🚨 RISK DISCLOSURE
✅ SEC CATEGORY 1 COMPLIANT | Issuer-Sponsored Tokenized Securities pursuant to SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026
⚠️ CRITICAL WARNING: READ ALL RISK DISCLOSURES CAREFULLY BEFORE USING THE OTCM PROTOCOL PLATFORM OR PURCHASING ANY TOKENS
🚨 CRITICAL CLASSIFICATION NOTICE
⚖️ Two Different Token Types with Different Risk Profiles
OTCM Protocol operates two fundamentally different token types with distinct regulatory classifications and risk profiles. You must understand which token type you are acquiring:
Token Type | Classification | Asset Backing | Regulatory Status |
|---|---|---|---|
📜 ST22 Tokenized Securities | SECURITIES | 1:1 Preferred Series "M" shares | SEC Category 1 compliant |
🎫 OTCM Utility Token | Utility Token | None | Utility token framework |
⚠️ CRITICAL: ST22 Tokenized Securities ARE SECURITIES under federal securities laws. They are NOT entertainment products, NOT meme tokens, and NOT collectibles. The OTCM Utility Token is a separate utility token with NO asset backing.
🚨 EXTREME RISK WARNING
⚠️ THE PURCHASE OF ST22 TOKENIZED SECURITIES AND OTCM UTILITY TOKENS
INVOLVES SUBSTANTIAL RISK AND MAY RESULT IN THE TOTAL LOSS OF YOUR
ENTIRE INVESTMENT.
📜 ST22 TOKENIZED SECURITIES ARE SECURITIES UNDER FEDERAL SECURITIES LAWS.
Investing in securities involves significant risk including possible loss of principal.
🎫 OTCM UTILITY TOKENS ARE UTILITY TOKENS WITH NO ASSET BACKING.
They are highly speculative digital assets.
💸 NEVER INVEST MORE THAN YOU CAN AFFORD TO LOSE ENTIRELY.PART A: ST22 TOKENIZED SECURITIES RISKS
⚖️ These Are Securities
ST22 Tokenized Securities are securities under federal securities laws pursuant to the SEC's January 28, 2026 Category 1 (Issuer-Sponsored Tokenized Securities) framework. As securities:
- ✅ Federal securities laws APPLY to ST22 transactions
- ✅ ST22 tokens represent true equity ownership (1:1 preferred share backing)
- ✅ ST22 holders have shareholder rights including protective conversion triggers
- ⚠️ All risks associated with securities investments APPLY
1. 💸 INVESTMENT LOSS RISK
🔴 You May Lose Your Entire Investment
Critical Loss Scenarios for ST22 Tokenized Securities:
Risk | Description |
|---|---|
💀 100% Loss Possible | Like any security, ST22 tokens can lose all value |
📉 Market Risk | Token value depends on underlying company performance and market conditions |
🏢 Issuer Risk | Underlying companies may fail, reducing or eliminating token value |
💧 Liquidity Risk | You may not be able to sell at desired prices or times |
⏰ Long-Term Risk | Value may decline over extended periods |
Category 1 Protections (Limited)
While Category 1 compliance provides certain protections, these do NOT guarantee against loss:
Protection | What It Does | What It Does NOT Do |
|---|---|---|
🛡️ 42 Transfer Hooks | Enforces compliance controls on transactions | Does NOT prevent market losses |
🔴 Circuit Breakers | Halts trading during extreme volatility | Does NOT guarantee price recovery |
💎 1:1 Backing | Ensures true equity ownership | Does NOT guarantee equity value |
🏦 SEC-Registered Custody | Provides regulated custody | Does NOT insure against issuer failure |
🔄 Protective Conversion | Converts to common stock on adverse events | Does NOT guarantee common stock value |
2. 🏢 UNDERLYING COMPANY RISKS
💔 Issuer-Specific Risks
ST22 Tokenized Securities represent tokenized equity in underlying companies. These companies carry significant risks:
Risk Category | Description |
|---|---|
