Risk Disclosure

This Risk Disclosure is provided by Block Margin (the "Platform"), a product developed by Dynamic Strategies, incorporated in Gibraltar. It summarises the principal risks of entering into interest rate derivative transactions on the Platform. It is not exhaustive. You should not trade on the Platform unless you fully understand the instruments, the mechanics of the Platform, and the risks set out below. If you are in any doubt, obtain independent legal, financial, tax, and regulatory advice before trading.

1. Nature of interest rate derivatives

The Platform provides infrastructure for bilateral over-the-counter (OTC) interest rate derivatives, including Forward Rate Agreements (FRAs), Interest Rate Swaps (IRS), and Overnight Index Swaps (OIS) referencing SOFR, ESTR, SONIA, or other indices as supported. These are derivative contracts under which the parties agree to exchange interest cashflows over time, referenced to one or more floating indices and, where applicable, a fixed rate.

Interest rate derivatives are notional instruments: principal is not exchanged, but net cashflows can be large relative to collateral posted. Small changes in market rates can produce disproportionate changes in mark-to-market value and margin requirements.

2. Market (interest rate) risk

The value of any trade executed on the Platform will change with movements in interest rate curves, credit spreads, and related market factors. A parallel 1 basis point shift in the reference curve can move the mark-to-market value of a 10-year swap by approximately 9 to 10 basis points of notional. Non-parallel moves, curve steepening or flattening, and changes in volatility can produce larger losses than parallel shifts.

Past rate behaviour is not indicative of future behaviour. Markets can be volatile, illiquid, or subject to abrupt repricing around central-bank decisions, economic data releases, and stress events.

3. Leverage

Interest rate derivatives are inherently leveraged. A trade entered into with an initial margin representing a small fraction of the notional can produce gains or losses many times the initial margin posted. You may lose more than your initial margin and, depending on the terms of the trade and of the relevant smart contract, you may be required to post additional collateral at short notice or face automatic liquidation.

4. Margining, close-out, and liquidation

The Platform operates a continuous margining model. Variation margin (VM) is settled on the movement of the reference curve; initial margin (IM) is recalibrated as the portfolio changes. You should be aware that:

• Margin calls may occur at any time, including outside conventional business hours, in response to intraday rate movements.
• If required collateral is not posted within the time permitted by the smart contract, your position may be automatically closed out or liquidated. Liquidation may occur at prices that are significantly worse than mid-market or than prevailing dealer quotes.
• Under stressed market conditions, there may be gap risk between a margin breach and execution of liquidation. Losses beyond posted collateral are possible.
• The Platform's margin methodology, parameters, and haircuts may be updated. Changes may require additional collateral to be posted to maintain existing positions.

5. Counterparty and credit risk

Trades executed on the Platform are bilateral between the two counterparties. Although the Platform is designed to reduce counterparty credit exposure through continuous margining and smart-contract-enforced close-out, residual credit risk remains:

• The Platform is not a central counterparty (CCP) and does not guarantee performance. It is not authorised as a CCP under EMIR, Regulation (EU) 648/2012, or under corresponding US or UK regimes.
• There is no default fund, no mutualised loss-absorbing resource, and no investor compensation scheme in respect of trades on the Platform.
• The credit quality of your counterparty, and the stability of the collateral they have posted, are your own responsibility to assess.

6. Collateral and stablecoin risk

Collateral on the Platform is posted in the form of stablecoins or other tokenised assets accepted under the applicable on-chain Credit Support Annex (CSA). You should be aware that:

• Stablecoins are not bank deposits and are not insured by any deposit-protection scheme. Their market value may deviate from the currency they reference ("de-pegging"), permanently or temporarily.
• The issuer of a stablecoin may fail, freeze balances, be subject to regulatory action, or impose redemption restrictions. In such events, the value of collateral posted may fall below the exposure it is intended to cover.
• Changes to the list of eligible collateral, haircuts, or wrong-way risk treatment may require you to substitute or top up collateral.
• Tokenised real-world assets (bonds, equities) may be added as eligible collateral as on-chain markets mature. Their liquidity, price discovery, and legal finality may be materially less robust than conventional cash-equivalent collateral.

7. Smart contract and technology risk

The Platform is implemented through smart contracts deployed on public blockchains (currently Cardano, with other networks under evaluation). Smart-contract technology is experimental. You acknowledge and accept that:

• Smart contracts may contain bugs, vulnerabilities, or logic errors that could result in unintended behaviour, loss of collateral, or incorrect settlement.
• Security audits and formal verification reduce, but do not eliminate, the risk of defects.
• Upgrades or governance changes to the smart contracts may alter the economic terms or lifecycle behaviour of existing positions.

