Risk Factors
There is no existing trading market for the EZO Coin and an active trading market may not develop.
The EZO Coin is a new issuance of digital currency for which there is no existing public market. Although we may seek quotation of or to list EZO Coin on a national securities exchange, OTC markets, or an alternative trading platform registered with and regulated by the SEC for trading in cryptocurrency, there can be no assurance that EZO Coin will ever be approved for such listing or quotation on any trading platform. The ability to list or have EZO Coin quoted on a national securities exchange, OTC markets, or an alternative trading platform registered with and regulated by the SEC for trading in cryptocurrency will first require the registration of the EZO Coin under the Securities Act of 1933, as amended (the “Act”). As discussed further below, there can be no assurance that such registration will occur. Additionally, as of the date of this White Paper, there are no exchanges registered with the SEC on which EZO Coin may be traded, and there is no guarantee that any such exchanges will be available in a timely manner, or at all. Furthermore, even if EZO Coin is quoted on or listed with such exchanges or platforms, there can be no assurance that a secondary market will develop or, if a secondary market does develop, that it will provide the holders with sufficient liquidity for their investment or that it will continue for the life of the EZO Coin. Therefore, you may be forced to hold EZO Coins for an extended period of time, or indefinitely, without any prospect of selling them. The liquidity of any market for EZO Coin will depend on a number of factors, including, but not limited to:
- The Company’s ability to develop its business operations and execute its business plans; The Company’s performance and financial condition;
- The general market conditions for similar digital tokens;
- The number of EZO Coin holders;
- The interest of traders in making a market in EZO Coins;
- Regulatory developments in the digital token or cryptocurrency industries; and
- The acceptance of customers of our software application and blockchain products.
The digital token industry is a nascent and rapidly-evolving market, and the market is subject to substantial and unpredictable disruptions over which we have no control. We cannot assure you that the market, if any, for the EZO Coin will be free from such disruptions or that any such disruptions may not adversely affect your ability to sell or transact in your EZO Coins. Therefore, we cannot assure you that you will be able to sell or transact in your EZO Coins at a desirable time.
EZO Coins are not equity securities and holders of EZO Coins will have no governance rights and no ownership interest in Element Zero. Our affiliate company, Jointer, will effectively manage Element Zero and there may be conflicts of interest.
Unlike a traditional equity interest in a corporate entity, EZO Coins have no management or governance rights in Element Zero. Our affiliate company, Jointer, and its ownership and management will effectively manage Element Zero. For the foreseeable future, the managements of Element Zero and Jointer will have control over major corporate decisions involving Element Zero. As a holder of EZO Coin, you will not have any right to control or direct the operation of Element Zero, nor will be you able to influence or affect the election of directors and appointment of management members of Element Zero. Accordingly, there is a risk that there will be situations when the interests of Jointer and Element Zero and their owners, management and affiliates will conflict with the interests of EZO Coin holders.
Furthermore, EZO Coins do not represent ownership interest in Element Zero. EZO Coin does not include any liquidation rights. It is possible that, due to any number of reasons, including, but not limited to, the inability of Element Zero to establish a viable stablecoin, untimely entry to market, our inability to establish the utility of EZO Coin, the failure of commercial relationships, or intellectual property ownership challenges, Element Zero may no longer be viable to operate. Thus, Element Zero may dissolve or take actions that result in the liquidation of the company. Holders of EZO Coin will have no rights or interest in any assets or profits of Element Zero, including in the event of insolvency, liquidation or dissolution of Element Zero, which may render EZO Coins valueless.
The asset classes and/or commodities comprising the collateral pool against which the EZO Coin is stabilized may change and are subject to the risks associated with an investment in such asset classes and/or commodities.
The reserve to support redemptions of EZO Coins is currently contemplated by Jointer to be comprised of multi-family residential real estate but is subject to change in the future. The investments in these assets may be sensitive to movements in related markets or the economy in general. Accordingly, the values of these assets are subject to substantial fluctuation and volatility, and management of EZO Coin may not be able to control or hedge against these fluctuations effectively. Once we commence operations, there can be no assurance that the asset investments held in the Holding Reserve will be able to generate sufficient returns to pay our operating expenses and create sufficient liquidity to satisfy redemption requests. For instance, if the assets comprising the collateral pool remain multi-family residential real estate, our results of operations and our ability to satisfy redemptions will depend on several factors, including, but not limited to, the availability of opportunities to acquire attractive assets, the level and volatility of interest rates, the availability of adequate short and long-term financing, conditions in the real estate market, the financial markets and economic conditions and the occurrence of natural disasters. Any occurrence of adverse changes in or declines in the value of the real estate market, or any asset classes or commodities hold by the reserve, may have a material adverse effect on the operation of our liquidity protocol.
