REGULATORY STATUS

Excellar International SAC Ltd. ("Excellar International" or the "Firm") is an exempted company incorporated in Bermuda with company number 202403601. Excellar International is authorized and regulated by the Bermuda Monetary Authority ("BMA") pursuant to a Class T Digital Asset Business License under the Digital Asset Business Act 2018 of Bermuda ("DABA").

INTRODUCTION

xlTokens are tokenized investment products issued by Excellar International SAC Ltd. that provide investors with exposure to delta-neutral cryptocurrency strategies. Each xlToken—such as xlBTC, xlETH, and xlUSD—represents a proportionate interest in a segregated portfolio of digital assets and associated hedging positions designed to generate yield while minimizing directional market risk. xlTokens are issued and redeemed at net asset value, with returns derived primarily from funding rate differentials, basis spreads, and other market-neutral opportunities rather than from appreciation in the underlying cryptocurrency price.

This document contains important information about the investment risks associated with xlToken accounts (the "Accounts"). It is designed to be read in conjunction with the Terms & Conditions ("Terms"). All capitalized terms not defined herein have the meanings ascribed to them in the Terms.

IMPORTANT: xlTokens ARE NOT STABLECOINS

xlTokens (xlBTC, xlETH, and xlUSD) are fundamentally different from stablecoins, including Excellar International's separate USDXLR product. Investors must understand these critical distinctions before investing:

Unlike USDXLR which is designed to maintain a stable $1.00 value, xlToken NAV will fluctuate based on the performance of the underlying delta-neutral strategies. You may receive more or less than your original investment upon redemption.

NATURE OF THE ACCOUNTS

The Accounts are licensed under the Digital Asset Business Act 2018 ("DABA") in Bermuda pursuant to a Class T Digital Asset Business License. The Accounts employ various hedging strategies including long/short spot and perpetual futures positions, lending and borrowing arrangements, staking, and liquidity provisioning in decentralized finance ("DeFi") protocols, etc. as described in the Terms. The Accounts aim to generate returns while minimizing directional market exposure.

Not a Traditional Investment

Investors should understand that the Accounts are:

NOT a bank deposit

NOT insured by any government or regulatory agency

NOT guaranteed to maintain its value

NOT protected against market fluctuations in the same way as traditional diversified investments

NOT a stablecoin or stable-value product

No Guaranteed Returns

While the Accounts' delta-neutral strategies aim to reduce directional market risk, there is no guarantee of positive returns or preservation of capital. All investment strategies involve risk, and the Accounts' strategies involve complex financial instruments and trading techniques that may amplify both potential returns and losses.

STRATEGY-SPECIFIC RISK DISCLOSURES

1. Delta-Neutral Hedging Risks

Market Neutrality Limitations: Delta refers to "the sensitivity of the derivatives contract to a change in the price of the underlying asset." While the Accounts aim to maintain delta-neutrality (a delta of approximately zero), achieving and maintaining perfect neutrality is challenging. Market movements may occur faster than the Accounts can rebalance positions, leading to temporary directional exposure.

Hedging Costs: Implementing delta-neutral strategies involves transaction costs, funding rates, and potential slippage that may erode returns, particularly during periods of high volatility or low liquidity.

Multi-Asset Correlation Risk: The Accounts' delta-neutral strategy assumes certain correlations between assets and instruments. If these correlations change unexpectedly, particularly during market stress, the effectiveness of the hedging strategy may be reduced.

2. Perpetual Futures Trading Risks

Funding Rate Volatility: Perpetual futures contracts use funding rates to keep prices aligned with the underlying spot market. Sudden changes in funding rates can impact the profitability of the Accounts' positions, particularly during market dislocations.

Liquidation Risk: The use of leverage in perpetual futures trading introduces the risk of liquidation if market movements are significant and rapid. While the Accounts employ risk management protocols, extreme market conditions could lead to forced liquidations and substantial losses.

Exchange Risk: The Accounts utilize various cryptocurrency exchanges for their trading activities. These exchanges may experience technical issues, hacks, or liquidity problems that could impact the Accounts' ability to execute its strategy effectively.

