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Macro Review of Cryptoassets Landscape - July 2018 by David Gogel

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Macro Review of Cryptoassets Landscape - July 2018 by David Gogel

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Macro Review of Cryptoassets Landscape - July 2018 by David Gogel

  1. 1. Macro Review of Cryptoassets July 2018 - David Gogel Macro Review of Cryptoassets: Market Landscape & the Future of Financing Digital Asset Innovation June 30, 2018 By David Gogel Medium Twitter LinkedIn
  2. 2. Macro Review of Cryptoassets July 2018 - David Gogel Disclaimer ● This document is intended for informational purposes only. The views expressed in this document are not, and should not be construed as, investment advice or recommendations. Readers of this document should do their own due diligence, taking into account their specific financial circumstances, investment objectives and risk tolerance (which are not considered in this document) before investing. This document is not an offer, nor the solicitation of an offer, to buy or sell any of the assets mentioned herein. ● Content is based on 2+ years of research and intended to provide a MACRO view of the industry, which moves at lightning speed; do your own research as some data may be incomplete or stale. Crypto is experimental, volatile and speculative. Do not invest anything you are not willing to lose. Past performance is not indicative of future movements. ● Thank you to the open-source community for all the information. All information is available online, you just need to know where to search. Where possible, I have attributed intellectual ownership. ● Thank you to my brother and intellectual partner Michael Gogel for inspiring me to explore the crypto vortex and help democratize access to knowledge. 2
  3. 3. Macro Review of Cryptoassets July 2018 - David Gogel • FinTech/Crypto entrepreneur/investor • MBA/BS/BA from Wharton/University of Pennsylvania • Former Co-President of Wharton FinTech • Former Corporate Development at LinkedIn • Former VP at Singapore FinTech Consortium • Former Corporate Development at AIG About Me Hi, I’m David. I recently graduated from the full-time Wharton MBA program and spent the last 6 weeks documenting many of my learnings from my 2+ year journey down the digital asset => crypto => blockchain vortex. I spend a lot of time thinking about the way the crypto industry works, what the future holds, and where we will end up in the next 10 years, because the technology fascinates me. I am a HODLer (i.e., "Hold On For Dear Life", long-term focused investor). I first got into crypto in early 2016 after meeting the co-founder of BitMEX in Hong Kong and experiencing firsthand the challenges with international payments. After a short stint at an insurtech incubator in Singapore, I pursued my MBA with the goal of starting a fintech company. I became Co-President of Wharton FinTech, recorded several podcasts with startup founders & industry thought leaders, organized crypto events with partners, participated in the initial planning for the Penn Blockchain Club, and helped build out the fintech ecosystem on campus. I spent my last few months of school working on various projects including doing due diligence on ICOs, developing a quant trading algorithm with a classmate, and exploring the launch of a tokenized crypto VC/hedge fund. I am currently participating in ConsenSys Academy’s Summer Developer Program and working towards my next play in the crypto economy. As background, I am French / American, born and raised in France, graduated from the Huntsman Program in International Studies & Business at the University of Pennsylvania (Wharton / Penn) undergrad in 2012 with a major in Finance and a minor in Chinese. I worked for 4 years in corporate development @AIG in New York, Tokyo, and Hong Kong before pursuing my MBA back @Wharton in 2016, where I focused on entrepreneurship. I spent last summer working in corporate development @LinkedIn in San Francisco and the fall studying @Wharton's SF campus where I immersed myself in Silicon Valley and the crypto community. Thank you for reading! Please reach out! Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 3 Medium Twitter LinkedIn
  4. 4. Macro Review of Cryptoassets July 2018 - David Gogel 1) Overview 2) Landscape 3) Summary of Tech / Why now 4) Process Flow 5) SWOT 6) Risk Analysis 7) Cryptoassets Market Trends 8) ICO Trends 9) Investment Thesis: Security Tokens 10)Investment Thesis: Custodian Solutions 11)Investment Thesis: Stablecoins 12)Investment Thesis: Crypto Collectibles 13)Sources of Capital 14)Investing Risks 15)Historical VC Investment 16)Investment By Stage in the Space 17)Successful Companies 18)M&A / Exits 19)Predictions 20)Selected Investment Opportunities Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 4
  5. 5. Macro Review of Cryptoassets July 2018 - David Gogel • The crypto market has been dominated by early-adopters and retail investors speculating on future value; in 2017, the industry hit an inflection point: the price run-up expanded interest to the mainstream • Larger, more regulated, trusted participants are promoting the maturation of the space seeking institutional capital which has stayed on the sidelines due to lack of secured infrastructure, tools for risk management, as well as uncertainty around regulation • While private and consortia blockchains trials spread across industries globally, major successes have yet to emerge beyond supply chain, cross-border transfers, and trading ~10 years of innovation & growth with some challenges but still early days of major tech wave • Cryptonetworks are Internet-based decentralized networks that provide various digital services; they are powered by a blockchain, an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but everything of value • Open cryptonetworks are open-source protocols, software, and communities; growth is driven by large network effects as Cryptoassets are distributed to participants who are incentivized to promote the network and build more applications on top of underlying systems, resulting in cryptoasset value appreciation • Sector is moving from investment to utility phase: best teams deliver on roadmaps where people can use decentralized tech; new ecosystems are emerging addressing scalability, interoperability, & security issues Executive Summary (1/2) Retail investor dominance; Institutions slower to adopt but increasing interest Cryptonetworks are ecosystems incentivized by Cryptoassets Regulatory uncertainty with guidance emerging while self-regulation is needed • The Cryptoasset revolution is global but degree of regulation varies significantly (US seeing moderate levels) • Cryptoassets share properties with currencies, commodities, & securities, making uniform legal classification challenging: community consensus has emerged along various dimensions (e.g., utility vs. security token) • Regulators are increasingly scrutinizing the industry - many market actors are working with regulators to educate them on the tech but more is needed • While any technology can be used for nefarious purposes, regulators are looking to encourage innovation and progress but manage for unintended consequences • Bitcoin was launched in 2009 as a trustless P2P electronic cash system; the crypto market has since experienced significant growth in size and scope with the rise of ~1600 Cryptoassets (altcoins) in circulation • Cryptoassets market cap increased 32x in 2017 reaching a record high of $829B in Jan ‘18 before falling by 70% through April; market has experienced a whirlwind of volatility, consolidating at a range of $200-$500B • Cryptoassets incentivize cryptonetworks which create new business models, enable new applications, disintermediate current service providers, lower the cost of existing products & services • Blockchain tech is still in its early days and existing solutions face multiple challenges to mass adoption Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 5