8. Oracle and market-data risk

Valuations, fixings, and margin calculations on the Platform depend on rate curves and reference data delivered by oracles. You should be aware that:

• Oracle data may be delayed, unavailable, incorrect, or manipulated. Any of these may result in incorrect marks, missed or erroneous margin calls, or unintended liquidation.
• The reference curves, interpolation methodology, day-count conventions, and business-day calendars used by the Platform may differ from those used by a specific dealer, information vendor, or counterparty. Material differences may arise in the marks and settlement amounts reported off-platform and those computed on-platform.
• Fixings (e.g., compounded SOFR in arrears) are subject to rules published by the administrator of the relevant index. Changes to those rules, or the discontinuation of an index, may affect the economic terms of existing trades.

9. Blockchain and settlement risk

• The Platform relies on the continued availability, integrity, and finality of the underlying blockchain. Chain halts, forks, reorganisations, congestion, or protocol upgrades may delay or prevent settlement of cashflows or margin calls.
• Transactions require network fees and may fail if fees are insufficient or if mempool conditions are adverse. A failed transaction at a critical time (e.g., a margin call) may result in breach and liquidation.
• You are responsible for securing your wallet and private keys. Loss, compromise, or unauthorised use of your wallet will result in loss of access to your positions and collateral. The Platform cannot recover lost keys.

10. Liquidity risk

The Platform is an early-stage trading venue with limited participants. You may be unable to enter into, amend, novate, or close out a trade at a price you consider reasonable, or at all. Bid-offer spreads may be wide relative to dealer markets. Stress conditions or rapid market moves may cause liquidity to deteriorate sharply.

11. Valuation and model risk

Mark-to-market values, risk measures (including DV01 and key-rate sensitivities), and initial-margin requirements are produced by models. All models rely on assumptions that may not hold under market conditions encountered in practice. Initial margin methodologies (including grid-based approaches used in v1 and any future SIMM-aligned methodology) are approximations and may under-estimate risk in certain scenarios. Model outputs should not be relied upon as the sole basis for trading or hedging decisions.

12. Basis and hedging risk

If you use trades on the Platform to hedge an exposure booked elsewhere (for example, a bilateral dealer swap, a loan, or a bond issuance), you may be exposed to basis risk arising from differences in reference rate, fixing methodology, day count, payment date, discounting curve, or valuation source. Such differences may cause the hedge to be imperfect and may produce P&L or cash-flow volatility, including under IFRS 9 or ASC 815 hedge-accounting frameworks.

13. Regulatory and legal status

• The Platform is not a recognised central counterparty or trading venue under EMIR, Dodd-Frank Title VII, or MiFID II.
• The Platform is not authorised or regulated as a bank, broker-dealer, investment firm, custodian, or transfer agent.
• Trades on the Platform may nevertheless fall within the scope of derivatives regulation applicable to you as a counterparty, including margin requirements under BCBS-IOSCO/UMR, clearing and reporting obligations under EMIR (EU Regulation 648/2012) or the Dodd-Frank Act, and conduct obligations under MiFID II or equivalent regimes. Compliance with these obligations (including generation and submission of UTI/USI/LEI-referenced trade reports) is your own responsibility.
• The legal treatment of on-chain derivative contracts is unsettled in many jurisdictions. Enforceability of netting, close-out, collateral rights, and smart-contract-driven liquidation may vary by jurisdiction and by counterparty type.

14. Tax risk

The tax treatment of on-chain interest rate derivatives, including treatment of cashflows, mark-to-market gains and losses, and collateral movements, is uncertain in many jurisdictions. You are solely responsible for your tax position. You should obtain independent tax advice before trading.

15. No advice; suitability

Block Margin does not provide investment, trading, legal, tax, or accounting advice. Nothing on the Platform, on the Block Margin website, or in any communication from Block Margin constitutes a recommendation to enter into any trade. You are solely responsible for determining whether a particular product is suitable for you in light of your objectives, financial circumstances, and risk tolerance.

16. Operational and cyber risk

The Platform and its supporting infrastructure may be subject to interruption, degradation, or failure as a result of technical issues, third-party service outages, cyber-attacks, or force-majeure events. Access to the Platform, the ability to post collateral, and the ability to trade, amend, novate, or close out positions may be temporarily or permanently impaired.

17. Risk of total loss

Trading interest rate derivatives on a collateralised, on-chain venue carries a risk of loss of all collateral posted, and, in extreme scenarios, may result in losses exceeding collateral posted. You should not trade on the Platform with funds you cannot afford to lose.

18. Acknowledgement

By using the Platform, you acknowledge that you have read and understood this Risk Disclosure and the Terms of Use, and that you accept the risks set out above. If you do not understand or accept any of these risks, you must not use the Platform.

19. Contact

Questions about this Risk Disclosure should be directed to info@blockmargin.app.