Collateral Risk Disclosure

Given the associated risks, you should engage in such transactions only if you fully grasp the nature of the contractual relationship you are entering into with Better Lending. Using crypto assets as collateral to borrow fiat funds may not be appropriate for everyone.

It is crucial that you carefully assess whether this type of activity suits your circumstances and ensure you completely understand your obligations as a borrower throughout the loan period, including critical steps and actions required while you have outstanding loans with Better Lending.

Better Lending emphasizes the importance of its customers understanding the risks and responsibilities associated with borrowing fiat funds using crypto assets as collateral. This type of financial activity may not be suitable for you, especially if you are not in a position to provide additional crypto assets as collateral in the event your loan approaches margin call or liquidation levels.

The inherent volatility and unpredictability of crypto asset prices compared to fiat currency can lead to substantial fluctuations in the loan-to-value percentage of your loan in a short time frame.

Better Lending allows the use of established Crypto Assets that serve as a form of payment or means of exchange within decentralized networks, such as Bitcoin and Ether, as collateral for loans in fiat. These Crypto Assets share some properties similar to traditional commodities like currencies and precious metals, yet they also differ significantly in several critical ways.

As a relatively new open-source technology, blockchain is anticipated to undergo continual technical advancements, which could influence the value of Crypto Assets. Given its brief history, the long-term sustainability of the economic value, governance, and functional elements of Crypto Assets remains uncertain.

The Crypto Asset community has overcome numerous technical and political hurdles since the inception of the bitcoin blockchain, which Better Lending views as a strong indicator of its ability to address future challenges. However, the sustained vibrancy of the Crypto Asset community is not assured.

Factors such as insufficient software development, low contribution rates, community disagreements over network development and scaling solutions, or other unexpected challenges that the community fails to overcome could negatively impact the price of a Crypto Asset.

Blockchain developers have indicated ongoing efforts to enhance the scalability and security of public blockchains like bitcoin and ethereum. For instance, the ethereum blockchain recently transitioned from a proof-of-work consensus mechanism to a proof-of-stake mechanism. The timing and effects of these developments remain uncertain.

Crypto Asset markets are highly reactive to new information, and as these markets are still developing, significant shifts in market sentiment—whether driven by media sensationalism or other factors—can cause substantial fluctuations in trading volumes and prices.

The prices of Crypto Assets on trading platforms have been volatile and are influenced by various elements including:

• Liquidity levels
• Public speculation about future value increases
• Changes in investor confidence
• The emergence of competing Crypto Assets that might capture market share

Better Lending utilizes multiple brokers and trading platforms, referred to as liquidity providers, to liquidate collateral for loans that default. Employing a variety of liquidity providers and trading platforms is intended to mitigate liquidity and operational risks associated with any single platform.

Nonetheless, there exists a risk that the sources of liquidity and the prices of Crypto Assets accessed by Better Lending may cause your loan to enter a liquidation state and consequently trigger the liquidation of your collateral. This risk can be exacerbated during periods of high market volatility or operational interruptions at a major trading platform.

Crypto Assets are a novel type of digital value that society is still coming to terms with. Their inherent value stems from their utility as a store of value, a means of exchange, or a unit of account.

Similar to how oil's price is determined by global supply and demand based on its utility, the price of a Crypto Asset is shaped by global market forces based on its utility for purposes such as remittances, B2B payments, and time-stamping.

If the use of Crypto Assets as a means of exchange diminishes, or if their adoption slows, their price could decline. Investors should be aware that there is no guarantee that Crypto Assets used as loan collateral will preserve their long-term purchasing power or that their acceptance for payments by mainstream retail and commercial businesses will continue to expand.

While you, as a borrower, are not obligated to top up your collateral if the LTV (Loan-to-Value) ratio rises, it is imperative to understand the associated risks of not maintaining a sufficiently low LTV ratio.

Crypto asset prices are highly volatile, and a significant increase in the LTV ratio could occur swiftly due to a drop in the market value of the collateralized assets. In such events, if the LTV ratio approaches or exceeds the liquidation threshold (communicated to you in your loan agreement), Better Lending reserves the right to initiate a liquidation of your collateral to mitigate the risk of loan default.

It is crucial for you as the borrower to be vigilant and proactive in monitoring your loan's LTV ratio, especially during periods of high volatility in the crypto markets. You should be aware that failing to address a rising LTV by either adding more collateral or repaying part of the loan could result in the liquidation of your collateral assets without further notice.

We strongly advise you to thoroughly review your loan agreement and to constantly monitor the health of your loan and collateral to ensure you are fully aware of your loan LTV at all times and have ample time to take steps to mitigate any loan liquidation scenarios.