  6. 6. Macro Review of Cryptoassets July 2018 - David Gogel ● New financing model: Initial Coin Offerings (ICOs) are displacing public markets and private investments for fundraising for early-stage companies, the lines between equity financing and ICOs are blurring; anticipating a world of dApps, investors are supporting infrastructure-building projects ● Fundraising is evolving: companies that might have held public token sales are moving to private rounds ● ICO hubs: While USA, Switzerland, and Singapore have become the main ICO hubs, the UK and Hong Kong are gaining ground in 2018 ● Increasing VC activity: VCs are adapting their business models to increase exposure to the asset class via equity securities, SAFT agreements, and token investments ● Security Tokens / Platforms: programmable digital securitization of ownership in real-world assets, subject to securities regulations, will disrupt Wall Street; the landscape is still nascent and will evolve as regulatory guidance emerges ● Custodian Solutions: banks like JPMorgan, Citigroup, & BNY Mellon act as qualified custodians for billions of dollars worth of securities; the current state of crypto self-custody remains challenging ● Stablecoins: stablecoins attempt to address the problem of price stability and high volatility, a major barrier of entry for adoption; the race is on for the best business model ● Crypto Collectibles: the early success of CryptoKitties displayed the potential for users to interact with scarce digital assets in new and unique ways Executive Summary (2/2) Cryptoassets Market Trends ● The strong are getting stronger: early winners are turning into investors & acquirers ● The race for institutional capital: new products are focused on attracting institutional capital, expanding adoption beyond retail investors ● Ecosystem development: smart contract platforms are investing to attract applications developers and building out their ecosystem ● Enterprise blockchain continues to grow: established tech & financial services companies are making bets on disruptive tech trends ● Increasing regulatory scrutiny & clarity: regulatory guidance is emerging while self-regulation is needed Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities ICO Trends Investment Thesis 6
  7. 7. Macro Review of Cryptoassets July 2018 - David Gogel Nearly 10 years after the launch of Bitcoin, the cryptoasset market has experienced significant growth in size & scope Aggregate cryptoasset market capitalization & volume (Bitcoin + Altcoins) US$B Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: www.coinmarketcap.com, https://coin.dance/stats, data as of June 30, 2018 Cryptoassets market cap reached a record high of $829B in Jan 2018 before falling by 70% to $250B in April; market has experienced a whirlwind of volatility, consolidating at a range of $200-$500B 7 -70% Crash2017 Gain: +3,200% 2H 2017 market gains driven by the rise of altcoins, with ~1600 crypto-assets now in circulation Bitcoin + Altcoins cryptocurrency market capitalization US$B Market Cap = $255B 24H Vol = $13.6B Bitcoin Market Cap = $109B 24H Vol = $4.3B Altcoins Market Cap = $146B 24H Vol = $9.3B
  8. 8. Macro Review of Cryptoassets July 2018 - David Gogel The rapid growth of the value of a Bitcoin has created enormous wealth for early adopters Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://coin.dance/stats, data as of June 30, 2018 8 6/30/2018 1 BTC = $6,367 per USD
  9. 9. Macro Review of Cryptoassets July 2018 - David Gogel Market Cap Rank January 1, 2014 January 1, 2015 January 1, 2016 January 1, 2017 January 1, 2018 June 30, 2018 1 $9B $4B $7B $16B $230B $106B 2 $595M $758M $203M $698M $89B $44B 3 $214M $123M $153M $237M $73B $18B 4 $109M $96M $71M $213M $43B $12B 5 $97M $41M $20M $188M $19B $7B 6 $52M $24M $15M $123M $13B $5B 7 $39M $20M $10M $78M $9B $4B 8 $27M $18M $9M $45M $6B $3B 9 $25M $18M $8M $41M $5B $3B 10 $8M $13M $7M $39M $5B $3B top 10 $10 billion $5 billion $7 billion $17 billion $492 billion $205 billion Bitcoin has remained the most valued cryptoasset, while top 10 have varied over time Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Protoshares PTS $0-$99 million $100-$499 million $500-$999 million $1-$9.9 billion $10-$99 billion >$100 billion Legend Source: coinmarketcap.com, data as of June 28, 2018 9
  10. 10. Macro Review of Cryptoassets July 2018 - David Gogel $326 $136 $130 $49 $30 $20 $18 $16 $15 $15 10 1H 2018 correction: down from all-time high but the market has experienced booms and busts before Source: CryptoCompare, Macrobond, Bloomberg, Morgan Stanley Research Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Bitcoin Bear Market is Nothing New Tracking Peaks & Troughs from Nasdaq in 2000 30/6/2018 Price % Decline from All Time High Top 10 Cryptoassets price declined 70% from All Time High in 1H 2018 All Time High Market Cap US$B
  11. 11. Macro Review of Cryptoassets July 2018 - David Gogel Potential Adoption Low # of users 11 Why Bitcoin? Programmable Money Source: chart modified from medium https://medium.com/@pierre_rochard/bitcoin-investment-theses-part-1-e97670b5389b Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Summary Bitcoin is a blockchain-based peer-to-peer electronic cash system allowing online payments to be sent directly from one party to another without going through a centralized financial institution. It was invented by anonymous individual(s) Satoshi Nakamoto and released as open-source software in 2009. Key Advantages • 25+ million wallet users • First mover, market leader, pioneered new asset class • Decentralized, trustless, censorship-resistant, secure • Scarce: finite-supply of 21M bitcoin • Operational on global scale with active dev teams • Traded on regulated futures markets (CBOE/CME) • Regulated as a commodity by CFTC Key Disadvantages • Resource intensive resulting in high fees • Limited scalability • Limited interoperability • Limited programmability • Divided community = slow network upgrade process • Increased competition from alternative stores of value and / or mediums of exchange • High volatility Full money substitute = Store of Value + Medium of Exchange + Unit of account Collateral asset Digital gold standard “Store of Value” International remittances Machine-to-machine / IOT Retail payments Micro payments Tax evasion Institutional settlement FOMO buyers Money laundering Ponzi scheme High value payments Speculative trading Macro hedge Uncorrelated returns International timelocking Destroyed Coins Holders of last resort Potential Use Cases - Investment Theses Matrix Seizure resistance Long Holding Period Short Holding Period Potential Adoption High # of users
  12. 12. Macro Review of Cryptoassets July 2018 - David Gogel Bitcoin’s dominance has declined at the expense of altcoins which now account for ~57% of total market cap Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: www.coinmarketcap.com, coin.dance, data as of June 30, 2018 12 50% Market cap breakdown by top Cryptoassets 2017 was an inflection point for altcoins Other Alts 60% 80% 40% 20% 0% 100% Jan’14 Jan’15 Jan’16 Jan’17 Jan’18 Other Alts Market cap breakdown as of 6/30/2018 $255 Billion
  13. 13. Macro Review of Cryptoassets July 2018 - David Gogel Summary Ethereum is an open-source blockchain-based distributed computing platform and operating system allowing users to create a range of applications and smart contracts. Ether is a cryptocurrency used as payment for any transactions occurring on the Ethereum network. It was invented by Vitalik Buterin in 2013 and went live in 2015. Key Advantages • 35+ million unique wallets • Second mover building off limitations of Bitcoin • Offers a Turing-complete programming environment which can execute smart contracts • Vitalik / ConsenSys guiding active development community • Leading platform for enterprise adoption and dApps • Unlikely to be regulated as a security (SEC) Key Disadvantages • Limited scalability • Limited interoperability • Increased competition from other smart contract platforms • ICO funding overhang 13 Why Ethereum? Distributed Computing Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://media.consensys.net/get-to-know-the-47-projects-that-make-up-the-consensys-mesh-478b7d3028c1 50+ projects in the ConsenSys mesh show scope of active development activity
  14. 14. Macro Review of Cryptoassets July 2018 - David Gogel 14 Among 1600 Cryptoassets, 3 MegaCryptoassets have reached a market cap >$50B, 12 DecaCryptoassets have reached a market cap >$10B Source: coinmarketcap.com, data as of June 30, 2018, analysis excludes Bitcoin Cash. Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Days since trading launch before market cap reached CryptoAsset Market Cap (USD B) Launch >$1 billion >$5 billion >$10 billion >$50 billion $131.3 Jan 3, 2009 1576 1777 1788 3157 $6.9 Apr 28, 2013 221 1679 1689 - $26.6 Aug 04, 2013 1338 1373 1381 1607 $2.5 Feb 14, 2014 1195 1385 1424 - $2.6 May 21, 2014 1189 1304 - - $5.5 Aug 05, 2014 1211 1243 1247 - $2.3 Apr 01, 2015 769 983 1008 - $60.5 August 7 2015 219 630 652 858 $3.5 Sep 09, 2016 335 480 493 - $4.7 Jun 13, 2017 0 174 176 - $13.1 Jul 01, 2017 148 171 298 - $3.9 Sep 13, 2017 92 112 114 - $5.5 Oct 01, 2017 58 76 77 - Max $131.3 Oct 01, 2017 1576 1777 1788 3157 Average 21 Feb 24, 2015 642 876 862 1874 Median 5 Apr 01, 2015 335 983 830 1607 Min $2.3 Jan 03, 2009 0 76 77 858 Later projects reached $1+ billion valuations faster
