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1. Credit Risk of the Borrower

Each facility is an undercollateralised loan to a single borrower. Repayment of principal and interest depends on that borrower’s ability and willingness to perform its obligations. There is no full collateral behind the loan. The Issuer gives no guarantee of the borrower’s creditworthiness, and a credit assessment is an opinion at a stated date and not a prediction. A position in a facility is an exposure to one borrower. It is not diversified across borrowers.

2. The First-Loss Buffer Is Partial

The first-loss buffer is legally committed to lenders and is applied first on a borrower default. It is sized as a percentage of the principal the borrower has drawn. It is not fixed against the total value of the facility, and it is not a guarantee, an insurance product, or full collateralisation of the notes. A loss that exceeds the buffer falls on lenders, subject to the remaining stages of the recovery waterfall. Where a borrower was onboarded under the Anchor Lender Path, the buffer percentage was agreed between the borrower and its anchor lender, and the Issuer has not independently underwritten or verified it.

3. Liquidity and Withdrawal Risk

A note has no fixed maturity and cannot be redeemed on demand. Withdrawals follow an epoch-based process of request, notice, funding, and claim. A withdrawal is paid only when the vault holds enough cash to fund every matured request together. Payment can therefore be delayed, and in distressed conditions the delay can be prolonged. A submitted withdrawal request cannot be cancelled, and notes cannot be transferred without the Issuer’s consent.

4. Position Value Is Not Recoverable Value

The value shown for a position reflects the vault’s accounting, including accrued interest. It is not an estimate of what could be recovered from the borrower. After a default, the amount recovered can be substantially lower than the recorded value, and recovery can take a long time.

5. Smart Contract and Technology Risk

Notes are represented on-chain, and deposits, draws, repayments, and claims are executed by smart contracts. Smart contracts can contain defects or behave unexpectedly in conditions that were not anticipated. An audit reduces this risk and does not remove it. The vaults use an upgradeable implementation, so an authorised upgrade can change their behaviour. Blockchain networks, wallets, and supporting services can fail, be congested, or be attacked.

6. Ring-Fencing Does Not Protect Against the Facility’s Own Borrower

Statutory segregation protects the lenders of one facility from losses that arise in another. It does not protect them from a default by the borrower of their own facility. Segregation operates between portfolios and not within one.

7. Yield on the First-Loss Buffer Is Not Lender Protection

The Issuer may hold the first-loss buffer in an approved yield-bearing instrument. The yield belongs to the Issuer and is retained for its own account. It is not held in reserve for lenders and does not cover any shortfall. A lender’s protection against a borrower default is limited to the buffer itself, applied under the agreements, and to the later stages of the recovery waterfall.

8. Conversion of Deposited Funds

The Issuer can hold funds that have not yet been drawn, and the first-loss buffer, in approved yield-bearing instruments, and it retains the yield. Such an instrument can lose its peg or its value, or its issuer can fail. A loss of that kind is borne by the Issuer in the first instance, with recourse to any protection offered by the instrument’s issuer. It is never recovered from the first-loss buffer. A loss that exceeds what the Issuer and that protection can make good reduces the assets available to lenders.

9. Stablecoin, Facility Currency, Exchange, and Counterparty Risk

Facilities are denominated in a stablecoin, which can lose its peg, be frozen, or be subject to controls applied by its issuer. Borrowers hold and trade assets on exchanges and with other counterparties. The failure of an exchange or counterparty, or a restriction on withdrawals from it, can impair the borrower’s ability to repay. A facility may be made available in a currency other than USDC under the Master Loan Agreement. The Issuer then converts between USDC and that currency as principal. A loss from market movement on such a conversion, including a depeg or a failure of the currency’s provider, is not borne by the borrower and is never recovered from the first-loss buffer. It is borne by the Issuer in the first instance, after recourse to any protection the provider offers, and beyond that reduces the assets available to lenders.

10. Limits of Monitoring and Attestations

Monitoring reads the borrower’s monitoring account. It does not show every asset and liability of the borrower, it can be interrupted, and a reading can be out of date. A healthy reading does not establish that cash is available in the vault. An on-chain attestation proves where data came from and what it showed at a stated time, within a stated scope. It relies on the approved attestors, and it does not establish current solvency. The monitoring account need not be the account that receives drawn funds. Where it is the same account, drawn funds sit alongside the borrower’s own capital, and a reading does not distinguish between them. Where it is a different account, a reading shows the borrower’s solvency only to a multiple of the value held in that account, and the borrower may move drawn funds to accounts that are not read. Readings rely on data that the borrower’s own account reports, and the Issuer does not independently verify the borrower’s trading activity. If a fresh reading cannot be obtained, the most recent valid reading continues to apply. The contractual responses to a deterioration are carried out by the Issuer and the authorised platform roles. The vault contract does not liquidate positions or terminate a facility automatically, and neither the Issuer nor Axcess can force-close a borrower’s positions on an exchange.

11. Administrative and Operational Risk

Authorised roles can maintain the lender registry, pause deposits or withdrawals, change certain parameters, upgrade the vault implementation, and terminate a facility. The application of the first-loss buffer depends on the Issuer’s authorised signers. Errors, delays, or the unavailability of those persons or of the platform’s services can affect a facility. A sanctions designation or a confirmed adverse anti-money-laundering finding can restrict a wallet’s ability to deposit, to request withdrawals, and to claim. A sanctioned position stops accruing return while it is frozen. A borrower, the platform operator, a service provider, or a decision-maker can have overlapping interests. Where that is the case, the relationship is disclosed in the facility’s agreements, together with the arrangements that apply to it. The First-Loss Signing Mandate requires signers to disclose such interests and to recuse from conflicted transactions, and the SPC maintains a related-party conflict policy. Such a relationship can nonetheless affect decisions, including decisions about enforcement. A lender’s recourse is limited to the assets of the borrower’s segregated portfolio. Lenders have no direct claim against the borrower or against Axcess. Recovery beyond the first-loss buffer and the funds in the vault depends on legal enforcement against the borrower, which can be slow, costly, partial, or unsuccessful. The Title Transfer Collateral Agreement acknowledges a risk that a court in some jurisdictions could re-characterise the title transfer of the buffer as a security interest. Where the on-chain parameters and an agreement differ, the agreements provide that the on-chain parameters govern economic execution and the agreement governs legal rights and remedies.

14. Regulatory Risk

The regulatory treatment of the facilities and of the digital assets involved can change. Action by a competent authority could impair a borrower’s ability to repay, or the ability of the Issuer or of lenders to recover. A change in law, or in the activities of the Issuer, could require registration or licensing that is not required today.

15. No Insurance and No Guarantee

Neither the Issuer nor Axcess insures or guarantees a lender’s recoveries. The first-loss buffer is a structural credit-enhancement mechanism. It is not an insurance product, and no deposit protection or investor compensation scheme applies.

16. Tax

The tax treatment of a note, of interest, and of any loss depends on the circumstances of each lender and can change. Lenders are responsible for their own tax affairs.