield market ("SDHYBF").
This presents a number of risks associated with the Reserve Assets which include risks that the underlying assets backing the Reserve Assets may lose value due to various factors, such as counterparty risks, market events, including events that could lead to loss of collateral value, similarly, defaults of counterparties may potentially lead to the market value of the security to decline causing the underlying issuer to lose money. These risks of the underlying assets held by the SDHYBF include:
a. Product Suitability — This product is a complex investment product and may not be suitable for all users. Tokens represent an indirect economic exposure to a high-yield bond fund and are subject to credit risk, market risk, liquidity risk, and operational risk. High-yield bonds carry a higher risk of default and price volatility compared to investment-grade bonds, particularly during periods of market stress. Tokens are not principal-protected and investors may lose part or all of their invested capital. Liquidity is dependent on the redemption policies and liquidity conditions of the underlying fund, and redemptions may be delayed, restricted, or suspended in certain circumstances. Users should carefully consider their investment objectives, risk tolerance, liquidity needs, and financial circumstances before acquiring Tokens. OED does not provide investment, legal, or tax advice. Users are solely responsible for determining whether this product is appropriate for them.
b. Bond Market Risk — SDHYBF invests primarily in high-yielding bonds with relatively short maturities (generally within 3 years). Changes in interest rates, credit conditions, and market sentiment can cause significant fluctuations in bond values. Rising interest rates typically reduce bond prices, while falling rates may increase them. SDHYBF may experience substantial losses if market conditions deteriorate or if interest rates move sharply and unexpectedly.
c. Credit Risk — Credit risk is the risk that an issuer of a bond will fail to make timely payments of principal and interest or will default on its obligations entirely. High-yield bonds (commonly referred to as "junk bonds") carry a higher risk of default than investment-grade bonds. The Fund invests in bonds with credit ratings below Baa3 or equivalent by Recognized Rating Agencies, reflecting greater default probability. An economic downturn or sustained period of rising interest rates can significantly increase credit default risk, particularly for highly leveraged issuers. In the event of issuer default, SDHYBF may recover only a portion of its principal investment after lengthy bankruptcy proceedings.
d. High Yield / Sub-Investment Grade Securities Risk — Lower-rated securities generally carry higher yields to compensate investors for increased credit risk. However, they typically exhibit:
Greater volatility and price sensitivity to economic conditions
Lower liquidity and trading volume
Wider bid-ask spreads
Reduced availability of buyers in market downturns
Higher likelihood of significant loss of principal and interest
During market stress or economic recession, the market for high-yield securities can become highly illiquid, potentially preventing SDHYBF from exiting positions at favorable prices, which may result in a potential loss in value of the underlying bonds. SDHYBF may be unable to execute redemptions on a timely basis if the underlying bonds cannot be liquidated.
e. Interest Rate Risk — The value of bonds is inversely related to interest rate movements. SDHYBF held bonds, while generally short-dated, remain subject to interest rate risk. If interest rates rise significantly, the market value of SDHYBF's bond holdings will decline, potentially resulting in losses if securities must be sold before maturity. The reduction in value could be rapid and severe during periods of rising rate expectations. Conversely, if interest rates fall, bond values may increase, but capital appreciation may be limited if redemptions are requested.
f. Liquidity Risk — SDHYBF may invest in bonds with limited trading liquidity, particularly in emerging market debt, corporate bonds in distressed sectors, or bonds issued by smaller corporations. In stressed market conditions, such bonds may become illiquid, with wide price discrepancies between bid and ask prices. This may result in:
Inability to exit positions at desired prices or within desired timeframes
Significant trading costs and execution delays
Net Asset Value volatility
Difficulty meeting redemption requests from HYBOND Token holders
Forced sales at distressed prices
Liquidity risk is particularly acute for longer-dated or more complex bond instruments held by SDHYBF. This liquidity risk is also passed through to holders of the HYBOND token making redemption of the HYBOND also dependent on the underlying SDHYBF.
g. Duration and Maturity Extension Risk — While SDHYBF targets short-dated bonds (within 3 years), bonds may incorporate embedded options (callable or convertible features). Callable bonds carry prepayment risk if interest rates fall and issuers refinance at lower rates, limiting upside potential. Conversely, extension risk may occur if interest rates rise and issuers defer refinancing, extending the effective maturity beyond original expectations. Extension risk is particularly problematic in rising rate environments where bond prices have already declined.