  15. 15. Macro Review of Cryptoassets July 2018 - David Gogel 15 Cryptoassets share properties with currencies, commodities, & securities, making uniform legal classification challenging: community consensus is emerging along various dimensions Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: http://www.untitled-inc.com/wp-content/uploads/2018/01/TCF-Types-Table-only.png
  16. 16. Macro Review of Cryptoassets July 2018 - David Gogel Average daily BTC/USD change (30 day trailing average) 16 Cryptocurrencies are a new asset class; while volatile, these assets have low correlation with the rest of the market 365-Day Volatility [%/yr], as of June 7, 2018 Billions USD Cryptocurrency market volatility 3x higher than traditional financial markets Cryptoassets have low correlation with traditional financial market (<.2) 365-Day Correlation Matrix, as of June 7, 2018 Pearson correlation coefficient Source: https://www.sifrdata.com/, www.bitcoinity.org, Morgan Stanley Research Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Bitcoin volatility creates both opportunities and challenges Bitcoin has low correlation with S&P 500 Trailing 30 day Correlation
  17. 17. Macro Review of Cryptoassets July 2018 - David Gogel Cryptoassets are mostly traded against Asian fiat currencies but are increasingly traded via other cryptocurrencies Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: Bloomberg 17 CNY USD KRW CNY JPY USD USD KRW CNY
  18. 18. Macro Review of Cryptoassets July 2018 - David Gogel Blockchain technology is a distributed ledger that enables a shift from centralized databases to more decentralized, robust, fault-tolerant networks Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: Blockgeeks ● Information is controlled by centralized entity ● High data integrity ● Regulated access ● High speed / accessibility ● No central authority to maintain data ● Data integrity verified through public and private key cryptography ● Data eventually accessible to all participants in the network ● Features of distributed ledgers: consensus formation, peer-to-peer protocols, cryptographic infrastructure, censorship-resistance Status Quo: Centralized Ledgers Shift powered by Blockchain Technology: Decentralized / Distributed Ledgers Permissionless Blockchain = Internet Permissioned Blockchain = Intranet 18
  19. 19. Macro Review of Cryptoassets July 2018 - David Gogel The key innovation to cryptonetworks is their ability to come to a consensus on the state of data via economic incentives not through a centralized authority Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Proof-of Work (PoW) Overview Key Features • Miners work to solve a puzzle consisting of a mathematical function called a hash • Participants only accept valid blocks when the block hash is less than a target number (difficulty) • Miners repeatedly guess & check hashes and check against difficulty • Winners broadcast solution to the network • Solution includes reward for the miner • Computationally expensive • High energy use • Low transaction volume due to unknown participants Blockchains Proof-of-Stake (PoS) • Holders stake currency for chance to determine block • Block validator randomly selected • Process favors larger stake holders • Leased PoS: Token holders lease balances to others, rewards split among leasers • Delegated PoS: Balance holders elect block validators, no sharing of block rewards • No mining required • Less computationally expensive • High energy efficiency • High transaction volume Practical Byzantine Fault Tolerance (PBFT) • No mining required • Guarantees consensus • Solves PoS vulnerability (nothing at stake attack) • Tolerates up to 1/3 of nodes failing arbitrarily Consensus Types Proof of Importance (PoI) • Variant of PoS where productive network activity, not just the amount of coins, is rewarded • No mining required • Rewards productive actions 19
  20. 20. Macro Review of Cryptoassets July 2018 - David Gogel The fast growth of cryptonetworks is powered by several network effects wherein an increased number of participants or usage improves the value of the network for other users Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Overview Challenges Protocol Network Effects Token Network Effects Monetary Network Effects Security Network Effects • Once a communications or computational standard is declared and all nodes can plug into the network using that protocol • Building a robust protocol and developer community who adopts standards • Open-source software results in forks • Aligning incentives to accelerate both growth of the network and token appreciation • Positive feedback loops between liquidity and value • Highest hash rate equals the highest security • Centralization of miners and hashrate Source: http://research.turing.capital/blockchain-moats/ • Transparent incentives and governance structures • Artificial liquidity • Low velocity 20
  21. 21. Macro Review of Cryptoassets July 2018 - David Gogel Smart contracts digitally facilitate, verify, or enforce the negotiation or performance of a contract Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities ● Enforcing contracts automatically, trustlessly and impartially, using computer code ● Taking out the middle men in contract construction, execution & enforcement Smart Contract Overview Source: CB Insights 21
  22. 22. Macro Review of Cryptoassets July 2018 - David Gogel Why now: centralized networks are facing a public trust backlash around how user data is managed while users want more control over their digital lives Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 2008 financial crisis caused a loss of trust in financial institutions as trusted third parties Need for trust allowed Tech Titans to turn economies of scale and network effects into de facto monopolies Regulators want users to have more control over their digital identities & data Cyber hacks show the impact of single points of failure 22
  23. 23. Macro Review of Cryptoassets July 2018 - David Gogel The ecosystem is still early and while the hype is high, the majority of consumers have yet to adopt the technology Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: Gartner Report 23
  24. 24. Macro Review of Cryptoassets July 2018 - David Gogel Blockchain technology enables the decentralized web 3.0 to emerge, challenging incumbent web 2.0 businesses Source: https://medium.com/@matteozago/why-the-net-giants-are-worried-about-the-web-3-0-44b2d3620da5 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 24
  25. 25. Macro Review of Cryptoassets July 2018 - David Gogel But unlike prior version of the web, outsized value may remain in the protocol layer (Fat Protocol Thesis) Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 25
  26. 26. Macro Review of Cryptoassets July 2018 - David Gogel Cryptonetworks are decentralized networks powered by blockchains that are built on top of the internet and provide digital services Source: Blockgeeks Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 26
  27. 27. Macro Review of Cryptoassets July 2018 - David Gogel Tokens are the internal currency of cryptonetworks and the incentive mechanism for the networks to properly function Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://avc.com/2018/03/slideshow-of-the-week-why-tokens-are-fundamental/ 27
  28. 28. Macro Review of Cryptoassets July 2018 - David Gogel Network governance drives success; blockchain protocols act as monetary policy and mitigate risks that could fragment the original network value Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 28 Source: https://avc.com/2018/03/slideshow-of-the-week-why-tokens-are-fundamental/
  29. 29. Macro Review of Cryptoassets July 2018 - David Gogel A blockchain is a chain of blocks: on occasion, the chain can split into two with or without consensus. This is a fork. Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Forks Overview ● Hardforks: New rule added to the system which isn’t compatible with the existing software making previously invalid blocks/transactions valid (or vice-versa); two blockchains created ● Softforks: New rules that are backwards compatible, like a software upgrade; only one blockchain will remain valid as users adopt the update Bitcoin has experienced many forks... ...resulting in arbitrage opportunities due to market pricing inefficiencies Market Cap, US$ B 29 Fork arbitrage
