Bakkt, Inc.

Our institutional trading and liquidity activities expose us to credit, counterparty and settlement risk, and a counterparty’s failure to perform could materially and adversely affect our liquidity and financial condition.

We commit our own capital to support institutional trading activity, including through our planned cross-border trading desk and overnight lending of cash and/or stablecoins to clients and trading counterparties. Although we generally seek to execute client trades on a matched, riskless-principal basis, these activities may require us to deliver cash or digital assets before we receive the corresponding payment or delivery, extend intraday or overnight credit, and maintain balances with liquidity providers, custodians and banks. As a result, we are exposed to the risk that a client, liquidity provider, borrower or other counterparty fails to perform, whether due to insolvency, fraud, operational failure, market disruption, regulatory action or otherwise. Many participants in the digital asset industry are lightly regulated, located outside the United States, or not subject to capital or financial reporting requirements comparable to traditional financial institutions, and information about their financial condition may be limited or unreliable. The industry has experienced sudden failures of trading firms and lenders. If a counterparty becomes insolvent, our claims may be stayed, subordinated or only partially recovered, particularly given uncertainty about how digital assets are treated in bankruptcy and similar proceedings. A failed trade could also leave us with an unhedged position, exposing us to price movements, including a loss of a stablecoin’s peg.

While we have experience maintaining balances with banks, trading with liquidity providers and filling client orders from our own balance sheet, the scale and cross-border scope of these activities are new to us.

Our counterparty diligence, credit limits, collateral and monitoring practices may not identify or mitigate these risks adequately. Because the capital we commit to these activities represents a meaningful portion of our available cash, a single default or a series of smaller losses could materially reduce our liquidity, require us to raise additional capital that may not be available on acceptable terms or at all, and impair our licensed subsidiaries’ ability to meet regulatory capital and net worth requirements.