Our network and systems may encounter security breaches, which may cause users and customers to curtail or stop using our products and services, and may cause us to incur significant losses and costs.
The anticipated products and services of Element Zero will involve the storage and transmission of proprietary information and data representing valuable consideration in our facilities and equipment, networks, and corporate systems. Security breaches or other unauthorized access or actions expose us to risks of theft of user data, regulatory actions, litigation, investigations, remediation costs, damage to our reputation and brand, loss of user and partner confidence in the security of our products and services and resulting fees, costs, and expenses, loss of revenue, damage to our reputation, and other potential liability. Outside parties may attempt to hack or attack our online platforms. In addition, hardware, software, or applications we procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise network and data security.
Systems and software implemented by us or our partners may contain security vulnerabilities, or may be implemented improperly due to human error or limitations in affected systems. Security breaches or other unauthorized data disclosure, acquisition or access may result in significant legal and financial exposure, increased remediation and other costs, damage to our reputation, and a loss of confidence in the security of our products, services, and networks that could have a significant adverse effect on our business.
To the extent that the computer/program code and algorithms setting the features and operation of EZO Coin contain errors, or use unsafe algorithms, these errors may result in losses to investors and substantially diminish the value of EZO Coins.
As with any other computer code, the computer code and algorithms setting the features of EZO Coin may contain certain errors, flaws or use unsafe algorithms. Flaws or exploitations in the source code of EZO Coin may allow malicious actors to take or create money in contravention of the terms and provisions of our EZO Coin. We may not be able to quickly and adequately address and correct these flaws and exploitations. This may result in losses to investors and substantially diminish the value of EZO Coin. Furthermore, in the event errors occur in the codes, investors do not have any contractual rights to recover losses or damages from Element Zero or Jointer.
The Ethereum blockchain upon which we intend to base EZO Coin is subject to the risk of cyber-attacks.
As with other distributed ledger technologies, we believe that the Ethereum blockchain that we intend to use as the basis for EZO Coin is susceptible to mining attacks and other cyber-attacks. Any successful attacks on the Ethereum blockchain may disrupt the proper execution and sequencing of transactions and contract computations, which could have an adverse effect on the utility and value of EZO Coin. Although we believe that we can reduce or eliminate the risk of mining and other cyber-attacks by relying on the implementation of security measures, there can be no assurance that such measures will successfully defend against known or novel mining attacks.
Investments in startups such as Element Zero involve a high degree of risk, and purchases of cryptocurrency such as EZO Coin may involve an even higher degree of risk.
Startups such as Element Zero face significant financial and operating risks. Further, the cryptocurrency market in which Element Zero competes is highly competitive, and there are others who are seeking to or have created stablecoins using blockchain technology. The percentage of startup companies that survive and prosper is small and is likely smaller for those startup companies involved in the development and implementation of blockchain technology. Startups often experience unexpected problems in the areas of product development, marketing, financing, and general management, among others, which frequently cannot be solved. In addition, cryptocurrency markets are generally highly regulated and may be highly taxed by governmental bodies presently or in the future, and further regulation may render Element Zero’s business objective impossible to achieve or obsolete. If Element Zero’s business fails or does not become profitable, you may not realize the expected returns on your investment. An investment in EZO Coins should only be considered by persons who can afford a loss of their entire investment.
We have no operating history and, if our business plan does not succeed, you may not receive any investment return from your ownership of EZO Coin.
Element Zero, along with its affiliates, is a newly-created entity with no operating history. While our officers, directors and advisors may have business and economic experience or expertise in the commercial real estate industry and in developing blockchain technology, they have not previously operated a scaled business similar to that of our intended operations or purpose. Element Zero’s lack of operating experience in the creation and distribution of stablecoin technology may make it difficult to forecast and evaluate future prospects. Furthermore, we cannot provide assurance that we will succeed in developing the stablecoin algorithms or protocols, the blockchain technology on which EZO Coin is based or the payment processing platforms underlying EZO Coin, and the failure to do so will adversely affect your ability to receive an investment return.
We expect to incur losses prior to achieving any investment returns and we may require significant additional financing prior to becoming operational and/or to achieving investment returns.
Element Zero and Jointer, Element Zero’s affiliate company, are recently-formed companies and they have not yet commenced operations. Element Zero is subject to all of the risks and uncertainties associated with any new business, including the risk that it will not achieve its operational or investment objectives. The development and distribution of new cryptocurrencies requires significant resources and commitment, and even if Element Zero is able to develop its business and create a fully-functional network upon which EZO Coin can operate, there is no assurance that we will be able to market and sell the EZO Coin to investors and generate sufficient revenue to cover our expenses and implement our business plan. If Element Zero is unable to execute its business strategy as a result of any inability to effectively manage its business for any reason, the Company’s prospects, financial condition and operating results may be harmed.
