11.3 Risk Factors

Participation in tokenised-asset markets and decentralised governance exposes users to multiple risk categories that may differ markedly from those found in traditional finance. Technological risks include smart-contract bugs, network outages, or consensus failures that could freeze, irreversibly alter, or eliminate token balances. Market risks encompass price volatility, liquidity shortages, and slippage that may lead to partial or total loss of principal. Regulatory risks involve sudden legislative changes, enforcement actions, or judicial decisions that could restrict the use, transfer, or legality of tokens and related services, potentially resulting in forced divestment, blocked accounts, or reduced functionality.

Users also face counter-party and custodial risks if relying on third-party wallets, exchanges, or service providers. Even when off-chain assets backing tokens are held by reputable custodians, insolvency events, fraud, or mismanagement could impair redemption or transfer rights. Operational risks include key-management mistakes—such as lost seed phrases—or phishing attacks that allow unauthorised transfers. Additionally, oracle and data feed risks may distort asset valuations or compliance checks, triggering unintended contract behaviours.

No mechanism can fully eliminate these uncertainties. Token holders should critically assess their capacity to withstand extended periods of illiquidity, severe value fluctuations, or technological disruptions. Diversification, position sizing, and robust personal security hygiene (for example, hardware wallets and two-factor authentication) are prudent but not guaranteed safeguards. While NXT employs audits, multi-signature arrangements, and responsible-disclosure incentives, these measures reduce rather than abolish vulnerabilities.

Prospective participants should understand that, in the worst-case scenario, they may lose the entire value of their holdings without recourse, refund, or legal remedy. Past performance—whether of comparable protocols, underlying real-world assets, or digital-asset markets—does not ensure similar outcomes. By engaging with NXT-related products, you confirm that you have read, comprehended, and accepted these risks and that you act purely on your own judgment.