Nuco Development Token (NCDT), NUCOs
The risk warnings described herein contain the legal and actual risks that are currently considered significant by Iron Eagle Capital GmbH (hereinafter “Iron Eagle”) with regard to the Nuco Development Token (NCDTs) still to be created in the future. It cannot be ruled out that risks may arise which are not listed herein due to subsequent changes to the NCDT or the planned business activities of Iron Eagle.
The acquisition of NCDTs is not an investment. Holders of NCDTs (hereafter referred to as “token buyers”) have the exclusive right to participate in the proposed token swap to convert NCDTs into the NUCOs that are still to be created. NUCOs grant no rights with regard to Iron Eagle, but can only be used as a means of payment within the yet to be established nuco.cloud (payment tokens). Whether this will actually be possible depends largely on the activities of Iron Eagle, in particular the successful development of the nuco.cloud. Therefore, risks are first explained in relation to the business activities of Iron Eagle (paragraph 1) and then the risks with respect to NCDTs and NUCOs (paragraph 2).
The occurrence of individual and cumulative interactions of various subsequent risks can have a material adverse effect on the assets, financial condition, profits, and prospects of Iron Eagle. This may result in the nuco.cloud concept not being implemented successfully, for example, because Iron Eagle fails to successfully develop or operate the nuco.cloud. There is a risk for token buyers that both the NCDT and the NUCO will become worthless or defunct.
At the time of the token sale, Iron Eagle has not yet started its business activities and has not yet developed the nuco.cloud. Iron Eagle is still at a very early stage of the project. The (technical) state of development of the nuco.cloud and the entire business model are untested so far. Moreover, token buyers cannot check the functionality of the nuco.cloud or verify Iron Eagle’s business model. There is a risk that Iron Eagle will fail to successfully implement the intended business model and/or successfully develop and/or operate the nuco.cloud.
The amount of capital actually raised with the token sale is not known at this time. Neither a soft cap nor a hard cap is provided. There is a risk that Iron Eagle will not raise enough capital through the token sale and may not be able to fully or partially implement its planned business. The costs for the preparation and execution of token sales are independent of the amount of funds raised. Consequently, the less capital has been raised, the higher the cost ratio will be. There is a risk that Iron Eagle will not successfully develop and/or operate the nuco.cloud in this case. There is also a risk that Iron Eagle will become insolvent due to a lack of funds received from the token sale and the costs.
Iron Eagle is entitled to cancel the token sale at any time. If Iron Eagle stops selling NCDTs prematurely, it may not have enough capital to implement the proposed business model, i.e., the development and operation of the nuco.cloud.
The funds raised by Iron Eagle will also be used to finance the token sales and will therefore not be available to Iron Eagle as a whole for investment in the proposed business operation. It cannot be ruled out that the costs will subsequently increase (for example, because of necessary intensification of token sales advertisement). The ratio of costs to the actual resources available for investment in the business model would be adversely affected. As a result, there is a risk that Iron Eagle will be unable to implement its proposed business operation and that tokens will not be used as intended, in other words, become defunct and/or worthless.
To the extent that Iron Eagle accepts not only fiat amounts (EUR) but also cryptocurrencies (BTC and ETH) from token buyers, there is a risk of exchange or exchange rate losses at the expense of Iron Eagle when exchanging crypto and fiat currencies. In this case, Iron Eagle would have fewer resources available to implement its planned business model as well.
Adverse interest rate or market interest rate changes may adversely affect the business activities of Iron Eagle. There is a risk that the bank where Iron Eagle maintains its business account will charge negative interest on Iron Eagle account balances.
The organization and execution of the business activities planned by Iron Eagle, in particular the technical development of the Nuco Cloud, require Iron Eagle to enter into various contracts with a wide variety of contractors (such as IT service providers). Iron Eagle also relies on the services and expertise of a wide variety of contractors to prepare and execute token sales. There is a risk that Iron Eagle’s contractors may fail to meet all or part of their obligations to Iron Eagle, or fail to do so on schedule or inadequately. Iron Eagle bears the risk of bankruptcy and default with respect to its contractors, as well as the risk of bad or non-performance. There is a risk that Iron Eagle will find no, no adequate or no timely replacement for cancelled contractors. In this case, there is a risk that Iron Eagle will fail to develop and/or operate the Nuco Cloud or fail to do so on schedule.