In addition, startups may require substantial amounts of financing, and Element Zero may require significant additional capital contributions in order to meet our financing needs. We may not be able to access such capital requirements through private placements, the public markets, banks or otherwise, and any financing we are able to obtain may not be on terms that are favorable to Element Zero or to investors in this offering.
We face intense competition, including from present and future alternative stablecoins, and may not be able to compete effectively with other companies, many of which have greater resources and established operations.
Our lack of operating history and limited resources may make it difficult for us to compete with other providers of cryptocurrency products and services or other stablecoins, some of whom have greater resources, longer operating history and more-established reputations. Financial services in cryptocurrency and stablecoins are rapidly evolving and have recently attracted widespread attention from entrepreneurs, technology companies, financial services institutions and governments, and we expect that in the foreseeable future many companies will enter the markets in which we intend to compete. With the limited resources we have available and the competition from existing and future competitors, Element Zero may experience great difficulties in building EZO Coin, attracting investors and establishing itself as an alternative currency. Even if Element Zero is able to launch EZO Coin, competition with greater resources or reputations may hinder our ability to maintain or expand our business.
Several other stablecoins currently exist or are under development. It is possible that alternative stablecoins could be established that facilitate services that are materially similar to that of EZO Coin. Such alternatives may utilize the same or similar protocols underlying the EZO Coin, operate more effectively or gain greater market acceptance for any number of reasons. Element Zero may compete with these alternative networks, which could negatively impact our results of operations, your ability to realize an investment return or to trade in EZO Coin. There can be no assurance that Element Zero will be able to compete successfully against present or future competitors or that the competitive pressures it may face will not force Element Zero to cease operations.
The market for transacting in cryptocurrencies is new and rapidly evolving, and Element Zero may not succeed as a viable business.
The distribution, trading, exchange and transfer of cryptocurrencies and other digital assets are a new phenomenon and their usage and practicality have not been widely-tested or accepted. The market opportunity for transacting in cryptocurrencies is uncertain. Even if we are able to develop an effective and efficient stablecoin, the market may be skeptical of the EZO Coin and unwilling to adopt it as an alternative form of payment or medium of exchange. Furthermore, if EZO Coin does not gain a large enough user base to enable EZO Coin to operate as intended, it may prevent us from successfully launching EZO Coins.
The EZO Coin is intended to serve the function of a decentralized digital payment system that is impervious to market fluctuations and instabilities. Accordingly, the EZO Coin is characterized by complex processes that may not be well-understood or accepted by market participants. Our ability to raise the recognition and reputation of EZO Coin is critical to widespread adoption of the EZO Coin as an alternative to fiat or other cryptocurrencies. Additionally, Element Zero and EZO Coin are subject to significant challenges and risks that are unpredictable and unforeseeable. Some of the risks and challenges EZO Coin may face include, but are not limited to:
- Worldwide growth in the adoption and use of blockchain technologies;
- Uncertain legal status of cryptocurrency; as well as government and quasi-government regulation of blockchain assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;
- Lack of transparency and accurate information in the identities of owners of cryptocurrencies; Speculative and fraudulent activities by vendors, customers and investors;
- Failure to develop efficient and effective technologies and systems for our services; Competition from other stablecoins or alternatives to fiat currency;
- Unforeseeable technical difficulties;
- Security breaches of our online and digital platform;
- Unfavorable media coverage or public perception of our business activities; and General economic conditions.
If we cannot eliminate or mitigate any of these risks, we may not be able to commence or sustain Element Zero and EZO Coin and your investment in EZO Coin may not produce the anticipated benefits or returns, if any at all.
We may not be able to develop an effective or commercially-viable stablecoin or to obtain market acceptance.
Element Zero was established to develop, market and commercialize EZO Coin, a new stablecoin product that functions as a stable, decentralized cryptocurrency. To-date, however, Element Zero has not fully-developed EZO Coin, the stability machine learning protocol, the VR/MR/AR payment processing and other platforms, the Holding Reserve. Further, the Element Zero protocol may not adequately increase the value of EZO Coin to overcome the rate of inflation and provide investors a return on their investment. The development of such product requires significant resources, time and expertise from our management and technical team. We expect to incur substantial costs in research and development before any product is fully functional, and developments in the cryptocurrency industry may render obsolete any product we create. We may encounter technical and financial difficulties that may delay or entirely derail our anticipated operations.
