Dear Prospective Investor: 

This Disclosure of Risk Factors (this “Disclosure”) is being shared with you in your capacity as a prospective investor in Otonomos Funding Club LLC ("OFC"). This Disclosure has been prepared by the founders and core contributors of Otonomos Holdings Ltd. (the “Promoters”), which is the intended sole portfolio company of OFC. The Promoters may hereinafter be referred to as “we” or “us”. For the avoidance of doubt, the Promoters are also the organizers and facilitators of the formation of OFC. 

Becoming a member of OFC involves a high degree of risk. You should carefully consider the risks we describe below, along with all of the other information set forth herein and in the Limited Liability Company Agreement of OFC (the "Agreement"), before deciding to contribute capital to, acquire membership interests in and participate in the governance of OFC. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, which we believe are relevant to contributing capital to, acquiring membership interests in and participating in the governance of OFC. If any of these risks materialize, our business, results of operations or financial condition could suffer, the value of the membership interests could decline substantially and you could lose part or all of your capital contributed to OFC. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also harm us and adversely affect your investment or participation in OFC.

You may lose all of the capital that you contribute to OFC. If you are uncertain as to our business and operations (or the business and operations of our target portfolio company) or you are not prepared to lose all capital you contributed to OFC in exchange for membership interests, we strongly urge you not to become a member. We recommend you consult legal, financial, tax and other professional advisors or experts for further guidance before seeking to become a member of OFC and contribute capital to OFC. Further, we recommend you consult independent legal advice in respect of the legality of becoming a member in OFC and participating in the governance of OFC.

In order to become and exercise the rights of a member of OFC, you will need to interact with a "smart contract" or persistent executable code on the Ethereum blockchain network. We do not recommend that you attempt to become a member of OFC unless you have prior experience with cryptographic tokens, blockchain-based software and distributed ledger technology and unless you have received independent professional advice.

Capitalized terms used but not defined herein have the definitions that are ascribed to them in the Agreement, which you should have received a copy of.

1. BUSINESS/OPERATIONAL RISKS

OFC has no operating history. OFC and the Portfolio Company may need to raise additional capital in the future to continue operations, which may not be available on acceptable terms, or at all.

OFC is a recently formed company established under the laws of the State of Delaware with minimal activity and no historical operating results. There is no guarantee that OFC or the Portfolio Company will be able to raise any additional capital in the future or that additional capital will be available on acceptable terms. OFC and the Portfolio Company generally lack any ability to raise certain kinds of capital (e.g., debt) and may not have the ability to finance capital expenditures or finance strategic initiatives.

The proposed operations of the Portfolio Company are subject to all business risks associated with a new enterprise. The likelihood of the Portfolio Company becoming a viable business must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the inception of a business operating in a relatively new, highly competitive, and developing industry. There can be no assurance that we will ever generate any operating activity or develop and operate the business as planned. If we are unsuccessful at executing on our business plan, our business, prospects, and results of operations may be materially adversely affected and investors may lose all or a substantial portion of their investment.

OFC may be unable to recover assets for which the associated cryptographic key is lost, stolen, or destroyed. Stolen cryptographic keys may be used to improperly influence OFC’s activities.

Responsibility for the safekeeping of digital assets including the cryptographic keys associated with blockchain-based assets rests solely on the individual Members. OFC is generally incapable of recovering any assets associated with a lost or destroyed cryptographic key. Such loss or destruction would result in the total loss of any investment in OFC.

In the event a cryptographic key is stolen or duplicated, the thief may gain access to assets of OFC, including the ability to create or approve new proposals related to OFC’s business. This may have a material adverse effect on an investment inOFC.

OFC’s governance functions, including Designated Smart Contracts, may become captured by a hostile Member or group of Members.