💸 Bankruptcy Risk | Companies may become insolvent. Protective conversion triggers convert to common stock, but common stock may have no value in bankruptcy. |
🎭 Fraud Risk | Despite due diligence, companies may commit fraud or misrepresent their condition |
📊 Limited Disclosure | Many tokenized companies are not SEC reporting companies and provide limited financial information |
☠️ Non-Operating Companies | Some companies may have ceased meaningful business operations |
📉 Business Failure | Companies may fail for legitimate business reasons |
💧 Dilution Risk | Companies may issue additional shares, diluting existing shareholders |
📜 Preferred Share Characteristics
ST22 tokens are backed by Preferred Series "M" shares with specific characteristics:
Characteristic | Status | Implication |
|---|---|---|
💎 Equity Backing | ✅ True 1:1 ownership | Real equity, but equity can lose value |
🔄 Conversion Rights | ✅ Convertible to common stock | On demand or protective triggers |
💰 Dividends | ⚠️ At issuer discretion | No guaranteed dividend payments |
🗳️ Voting Rights | ⚠️ Limited or none | Varies by Certificate of Designation |
💧 Liquidation Preference | ⚠️ As specified | Varies by Certificate of Designation |
3. 🎢 MARKET AND VOLATILITY RISKS
⚡ Securities Market Risks
ST22 Tokenized Securities trade on CEDEX and are subject to market risks:
Risk | Description |
|---|---|
📉 Price Volatility | Prices may fluctuate significantly based on market conditions |
💧 Liquidity Risk | Limited trading volume may make selling difficult |
📈 Slippage | Large trades may execute at prices significantly different from quoted |
🕐 24/7 Trading | Continuous trading means no market closure protection |
🌍 Global Markets | International events may affect prices at any time |
🔴 Circuit Breaker Limitations
OTCM Protocol implements circuit breakers that halt trading during extreme volatility (30% price drop). However:
- ⚠️ Circuit breakers provide a pause, not price protection
- ⚠️ Prices may continue declining after circuit breaker lifts
- ⚠️ You may be unable to sell during circuit breaker activation
- ⚠️ Circuit breakers do NOT guarantee price recovery
4. 🏦 CUSTODY AND BACKING RISKS
🔐 Empire Stock Transfer Custody
ST22 tokens are backed by preferred shares held at Empire Stock Transfer, an SEC-registered transfer agent. Custody risks include:
Risk | Description |
|---|---|
🏦 Custodian Risk | Although SEC-regulated, custodian failure could affect operations |
🔗 Oracle Risk | Custody verification relies on oracle systems that may fail |
⏰ Verification Delays | Custody verification occurs every ~400ms but delays are possible |
📋 Regulatory Changes | Transfer agent regulations may change |
🔄 Protective Conversion Trigger Limitations
Protective conversion triggers provide bankruptcy protection by converting Series M to common stock upon adverse events. However:
- ⚠️ Common stock received may have zero value in bankruptcy
- ⚠️ Conversion is automatic—you cannot opt out
- ⚠️ Trigger events are defined in Certificate of Designation—not all adverse events trigger conversion
- ⚠️ Conversion does NOT guarantee recovery of investment
5. ⚖️ REGULATORY RISKS
📜 Securities Law Compliance
ST22 Tokenized Securities operate under SEC Category 1 framework. Regulatory risks include:
Risk | Description |
|---|---|
🏛️ Regulatory Changes | SEC guidance may change, affecting ST22 classification or trading |
👮 Enforcement Risk | Regulatory enforcement actions could affect platform operations |
🌍 Jurisdictional Risk | Your jurisdiction may restrict or prohibit tokenized securities |
📋 Compliance Changes | New compliance requirements may affect trading |