3. DeFi Protocol Risks

Smart Contract Risk: DeFi protocols used by the Accounts rely on smart contracts that may contain bugs, vulnerabilities, or design flaws that could be exploited, potentially resulting in loss of assets.

Governance Risk: Many DeFi protocols are governed by decentralized autonomous organizations (DAOs) that may make decisions unfavorable to the Accounts' strategy or interests.

Protocol-Specific Risks: Each DeFi protocol used by the Accounts (for lending, borrowing, or liquidity provision) has its own specific risks, economic design, and market dynamics that may impact the Accounts' performance.

Oracle Risk: DeFi platforms rely on price oracles to determine asset values. Manipulation or failure of these oracles could lead to improper liquidations, incorrect pricing, or other adverse outcomes.

4. Lending and Borrowing Risks

Counterparty Risk: When engaging in lending activities, the Accounts are exposed to the risk that borrowers may default on their obligations. While collateralized lending reduces this risk, extreme market conditions could still result in losses.

Interest Rate Volatility: Cryptocurrency lending and borrowing rates can be highly volatile, affecting the profitability of the Accounts' strategies. Rates may change rapidly in response to market conditions or liquidity shifts.

Collateral Requirements: Borrowing activities require posting collateral, which may be subject to margin calls or liquidation if the value of the collateral decreases significantly relative to the borrowed amount.

5. Staking Risk

Illiquidity and Unbonding Periods: Staking requires that the Accounts lock up the staked Crypto Asset and become subject to an unbonding period to unstake the asset. The Accounts cannot sell or transfer the staked Crypto Asset during the time that it is staked and during the unbonding period, which may be longer than 7 days and may extend beyond anticipated timeframes based on network activity. During the unbonding period, the Accounts remain subject to market price volatility and may miss opportunities to exit positions during favorable market conditions.

Slashing Risk: Slashing is a penalty imposed on network validators for actions that threaten the blockchain's integrity, including validator mistakes, malicious activity, coordinated attacks, software bugs, or provider failures. Penalties can scale aggressively, potentially leading to significant or total loss of staked principal. Correlated slashing events affecting multiple validators simultaneously can be catastrophic for the Accounts.

Validator Concentration Risk: Staking activities may occur through a concentrated group of software providers and cloud infrastructure providers. Over-allocating to validators using the same software increases the risk of a single issue impacting a large portion of staked assets.

Validator Performance Risk: The Accounts rely on third-party validators whose performance directly impacts staking returns. Poor validator performance, extended downtime, or validator compromise can result in missed rewards or loss of staked assets.

Security and Technical Risks: Staked Crypto Assets are subject to security breaches, network downtime or attacks, smart contract vulnerabilities, and validator or custodian failure or compromise, which can result in complete loss of the staked assets or loss of any rewards.

INTER-SEGREGATED ACCOUNT LENDING RISKS

Inter-Account Loan Default Risk

The Accounts may engage in lending arrangements between segregated accounts ("Inter-SA Lending") to facilitate participation in delta-neutral strategies requiring diversified collateral or to optimize fee structures. Inter-SA Lending introduces credit risk that differs from traditional counterparty risk:

Borrowing Account Default: If a borrowing segregated account experiences significant losses or strategy underperformance, it may be unable to repay loans when due. Given that Inter-SA loans are extended on an unsecured basis, the lending account's recovery is limited to claims against the borrowing account's general assets, which may be insufficient to satisfy outstanding obligations, potentially impacting the lending account and its token holders.

Concentration Risk: The interconnectedness created by Inter-SA Lending means that problems in one segregated account could impact other accounts beyond normal market correlations. If multiple accounts are exposed to similar market conditions or strategies, concurrent stress events could create cascading effects across the Inter-SA Lending structure.

Unsecured Loan Risk: Inter-SA loans are extended on an unsecured basis without pledged collateral from the borrowing account. The lending account's recourse in the event of borrower default is limited to the borrowing account's general assets, which may be insufficient to satisfy outstanding loan obligations if the borrowing account has experienced significant strategy losses.