  30. 30. Macro Review of Cryptoassets July 2018 - David Gogel Blockchain technology can provide many advantages over existing solutions but faces a different set of tradeoffs Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Strengths Weakness Opportunities Threats ● Efficiency: facilitates digital transfer of value ● Trustless / disintermediation: distributed control eliminates need for trust in a central authority ● Transparency: all transactions are visible to anyone with access to the system ● Immutability & security: secure encryption and tamper-proof data storage; no central point of failure ● Privacy: user data remains pseudonymous ● Market access: real-time global access to shared data ● Computational logic: users can set up rules that automatically trigger transactions between nodes ● Immature scalability: low transaction throughput (vs. traditional networks e.g. Visa / Paypal), though solutions are emerging ● Speed: transactions take time for miners to validate transactions ● Interoperability: lack of ledger interoperability ● Technology maturity: Lack of standards, difficulty in wallet / key management, limitations of smart contract code ● Complex/UX/URI: Hard to understand for newcomers - need good education to made mass adoption possible, skills scarcity / cost, poor user/developer experience & tooling ● Stalled adoption: enterprise / government willingness to adopt is low as integration with legacy systems remains challenging ● Regulatory: Potentially in conflict with existing approaches to regulatory compliance ● New wave of innovation: cryptonetworks create new businesses models, enabling new applications, creating new jobs, facilitating business process acceleration & optimization across industries ● Inclusion of unbanked population: democratization of financial services ● Risk reduction: decreases fraud and systemic risks ● Cost savings: opportunity to reduce transaction costs, IT, processing costs ● Regulatory & Compliance: Increased regulatory scrutiny of ICOs and crypto price manipulation ● Unwanted centralization: mining pools and large mining farms ● Future tech: quantum computers may decrypt data ● Hype: fast changing environment, overvaluations, inefficient price discovery ● Exploitation by criminals: cyber hacks, scams ● Poor governance: lack of basic investor protections, misaligned company incentives 30
  31. 31. Macro Review of Cryptoassets July 2018 - David Gogel Features Network with Differentiated Feature Bock time High variation, average 10 mins High variation, average 15 sec. Consensus PoW, energy waste for security PoW for distribution, shift to PoS Governance slow decisions, conservative actively developed, leadership Privacy pseudonymous pseudonymous Extensibility hard, simple scripting language medium, smart contract + EVM Fees Varies based on load Varies based on load Current Scalability Planned 3 transactions / sec Payment channels Sidechains 15 transactions / sec Payment channels Sharding / Plasma / Raiden Interoperability TBC Polkadot Cosmos Interledger Bitcoin & Ethereum laid down infrastructure and will evolve to become more scalable, less resource intensive, and more interoperable, or will be replaced by new tech with these features Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 31
  32. 32. Macro Review of Cryptoassets July 2018 - David Gogel User experience remains challenging beyond buying and selling a few tokens - focus on design and usability are key to mass adoption Users Developers Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 32
  33. 33. Macro Review of Cryptoassets July 2018 - David Gogel Thefts from centralized exchanges highlight counterparty risks - controlling someone's key to access a digital asset is different from keeping books and records of stock ownership Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://www.valuewalk.com/2018/05/btc-biggest-hacks-coincheck/ 33
  34. 34. Macro Review of Cryptoassets July 2018 - David Gogel No KYC / AML, Fraud, ICO Scams, money laundering, drug trafficking, unregistered security offerings, lack of investor protections = increasing regulatory scrutiny Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Unregistered Securities Offerings Fraud / ICO Scams Fake Ads / Undisclosed Kickbacks No KYC or AML / Money Laundering / Drug Trafficking Pump & Dump / Pricing Manipulation 34
  35. 35. Macro Review of Cryptoassets July 2018 - David Gogel High hype and divide between the promise of the technology and the use cases currently supported show a public misunderstanding of the technology Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 35
  36. 36. Macro Review of Cryptoassets July 2018 - David Gogel There are 6 distinct categories of blockchain use cases addressing 2 majors needs: record keeping $& transactions Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value 36
  37. 37. Macro Review of Cryptoassets July 2018 - David Gogel Many famous technologists & world leaders are bullish on the tech, yet there is no dearth of intelligent people claiming that cryptoassets are overvalued or scams "I'm just approaching with the principle that the Internet deserves a native currency. It will have a native currency. I don't know if it will be bitcoin. I hope it will be bitcoin. I'm a huge fan.“ -Jack Dorsey, Co-Founder & CEO of Twitter, Square "There are several factors at play in this boom of computing… the second factor is greater demand, stemming from advanced graphics in gaming and, surprisingly, from the GPU-friendly proof-of-work algorithms found in some of today’s leading cryptocurrencies, such as Ethereum.“ -Sergey Brin, Co-Founder & President of Alphabet “If the second half of 2016 and all of 2017 was about raising capital to fund development efforts (and speculating on all of that), then it sure feels like 2018 is the year we get decentralized applications we can use.” -Fred Wilson, Co-Founder & Investor at Union Square Ventures Bitcoin & Blockchain will be bigger than the Iron Age, the Renaissance, the Industrial Age, and the Internet Age combined. It will change everything from how we deal with each other (Commerce, Banking) to how we take care of ourselves (HealthCare) to how we govern ourselves (Virtual Competitive Governance). -Tim Draper, Founding Partner of Draper Associates & DFJ 10% of global gross domestic product (GDP) will be stored on blockchain technology by 2027 -Global Agenda Council on the Future of Software & Society Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities “When you’re buying non-productive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along. Bitcoin is probably rat poison squared.” – Warren E. Buffett, Chairman & CEO of Berkshire Hathaway “I would short Bitcoin if I could.” – Bill Gates, Co-Founder of Microsoft "The blockchain is real. You can have cryptodollars in yen and stuff like that. ICOs ... you got to look at every one individually. The bitcoin was always to me what the governments are going to feel about bitcoin when it gets really big. And I just have a different opinion than other people… If you're stupid enough to buy it, you'll pay the price for it one day." -Jamie Dimon, Chairman & CEO of JP Morgan “Bitcoin is a scam. In my opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen ... Cryptocurrency is best-suited for one use: Criminal activity. Because transactions can be anonymous — law enforcement cannot easily trace who buys and sells — its use is dominated by illegal endeavors.” -Bill Harris, Founding PayPal CEO, former Intuit CEO 37
  38. 38. Macro Review of Cryptoassets July 2018 - David Gogel The market is not priced efficiently - while activity to date has been mostly speculative, multiple valuation approaches have emerged to value the new asset class Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities ● General hype ● Exchange listings & partnerships ● Whales ● Sentiment analysis ● Regulatory updates ● Code base updates ● Business adoption ● Broader access for retail and institutional investors Short-term Price Drivers Long Term Value Drivers Source: https://blockchainatberkeley.blog/todays-cryptoasset-valuation-frameworks-573a38eda27e 38
  39. 39. Macro Review of Cryptoassets July 2018 - David Gogel 39
  40. 40. Macro Review of Cryptoassets July 2018 - David Gogel 1. The strong are getting stronger: early winners are turning into investors & acquirers 2. The race for institutional capital: new products are focused on attracting institutional capital, expanding adoption beyond retail investors 3. Ecosystem development: smart contract platforms are investing to attract applications developers and building out their ecosystem 4. Enterprise blockchain continues to grow: established tech & financial services companies are making bets on disruptive trends 5. Increasing regulatory scrutiny & clarity: regulatory guidance is emerging while self-regulation is needed Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Cryptoassets Market Trends Overview 40