There is a risk of management errors at Iron Eagle. Iron Eagle was founded in 2013 and does not yet have comprehensive employee structures. To successfully implement the business model, Iron Eagle will need to hire more staff, in particular for the development and continuous operation of the nuco.cloud. There is a risk that Iron Eagle will fail to hire enough qualified employees. There is a risk that specialist knowledge will no longer available because of the loss of employees with the corresponding key qualifications. If the key positions cannot be permanently staffed by qualified personnel, this can have a significant negative impact on the planned development and operation of the nuco.cloud.
The planned operation of the nuco.cloud does not require regulatory approval, according to Iron Eagle. There is a risk that a court or an authority may come to a different conclusion. In this case, there is a risk that Iron Eagle will not meet the necessary requirements for a permit and the operation of the nuco.cloud will be prohibited or have to be discontinued.
In addition, there is a risk that existing legal regulations may be amended or new legal provisions may be created which actually or legally restrict or render impossible the intended business activities of Iron Eagle. Such risks may also arise as a result from changes in the supervisory practice of authorities (in particular the German Federal Financial Supervisory Authority – BaFin).
Future changes to tax laws and divergent legal interpretations by tax authorities and courts cannot be ruled out. Iron Eagle will collect a portion of the NUCOs to be paid by users to conduct its intended activity of operating the nuco.cloud. The taxation treatment of cryptographic tokens or transactions with such has not been conclusively clarified. This results in risks with regard to the taxation treatment of Iron Eagle’s business activities.
There is a risk that Iron Eagle’s IT infrastructure, key networks, and technologies can be hacked. As a result, Iron Eagle may be partially or fully hindered from performing its business operations for a short time or long term. There is a risk of the IT systems getting sabotaged by Iron Eagle employees or third parties that could result in the failure of Iron Eagle hardware and/or software systems.
Iron Eagle uses a relatively young and unproven blockchain technology on the nuco.cloud. Iron Eagle carries the risk that this technology is subject to technical difficulties or its functionality may be impaired by external influences. A partial or complete collapse of the blockchain developed by Iron Eagle itself would hamper or even render impossible the realization of the business model. This may constitute the loss of NCDTs or NUCOs for the token buyer.
With the planned operation of the nuco.cloud, Iron Eagle competes with various cloud providers, who are offering or will offer similar solutions in terms of purchasing and providing computing power. There is a risk that Iron Eagle will not be able to compete with its competitors.
There is also a risk that companies will copy or mimic the business activities of Iron Eagle and push it off the market, especially since Iron Eagle itself will use and further develop public open source components and code as a technical foundation for the nuco.cloud.
There is a risk that Iron Eagle may infringe on the intellectual property rights of third parties who may demand injunctive relief and damages, and therefore making it impossible to operate the nuco.cloud.
The acquisition of NCDTs and NUCOs entails considerable risks for token buyers. Risks may be single or cumulative and in the worst case, this may mean for the token buyers that NCDTs and NUCOs cannot or may not be used as intended. NCDTs and/or NUCOs may become defunct or worthless, which will result in a total loss of the token buyer’s funds used in purchasing the tokens.
NCDTs give the sole right to receive from Iron Eagle a corresponding number of NUCOs to be created in the case of the proposed token swap for the acquired NCDTs. NUCOs do not grant token buyers any rights for which Iron Eagle will be liable, but only allow them to be used in the to-be-developed future nuco.cloud as a means of payment for obtaining of computing power from third parties who provide computing power.
NCDTs and NUCOs do not grant any profit-sharing rights or other proprietary claims against Iron Eagle. NCDTs and NUCOs also do not grant any participation, and/or voting rights in or as part of the Iron Eagle’s shareholders’ meeting. The NCDTs and NUCOs do not constitute claims to influence the business of Iron Eagle in any way.
In particular, NCDTs and NUCOs are not securities within the meaning of the German Securities Prospectus Act (WpPG) and Iron Eagle is not obliged to publish a securities prospectus approved by BaFin. These risk notices and the published white paper might not inform a token buyer adequately and comprehensively about the NCDTs, NUCOs, Iron Eagle, and its proposed business model. The information provided therefore does not constitute a source of information comparable to a prospectus.