Liquidity Risk from Inter-SA Lending

Maturity Mismatch: While the Accounts attempt to match loan terms with liquidity needs, unexpected redemption requests to a lending account may occur while its assets are committed to Inter-SA loans. This could force the lending account to delay redemptions, implement redemption gates, or liquidate other positions at unfavorable times or prices.

Forced Liquidation Risk: If a lending account requires immediate return of loaned funds, the borrowing account may be forced to liquidate positions during adverse market conditions, potentially crystallizing losses and impacting the borrowing account's token holders.

Regulatory and Compliance Considerations

Segregation Maintenance: While Inter-SA Lending is structured to maintain legal segregation of client assets in compliance with DABA requirements, complex lending arrangements may create regulatory ambiguity. Changes in regulatory interpretation by the Bermuda Monetary Authority or other relevant regulators could restrict or prohibit certain Inter-SA Lending activities.

Conflicts of Interest: Inter-SA Lending creates potential conflicts of interest in determining loan terms, credit limits, and liquidation decisions. While the Accounts have governance procedures to manage these conflicts, there is no guarantee that all conflicts can be eliminated or that decisions will be optimal for all segregated accounts and their respective token holders.

OPERATIONAL RISK DISCLOSURES

1. Custody Arrangements

Multi-Signature Security: The Accounts utilize multi-signature cryptocurrency wallets and custody solutions to secure assets. However, loss of private keys, security breaches, or operational failures could still result in loss of funds.

Third-Party Custodians: For certain assets, the Accounts may employ third-party custodial services. These arrangements introduce counterparty risk and dependence on the custodian's security measures and operational reliability.

Cold Storage vs. Hot Wallet Risk: The Accounts balance the need for security (cold storage) with operational flexibility (hot wallets). Assets in hot wallets are generally more vulnerable to cyber threats.

2. Technological Risks

Blockchain Technology: Underlying blockchain networks may experience technical issues, including delayed transactions, network congestion, or consensus failures that could impact the Accounts' operations.

Smart Contract Dependency: The Accounts' operations partly rely on various smart contracts that may contain undiscovered vulnerabilities despite security audits and best practices.

Cybersecurity Threats: The cryptocurrency ecosystem faces ongoing cybersecurity threats, including phishing attacks, malware, and social engineering attempts that could compromise the Accounts' security measures.

3. Derivatives and Futures Execution Risks

Futures Contracts Risk: The Accounts' use of perpetual futures contracts is subject to special risk considerations including:

Imperfect Correlation: The correlation between perpetual futures and spot prices may diverge, particularly during periods of market stress, potentially impacting the effectiveness of delta-neutral strategies.

Lack of Liquid Markets: Sudden decreases in market liquidity could prevent the Accounts from closing futures positions when desired, potentially forcing the Accounts to maintain positions during adverse conditions or accept unfavorable execution prices.

Unlimited Loss Potential: While the Accounts employ risk management protocols, futures positions are subject to potentially unlimited losses if market movements are severe and the Accounts cannot exit positions timely.

Margin Requirements: The Accounts must maintain adequate margin with exchanges and clearing brokers. Sudden increases in margin requirements or inability to meet margin calls could force position liquidations at unfavorable times.

Clearing Broker Risk: The failure or bankruptcy of the Accounts' clearing brokers could result in substantial loss of assets. Under current regulations, clearing brokers maintain customer assets in bulk segregated accounts. If a clearing broker fails, the Accounts may only recover a proportional share of available property.

Rolling Costs: The Accounts regularly "roll" expiring futures contracts to maintain positions. The costs associated with rolling perpetual futures, particularly in contango market conditions, can be substantial and may significantly impact strategy returns.

4. Regulatory and Compliance Risks

Evolving Regulatory Environment: Blockchain and cryptocurrency regulations are in their infancy and continue to evolve rapidly. Regulatory changes could restrict certain activities or increase compliance costs.

Bermuda DABA Compliance: Excellar International's Class T DABA license requires ongoing compliance with Bermuda's regulatory requirements, which may change over time and impact the Accounts.

Cross-Border Regulatory Exposure: The global nature of cryptocurrency markets exposes the Accounts to potential regulatory actions from multiple jurisdictions, which could affect the Accounts' operations even if it remains compliant with Bermuda regulations.