We could incur substantial costs in protecting or defending our intellectual property rights, and failure to do so would adversely affect our business plan.
Element Zero’s success depends or will depend, in part, on our ability to protect our brand and the proprietary technologies that we develop. We rely, or intend to rely, on trade secret, patent, copyright and trademark laws [and confidentiality agreements with employees and third parties ] (“IP Rights”), all of which offer only limited protection. We may not be issued any IP Rights and any IP Rights that have been issued, or that may be issued in the future, may not provide sufficient protection for our intellectual property.
Further, we could be required to spend significant resources to monitor and protect our intellectual property rights. Such activities could be costly, time-consuming and distracting to management, result in a diversion of resources, lead to the narrowing or invalidation of portions of our IP Rights and have an adverse effect on our business, results of operations and financial condition. Our efforts to enforce our intellectual property rights may not be successful. Any of our IP Rights could be challenged by others or invalidated through administrative process or litigation.
In addition, the laws of some countries do not protect intellectual property and other proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying, transfer and use of our proprietary technology or information may increase.
Our means of protecting our intellectual property and proprietary rights may not be adequate or our competitors could independently develop similar technology. If we fail to meaningfully protect our intellectual property and proprietary rights from infringement or misappropriation, our business, results of operations and financial condition could be adversely affected.
Element Zero may in the future be sued by third parties for various claims, including alleged infringement of proprietary rights.
The digital currency industries are characterized by the existence of a large number of patent, trademark, copyright and trade secret protections for proprietary information. While Element Zero and Jointer have not been the subject of allegations of infringement of any such protections, they may in the future be sued by third parties for alleged infringement of their claimed proprietary rights. Our technologies may be subject to injunction if they are found to infringe the rights of a third-party or we may be required to pay damages, or both.
The outcome of any claims or litigation, regardless of the merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, whether through settlement or licensing discussions, or litigation, could be time-consuming and expensive to resolve, divert management attention from executing Element Zero’s business plan, result in efforts to enjoin Element Zero’s activities, lead to attempts on the part of other parties to pursue similar claims and, in the case of intellectual property claims, require Element Zero to change its technology, change business practices, pay monetary damages or enter into short- or long-term royalty or licensing agreements.
Any adverse determination related to intellectual property claims or other litigation could force Element Zero to substantially change or alter the proprietary information or technology underlying EZO Coin or could entirely prevent Element Zero from offering its services to others, thus substantially impairing or completely eroding the value and utility of EZO Coin.
Our current executive officers and other key personnel are critical to our success, the loss of [any of] which could harm our business, and the ability to recruit, retain and develop key employees is critical to our success and growth.
Element Zero’s operations, and those of our affiliate company, require certain expertise and intellectual capital, particularly within our management team and key employees. We are heavily dependent upon the contributions, talent and leadership of our current senior management, particularly our founder and chief executive officer, Jude Regev. We face significant competition worldwide for individuals with the aptitude to develop and operate our business and we may not be able to attract or retain these employees. The failure to attract or retain these individuals could have a material adverse effect on our business and operations.
The SAFT and EZO Coins are subject to significant transfer restriction, and you may not be able to transfer or sell any EZO Coins.
The SAFT and EZO Coins issuable upon conversion of the SAFT have not been registered under the Act, the securities laws of any state or the securities laws of any other jurisdiction and therefore cannot be resold in the U.S. unless an exemption is available. This means that prior to the registration of your EZO Coins under the Act, you must hold the SAFT, and if applicable the EZO Coins, for one year prior to transferring or selling them to non-accredited investors in the U.S. Furthermore, if you are a non-U.S. person and purchase a SAFT or EZO Coins outside of the U.S., you are subject to a distribution compliance period (generally one-year) during which you will not be able to sell the SAFT and EZO Coins into the U.S. These restrictions may adversely affect your ability to resell EZO Coins or the price at which you may be able to resell them, if at all. In addition, each purchaser will be required to represent that it is an accredited investor under Regulation D of the Act and that it is acquiring the SAFT and the underlying EZO Tokens for investment purposes and not with a view to resale or distribution. Further, each holder of a SAFT and the underlying EZO Coins must represent that it will only sell or transfer the SAFT and the underlying EZO Coins in accordance with the restrictions set forth in the SAFT. Consequently, you must be prepared to bear the risk of an investment in the SAFT or EZO Coins for an extended period of time.
We may face challenges and difficulties difficulties in registering EZO Coins issued under the SAFT with the SEC.