  41. 41. Macro Review of Cryptoassets July 2018 - David Gogel 1. The strong are getting stronger: digital assets exchanges play a major role in the ecosystem, processing billions in trading volume; the market is currently fragmented Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://howmuch.net/articles/crypto-exchanges-revenue 41
  42. 42. Macro Review of Cryptoassets July 2018 - David Gogel 1. The strong are getting stronger: amidst a correction in 2018, early winners are making strategic investments to enhance product offerings and acquire talent DateAmount $M Strategic RationaleTarget • Airdrops tying "free" tokens to bounty tasks, EARN CEO Balaji Srinivasan joins Coinbase as CTO • Relay platform enabling users to trade tokens directly from their wallets • Acquire license to become a fully SEC-regulated broker dealer - operate as a RIA and offer ATS • spot and derivative crypto trading (cash and physical settlement) targeting institutional investors • Ethereum wallet / browser, Pete Kim becomes head of engineering of Toshi Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Investor • Online platform for alternative investing letting issuers market private securities to institutional investors • Fee-only financial planning and investing management firm • Open global token marketplace allowing for crypto- to-crypto exchange 2/18 12/17NA $400 6/18NA • Advance Circle’s product roadmap including the launch of a stablecoin 2/18$110 Stake % 6/18NA 6/18NA 100% 100% 100% 100% 100% 100% Source: www.crunchbase.com 100% $120 4/18 4/18 5/18NA NA controlling stake Lead strategic investment • 170M+ user base, P2P architecture6/18$140 100% • Ledger-as-a-service to securely track & transfer balances in a token format / further payments network rumored~$400 100% 42
  43. 43. Macro Review of Cryptoassets July 2018 - David Gogel 1. The strong are getting stronger: companies use their wealth to grow their ecosystems through seed investments, grants, direct funds, and fund of funds Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Fund Size Overview • Token/wallet designed to integrate with mobile messaging apps (e.g., WhatsApp, Facebook, Signal) Investor $1B NA $25M Portfolio • Platform based on 0x protocol allowing users to borrow and lend cryptocurrency • Platform for users to research & validate online claims • P2P marketplace for crypto collectibles • Crypto / blockchain VC, established in 2013 • Storage & rental startup, with rumored plans to use XRP within its service Denominated in Binance’s BNB coin • Blockchain-based ride-hailing service in ChinaDache Chain We’ll be providing financing to promising early stage companies that have the teams and ideas that can move the space forward in a positive, meaningful way. Denominated in XRP $25M From Ripple exec. team $50M • Research grants to 17 universities across the globe focused on crypto / blockchain • Next-generation blockchain platform for scalable, privacy preserving smart contracts • Verification platform for smart contracts & blockchains Ripple announced a new initiative called Xpring which is aimed at bringing entrepreneurs and their businesses over to XRP, both the cryptocurrency and the smart ledger, to build an ecosystem • Crowdfunding platform Binance Labs will focus on startups working with public blockchains, decentralized exchanges, custody/payments/wallet, stable digital currency, and compliant alternative trading systems or security token platforms. • Reserved-back stablecoin 43
  44. 44. Macro Review of Cryptoassets July 2018 - David Gogel 2. The rise of institutional capital: trading is dominated by retail; new tools offered to attract $10+B in institutional capital Derivatives Institutional investors are in the early adoption phase of investing in the asset class and require more sophisticated tools Need Hedge risk or add leverage Startups Leverage position either long or short Dark pools allow traders to put in trades without signalling to the market Required for short selling, margin trading, derivatives, risk management ● Uncertainty about regulations ● Lack of risk management infrastructure ● Lack of institutional-grade sources of market information ● Security – funds lost or stolen have little or no possibility of recovery Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Margin Trading & Short selling Lending OTC Markets Custodian Solutions Barriers to Entry Incumbents Hold digital assets in a secure and legally- compliant way 44
  45. 45. Macro Review of Cryptoassets July 2018 - David Gogel 2. The rise of institutional capital: the launch of Bitcoin futures was a watershed event, indicating institutional demand for exposure to the asset class on regulated exchanges Factor CBOE’s XBT CME’s BTC Calculation Gemini 4 bitcoin exchanges Size 1 BTC ($1 per contract) 5 BTC ($5 per contract) Limitations Investors may not own or control more than a net 5,000 contracts, long or short combined Limit the amount of contracts investors can hold to 1,000 (equivalent to CBOE because 1 contract = 5 bitcoins). Margin Reqs Initial: 66% Maintenance: 60% Initial: 60% Maintenance: 64% Final Settlement Procedure Cash settlement on business day immediately following final settlement date. The cash settlement amount on the final settlement date shall be the final mark to market amount against the final settlement value of the XBT futures contract. Delivery is by cash settlement by reference to the Final Settlement Price, equal to the CME CF Bitcoin Reference Rate (BRR) on the Last Day of Trading. Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Daily CME Exchange Futures Volume 45
  46. 46. Macro Review of Cryptoassets July 2018 - David Gogel 2. The rise of institutional capital: the migration to futures exchange trading could help drive institutional adoption and ETF fund approval but development is still early Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities ● SPDR Gold Shares ETF provided investors with easy access to spot gold in equity form at low costs ● Enhanced access to the physical market coincided with a meaningful increase in the price of Gold ● SPDR Gold Shares ETF Is now one of the biggest funds in the market with >$30B AUM GOLD ETF helped gradually transform the gold market ● CBOE & CME received CFTC approval, began listing and trading Bitcoin Futures on Dec. 10th and 18th ● Contracts are cleared through commission-regulated clearing houses and trading activities are closely monitored by CFTC Futures exchanges launch bitcoin futures trading – adding security & legitimacy ● Bitcoin Futures volumes are low but increasing ● Higher volume for new contracts that started trading in December, but does not compare with activity on more established venues Bitcoin futures beginning to get traction, though activity levels still early ● Many funds have based investments off of futures for decades, as derivatives readily track underlying assets pretty well ● Futures exchanges are highly regulated, highly transparent, and are another source of liquidity and access for mutual funds and ETFs Bitcoin futures add more credibility and legitimacy for funds to build products ● SEC still sees questions in: 1) the legal questions raised by untested products traded on largely unregulated markets 2) the security and surveillance of the spot market 3) whether frequently traded ETFs can be accurately valued when cryptocurrencies are highly illiquid Shifting to futures-based trading Is still under regulatory scrutiny Source: JP Morgan Research 46
  47. 47. Macro Review of Cryptoassets July 2018 - David Gogel 2. The rise of institutional capital: Crypto Trusts & Index funds targeting accredited investors have emerged; regulated investment vehicles for retail investors remain elusive Source: company websites Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Fund Overview Grayscale Investment Trusts Offers single-asset trusts (BTC / BCH / ETH / ETC / LTC / XRP / Zcash) and diversified index targeting institutional investors BTC trust has $1.4B in AUM, 2% annual fees, trades at ~>30% premium against underlying spot market Fund Status Winklevoss Bitcoin Trust ETF Denied but Appealing Bitcoin Investment Trust ETF Withdrawn VanEck Bitcoin ETF Withdrawn in early 2018, resubmitted proposalSolidX Bitcoin ETF Existing products lack scale and liquidity, charging high fees for purchasing, storing, and transferring crypto assets Asset managers have sought to launch Bitcoin ETFs, but have had no success with SEC thus far; recent proposals focus on institutional investors only Asset managers have recently launched cryptocurrency index funds but these are limited to accredited investors only Fund Limitation Limited exposure to 4 assets on GDAX weighted by market cap, 2% management fee, $250k minimum investment Bitwise HOLD 10 Private Index Fund holds top 10 cryptocurrencies weighted by 5-year diluted market cap and rebalanced monthly, 2.5% management fee, $25k minimum 47