h. Currency Risk — SDHYBF may invest in non-USD denominated bonds without hedging currency exposure. Exchange rate fluctuations can materially impact returns for USD-based investors. If foreign currencies depreciate against the USD, the USD value of returns from non-hedged bonds will be reduced. Conversely, currency appreciation can enhance returns. Currency risk is particularly acute for emerging market debt holdings.
i. Credit Spread Risk — Credit spreads (the difference in yield between high-yield bonds and government bonds of similar maturity) can widen significantly during periods of market stress, reducing bond prices. Economic uncertainty, sector downturns, geopolitical events, or systemic financial stress can cause rapid credit spread expansion, resulting in substantial losses even if issuers do not default. During financial crises, credit spreads have widened dramatically, causing sharp declines in high-yield fund values.
j. Subordinated Debt Risk — SDHYBF may invest in subordinated debt securities, which have lower repayment priority than senior debt in bankruptcy or liquidation scenarios. Subordinated debt holders rank below senior creditors and unsecured creditors in the capital structure. These securities carry materially higher default risk and typically experience greater losses in distress scenarios. Coupon payments may be deferred or permanently reduced at issuer discretion. In the event of issuer failure, subordinated debt holders may recover little to no principal.
k. Emerging Markets Risk — SDHYBF may invest more than 20% of NAV in emerging market debt securities. These investments are subject to:
Greater political and economic instability
Currency volatility and devaluation risk (including potential capital controls)
Less regulatory oversight and disclosure requirements
Higher credit risk and prevalence of sovereign debt
Lower market liquidity and wider spreads
Greater settlement and counterparty risks
Risk of default by sovereign issuers
Emerging market bonds can experience sharp price declines during periods of global financial stress or regional political turmoil. Geopolitical events, changes in government policy, or currency crises can rapidly impair bond values.
l. Convertible Securities Risk — SDHYBF may hold convertible bonds that can be converted into or exchanged for equity securities. Such securities are subject to:
Equity price volatility from underlying conversion features
Credit risk of the bond issuer
Conversion risk if conversion features are exercised
Illiquidity relative to traditional bonds or equities
Risk that conversion features expire worthless
The value of convertible bonds depends on both bond characteristics and underlying equity value, creating complex risk dynamics. If underlying equity prices decline significantly, the equity conversion option becomes worthless and the bonds revert to being valued primarily as unsecured debt.
m. Asset-Backed and Mortgage-Backed Securities Risk — SDHYBF may invest in asset-backed securities (ABS) or mortgage-backed securities (MBS) collateralized by pools of mortgages or other debt. Such investments are subject to:
Prepayment risk (if interest rates fall, prepayments accelerate, reducing returns)
Extension risk (if interest rates rise, prepayments slow, extending duration)
Collateral quality deterioration
Default risk of underlying mortgagors or obligors
Limited transparency into collateral composition and quality
Complex valuation methodologies
Potential for rapid deterioration during housing market downturns
In economic downturns, housing prices and mortgagor incomes may decline, increasing default risk on underlying mortgages. During the 2008-2009 financial crisis, MBS and ABS suffered severe losses.
n. Counterparty Risk — SDHYBF uses financial derivative instruments (FDI), including credit default swaps, interest rate swaps, and total return swaps, for investment and hedging purposes. These instruments create exposure to counterparty credit risk — the risk that counterparties fail to perform their obligations under derivative contracts. Counterparty default could result in:
Loss of unrealized gains on favorable positions
Inability to hedge downside risks
Operational disruption and forced liquidation
Inability to recover collateral or posting margin
Even counterparties with investment-grade ratings are subject to failure risk during systemic financial crises.
o. Use of Financial Derivative Instruments Risk — SDHYBF may use FDI including futures, options, forward contracts, swaps, and credit default swaps for investment, hedging, and efficient portfolio management. FDI involve risks including:
Leverage effects — FDI can amplify losses if markets move unfavorably
Basis risk — imperfect correlation between hedging instruments and underlying exposures
Liquidity risk — inability to exit FDI positions in illiquid markets
Valuation risk — difficulty in determining fair value for OTC derivatives
Regulatory risk — changes in derivatives regulation affecting availability and costs
Model risk — errors in valuation models or market assumptions
Use of leverage through FDI magnifies potential losses and increases SDHYBF volatility. Losses from FDI can exceed the initial investment in such FDI.
