Main Risk Factors of a Polkadot ETN
Despite all the hype, digital assets are a highly risky investment. Below are key risk factors that need to be considered before making an investment in a Polkadot ETN.
The trading prices of many digital assets have experienced extreme volatility in recent periods and may well continue to do so. Digital assets were only introduced within the past decade and regulatory clarity remains elusive in many jurisdictions. Digital assets' value depends on such regulation remaining favorable, as well with the technological capabilities, the development of protocol networks, competition from other digital asset networks and from forks. Volatility can be strongly amplified by transactions from speculative investors, hedge funds and other large investors. You may experience losses if you need to sell your Shares at a time when the price of the underlying digital asset is lower than it was when you made your prior investment. Even if you are able to hold Shares for the long-term, your Shares may never generate a profit. Thus, an investment in a Polkadot ETN can lose money.
If the currency of the Product differs from the currency you invest in, your final return depends on the exchange rate between your investment currency and the currency of the Product. This is one of the factors to take into account when making an investment in a Polkadot ETN.
Trading venues and systems used by market participants to trade the Digital Asset may be subject to hacking and could result in loss of the Product. That is another risk factor to consider when investing in a Polkadot ETN.
Polkadot’s parachain ecosystem is still in its early stages and has not yet been fully deployed. That is one of the risk factors to consider before investing in a Polkadot ETN.
If the parachain model doesn’t attract developers to build dApps and other blockchain projects, then DOT token price will likely struggle. That is a factor to take into account when investing in a Polkadot ETN.
While Polkadot’s on-chain governance model should help the protocol react to user requests & preferences, decentralized autonomous organizations (DAOs) are a nascent structure with many legal & operational uncertainties. This is a further risk factor to consider before investing in a Polkadot ETN.