Securities Classification Risk: Certain crypto assets held by the Accounts could be deemed securities by regulatory authorities in various jurisdictions. If a crypto asset that the Accounts hold is determined to be a security in a relevant jurisdiction, the Accounts may be required to divest such holdings, potentially at unfavorable prices and times.

ASSET-SPECIFIC RISK DISCLOSURES

1. Cryptocurrency Volatility

Market Volatility: Cryptocurrencies are known for their high volatility. While delta-neutral strategies aim to mitigate directional risk, extreme volatility can still impact strategy execution and performance.

Liquidity Concentration: Liquidity in cryptocurrency markets can be concentrated on a few major exchanges and may vanish quickly during market stress, potentially leading to significant slippage or inability to execute trades.

Historical Volatility Patterns: Trading prices of crypto assets have experienced extreme volatility, including steep increases followed by severe drawdowns. Bitcoin and Ethereum have experienced multiple cycles of rapid price appreciation followed by drawdowns exceeding 70%.

2. Crypto Asset-Specific Risks

Supply and Demand Dynamics: Speculation regarding potential future appreciation of crypto assets may artificially inflate or deflate prices. Market participants engaging in speculative trading can create volatility disconnected from fundamental factors.

Adoption Risk: The continued viability of crypto assets depends on their adoption and use. Contraction in usage, slow transaction processing, high fees, or failure of secondary networks could reduce liquidity and increase volatility.

Competition from Alternative Assets: Other blockchain networks and digital assets may emerge with improved features, potentially reducing demand for the crypto assets held by the Accounts.

Fork Risk: Crypto asset networks operate using open-source protocols that can be modified, potentially resulting in "hard forks" creating two versions of the network running in parallel. Future forks could create uncertainty about which version the Accounts should recognize, result in duplicate assets with different values, or introduce new security vulnerabilities.

Attack Risks: Blockchain networks are vulnerable to various attacks including majority attacks, consensus attacks, and smart contract exploits that could adversely affect the Accounts.

3. Stablecoin Risks

Depeg** Risk:** The Accounts may utilize stablecoins in certain strategies. Stablecoins that lose their peg to their reference asset (typically USD) could cause significant losses.

Regulatory Uncertainty: Stablecoins face increasing regulatory scrutiny globally, which could lead to restrictions on their use or changes in their operational models.

Counterparty Risk: Centralized stablecoins rely on the issuer's ability to maintain adequate reserves and honor redemptions, introducing counterparty risk to the Accounts' operations.

4. Network-Specific Risks

Fork Events: Blockchain networks may undergo hard forks, creating uncertainty about which chain the Accounts should recognize and potentially leading to duplicate assets with different values.

Network Security: Each blockchain network used by the Accounts has its own security model and potential vulnerabilities, including possible 51% attacks on smaller networks.

Network Upgrades: Major protocol upgrades can introduce bugs or compatibility issues that may temporarily disrupt the Accounts' operations or strategy implementation.

Network Congestion Risk: During periods of high network activity, transaction processing can slow significantly and fees can spike dramatically. Network congestion can prevent the Accounts from executing timely position adjustments.

MARKET RISK DISCLOSURES

1. Market Correlation Shifts

Crypto-Specific Correlation: Cryptocurrencies often exhibit high correlation with each other during market stress, which may reduce the effectiveness of diversification within the Accounts' crypto asset portfolio.

Macro-Economic Correlation: Despite their reputation as uncorrelated assets, cryptocurrencies have shown increasing correlation with traditional financial markets during certain periods, particularly during broad market stress events.

2. Extreme Market Conditions

Black Swan Events: Unexpected and severe market disruptions could overwhelm the Accounts' risk management systems and hedging strategies.

Liquidity Crises: During market panics, liquidity may evaporate across multiple venues simultaneously, potentially preventing the Accounts from executing its risk management strategies effectively.

Flash Crashes: Cryptocurrency markets have experienced numerous flash crashes that could trigger cascading liquidations across various positions before the Accounts can respond.

Whipsaw Markets: The Accounts may be subject to "whipsaw" market conditions where significant price movements develop but then repeatedly reverse direction. Such conditions are particularly challenging for delta-neutral strategies.