p. OTC Derivatives Risk — Much of the Fund's derivatives trading occurs in over-the-counter (OTC) markets rather than regulated exchanges. OTC derivatives are subject to:
Absence of exchange-guaranteed settlement (counterparty risk)
Limited regulatory oversight
Less liquid markets with wide spreads
Difficulty closing positions
Risk of disputes over contract terms
Lower transparency in pricing
OTC derivatives may not be possible to liquidate quickly or at favorable prices, particularly during market stress.
q. Short Selling / Synthetic Short Exposure Risk — SDHYBF may take synthetic short positions through derivatives to hedge long exposures or express negative market views. Short selling creates asymmetric risk — while long positions have limited downside (floor at zero), short positions theoretically have unlimited loss potential if markets move higher. Short positions reduce SDHYBF's overall long equity/bond exposure and may result in significant losses during market rallies. The cost of holding short positions through borrowing or derivatives can be significant during extended bull markets.
r. Market Disruption and Systemic Risk — During periods of severe market disruption (financial crises, pandemics, natural disasters, geopolitical shocks), bond markets can experience:
Loss of liquidity with few willing buyers or sellers
Extreme price volatility disconnected from historical relationships
Clearing and settlement delays
Reduced financing availability from banks and dealers
Forced liquidations at distressed prices
Contagion effects across asset classes and geographies
Central bank intervention and policy uncertainty
These conditions may prevent SDHYBF from exiting positions or meeting redemption requests timely. Examples of the severity of potential market disruptions include the 2008-2009 financial crisis and 2020 COVID-19 pandemic.
s. Valuation Risk — SDHYBF holds some positions in illiquid or thinly traded bonds with no active secondary market. Such securities are valued by the manager of the SDHYBF in good faith based on estimated probable realization value. These valuations are inherently uncertain and may not reflect actual sale prices. Errors in valuation methodology or data can result in:
Inaccurate Net Asset Value calculation
Investor subscription at inflated prices or redemption at deflated prices
Regulatory compliance violations
Disputes with regulators regarding fair value determinations
t. Economic Downturn and Recession Risk — High-yield securities are particularly sensitive to economic cycles. During recessions, corporate earnings decline, debt service becomes more difficult, and default rates rise sharply. SDHYBF experienced significant losses during previous recessions (including 2008-2009 and 2020) and may experience similar losses in future downturns. Highly leveraged companies in SDHYBF's portfolio are particularly vulnerable to economic stress. The greater the leverage of issuers in the portfolio, the greater the default risk during downturns.
u. Sector Concentration Risk — SDHYBF may at times have significant concentration in specific industries or sectors (energy, telecommunications, retail, financial services, automotive, etc.). Adverse developments specific to these sectors can materially impact SDHYBF performance. Sector-specific risks include:
Technological disruption (retail, automotive, media)
Regulatory changes (energy, financials, healthcare)
Commodity price volatility (energy, materials, agriculture)
Consumer preference shifts (retail, automotive, energy)
Geopolitical impacts (energy, transportation, defense)
Significant sector concentration increases portfolio volatility and drawdown risk during sector-specific downturns.
v. Regulatory and Compliance Risk — SDHYBF is subject to extensive regulation in multiple jurisdictions. Changes in regulations affecting bond markets, derivative usage, disclosure requirements, or market conduct can:
Increase operational costs
Restrict investment strategies
Trigger forced liquidations
Create compliance violations
Result in fines and penalties
Reduce fund returns
Regulatory changes may be implemented retroactively or with limited notice. Recent regulatory changes affecting high-yield bond market participants, including enhanced transparency requirements and derivative regulations, have increased compliance costs.
w. Investment Manager Performance Risk — SDHYBF's performance is dependent on the investment management expertise and judgment of its appointed fund manager and/or sub-manager. There is no guarantee that the investment manager's analytical and trading decisions will be correct or will produce results superior to market benchmarks. Changes in key personnel, investment processes, or strategy could materially impact SDHYBF performance. Underperformance relative to benchmarks is possible, particularly during certain market cycles.
x. Loss of Underlying Assets of the Reserve Assets — The aforementioned assets that make up the underlying assets that the SDHYBF invests in and holds in its custodian accounts may also be lost or inaccessible due to various factors including, without limitation, discovery of wrongful conduct, digital attacks, insolvency of the Issuer and other factors outside of the HYBOND Issuer's control.