OFCs governance is primarily executed through its Designated Smart Contracts and the votes of its Members. It is possible that an individual Member or group of Members (the "attackers") may cause OFC to issue new Membership Interests (whether in the form of Interests or similar interests) or otherwise approve proposals for the benefit of the attackers. This may result in the dilution of other Members’ investments in OFC, misappropriation of the assets of OFC, or other harms which may have a material adverse effect on an investment in OFC.

Members may be subject to the GuildKick functionality of Designated Smart Contracts, which may result in foregone investment opportunities.

Continued Membership in OFC is conditioned on the ongoing consent of an economic majority of the other Members. A Member may be forcibly removed from OFC through the GuildKick functionality of the Designated Smart Contracts. In this event, the ejected Member will receive a prorated distribution of OFC’s assets, but will forfeit any ability to influence or participate in future investment decisions of OFC. Depending on the availability of present or subsequent investment opportunities at that time, an ejected Member may ultimately be required to forego favorable investment opportunities. The ongoing possibility of such ejection constitutes a material risk of investment in OFC.

Oracles used to determine the exchange rate or value of OFC’s assets may become captured or otherwise manipulated to provide false information that could be exploited by a Member or external adversary.

The Designated Smart Contracts, or smart contracts on which the Designated Smart Contracts depend, may rely on external sources of information ("Oracles") to determine asset valuations and exchange rates or to maintain price stability of an asset. It is possible that an entity could capture or manipulate an oracle to inject false information. The ongoing possibility of an Oracle producing such false information constitutes a material risk of investment in OFC.

Addition or subtraction of new Members may dilute the ownership interests of existing Members in OFC’s assets.

It is possible to acquire Membership Interests in OFC for a range of types and amounts of other assets. Accordingly, acceptance of a new Member may change the overall kind and number of assets beneficially owned by individual Members. This may result in the dilution of other Members’ investments in OFC or other harms which may have a material adverse effect on an investment in OFC.

Entities receiving investment or funding from OFC are not under the control of OFC. Such projects may act in a manner adverse to OFC or its Members.

OFC is unlikely to have effective control over any individuals or entities. There is no guarantee that the Portfolio Company will act in accordance with any funding agreement. Material risks include, but are not limited to, any of the following:

• the entity may attempt to raise additional funding from other sources, causing dilution of OFC’s investment;

• the entity may issue different cryptographic tokens or assets, in addition to or in lieu of assets owed toOFC; or

• the entity may not deliver any cryptographic tokens or assets.

Accordingly, the decisions or actions of entities funded by OFC may have a material adverse effect on an investment inOFC.

2. LEGAL/REGULATORY RISK

It is intended that the Members who hold Interests be general partners in OFC for securities law purposes, as a result of which OFC Members will not have the protections of the securities laws in purchasing or divesting themselves of their Interests.

Although OFC is a company and thus not a "general partnership" under U.S. state laws regarding unincorporated associations, Members who hold Interests have the rights, powers and responsibilities of general managers of OFC, have the right to vote on all decisions of OFC, and may exit freely prior to the implementation of proposals they voted against. Accordingly, for securities law purposes, it is intended that Members holding Interests be viewed as general partners of one another in the management of OFC. A general partnership interest is generally presumed not to be a security under the U.S. federal securities acts; accordingly, OFC Members may not, and should assume that they do not, have the protections of the U.S. federal securities laws in their investment decision to acquire or divest themselves of Interests. As a result, OFC Members will not have the remedies against OFC that would be available if Interests were securities—such as a right of rescission for failure to register the offering of Interests.

It is possible that Members may, individually or collectively, cause OFC to require registration under the Investment Company Act of 1940, with which OFC would be unable to comply.

The Investment Company Act of 1940 exempts from registration entities with fewer than 100 beneficial owners of securities held by the entity. Although OFC is designed not to be or become an entity required to register as an "investment company", it is possible that Members may act outside the limitations established by the Grimoire and Designated Smart Contracts. A Member may, for example, transfer control of a Designated Blockchain Network Account Address to another natural person or group of natural persons, in violation of the Grimoire’s prohibition on such actions, thereby triggering registration requirements under the Investment Company Act.