3. Market Manipulation Risks

Whale Activity: Large holders ("whales") can significantly impact prices, potentially triggering cascading market movements that affect the Accounts' positions.

Market Manipulation: Cryptocurrency markets may be susceptible to various forms of market manipulation, including pump-and-dump schemes, wash trading, and spoofing.

Largely Unregulated Marketplace: Crypto asset trading venues are largely unregulated compared to traditional securities exchanges. This lack of regulation enables insider trading, fraud, and market manipulation.

4. Counterparty and Exchange Risks

Exchange Failures: The Accounts place assets on multiple cryptocurrency exchanges to execute delta-neutral strategies. These exchanges may experience technical issues, security breaches, insolvency, or regulatory actions that could trap the Accounts' assets.

Fragmented Markets: Crypto asset trading is fragmented across numerous venues, leading to higher volatility and price discrepancies between exchanges.

Clearing and Settlement Risk: Unlike traditional securities markets with standardized clearing, crypto transactions involve varying settlement times and processes.

TOKENIZATION AND TOKEN-SPECIFIC RISKS

Token Value and Redemption Risks

Token Price Divergence: Tokens representing interests in the segregated accounts may trade at prices that differ from the Net Asset Value (NAV) of the underlying account due to supply and demand dynamics, market liquidity conditions, or investor sentiment.

Redemption Limitations: The Accounts reserve rights to limit or temporarily suspend redemptions during periods of market stress, liquidity constraints, or when redemption requests exceed certain thresholds. Redemption gates, delays, and fees may be implemented.

Redemption Process Complexity: Unlike traditional fund redemptions, token redemptions may involve multiple steps including token transfer, verification periods, and underlying strategy unwinding.

Token Infrastructure Risks

Smart Contract Vulnerabilities: The tokenization infrastructure relies on smart contracts that, despite auditing, may contain undiscovered vulnerabilities.

Wallet and Custody Risks: Token holders must maintain secure custody of their tokens using cryptocurrency wallets. Loss of private keys, wallet compromise, or errors in transferring tokens could result in permanent loss with no recourse.

Blockchain Network Dependency: Token functionality depends on the underlying blockchain network. Network outages, congestion, successful attacks, or protocol changes could impair token transferability or redemption processes.

Regulatory Uncertainty for Tokens

Securities Classification: The regulatory classification of the tokens remains subject to interpretation. If regulators determine that the tokens constitute securities under applicable laws, this could require registration or compliance with securities laws not currently contemplated, restrict secondary trading, limit eligible investors, or result in regulatory enforcement actions.

Cross-Jurisdictional Compliance: Token holders may be located in various jurisdictions with differing regulatory frameworks. Changes in regulations in any relevant jurisdiction could restrict token issuance, ownership, or trading.

LEGAL AND TAX CONSIDERATIONS

1. Limited Recourse

Limited Investor Protections: Cryptocurrency investments generally offer fewer investor protections than traditional financial products. Recovery of lost or stolen assets may be difficult or impossible.

Jurisdictional Challenges: Legal recourse across international borders presents significant challenges, particularly in the cryptocurrency space where jurisdiction may be unclear.

2. Tax Implications

Tax Uncertainty: The tax treatment of cryptocurrency transactions, including those involving delta-neutral strategies, remains uncertain in many jurisdictions and may change over time.

Complex Tax Reporting: The Accounts' strategies may generate complex tax reporting obligations for investors, who should consult their tax advisors about the implications of investing in the Accounts.

Potential Retrospective Taxation: As tax authorities develop clearer guidelines for cryptocurrency taxation, there is a risk of retrospective application that could affect historical returns.

Cross-Border Tax Implications: Token holders in different jurisdictions may face varying tax treatments. The Accounts cannot provide assurance regarding tax treatment in any specific jurisdiction.