💰 Tax Obligations | Securities transactions have tax implications—consult tax advisor |
⚠️ Accredited Investor Requirement
ST22 Tokenized Securities are offered under Regulation D Rule 506(c) to accredited investors only:
- You must qualify as an accredited investor under SEC Rule 501
- Accreditation verification is required before purchase
- Providing false accreditation information is illegal
- Non-accredited investors cannot purchase ST22 tokens
6. 🔧 TECHNICAL AND PLATFORM RISKS
⛓️ Blockchain Risks
ST22 tokens operate on the Solana blockchain:
Risk | Description |
|---|---|
🌐 Network Risk | Solana network outages or congestion may prevent trading |
❌ Transaction Failures | Transactions may fail or execute incorrectly |
🔄 Finality Risk | Blockchain reorganizations could theoretically reverse transactions |
💰 Fee Volatility | Network fees may increase significantly during congestion |
🖥️ Platform Risks
Risk | Description |
|---|---|
💔 Platform Failure | OTCM Protocol could cease operations |
🐛 Smart Contract Bugs | Despite audits, smart contracts may contain vulnerabilities |
🔧 Technical Failures | System failures could prevent trading or cause losses |
🚫 No SIPC/FDIC | Unlike traditional brokerages, no SIPC or FDIC insurance |
🔐 Security Risks
Risk | Description |
|---|---|
🔑 Wallet Security | Lost private keys mean permanent loss of tokens |
🎣 Phishing | Fake websites may attempt to steal credentials |
💻 Hacks | Despite security measures, systems could be compromised |
❌ No Recovery | Lost or stolen tokens generally cannot be recovered |
PART B: OTCM UTILITY TOKEN RISKS
🎫 This Is a Utility Token (NOT a Security)
The OTCM Utility Token is a utility token providing platform governance, fee discounts, and staking rewards. It is NOT backed by securities and is NOT an ST22 Tokenized Security.
Characteristic | OTCM Utility Token |
|---|---|
⚖️ Classification | Utility Token |
💎 Asset Backing | NONE |
🔧 Purpose | Governance, fee discounts, staking |
📜 Securities Status | NOT a security (different from ST22) |
7. 💸 TOTAL LOSS RISK (OTCM UTILITY TOKEN)
🔴 Your Tokens May Become Completely Worthless
Critical Loss Scenarios for OTCM Utility Token:
Risk | Description |
|---|---|
💀 100% Loss Possible | OTCM Utility Tokens can lose 100% of their value |
🚫 No Asset Backing | Unlike ST22, there is NO underlying equity backing |
⚰️ Permanent Loss | Lost value cannot be recovered |
🪙 No Minimum Value | Tokens can trade at effectively zero |
👻 Utility Depreciation | Platform changes may reduce utility value |
8. 🎢 EXTREME VOLATILITY RISKS (OTCM UTILITY TOKEN)
⚡ Price Movements Can Be Violent and Unpredictable
Risk | Description |
|---|---|
📉 Extreme Swings | Token prices may experience movements exceeding 90% in a single day |
⚡ Flash Crashes | Prices can drop dramatically in seconds |
🐋 Whale Risk | Large holders may significantly impact price |
🦠 Sentiment Driven | Value derives from platform utility and market sentiment |
💧 Liquidity Risk | May be unable to sell at desired prices |
9. 🏦 STAKING RISKS (OTCM UTILITY TOKEN)
💰 Staking Involves Additional Risks
Risk | Description |
|---|---|
🔐 Lock-up Risk | Staked tokens may be locked during critical price movements |
🎢 APY Volatility | Staking rewards depend on ST22 trading volume and may vary significantly |
🐛 Smart Contract Risk | Staking contracts may fail or be exploited |
💸 Opportunity Cost | Staked tokens cannot be sold during price increases |
⚔️ Reward Reduction | APY may decrease if more participants stake |
10. 🗳️ GOVERNANCE RISKS (OTCM UTILITY TOKEN)
🏛️ DAO Participation Risks