2) High-Yield Bonds in Digital Asset Format: The HYBOND combines the risks of high-yield bond investing with emerging blockchain technology risks. During systemic financial crises, multiple risks can compound:
Credit defaults among bond issuers (see Paragraph 1b, 1c, 1s of Risk Schedule)
Market illiquidity affecting redemptions (see Paragraph 1e of Risk Schedule)
Platform technical failures during peak redemption demand (see Paragraph 19, 20 of Risk Schedule)
Regulatory intervention (see Paragraph 22 of Risk Schedule)
Multiple simultaneous failures could result in total loss of HYBOND Token value with no ability to redeem underlying reserve assets due to platform failures or SDHYBF redemption suspensions.
Digital Asset and Platform Risks
3) Structural / Legal Relationship — Tokens represent an indirect economic interest in the underlying high-yield bond fund and do not confer any direct legal, ownership, voting, or enforcement rights in the fund. Investors do not hold shares of the fund directly and have no contractual relationship with the fund manager, custodian, or service providers of the underlying fund. All subscriptions, redemptions, and exchanges are executed through OED, acting on behalf and for the Segregated Account HYBOND, which acts as the legal owner of the fund shares. Investors' rights and claims are therefore limited to their holdings in the Tokens and are subject to the terms of the User Agreement. The economic performance of the Tokens depends on the performance of the underlying fund, but investors bear the risk that OED's obligations, operational processes, or errors may affect the timing or amount of redemptions.
4) Tokenization Risk — The HYBOND Token represents a digital token encoding the economic exposure to the SDHYBF. Technical risks associated with the tokenization process include:
Smart contract vulnerabilities or bugs causing loss of funds
Blockchain protocol failures affecting token transactions
Token supply errors or mismatches with underlying Fund assets
Redemption mechanism failures preventing timely conversions
Wallet compatibility issues preventing token transfers
Technological failure could result in loss of HYBOND Token value, inability to redeem, or fraudulent token creation. Smart contract audits, while helpful, do not eliminate all technical risks.
5) Blockchain Technology Risk — The use of blockchain technology entails inherent risks, such as irreversible transactions, which may lead to permanent loss of assets in cases of errors or unauthorized transactions. The HYBOND Token operates on blockchain networks (Ethereum and/or other chains) controlled by distributed networks rather than centralized entities. Risks include:
51% attacks on the blockchain enabling token theft or manipulation
Consensus mechanism failures reducing network security
Blockchain forks or chain splits creating token confusion
Network congestion and transaction delays
Reduced security if network validators decrease significantly
Potential regulatory restrictions on blockchain use
Blockchain technology, while secure in many cases, remains relatively novel and is subject to evolving security threats and regulatory uncertainty.
6) Fork risk: The permissionless nature of blockchains means that existing supported blockchains may fork. Where such forks occur, the same may or may not be able to be supported by the Issuer, resulting in the potential loss of the Digital Assets/HYBOND tokens on such forked blockchains. The Issuer will inform users in advance in case new forks are supported, so that Users can track the blockchains where ownership of assets continues to be supported for redemptions.
7) Smart Contract Risk: Smart contracts used on the Platform may contain vulnerabilities or unforeseen issues that could result in asset loss or disruptions to our products and services. The Issuer has taken steps to mitigate such risks, including audits and monitoring, but no smart contract is risk free.
8) Liquidity and Listing risk: Market fluctuations, changes in listing status, or other factors may impact the liquidity and value of digital assets and/or HYBOND tokens held in your Wallet, or used to transact on the Platform.
9) Exchange risk: The loss or compromise of digital asset exchanges may result in disruptions to our products and services, particularly where such platforms are utilized to support HYBOND operations.
10) Trading Risk: Trading digital assets involves inherent risks, including market volatility, and may result in the loss of some or all of your assets.
11) Banking Risk: Changes in banking relationships or regulations may impact the availability of our products and services, including the ability to deposit or withdraw fiat currency.
12) No Deposit Insurance: The Issuer does not provide deposit insurance, and digital assets held in your account or non-custodial wallets are not insured against loss.
13) Insurance: We have obtained Director & Officers as well as Errors & Omissions insurance coverage in respect of our business operations.
14) Third Party Platform risk: While HYBOND Token currently is issued as a permissioned token and non transferable to non-whitelisted customers of the Issuer, and no secondary market exists for the HYBOND token, future changes may permit/enable third party platforms to integrate the HYBOND Token on a permissionless basis. This may lead users interacting with malicious contracts or contracts with security features that have not been assessed by the Issuer. The Issuer is not liable for any User losses related to the usage of 3rd party platforms which support or purport to support the HYBOND Token.