The SAFT requires us to use best efforts to enter into registration rights agreements with holders of a SAFT to register under the Act, the EZO Coins issued upon conversion of the SAFT. However, as of the date of this White Paper, the SEC has not declared effective any registration statement for the issuance and sale of digital tokens, and we expect the SEC to impose a higher standard of scrutiny to the review of any registration statement on Form S-1 [or Form S-11] that we file for the resale of EZO Coin. Due to the relatively novel nature and lack of precedence in the registration of public token sales, as well as the inherent uncertainty in the regulatory environment for STOs, we may face significant difficulties and obstacles in the registration process, which will cause extended delays in obtaining an effective registration statement. We cannot guarantee that the SEC will ever declare effective any registration statements that we file for the resale of EZO Coin. If we are not able to file or effectuate a resale registration statement under the Act on a timely basis, or at all, then you will not be able to sell or transfer your EZO Coins to non-accredited investors in the U.S., and your investment will be adversely affected.
We may be unable to identify trading markets or comply with regulatory requirements for secondary trading in EZO Coins.
In the event Element Zero seeks to register EZO Coin under the Act, the transfer, settlement and record-keeping of ownership EZO Coin may require the participation of an SEC-registered transfer agent, and very few existing transfer agents have the capability or infrastructure to handle the transfer of digital assets, including EZO Coin. Furthermore, there is little precedence on how to apply existing federal and state securities laws on the transfer of digital tokens when the tokens are recorded on a distributed ledger available to the general public. Since there is currently no SEC-regulated secondary market for trading of EZO Coin, we may be required to comply with the Blue Sky laws for each State in which secondary trading is to occur. An exemption from the Blue Sky laws may not be available in each state, and the Blue Sky filing process can be time consuming and costly. Additionally, there can be no assurance that we will be able to successfully obtain Blue Sky clearance in all the States where investors reside. Investors residing in States where we have not received Blue Sky clearance will have limited ability to resell their EZO Coins in or from those States. Furthermore, holders of EZO Coin have no registration rights; therefore, we are not required to register any secondary trading of EZO Coin under the rules and regulations of the SEC. The inability to trade your EZO Coin in the secondary market may have an adverse effect on your ability to dispose of or transact in EZO Coin.
We are subject to significant uncertainty in the regulatory framework for digital tokens, blockchain technology and coin offerings, and future regulation may adversely affect the value of EZO Coin.
Regulation of digital tokens (including EZO Coin) and token offerings such as this, cryptocurrencies (including Ethereum), blockchain technologies, and cryptocurrency exchanges in the United States and abroad currently are in the early stages of development and are likely to evolve rapidly in the near future. The regulatory environment varies significantly among international, federal, state and local jurisdictions and are subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries are currently considering, or may in the future consider, laws, regulations, guidance, or other actions, which may adversely affect our ability to invest in digital assets. Failure by us to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.
New or changing laws and regulations or interpretations of existing laws and regulations may adversely affect Element Zero’s ability to develop blockchain technology applicable to the financial services industries, which are heavily regulated by various governmental and self-regulatory agencies, including the SEC and FINRA. New regulations may also affect our ability to earn returns on investments or assets underlying the Holding Reserve, the value of the currency in which we may redeem EZO Coins, the liquidity of EZO Coins, and your ability to access marketplaces on which to trade EZO Coin. Therefore, there can be no assurance that any new or continuing regulatory scrutiny or initiatives will not have an adverse effect on the value of EZO Coin or otherwise impede our business activities.
Lack of clear guidance and the application of commercial and corporate laws on digital tokens and crypto assets may adversely affect our business operations.
Because of the differences between digital tokens and traditional investment securities, there is a risk that issues that might easily be resolved by existing law if traditional securities were involved may not be easily resolved for the EZO Coin. For example, there is a lack of clear guidance on how existing laws and regulations might treat the issue, fungibility, settlement finality, transfer, collateralization, sequestration, loan, hypothecation, redemption or other disposition of digital tokens, including EZO Coin. Such lack of guidance may expose us to risks of inadvertent violation of applicable laws and increase our costs of compliance and defense against any legal claims.
Developments in foreign regulation, corporate and commercial laws may alter the nature of our business or restrict the use of blockchain assets.
Blockchain networks currently face an uncertain regulatory landscape in not only the United States, but also in many foreign jurisdictions such as the European Union, China and Russia. Various foreign jurisdictions may, in the near future, adopt laws, regulations or directives that affect the Ethereum Network and its users, particularly Ethereum Exchanges and service providers that fall within such jurisdictions’ regulatory scope. Such laws, regulations or directives may conflict with those of the United States or may directly and negatively impact EZO Coin and our business operations. The effect of any future regulatory change or directive is impossible to predict, but such change could be substantial and averse to our business.