Risk | Description |
|---|---|
🗳️ Governance Attacks | Malicious actors may attempt to influence governance |
📊 Minority Position | Your votes may be outvoted by larger holders |
⚙️ Parameter Changes | DAO may change protocol parameters affecting token value |
🔐 Governance Limitations | Category 1 compliance requirements cannot be modified by DAO |
PART C: GENERAL RISKS (BOTH TOKEN TYPES)
11. 🎭 MARKET MANIPULATION RISKS
🎪 Manipulation Remains Possible Despite Protections
While OTCM implements 42 Transfer Hook security controls, manipulation risks remain:
Risk | Description | Mitigation |
|---|---|---|
📈📉 Pump and Dump | Coordinated buying followed by selling | Circuit breakers, wallet limits |
🔄 Wash Trading | Fake volume creation | Transfer Hook monitoring |
🐋 Whale Accumulation | Large position building | 4.99% wallet limit |
📱 Social Manipulation | False information spreading | Cannot be prevented by technology |
🤝 Coordination | Private groups coordinating trades | Difficult to detect |
12. 🧠 PSYCHOLOGICAL RISKS
🎰 Trading Involves Psychological Risks
🚨 MENTAL HEALTH WARNINGS:
🎰 Addiction Risk → Token trading can be psychologically addictive
😱 FOMO Pressure → Fear of missing out may cause irrational decisions
👥 Social Pressure → Community pressure may influence poor choices
😭 Emotional Trading → Decisions based on emotions rather than analysis
💔 Financial Stress → Losses can cause significant emotional distressIf you are experiencing:
- Difficulty controlling trading behavior
- Trading affecting relationships or responsibilities
- Emotional distress from trading losses
- Borrowing money to trade
Please seek professional help. Trading should not negatively impact your mental health or financial stability.
13. 🔧 OPERATIONAL RISKS
🤝 Third-Party Dependencies
Dependency | Risk |
|---|---|
🏦 Empire Stock Transfer | Custodian failure affects ST22 backing |
⛓️ Solana Network | Network issues affect all trading |
📊 Oracle Systems | Oracle failures affect custody verification |
🔄 RPC Providers | RPC issues may prevent transactions |
👛 Wallet Software | Wallet bugs may cause losses |
🏢 Business Continuity Risks
Risk | Description |
|---|---|
👤 Key Person Risk | Loss of critical team members |
💰 Funding Risk | Platform may exhaust operational funds |
🏃 Competition Risk | Better platforms may emerge |
📱 Technology Risk | Technology may become outdated |
🐻 Market Conditions | Prolonged bear markets may affect viability |
14. 🌍 GEOGRAPHIC RESTRICTIONS
🚫 Prohibited Jurisdictions
The following cannot use OTCM Protocol:
Restriction | Details |
|---|---|
🏴☠️ OFAC Sanctioned Countries | All OFAC-sanctioned jurisdictions |
❌ Crypto-Prohibited Jurisdictions | Jurisdictions where crypto trading is illegal |
🇺🇸 Certain US States | States with specific restrictions |
📜 Non-Accredited (ST22) | Non-accredited investors cannot purchase ST22 tokens |
15. 🚫 DISCLAIMERS AND LIMITATIONS
❌ NO WARRANTIES OR GUARANTEES
🚨 OTCM PROTOCOL, INC. PROVIDES THE PLATFORM "AS IS" WITHOUT WARRANTIES:
📈 No Profitability Guarantee → We do not guarantee any returns or profits
🏦 No Value Guarantee → Token values may decline to zero
💧 No Liquidity Guarantee → We cannot ensure tokens remain tradeable
🖥️ No Platform Guarantee → The platform may cease operations
🔄 No Recovery Guarantee → Lost funds generally cannot be recovered
⚖️ No Regulatory Guarantee → Regulatory framework may change⚖️ Limitation of Liability
Limitation | Description |
|---|---|
💸 Maximum Liability | Our maximum liability is limited as specified in Terms of Service |