In the event registration is required, it may be impossible or infeasible for OFC to comply with relevant laws and regulations pertaining to the registration, recordkeeping, and oversight of OFC. In addition, it may not be possible for OFC to become aware of such an event, so that Members may not be able to RageQuit in order to avoid liability for violations of the Investment Company Act. This could have a material adverse effect on an investment in OFC.

OFC may inadvertently issue non-voting Interests triggering regulatory requirements under the Investment Advisers Act that OFC may be unable to comply with.

The Investment Advisers Act of 1940 requires the registration, or exemption from registration, of any entity that engages in the business of advising others as to the value or advisability of investing in, purchasing, or selling securities. Members of OFC may cause the issuance of non-voting Interests which may cause OFC to be subject to the Investment Advisers Act. The Investment Advisers Act may impose restrictions on the activities of OFC, including substantive prohibitions, contractual requirements, recordkeeping requirements, and regulatory oversight and examination.

In such an event, OFC’s compliance with the Investment Advisers Act may be impossible or infeasible, and may require extraordinary response up to and including liquidation of OFC. It may be impossible for OFC to produce a faithful disclosure of material facts or conflicts of interest. It may be impossible to prevent principal transactions.

Sales of Interests may be securities transactions requiring registration.

The Securities Act of 1933 requires that securities transactions be registered with the Securities and Exchange Commission. The sale of Interests or other assets of OFC may be deemed securities transactions requiring registration unless subject to an exemption from registration.

In such an event, it may be impossible or infeasible for OFC to comply with regulatory requirements associated with these securities transactions, which could have a material adverse effect on an investment in OFC.

Interests may not be tradeable on secondary markets.

In order to preserve exemptions from registration under the Securities Act and Investment Company Act, Interests of OFC may generally not be traded. The ability of Members to dispose of the Interests may be limited to redemption of Interests through the RageQuit function of the Designated Smart Contracts. Any such liquidation would distribute Org assets to the exiting Member in kind. Both Interests and underlying assets may not be marketable due to legal restrictions, which may prevent a Member from recovering part or all of the Member’s investment.

As a result of its reliance on the Designated Smart Contracts, OFC or one of its Members may become subject to a legal order or other requirement that permanently or temporarily prohibits or restrains OFC from executing a function it would otherwise reasonably be expected to execute, or that mandates or directs OFC to take an action it would otherwise not reasonably be expected to perform, which OFC or such Member may be incapable of complying with.

As a result of its reliance on the Designated Smart Contracts, which cannot be modified after they are deployed, OFC or one of its Members may become subject to a legal order or other requirement for which compliance is impossible or infeasible. OFC may not have a Member or agent capable of executing a legal order or requirement. Noncompliance could result in legal liability that would have a material adverse effect on an investment in OFC.

OFC may be deemed a Money Services Business requiring State and Federal supervision, which OFC may be incapable of complying with.

The Bank Secrecy Act imposes a requirement for money transmitters and other money services businesses (MSBs) to be licensed and supervised by the States in which they operate. It is possible that the investment of money in blockchain-mediated ventures, or the operation of OFC’s Designated Smart Contracts in conjunction with the actions of OFC or its individual Members, may constitute money transmission subject to licensure and supervision. In particular, the Trade functionality of the Designated Smart Contracts may be deemed exchange or transmission of money subject to State and Federal regulation.

Compliance with such licensure and supervision requirements would likely be impossible or infeasible, subjecting OFC to legal liability. In particular, it may be impossible to maintain and implement required compliance programs including anti-money-laundering (AML) policies or participation in regulatory examinations. Noncompliance could result in legal liability that would have a material adverse effect on an investment in OFC.

It may be impossible or infeasible to enforce legal agreements, remedies, or orders against OFC or its Members due to the nature of blockchain technology.

