What is Tezos?
First conceptualized in 2014, Tezos was founded by Arthur and Kathleen Breitman and their startup Dynamic Ledger Solutions. One of the first protocols to enable on-chain governance, or what the project team called a “self-amending blockchain,” Tezos governance allows participants to vote on proposals to change how the protocol operates. The Tezos blockchain is secured via liquid proof-of-stake, an algorithm very similar to proof-of-stake but with two slight differences to encourage honest participation: participation requires a fairly significant amount of assets staked (referred to as “baking” with Tezos) and participants can easily change to which nodes they delegate their votes.
When Tezos was first developing its protocol, the team raised $232 million in July 2017 via Initial Coin Offering (ICO). Shortly thereafter, the Tezos Foundation was founded to “sustainably deploy resources that support the long-term success of Tezos” at an arm’s length from the team operating the protocol. The Foundation sources grants and other funding, and also runs advisory and audit committees to help the Foundation play an active and valuable role in the Tezos community.
Tezos positions itself as an ideal platform for developers to build applications on top of because its liquid proof-of-stake and adaptable infrastructure (primarily via on-chain governance) should serve to mitigate against potential code forks, which create two separate chains and disrupt associated development.
What is XTZ?
As mentioned, Tezos is secured by proof-of-stake, a validation mechanism powered by participants staking the blockchain’s native token, in this case XTZ or tez. XTZ holders can stake, or “bake”, their XTZ tokens to help secure the chain and earn rewards in return. (Please note that Wealthsimple Crypto does not currently allow for clients holding XTZ in their account to participate in securing the chain and earning rewards.) In addition to serving as means of validation, XTZ bakers can also vote on community proposals as part of the Tezos governance process.
How does XTZ compare to Bitcoin?
XTZ differs from Bitcoin in that XTZ powers the liquid proof-of-stake process for Tezos, a blockchain entirely separate from the Bitcoin blockchain. Since Tezos uses proof-of-stake instead of the proof-of-work method of Bitcoin, XTZ tokens are staked as part of the validation mechanism, in contrast to BTC which are mined as a result of the proof-of-work algorithm.
As mentioned above, XTZ also allows for holders to participate in on-chain governance of Tezos, a voting process that is not accessible to BTC holders in the same way. However, Wealthsimple Crypto does not currently allow for clients holding XTZ in their account to participate in on-chain governance of Tezos.
However, it should be noted that although XTZ is different from Bitcoin, it is far from independent from it. Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that XTZ will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) It is not clear, but unlikely, that a significant drop in XTZ’s value would have a material impact on Bitcoin.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Tezos, including an opinion that XTZ is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of XTZ prior to making it available on Wealthsimple Crypto and has concluded that XTZ is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated XTZ based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of XTZ, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Tezos;
- The supply, demand, maturity, utility and liquidity of XTZ;
- Material technical risks associated with XTZ, including any code defects, security breaches and other threats concerning XTZ and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with XTZ, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of XTZ.
Like all other crypto assets, there are some general risks to investing in XTZ. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. The Tezos Foundation and community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of XTZ have no recourse to Tezos or Wealthsimple if XTZ declines in value for any reason.
As stated above, Wealthsimple Crypto does not currently allow for clients holding XTZ in their account to participate in baking, to earn baking rewards or to participate in on-chain governance of Tezos.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading XTZ. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.