  48. 48. Macro Review of Cryptoassets July 2018 - David Gogel Launch Date 2015 2017 NA 2018 Late 2018 dApp Listings 1639 29 598 150 NA Key Features Searchable directory tagged by sector Browser for the Ethereum network providing global payments, secure messaging, and an app ecosystem Searchable directory tagged by category, smart contract balances, DAUs, tx volumes Aggregator of usable dapps for gaming, social networking, productivity, and financial services Provide new layer of enterprise driven services between blockchains and user-facing applications Platform Web Mobile Web Web Web Dapp Directories & Discovery Comparison Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 3. Ecosystem development: Ethereum dApp development is exploding but user adoption has been limited; dGames appear to be the gateway dApp Source: https://www.stateofthedapps.com/, https://blog.e11.io/dgames-are-the-gateway-dapp-8a15c9de94f9 48
  49. 49. Macro Review of Cryptoassets July 2018 - David Gogel 3. Ecosystem development: Ethereum is in the clear lead but other smart contract platforms are competing to attract decentralized applications (dApps) and developers Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: www.smithandcrown.com, Token Report While the vast majority of ICOs have taken place on the Ethereum network suggesting a winner-take-all market, the race is not yet fully won 49
  50. 50. Macro Review of Cryptoassets July 2018 - David Gogel 3. Ecosystem development: dApps are new types of applications with unique properties built on top of smart contract platforms ● Dependence on a decentralized network infrastructure (P2P network) ● Underlying decentralized protocol (technical or operational) ● Decentralized operations (for decision-making) ● Blockchain-based transactions (for immutability, self-ownership, P2P value transfers) ● Distributed content storage (including identity) ● End-user empowerment over content ownership ● Some level of decentralized autonomy that is free from central authority ● Equitable distribution of rewards/benefits/stakes to end-users Source: modified from https://medium.com/@wmougayar/where-are-all-the-decentralized-applications-2d05d5dec0aa Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 50
  51. 51. Macro Review of Cryptoassets July 2018 - David Gogel 4. Enterprise blockchain continues to grow: US Banks are making strategic bets to build, buy, and partner Equity Investments Consortia Internal Projects Partnerships Source: CB Insights left R3 consortium Setting up a cryto trading desk Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 51
  52. 52. Macro Review of Cryptoassets July 2018 - David Gogel Build Partner Buy / Invest Patent application for use of blockchain in system for creating & verifying timestamps X X Blockchain-as-a-Service offered via Google Cloud (rumored) X Blockchain-as-a-Service on Azure Coco Framework, Blockchain-based identities Blockchain-as-a-Service on AWS AWS Blockchain Templates X Launched new team dedicated to the blockchain led by David Marcus (Coinbase Board Director) X X Blockchain-as-a-Service Private + Public networks X Blockchain-as-a-Service X Blockchain-as-a-Service, software (image rights management system / gaming / finance) Alibaba Software (asset/supply chain provenance/finance) 40+ patents via Ant Financial X Software (gaming / medical prescription tracking) Patent filings FBSC X 4. Enterprise blockchain continues to grow: Tech Giants are forging ahead to build internal capabilities & form partnerships to enhance cloud offerings Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 52
  53. 53. Macro Review of Cryptoassets July 2018 - David Gogel Members ● Large open-source alliance connecting corporates with blockchain SMEs ● 200+ members, but has seen member attrition / churn ● Early setbacks but now has 200+ banks / DFIs Use Cases ● Generic platforms allows for cross-vertical cooperation ● Hybrid blockchains (public- private) ● Supply chain / logistics ● Supply chain (Walmart, Kroger, Nestle) ● Ethereum smart contracts (via Monax integration with Sawtooth, and Burrow) ● Potential for tokens/ ICOs on top of Hyperledger platform ● Commercial bond trading (with Russia’s NSD) ● Among other use cases, Corda is being used to create a new syndicated loan marketplace ● Expanding vision beyond financial services, to supply chain, insurance, and healthcare Road Ahead ● Structuring alliance governance ● Standards setting ● Indy is built around decentralized identity, with an expected launch this year ● Iroha is a mobile-first blockchain, with an expected launch in May ● Projects are going live at a fast clip = Hyperledger continues to focus on interoperability ● R3 plans to launch and distribute Enterprise Corda in Q2’18, which will be available to businesses beyond its consortium 4. Enterprise blockchain continues to grow: Blockchain Consortia are working with enterprise to drive use case trials Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 53
  54. 54. Macro Review of Cryptoassets July 2018 - David Gogel 4. Enterprise blockchain continues to grow: a variety of use cases are being explored on a global scale Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: https://medium.com/@matteozago/50-examples-of-how-blockchains-are-taking-over-the-world-4276bf488a4b 54
  55. 55. Macro Review of Cryptoassets July 2018 - David Gogel 5. Increasing regulatory scrutiny & clarity: while the cryptoasset revolution is global, the degree of regulation varies significantly, with the US seeing moderate levels 55 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Bitcoin is unrestricted in 107 of 251 countries/regions Source: https://coin.dance/poli
  56. 56. Macro Review of Cryptoassets July 2018 - David Gogel “This (cryptocurrency) is a global phenomenon and it’s important there is an international follow-up at the global level. We do not exclude the possibility to move ahead (by regulating cryptocurrencies) at the EU level if we see, for example, risks emerging but no clear international response emerging.” -- Valdis Dombrovskis, the EU’s Financial Chief. Cryptocurrencies do not threaten “financial stability” at the moment, but they could after more consumers get involved. It is time to incorporate the cryptocurrency ecosystem into the rest of the financial system, applying to it the same regulatory approach and the same “rigorous standards” -- Mike Carney, Bank of England Governor It could be more efficient to prohibit banks and other financial institutions from holding and selling cryptocurrencies, than to directly regulate crypto. -- Andrea Enria, Chairperson, European Banking Authority “(I am) very optimistic that developments in financial technology will help facilitate capital formation,” but “promoters of ICOs and cryptocurrencies” are creating “significant risks” by failing to comply with securities laws”. SEC staff have been instructed “to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws.” -- Jay Clayton, SEC Chairman “I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security” -- Jay Clayton SEC Chairman The CFTC has issued new guidance to exchanges and other trading platforms that are interested in listing bitcoin futures and other cryptocurrency derivatives products. “CFTC staff is providing this information, in part, to aid market participants in their efforts to design risk management programs that address the new risks imposed by virtual currency products.” -- Brian Bussey, Director of CFTC’s Clearing and Risk division “They (cryptocurrencies) are speculative markets. They are not a currency. If you have money you really need, do not put it in these markets.” -- Raphael Bostic, President, Federal Reserve Bank of Atlanta 5. Increasing regulatory scrutiny & clarity: regulators are watching closely and starting to provide guidance as policy makers become more educated about the tech Source: CB Insights USA Europe Asia “Some complainants claimed that cryptocurrency exchanges had misappropriated their assets or manipulated the market, or that technical breakdowns of the exchanges’ platforms had caused them significant losses. Several complaints against ICO issuers alleged unlicensed or fraudulent activities. We will continue to police the market and enforce when necessary.” -- Ashley Alder, Chief Executive, Securities and Futures Commission, Hong Kong “When it comes to money laundering or terrorism financing, Singapore’s laws do not make any distinction between transactions effected using fiat currency, virtual currency or other novel ways of transmitting value. ” MAS will seek to impose anti-money laundering and anti-terrorist financing requirements on intermediaries that exchange fiat for virtual currencies – such as exchanges and brokers. -- Tharman Shanmugaratnam, Deputy Prime Minister and Chairman of the Monetary Authority of Singapore “Virtual Currencies raise concerns of consumer protection, market integrity and money laundering, among others. Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.” Entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. -- Jose J. Kattoor, RBI Chief General Manager Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 56