Nearly all actions and decisions of OFC are mediated by blockchain technology. Generally, blockchain technology does not permit any action not within a specific set of parameters granted by the possession of a cryptographic key. Although OFC is a legal entity subject to the laws and courts of applicable jurisdictions, it may be impossible to enforce some legal agreements, remedies, or other orders against OFC or individual Members due to the inherent limitations of blockchain technology. This may have a material adverse effect on the legal rights of a Member or third party, or on an investment in OFC.

3. BLOCKCHAIN RISK

The Blockchain Network or a Designated Smart Contract may become subject to a Material Adverse Exception Event.

Most blockchain networks operate based on open-source software. An open source project is not represented, maintained or monitored by an official organization or authority. Because of the nature of open-source software projects, it may be easier for third parties not affiliated with OFC to introduce software vulnerabilities or bugs into the core infrastructure elements of the blockchain network. This could result in the corruption or exploitation of the open-source code including but not limited to Consensus Attacks, changes to Consensus Rules, or blockchain reorganizations, which may result in the loss or theft of blockchain-based assets and have a material adverse effect on an investment in OFC.

Similarly, it is possible that a software bug results in or permits the non-functionality or inoperability of Designated Smart Contracts or the unauthorized use of an administrative function of a Designated Smart Contract, which may result in the loss or theft of blockchain-based assets and have a material adverse effect on an investment in OFC.

Blockchain networks may be the target of malicious attacks seeking to identify and exploit weaknesses in the software. Such events may result in a loss of trust in the security and operation of blockchain networks and a decline in user activity which could have a negative impact on OFC and its investments.

Investments may be rendered valueless due to the open-source nature of blockchain networks.

The majority of software operating on blockchain networks is open source, which generally allows third parties to produce modified duplicates of the software. To the extent OFC funds the development of such software, it is possible that a third party may release competing software or modify the software to remove profit-generating mechanisms built into the original software. This may have a material adverse effect on an investment in OFC.

Blockchain technology is nascent and rapidly changing, and there remains minimal use of blockchain networks and blockchain assets in the retail and commercial marketplace. The slowing or stopping of the development or acceptance of blockchain networks may adversely affect an investment in OFC.

The development of blockchain networks is a new and rapidly evolving industry that is subject to a high degree of uncertainty. Factors affecting the further development of the blockchain industry include:

• continued worldwide growth in the adoption and use of blockchain networks and assets;

• the maintenance and development of the open-source software protocol of blockchain networks;

• changes in consumer demographics and public tastes and preferences;

• the popularity or acceptance of the Bitcoin, Ethereum, or other networks;

• the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;

• government and quasi-government regulation of blockchain networks and assets, including any restrictions on access, operation and use of blockchain networks and assets; and

• the general economic environment and conditions relating to blockchain networks and assets.

OFC’s business model is dependent on continued investment in and development of the blockchain industry and related technologies. If investments in the blockchain industry become less attractive to investors or innovators and developers, or if blockchain networks and assets do not gain public acceptance or are not adopted and used by a substantial number of individuals, companies and other entities, it could have a material adverse impact on OFC’s prospects and operations.

The application of distributed ledger technology is novel and untested and may contain inherent flaws or limitations.

The capabilities of blockchain technology are not fully proven in use. There are relatively few successful examples of the application of blockchain technology. In most cases, software used by entities issuing blockchain-based assets will be in an early development stage and still unproven. As with other novel software products, the computer code underpinning Interests and blockchain networks may contain errors, or function in unexpected ways. Insufficient testing of smart contract code, as well as the use of external code libraries, may cause the software to malfunction. Any error or unexpected functionality may cause a decline in value of Interests or other Org assets and result in substantial losses to purchasers of Interests.

If OFC discovers errors or unexpected functionalities in a Designated Smart Contract after it has been deployed, OFC may make a determination that the Designated Smart Contract is defective and that its use should be discontinued. Members may be unable to rely on OFC’s successful performance of measures intended to restore functionality to defective Designated Smart Contracts.