SUITABILITY AND INVESTMENT CONSIDERATIONS

1. Investor Suitability

This investment is only suitable for investors who:

Have a high risk tolerance and can afford to lose their entire investment

Understand the complex nature of delta-neutral cryptocurrency strategies

Have a long-term investment horizon

Do not require liquidity in the short term

Have consulted with financial and tax advisors regarding this investment

Understand and accept the risks associated with cryptocurrency investments, DeFi protocols, and regulatory uncertainty

Understand that xlTokens are NOT stablecoins and that principal is at risk

2. Investment Allocation

Investors should consider their overall investment portfolio when determining an appropriate allocation to the Accounts.

3. Performance Expectations

Past performance is not indicative of future results. The Accounts' performance may vary significantly from period to period, and there may be periods of negative returns despite the delta-neutral approach.

VALUATION RISK

The Accounts and tokens may hold assets that are valued on the basis of factors other than market quotations, particularly during times of market turmoil, reduced liquidity, or when assets do not trade on centralized exchanges. Multiple valuation methods may exist for certain holdings, and the methodology chosen can significantly impact reported values. The Accounts maintain a Board-approved Valuation Policy.

Fair Value Determinations: When market quotations are not readily available, the Accounts must determine fair values using models, third-party pricing services, or other methodologies. Values established using these techniques may differ significantly from values that would be obtained from active market quotations.

DeFi Asset Valuation: Assets held in DeFi protocols, including liquidity pool tokens, staked assets, and yield farming positions, may be particularly difficult to value accurately.

Derivative Valuation: Perpetual futures and other derivative positions may be valued based on exchange marks or models. During periods of market stress or when positions are large relative to market liquidity, these valuations may not reflect achievable exit prices.

Impact on NAV and Redemptions: Valuation uncertainty directly affects the calculated NAV used for token pricing and redemptions. Token holders may receive more or less value than the carrying value of their proportionate interests in the Accounts.

EARLY CLOSE AND TRADING HALT RISK

Exchanges and markets may close, issue trading halts, or restrict the ability to buy or sell certain assets, particularly during periods of extreme volatility or operational issues. Such restrictions may prevent the Accounts from:

Rebalancing delta-neutral positions

Meeting margin requirements

Executing risk management strategies

Accurately pricing investments

The Accounts may be unable to respond to market movements during trading halts or restrictions, potentially resulting in substantial losses.

REDEMPTION LIMITATIONS

The Accounts reserve the right to:

Limit redemptions during periods of market stress or liquidity constraints

Implement redemption gates if redemption requests exceed certain thresholds

Temporarily suspend redemptions in extraordinary circumstances

Apply redemption fees under certain conditions

Delay redemptions pending unwinding of underlying strategy positions

Satisfy redemptions in kind by delivering underlying assets rather than stablecoins or other specified redemption currencies

Investors should be prepared for the possibility that they may not be able to redeem their investment when desired or may face penalties for early redemption.

CYBERSECURITY RISK

Cybersecurity incidents pose significant risks to the Accounts and token holders:

System Breaches: Unauthorized access to the Accounts' systems, custodians, exchanges, or service providers could result in theft of assets, data breaches, or operational disruptions.

Blockchain-Specific Threats: Beyond traditional cybersecurity risks, blockchain-based systems face unique threats including smart contract exploits, blockchain network attacks, oracle manipulation, and private key compromises.

Infrastructure Dependencies: The Accounts' operations depend on various technology infrastructure including exchanges, blockchain networks, pricing oracles, and custody solutions.

Limited Recourse: Unlike traditional financial institutions, cryptocurrency platforms and blockchain networks generally lack insurance or recourse mechanisms for losses resulting from cybersecurity incidents.

CONCLUSION

The risks outlined in this document are not exhaustive. The cryptocurrency markets, DeFi protocols, and tokenization technologies continue to evolve rapidly, and new risks may emerge that are not currently foreseeable. The complex interaction of multiple risk factors could result in losses exceeding those that might be anticipated from any single risk factor alone.

Prospective investors should carefully read the Accounts' complete offering documents, including the terms and conditions, and seek independent professional advice before making an investment decision.

THIS INVESTMENT RISK DISCLOSURE DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY INTERESTS IN THE ACCOUNTS. ANY SUCH OFFER OR SOLICITATION WILL BE MADE ONLY BY MEANS OF THE ACCOUNTS' TERMS & CONDITIONS.