  57. 57. Macro Review of Cryptoassets July 2018 - David Gogel 5. Increasing regulatory scrutiny & clarity: Vitalik’s Test sets a new standard for securities laws exemption, but how do you measure decentralization? “Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions...and, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.” -William Hinman, head of the SEC division of corporation finance Name Consensus Miners/voter incentivized # of entities in control of >50% of voting / mining power % of supply held by top 100 accounts # of client codebases that account for >90% of nodes # of public nodes PoW Y 3 19% 1 9933 PoW Y 3 35% 2 18266 RPCA N 1 81% 1 596 Pow Y 3 25% 2 1887 PoW Y 3 45% 3 261 FBA N 1 95% NA 111 PoS N 1 33% NA NA Tangle (DAG) Y 1 62% 1 23 DBFT N 1 70% NA NA Source: www.arewedecentralizedyet.com, as of June 16, 2018 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 57
  58. 58. Macro Review of Cryptoassets July 2018 - David Gogel 5. Increasing regulatory scrutiny & clarity: a research group linked to China’s Ministry of Industry & IT has started releasing evaluations of blockchain networks By the end of March 2018, there were 456 blockchain technology companies in China. China is likely to support homegrown tech companies: every Western company has a Chinese equivalent (Amazon / Alibaba, Google / Baidu, Uber / Didi) Through NEO’s partnerships with various Chinese corporation and state entities,the network has the ability to carve out a niche as the smart contract platform for China or Chinese Ethereum. 58 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Soruce: http://www.miit.gov.cn/n1146290/n1146402/n1146445/c6180238/part/6180297.pdf
  59. 59. Macro Review of Cryptoassets July 2018 - David Gogel 1. New financing model: Initial Coin Offerings (ICOs) are displacing public markets and private investments for fundraising, the lines between equity financing and ICOs are blurring 2. ICO fundraising is evolving: companies that once might have held public token sales are moving to private and pre-sale rounds 3. ICO hubs are emerging: While USA, Switzerland, and Singapore have been clearly the main ICO hubs in 2017, countries like UK and HK are gaining ground in 2018 ICO Trends Overview Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 59
  60. 60. Macro Review of Cryptoassets July 2018 - David Gogel 1. New financing model: with ~$21 billion in token sales to date, ICOs are displacing public markets and private investments for fundraising Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Average Duration / ICO (Days) Average Funding / ICO (US$ M) 41 68 32 39 29 48 $0.4 $3.8 $1.0 $5.1 $12.8 $25.5 Source: Strategy&, PwC, https://cryptovalley.swiss/wp-content/uploads/20180628_PwC-S-CVA-ICO-Report_EN.pdf 60 Total # of ICOs and Total Volume US$ M Within the first 5 months of 2018, more money has been raised with ICOs than in all years prior
  61. 61. Macro Review of Cryptoassets July 2018 - David Gogel 1. New financing model: Anticipating a world of decentralized apps, investors have poured money into infrastructure projects 61 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: www.coinsechedule.com, 2018 infrastructure data includes $4.2 billion ICO for EOS, as of June 19th 2018. ICO investments by category, US$ M The majority of ICO investments have focused on protocols & foundational infrastructrure
  62. 62. Macro Review of Cryptoassets July 2018 - David Gogel 1. New financing model: the 15 biggest ICOs since 2016 have raised more than $8 billion in capital but it remains to be seen which ones will lead to greater adoption 62 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: Strategy&, PwC, https://cryptovalley.swiss/wp-content/uploads/20180628_PwC-S-CVA-ICO-Report_EN.pdf
  63. 63. Macro Review of Cryptoassets July 2018 - David Gogel 2. ICO fundraising is evolving: pure-play ICOs are losing funding momentum as companies that once might have held public token sales are moving to private and pre-sale rounds Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities ICO Financing Completed ICOs Equity Financing (excluding ICOs) Source: CB Insights 63
  64. 64. Macro Review of Cryptoassets July 2018 - David Gogel 2. ICO fundraising is evolving: companies are increasingly structuring exclusive private rounds and opting for airdrops, and looking for investor experienced in tech / community-building Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Q1 2017 Q3 2017 Project Announcement Public SalePresaleSeed Private Sale Project Announcement Public SalePresaleSeed Project Announcement Public SalePresale Project Announcement Public Sale Project Announcement AirdropsSeed Private Sale Q2 2017 Q3 2017 Q4 2017 Status Quo For Issuers • Bootstrap community with enthusiasts • Reach and connect with millions • Distribute tokens compliantly using infrastructure • Target specific groups and avoid getting spammed For Users • Collect tokens from top blockchain companies • Learn about tokens before they launch • Amass tokens for helping projects • Get notified when issuers begin airdrops Airdrops 64
  65. 65. Macro Review of Cryptoassets July 2018 - David Gogel Overview: ● Encrypted messaging app with 200M+ users, communication platform of choice for crypto ● Based in UK, founded by Russian Pavel Durov Plan: ● Build TON (Telegram Open Network), a blockchain based platform extending its messaging app into a range of services including payments, file storage, censorship-proof browsing and decentralized apps ICO Process: ● According to the original whitepaper, the plan was to raise $1.2 billion using both invite-only private investors and an open sale to the public What actually happened: ● Telegram raised $1.7 billion by selling newly created cryptocurrency to fewer than 200 private investors (via SEC Form D) and cancelled its public sale ● Approach minimizes regulatory risk since sale was only offered to accredited investors and the company already had an existing product Overview: ● Block.one is a Cayman-based organization with offices in Hong Kong, California, and Virginia ● No product pre-ICO ● Led by Americans Brendan Blumer & Daniel Larimer Plan: ● Build EOS, a blockchain-based decentralized operating system, designed to support commercial-scale decentralized apps with core functionality, faster processing speed and greater flexibility while eliminating the need for user fees ICO Process: ● ICO process lasted 340 days and open to all participants globally, no hard cap, pricing tiered based on stages ● EOS tokens on Ethereum blockchain are redeemable for tokens on the EOS blockchain once the EOS mainnet launches in June 2018 What actually happened: ● EOS completed the largest initial coin offering (ICO) in history raising $4.2 billion 2. ICO fundraising is evolving: Telegram & EOS broke new grounds raising $1+ billion in funding becoming ICO Unicorns Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities highlights trend of VC money moving into the crypto economy to buy tokens Year-long uncapped sale 65
  66. 66. Macro Review of Cryptoassets July 2018 - David Gogel 3. ICO Hubs are emerging: while the USA, Switzerland, and Singapore have been clearly the main ICO hubs in 2017, countries like UK and HK are gaining ground in 2018 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: Strategy&, PwC, https://cryptovalley.swiss/wp-content/uploads/20180628_PwC-S-CVA-ICO-Report_EN.pdf 66