The creation and operation of Designated Smart Contracts will be subject to potential technical, legal and regulatory constraints. There is no warranty that the process for receiving, use and ownership of blockchain- based assets will be uninterrupted or error-free and there is an inherent risk that the software, network, assets and related technologies and theories could contain undiscovered technical flaws or weaknesses, the cryptographic security measures that authenticate transactions and the distributed ledger could be compromised, and breakdowns and trading halts could cause the partial or complete inability loss of blockchain-based assets or functionality.

Risks associated with the distributed ledger technology could affect OFC’s business directly or the market for blockchain assets generally. In either case, the occurrence of these events could have a material adverse effect on an investment in OFC.

Each blockchain network is dependent upon its users and contributors, and actions taken, or not taken, by the users or contributors of a blockchain network could damage its reputation and the reputation of blockchain networks generally.

Developers and other contributors to blockchain network protocols generally maintain or develop those blockchain networks, including the verification of transactions on such networks. Because the networks are decentralized, these contributors are generally not directly compensated by the network for their actions. Most blockchain networks provide that certain classes of contributors receive awards and transfer fees for recording transactions and otherwise maintaining the blockchain network. Such fees are generally paid in the native asset of that network.

The security and integrity of blockchain-based assets, including the value ascribed to those assets, relies on the integrity of the underlying blockchain networks. OFC’s Designated Smart Contracts are programmed for compatibility with the Ethereum blockchain.

If the awards and fees paid for maintenance of a network are not sufficiently high to incentivize ongoing contribution to the network, individuals or entities may respond in a way that reduces confidence in the blockchain network. To the extent that any miners or validators cease to record transactions, the operations and governance of OFC will also cease. Furthermore, any widespread delays in the recording of transactions could result in a loss of confidence in the blockchain network and its assets. This could have a material adverse effect on an investment in OFC, or on OFC itself.

The prices of blockchain-based assets are extremely volatile. Fluctuations in the price of Bitcoin, Ether and/or other network tokens could materially and adversely affect OFC.

The prices of assets such as Bitcoin and Ether have historically been subject to dramatic fluctuations and are highly volatile. As relatively new products and technologies, blockchain-based assets are not widely accepted as a means of payment for goods and services. A significant portion of demand for these assets is generated by speculators and investors seeking to profit from the short- or long-term holding of blockchain assets.

In addition, some blockchain industry participants have reported that a significant percentage of trading activity on blockchain networks is artificial or non-economic in nature and may represent attempts to manipulate the price of certain assets. Trading platforms and blockchain developers are incentivized to artificially inflate trading volumes so that their platform or asset rises in league tables and gains prominence in the industry. As a result, trading platforms or blockchain assets may seek to inflate demand for a specific blockchain assets, or blockchain assets generally, which could increase the volatility of that asset or blockchain asset trading prices generally.

The market price of these assets, as well as assets that may be developed in the future, may continue to be highly volatile. A lack of expansion, or a contraction of adoption and use of blockchain assets, may result in increased volatility or a reduction in the price of blockchain assets.

Several additional factors may influence the market price of blockchain assets, including, but not limited to:

• Global blockchain asset supply;

• Global blockchain asset demand, which can be influenced by the growth of retail merchants’ and commercial businesses’ acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online blockchain asset trading platforms and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use;

• Changes in the software, software requirements or hardware requirements underlying the blockchain networks;

• Changes in the rights, obligations, incentives, or rewards for the various participants in blockchain networks;

• The cost of trading and transacting in blockchain assets, and whether such costs may become fixed or standardized;

• Investors’ expectations with respect to the rate of inflation;

• Interest rates;

• Currency exchange rates, including the rates at which blockchain assets may be exchanged for fiat currencies;

• Fiat currency withdrawal and deposit policies of blockchain asset trading platforms and liquidity on such platforms;

• Interruptions in service or other failures of major blockchain asset trading platforms;

• Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in blockchain networks or blockchain assets;

• Monetary policies of governments, trade restrictions, currency devaluations and revaluations;

• Regulatory measures, if any, that affect the use of blockchain assets;

• The maintenance and development of the open-source software utilized in blockchain networks;

• Global or regional political, economic or financial events and situations; or

• Expectations among blockchain network participants that the value of such blockchain assets will soon change.