15) Blocked addresses, Blacklisting and Forfeited funds: The Issuer reserves the right to block certain addresses if it determines, in its sole discretion, that they may be associated with illegal activity or activity violating the terms of the User Agreement. If you send or receive HYBOND to/from a Blocked or Blacklisted Address, the Issuer may take steps to suspend or terminate your Platform Account. In certain cases, the Issuer may report suspected illegal activity to law enforcement agencies, which could result in the forfeiture of rights associated with your HYBOND, including redemption for USD or supported stablecoins. The Issuer may also be required to surrender HYBOND associated USD if mandated by a legal order from a valid government authority.
16) Termination Risk: You may be unable to withdraw or transfer HYBOND prior to our termination of the provision of any products or services, including access to your Platform Account, in which case, you may be unable to redeem HYBOND after your Platform Account has been terminated.
17) Inaccuracies Risk: Any HYBOND may be lost if sent to the wrong address (for example, but without limitation, if the address is improperly formatted contains errors, or is intended to be used for a different type of digital asset). Any HYBOND may be lost if sent to a correct address but the recipient does not act as intended. Your transaction request or email to us or via the Platform may be lost, intercepted or altered during transmission.
18) Custody and Safekeeping Risk: The HYBOND Reserve Assets are held in custody with regulated custodians. Risks include:
Custodian insolvency or operational failure
Loss, theft, or misappropriation of assets
Inadequate insurance or indemnification
System failures preventing asset access
Segregation failures mixing HYBOND reserve assets with custodian assets or other client assets
Custodian involvement in fraudulent schemes
Custodian failure could result in total loss of assets despite contractual protections. Investors are dependent on custodian financial strength and internal controls.
19) Private Key and Wallet Risk: Users are responsible for securing private keys and seed phrases controlling their Wallet addresses. Risks include:
Loss of private keys through user error, device failure, or theft
Unauthorized access to Wallets through phishing, malware, hacking, or social engineering
Inability to recover lost or stolen credentials
Loss of all HYBOND Token if Wallet access is permanently lost
Risk of compromised Wallets sending tokens to incorrect addresses
The Issuer cannot recover funds lost due to user mismanagement of private keys. Users who lose access to their private keys may permanently lose access to their HYBOND Tokens.
20) Platform Technology Risk: The Platform's operation depends on software, networking infrastructure, and third-party systems. Risks include:
Software bugs or vulnerabilities enabling unauthorized access or fund transfers
System outages or degraded performance preventing minting/redemption
Denial-of-service attacks disrupting Platform availability
Database failures causing loss of transaction records
API failures interfering with redemption capabilities
Third-party vendor failures impacting Platform operations
Platform failures could prevent users from minting or redeeming HYBOND for extended periods, potentially during critical market windows.
21) Redemption Processing Risk: While the Issuer commits to processing HYBOND Token redemptions within T+4 Irish business days, this is subject to liquidity availability and absence of "abnormal conditions" as defined in the User Agreement as well as significant redemption requests exceeding available liquidity. During market stress, redemption processing may be delayed or suspended, preventing timely access to underlying value. Extended redemption suspensions occurred during the 2008-2009 financial crisis for certain high-yield funds.
22) NAV Volatility and Tracking Error — The HYBOND Net Asset Value fluctuates with the performance of the SDHYBF. The SDHYBF NAV changes daily based on bond market movements. Users may experience significant intra-day and day-to-day NAV volatility, particularly during periods of market stress or heightened volatility in high-yield bond markets. HYBOND may not track the Underlying Fund NAV perfectly due to:
Fees and expenses specific to the token
Redemption/creation delays
Basis risk between token trading price and underlying NAV
Technical glitches in valuation mechanisms
23) Regulatory and Legal Uncertainty: Any digital asset such as HYBOND Token may decrease in value or lose all of its value due to legislative or regulatory activity, or other governmental or regulatory action. Governmental and regulatory authority regulation of digital assets are unsettled and rapidly evolving. Changes in laws or regulations in your jurisdiction or internationally, including those that may impact the SDHYBOND (as the issuer of the HYBOND Reserve Assets) may impact your ability to use our Platform or the HYBOND or the legal status of your digital assets. Future regulatory developments may:
Restrict or prohibit digital asset issuance
Impose additional regulatory requirements or limitations on HYBOND
Require token migration or conversion to new protocols
Trigger forced redemptions or unwinding
Create tax implications or compliance obligations
Subject the token to securities law if deemed a security in certain jurisdictions
Regulatory action could materially and adversely affect HYBOND value and functionality. Several jurisdictions have proposed or implemented restrictions on digital assets and other tokenized instruments.