  67. 67. Macro Review of Cryptoassets July 2018 - David Gogel Investment Thesis: Security Tokens = programmable digital securitization of ownership in real-world assets, subject to securities regulations, will disrupt Wall Street Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Wall Street 1.0: Status Quo Wall Street 2.0: Security Tokens Market Hours Varies based on market 24/7 - accelerates integration of global markets Fractional Ownership Some assets have high single unit cost Diversified index (e.g., REITs) exist but investors forego exposure to single high value assets Fractional ownership of single high value assets More optimal asset allocation at the retail level to market portfolio Enhanced price discovery / market efficiency Settlement T+2 for securities, longer for other assets Instant settlement Costs Securities issuance advisory costs are elevated, high admin cost for ownership reconciliation/post-issuance Automated cap tables Lower costs passed on to investors and / or assets Liquidity / Market Depth Private assets are relatively illiquid / costly to trade ~20-30% illiquidity discount Invest in illiquid assets, access liquidity in secondary markets Decrease in order book depth Compliance Regulations vary across jurisdiction & asset types: manual compliance adds latency and cost to trade Automated compliance integrating requirements (e.g, KYC/AML, tax rules, reporting information, and accreditation status) into each token Interoperability Limited interoperability Global pooled liquidity for all asset classes through a single interface Contract Design Standardized ownership rights Programmable contracts with rights (eg., voting, buybacks, profit shares) Source: https://hackernoon.com/the-security-token-thesis-4c5904761063, Real Estate Property Art Private Equity / LP Interests Derivatives Equity / Debt 67
  68. 68. Macro Review of Cryptoassets July 2018 - David Gogel Investment Thesis: Security Tokens landscape is still nascent and will evolve as regulatory guidance emerges Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Issuance Platforms Exchanges / Secondary Trading Hybrids Liquidity Providers Existing Tokenized Securities Planned Tokenized Securities 68
  69. 69. Macro Review of Cryptoassets July 2018 - David Gogel Investment Thesis: Custodian Solutions = banks like JPMorgan, Citigroup, & BNY Mellon act as qualified custodians for billions of dollars worth of securities; the current state of crypto self-custody remains challenging Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities 69 Insurance
  70. 70. Macro Review of Cryptoassets July 2018 - David Gogel Fiat Collaterized Investment Thesis: stablecoins attempt to address the problem of price stability and high volatility, a major barrier of entry for adoption; the race is on for the best business model Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Crypto Collaterized Algorithmic supply stablecoins (Non- collaterized) Metal Collaterized Hybrids 70Source: https://stablecoinindex.com/projects/
  71. 71. Macro Review of Cryptoassets July 2018 - David Gogel Crypto Collectibles: the early success of CryptoKitties displayed the potential for users to interact with scarce digital assets in new and unique ways Publishers Marketplaces Infrastructure Resources Emerging Ecosystem 71 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  72. 72. Macro Review of Cryptoassets July 2018 - David Gogel While the sources of capital are increasingly diversified, liquidity remains fragmented Sources of Capital Generalist VCs investing in equity/pre-IC via cryptoassets Traditional FIs Quant Funds VCs investing via equity Mining Pools Asset Managers Exchanges Crypto Whales Crypto Funds & Fund of Funds Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities VCs creating crypto-focused funds 72
  73. 73. Macro Review of Cryptoassets July 2018 - David Gogel Traditional VCs are taking different approaches to increase exposure to the space Set up Separate Crypto Fund Invest in Token & Equity as part of Generalist Fund Invest in Crypto Fund Equity Investments Pros Cons Examples ● Ring-fenced exposure ● Opportunity to build a platform ● Potentially high return ● Requires strong dealflow ● Often one man show, lack of support team ● Require specialised crypto team / lead ● Proprietary learning ● Potential high returns ● Flexibility to invest in equity and tokens ● Requires strong dealflow ● Require specialised crypto team / lead ● Learning from dedicated team ● Good heading ● High fees ● No direct investment exposure ● Top funds are oversubscribed ● Governance ● Easier to assess companies (valuation, business model) ● LPs more comfortable ● No token economy ● Smaller universe of companies ● Lack of learning Source: https://medium.com/@etiennebr/most-vcs-missed-exposure-to-Cryptoassets-how-can-vcs-adapt-to-crypto-57b12a83d279 73 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  74. 74. Macro Review of Cryptoassets July 2018 - David Gogel Top VCs are investing in both equity securities & cryptoassets Source: CB Insights 74 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  75. 75. Macro Review of Cryptoassets July 2018 - David Gogel The number of specialized funds investing in crypto exploded in 2017 but growth has slowed amidst a market correction YoY Growth % 33% 125% 33% 53% 355% 16% Source: Autonomous NEXT 75 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  76. 76. Macro Review of Cryptoassets July 2018 - David Gogel Asia-focused investors are actively investing in building out a regional crypto ecosystem Global crypto/blockchain investor and accelerator with large asia network Asia-focused digital asset management firm PortfolioOverview • Nebulas, DeepBrain, IoT Chain, Aelf, Eximchain, Zeepin, WePower, Libra, Taxa Investors Shanghai-based crypto VC, with Vitalik Buterin formerly a GP • TenX, Factom, SiaCoin, and ZCash • TenX, Quoine, Raiden Network, IoT Chain, Fantom, Ankr • ADEX, Zilliqa, IoT Chain, Aelf, LoopRing, Nebulas, Republic, Libra, Origin One of China’s largest mining consortiums • Elastos Advises dApps being developed on NEO Singapore-based crypto VC Singapore-based crypto VC • Ankr Network, Bluezelle, Open Platform, Moonlight • Qlink, Deepbrain, Zeepin, NEX, TheKey 76 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  77. 77. Macro Review of Cryptoassets July 2018 - David Gogel Investing in a new asset class carries many risks Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Highly speculative / Overvaluations Value accruing towards tokens instead of equity “It is an established fact that 90% of startups fail. And it should also be an established fact that 90% of these ERC20s on CoinMarketCap are going to go to zero.” -Vitalik Buterin 77Source: The Information
  78. 78. Macro Review of Cryptoassets July 2018 - David Gogel 78 Investing in ICOs is risky: ~20% of ICOs are dead, raising $3.7 billion for defunct coins in the process Source: stats.digrate.com Total Raised Total Raised by Dead ICOs % # of ICOs $27M 74% $26M $291M $9.6B $14.2B 65% 13% 16% 15% Top 10 Dead Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  79. 79. Macro Review of Cryptoassets July 2018 - David Gogel While the type of risk in ICOs is similar to other early stage projects, judging quality is different from traditional venture capital Factors Crowdfunding Early stage VC ICO Team • Most important element of project; proven capacity to deliver on similar projects • Mix of tech and business leaders • Track record in crypto community • Highly technical Market • Predetermined product problem, no pivots • Large $1B+ addressable market, potential pivots • Predefined large technical problem • Proximity to infrastructure Traction • Team assures customers on ability to deliver • MVP or initial committed customers • Prior technical projects publicly shared on Github Competition • Not relevant as demand is defined by raise • Structure of industry meaningful for ability to monopolize position • Many blue-ocean opportunities, need only vague market strategy Economics & Distribution • Not relevant as demand is defined by raise • Business model exists and works on margin • Vague indications tends to be sufficient Legal Status • Well defined contracts that are automatically papered and actioned • C-Corp or SAFE investment • Wide range of legality, from CoinList to frauds / scams Presentation • Video, written narrative • Highly social media • Powerpoint, Demo • Relationship driven • Tech whitepaper, video • Highly social media 79 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities Source: Autonomous NEXT
  80. 80. Macro Review of Cryptoassets July 2018 - David Gogel Top 20 pure equity VC investments Source: Crunchbase 80 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities
  81. 81. Macro Review of Cryptoassets July 2018 - David Gogel Big shares of blockchain funding moves to “other” rounds - the token model is emerging as a de facto fundraising mechanism for blockchain teams Source: CB Insights Equity Fundraising by Stage 81 Overview Landscape Tech Overview / Why Now Process Flow SWOT Risk Analysis Cryptoassets Market Trends ICO Trends Investment Thesis: Security Tokens Investment Thesis: Custodian Solutions Investment Thesis: Stablecoins Investment Thesis: Crypto Collectibles Sources of Capital Investing Risks Historical VC Investment Investment By Stage Successful Companies M&A / Exits Predictions Selected Investment Opportunities

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