❌ No Consequential Damages | We are not liable for indirect, incidental, or consequential damages |
📋 No Investment Advice | Nothing on our platform constitutes investment, legal, or tax advice |
👤 Your Responsibility | You are solely responsible for all trading decisions |
🛡️ Indemnification | You agree to indemnify OTCM Protocol from claims arising from your use |
16. ✅ ACKNOWLEDGMENT AND ACCEPTANCE
📋 By Using OTCM Protocol, You Acknowledge:
For ST22 Tokenized Securities:
- ✅ You understand ST22 tokens are SECURITIES under federal securities laws
- ✅ You qualify as an accredited investor under SEC Rule 501
- ✅ You understand you may lose your entire investment
- ✅ You have reviewed the specific risks of the underlying company
- ✅ You understand Category 1 protections do NOT guarantee against loss
- ✅ You understand protective conversion may result in worthless common stock
For OTCM Utility Token:
- ✅ You understand OTCM Utility Token has NO asset backing
- ✅ You understand it is a utility token, NOT a security
- ✅ You accept the risk of total loss of all funds
- ✅ You understand staking rewards are NOT guaranteed
For Both Token Types:
- ✅ You have read and understood ALL risk disclosures
- ✅ You will not invest more than you can afford to lose
- ✅ You will comply with all applicable laws
- ✅ You will maintain security of your own wallets
- ✅ You accept all risks associated with blockchain-based assets
🚨 FINAL WARNING
⚠️ INVESTING IN ST22 TOKENIZED SECURITIES AND OTCM UTILITY TOKENS
INVOLVES SUBSTANTIAL RISK OF LOSS.
📜 ST22 TOKENIZED SECURITIES ARE SECURITIES. Investing in securities can result
in loss of your entire investment. Category 1 compliance provides certain
protections but does NOT guarantee against loss.
🎫 OTCM UTILITY TOKENS HAVE NO ASSET BACKING. They are speculative digital
assets that may become worthless.
🛡️ THE PLATFORM, WHILE IMPLEMENTING CATEGORY 1 COMPLIANT INFRASTRUCTURE,
CANNOT PROTECT YOU FROM MARKET LOSSES, ISSUER FAILURES, OR THE INHERENT
RISKS OF SECURITIES AND DIGITAL ASSET INVESTMENTS.
💸 IF YOU CANNOT AFFORD TO LOSE YOUR ENTIRE INVESTMENT, DO NOT PARTICIPATE.📞 CONTACT FOR QUESTIONS
If you do not understand any of these risks:
🚫 DO NOT USE THE PLATFORM UNTIL YOU DOResources:
- 📧 Email: legal@otcm.io
- 📚 Educational Materials: Available on platform
- 💼 Professional Advice: Consult with qualified financial, legal, and tax advisors
- 🤔 Self-Assessment: Consider whether participation is appropriate for your financial situation
📋 DOCUMENT INFORMATION
Field | Value |
|---|---|
📄 Document Version | 3.0 |
📅 Effective Date | January 2026 |
📍 Jurisdiction | Wyoming, United States |
⚖️ Governing Law | Wyoming State Law and Federal Securities Law |
🏛️ Regulatory Framework | SEC Category 1 (Issuer-Sponsored Tokenized Securities) |
By clicking "I Accept" or using the platform, you confirm you have read, understood, and accepted all risks described in this document.
⚠️ This Risk Disclosure document may be updated at any time. Users are responsible for reviewing current disclosures regularly. Continued use of the platform constitutes acceptance of updated disclosures.
🛡️ Critical Reminder: This document exists to protect you from financial harm. These are legitimate warnings about securities and digital assets that can cause significant financial loss. Please take them seriously.
© 2026 OTCM Protocol, Inc. | All Rights Reserved
ST22 Tokenized Securities are securities under federal securities laws pursuant to SEC Category 1 (Issuer-Sponsored Tokenized Securities) framework. The OTCM Utility Token is a utility token with no asset backing.