A decrease in the price of a single blockchain asset may cause volatility in the entire blockchain industry and may affect other blockchain assets. For example, a security breach that affects investor or user confidence in Ether or Bitcoin may affect the industry as a whole and may also cause the price of other blockchain assets to fluctuate. The value of blockchain assets and fluctuations in the price of blockchain assets could materially and adversely affect any investment in OFC.

The regulatory regimes governing blockchain technologies, blockchain assets and the purchase and sale of blockchain-based assets are uncertain, and new regulations or policies may materially adversely affect the development of blockchain networks and the use of blockchain assets.

As blockchain networks and blockchain assets have grown in popularity and in market size, international, Federal, State and local regulatory agencies have begun to clarify their position regarding the sale, purchase, ownership and trading of blockchain assets. However, there is growing demand among industry participants, legislators, and even regulators themselves for new or modified regulations in light of the risks and opportunities presented by blockchain technology. Various legislative and executive bodies in the United States and in other countries have shown that they intend to adopt legislation to regulate the sale and use of blockchain assets. Such legislation may vary significantly among jurisdictions, which may subject participants in OFC and the greater blockchain marketplace to different and perhaps contradictory requirements.

New or changing laws and regulations or interpretations of existing laws and regulations, in the United States and elsewhere, may materially and adversely impact the development and growth of blockchain networks and the adoption and use of blockchain assets. The imposition of restrictions on all blockchain assets, or certain blockchain assets, could affect the value, liquidity and market price of blockchain assets. Heightened regulation may limit access to marketplaces or exchanges on which to trade such assets, or impose restrictions on the structure, rights and transferability of such assets. Some governments may seek to ban transactions in blockchain assets altogether.

OFC may be prevented from entering, or may be required to cease operations in, a jurisdiction that makes it illegal or commercially unviable or undesirable to operate in such jurisdiction. Enforcement, or the threat of enforcement, may also drive a critical mass of participants and trading activity away from regulated markets. Although it is impossible to predict the positions that will be taken by certain governments, any regulatory changes affecting blockchain assets could be substantial and materially adverse to the development and growth of OFC and its business.

The extent to which blockchain assets are used or perceived to fund criminal or terrorist enterprises or launder the proceeds of illegal activities could materially impact OFC.

The potential, or perceived potential, for anonymity in transfers of bitcoin and similar assets, as well as the decentralized nature of blockchain networks, has led some terrorist groups and other criminals to solicit bitcoins and other blockchain-based assets for capital raising purposes. As blockchain assets have grown in both popularity and market size, legislative and regulatory bodies have been examining the operations of blockchain assets, users, and exchanges, concerning the use of blockchain assets for the purpose of laundering the proceeds of illegal activities or funding criminal or terrorist enterprises.

In addition to existing networks and assets, new blockchain networks or similar technologies may be developed to provide more anonymity and less traceability. There is also the potential that other blockchain asset trading platforms may court illicit activity by not adhering to know-your-customer and anti-money laundering practices.

OFC may not be able to prevent illegal activity from occurring using the Designated Smart Contracts. OFC may be unable to detect the unauthorized use of a KYC/AML whitelisted Member address. Further, OFC may be unable to verify whether cryptographic keys for wallets containing Interests have been transferred to third parties who have not completed the required KYC/AML process. Although OFC plans to implement compliance procedures for KYC/AML obligations, OFC may not be successful in deterring or identifying illegal activity.

The use of blockchain assets for illegal purposes, or the perception of such use, could result in significant legal and financial exposure, damage to OFC’s reputation, damage to the reputation of blockchain assets generally, and a loss of confidence in the services provided by OFC and the blockchain industry and community as a whole.