24) Counterparty Risk with Platform Operator: Users are dependent on the financial stability and operational competence of the Issuer and Platform operator. Risks include:
Issuer financial insolvency
Operational failures preventing redemptions
Misappropriation of assets by Issuer or employees
Breach of key service provider agreements
Conflicts of interest affecting token management
The Issuer's failure could result in inability to redeem tokens or recover assets despite underlying fund value.
25) AML/KYC Compliance and Account Closure Risk: Users must comply with KYC/AML requirements and provide ongoing documentation. Risks include:
Account suspension or closure for AML/KYC violations
Freezing of assets during investigation periods
Loss of access to HYBOND held in frozen accounts
Denial of redemption requests pending investigation
Potential liability for sanctions violations or financial crime
Users found to violate AML/KYC requirements may lose access to their ability to mint or redeem HYBOND indefinitely, or on a case by case basis, be subject to regulatory action.
26) Concentration Risk: HYBOND may become concentrated in holdings of large institutional investors. Significant redemptions by large holders could:
Trigger liquidity issues for SDHYBOND
Force liquidation of illiquid bond positions at unfavorable prices
Create NAV volatility affecting remaining HYBOND holders
Disrupt the HYBOND tracking of the SDHYBF
27) Settlement & Operational Risk: The issuance and redemption of the Tokens rely on multiple operational processes across digital asset infrastructure and traditional financial systems, including digital asset transfers, fiat conversion, banking settlement, and interaction with the underlying fund. Disruptions, delays, or failures may occur at any stage due to system outages, manual errors, third-party service provider issues, banking cut-off times, or payment and settlement disruptions. Differences in operating hours between digital asset markets and traditional financial institutions may further delay settlement or reconciliation. As a result, HYBOND token issuance or redemption may be delayed, partially processed, or, in exceptional circumstances, suspended. Any targeted settlement timelines, including references to T+4 settlement under normal conditions, are indicative only and not guaranteed. Such delays or reconciliation differences do not constitute a default or breach by us.
28) Tax and Regulatory Treatment Uncertainty: The tax treatment of HYBOND holdings remains uncertain in many jurisdictions. Risks include:
Unfavorable tax characterization (e.g., ordinary income vs. capital gains)
Deemed sale events for tax purposes during rebasing
Difficulty valuing token for tax reporting
Retroactive tax law changes affecting holders
Compliance burdens with foreign tax reporting requirements
Users should consult tax advisors regarding their specific tax treatment of HYBOND holdings.
29) Reliance Risk: There are various risks you assume in relying on any text, graphics, user interfaces, information, data, tools, products, services, and other content (collectively, the "Content") provided by the Issuer via the Platform, social media accounts of the Issuer or its officers ("Social Media Accounts"), or any other means, including:
a. That all Content provided by the Issuer whether directly or through Social Media Accounts is for informational purposes only and do not constitute recommendations that you purchase, sell, redeem, or hold HYBOND or that you pursue any strategy in respect of HYBOND. Nothing on the Platform or Social Media Accounts is intended to be, and you should not consider any of the Content provided to be, trading, investment, accounting, tax, legal, or professional advice of any kind and you are advised to seek appropriate professional advice before taking any action concerning HYBOND.
b. Where relevant, any Content posted or made available is intended to be current as of the date it is posted/made available unless otherwise specified.
c. While reasonable efforts are made to provide accurate Content, such Content may be inaccurate, outdated, or otherwise inappropriate at the time of consumption and we have no obligation to update or correct such Content on the Platform or our Social Media Accounts.
d. Content posted on the Platform may be changed at any time without notice to you.
e. The Issuer is not liable for any action or decision taken or made in reliance of any Content and you expressly agree to the same.
f. The Platform (or portions thereof) may not always be available or function properly at any time.
g. While the Issuer makes reasonable efforts and employs appropriate safeguards to avoid technological problems, the Platform may at any time, be affected and/or may inadvertently be the source of technological problems such as viruses and other damaging computer or network based attacks.
h. problems or issues affecting third party software, networks, protocols, systems, and other technology including, any blockchain which has not been created by or for us ("Third-Party Technology") which permits interaction with the HYBOND and you expressly agree that the Issuer shall not be liable in such instances.
i. While reasonable security precautions are made with respect to communications with Users, the Issuer specifically disclaims liability for any interception of data or communications between Users and the Platform.
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