The planned business model of Iron Eagle is extremely complex. A deep technical understanding is required in order to be able to adequately assess this and the functions of NCDTs and NUCOs (tokenomics). Token buyers may not have this necessary understanding and thus are unable to properly understand the planned business model of Iron Eagle and the tokenomics. In particular, token buyers may not be able to verify that the underlying programming codes of the smart contracts for the NCDTs and NUCOs actually include the functionalities described in the terms of the contract and the white paper in a technically correct manner.
NCDTs and NUCOs are not deposits and are therefore not subject to any statutory or voluntary deposit guarantee. The use of the proceeds from the token sale is not subject to any federal or voluntary supervision.
At the time of token sales and the issuance of NCDTs or at the time of conversion into NUCOs, they have no market value according to the current state of knowledge. A transfer of NCDTs or NUCOs to third parties is possible, but there is no regulated market (secondary market) for trading NCDTs or NUCOs and it is uncertain whether such a market will establish itself. NCDTs and NUCOs can turn out to be completely illiquid.
For token buyers who speculate that they can sell NCDTs or NUCOs to third parties at a price above the purchase price, there is a risk that they will not find a suitable buyer or the buyer would be unwilling to purchase the NCDTs or NUCOs at the desired price. In this respect, there is a risk that the potential yield may be lower or nothing.
If a token buyer decides to finance the acquisition of NCDTs with borrowed capital, the risk of loss for the investor increases, because in the case of worthlessness of the NCDTs or NUCOs he must fully repay the debt plus interest.
The actual taxation treatment of NCDTs or NUCOs is not clarified at the time of the token sale and depends generally on the individual taxation treatment of the respective token buyer in accordance with the applicable tax law.
Iron Eagle also accepts cryptocurrencies (BTC, ETH) when selling NCDTs. If a token buyer does not have the accepted cryptocurrencies and/or does not wish to make a EUR transfer, he would need to swap fiat currencies or other existing cryptocurrencies through corresponding trading venues to acquire NCDTs. This poses the risk of currency exchange or exchange rate losses. Cryptocurrencies are subject to high price fluctuations. When exchanging from cryptocurrencies to fiat currencies or other cryptocurrencies, the token buyer will also incur transaction costs.
In order to obtain NCDTs and then convert them into NUCOs in token swaps, they must be “transferred” to a technically compatible wallet of the respective token buyer. NCDTs associated with a non-compliant wallet will not participate in the token swap and will be worthless after the token swap.
When NCDTs or NUCOs are transferred to an incompatible wallet, token buyers will generally no longer have access to them and cannot dispose of them. Proper use or sale of the tokens is not possible in this case. The decision on the right (compatible) wallet lies with the token buyers. The token buyer bears sole responsibility for the selection and safekeeping of the wallet’s private key to receive and dispose of tokens. The loss or theft of the private key equals to a loss of all wallet-associated tokens and cryptocurrencies.
There is a risk of attacks against the network or the blockchain used. Different types of attacks are conceivable. These attacks may render the network or blockchain unusable, so that token buyers would not be able to transfer NCDTs or NUCOs. If the network or blockchain becomes completely unusable, there is a risk that token buyers will no longer have access to the tokens assigned to their wallet.
NCDTs are based on the ERC-20 standard of Ethereum Blockchain. The Ethereum Blockchain carries the risk of a 51% attack, whereby an attacker succeeds in providing over 50% of the Ethereum Blockchain miners, in other words, has more than 50% of the hash rates and will thus gain control of the network. For example, such an attacker could prevent, reverse, or otherwise change NCDT transactions for his benefit. Such 51% attacks can also be successfully performed with significantly less than 50% of the hash rates.
The Nuco Cloud will use the proof-of-stake principle. There is a risk that a user will manage to capture more than 50% of all available NUCOs for himself, for example, through acquisition. This would allow the user to influence the minting of blocks and transactions.
There is also the risk of distributed denial of service (DDoS) attacks. In these, attackers can overload a network or a blockchain with a high number of requests and/or transactions and make the network or the corresponding blockchain (temporarily) unusable. Should a DDoS attack exceed a critical number of transactions for an extended period of time, it would not be possible for token buyers to dispose of their tokens.
The creation, transmission, and allocation of NCDTs and NUCOs is performed by a smart contract on the blockchain used. Programming errors and security vulnerabilities in smart contracts may render access to NCDTs or NUCOs temporarily and permanently impossible for token buyers.
Date: May 1, 2019