Certain Crypto Assets accepted by Better Lending as collateral are based on open-source software. When developers release a software update and a substantial majority of miners approve the update, the blockchain network continues seamlessly.

However, if an update is introduced without significant consensus and is incompatible with the existing software, this leads to what is known as a "fork" (i.e., a split) in the blockchain. As a result, one blockchain would continue under the old software, while another would operate under the new software, both running parallel but independently.

This scenario has occurred in the past with both the Bitcoin and Ethereum blockchains. Such a fork could happen again in the future, potentially impacting the viability or value of a Crypto Asset used as collateral.

Historically, vulnerabilities in the source code of digital assets have been identified and exploited, leading to issues like disabled functionalities, exposure of personal information, and theft of Crypto Assets.

Although the Bitcoin and Ethereum blockchains have shown resilience and integrity over time, the cryptography supporting these networks could potentially become flawed or ineffective in the future.

For instance, advancements in fields such as digital computing, algebraic geometry, and quantum computing could make the cryptographic security of blockchain networks susceptible to breaches. This would negatively impact the value of Crypto Assets pledged as collateral to Better Lending.

The regulatory landscape for Crypto Assets is continually evolving globally, potentially limiting the use of Crypto Assets or affecting their demand. There may also be challenges in enforcing regulations on Crypto Asset activities that occur outside local jurisdiction.

Additionally, banks and other financial institutions might refuse to handle funds associated with Crypto-Asset backed loans or to execute wire transfers to or from Crypto Asset-backed lending platforms, companies, or service providers, or to maintain accounts for individuals or entities involved with Crypto-Asset backed loans.

A significant portion of the existing Crypto Assets is held in a few addresses within the Bitcoin, Ethereum, and other blockchain networks. Should any of these addresses liquidate their holdings, it could lead to market volatility adversely affecting Crypto Asset prices.

Utilizing an internet-based lending platform like Better Lending comes with several risks, including hardware and software failures. While Better Lending maintains an independent and secure ledger for all loans and collateral to minimize losses and has contingency plans to limit system failures, it does not control factors such as:

• Signal strength and internet reception
• Routing infrastructure
• Configuration and reliability of your personal equipment

Consequently, there may be delays or failures in processing collateral you send to reduce the Loan-to-Value of your loans. Such delays could lead to the unintended liquidation of your loan if the value of the collateral drops simultaneously.

Losses could occur due to system malfunctions, hardware or software failures, connectivity issues, cybersecurity incidents, hacks, or data corruption, in addition to typical market risks.

The digital nature of Crypto Assets potentially heightens the risk of fraud or cyber attacks. Cybersecurity breaches can result from intentional or accidental actions leading to the loss of sensitive information, data corruption, or operational impairments.

Such breaches might not only result in regulatory fines and reputational damage for Better Lending but could also increase compliance costs due to necessary corrective measures and financial losses.

Cyber attacks could involve:

• Unauthorized intrusions into Better Lending's systems through hacking or malware
• External assaults like denial-of-service attacks, which aim to disrupt network services
• Third-party service provider vulnerabilities

Better Lending actively develops its risk management strategies to mitigate the risks linked to cybersecurity, similar to its overall approach to managing operational risks.

Engaging in a loan agreement with Better Lending grants you specific rights and assigns certain duties. Your loan agreement, and the rights to the crypto assets you may pledge as collateral, might be considered a security or derivative.

Notably, the loan agreement permits you to receive a loan in fiat funds directly into your private wallet or bank account, a process we describe as an "open loop" system.

While Better Lending does not currently impose loan origination fees or commissions on the sale of collateral during loan liquidation events, there are specific charges that are applied, including:

• Interest on loans
• Fees for collateral liquidation

These estimated fees are clearly outlined in your loan agreement before your loan is issued.

In certain cases, Better Lending may temporarily be the primary custodian of the Crypto Asset Collateral that you pledge to acquire a loan. Better Lending has implemented rigorous policies and procedures for both cold and hot wallet management to protect these assets.

However, despite these measures, the inherent risks associated with an open loop system could potentially expose vulnerabilities leading to the loss of some or all of the custodied Crypto Assets, without any possibility of recovery.

When Better Lending is not the primary custodian, and the Crypto Asset Collateral is maintained with a Qualified Custodian, the custody risks described may remain significant.

Better Lending's physical assets, including its personnel, hardware, facilities, and data processing infrastructure, are susceptible to various threats such as:

• Fires and floods
• Natural disasters
• Theft and vandalism
• Acts of terrorism

These risks could significantly impact Better Lending's operations and ability to service loans effectively.