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Blockchain Capital 2020 Year in Revie

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2020 Year in Review
Blockchain Capital
FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE

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Macro Environment 3
Bitcoin 9
Ethereum & DeFi 16
Stablecoins 28
Prime Brokerage 35
Regulation 40
Adoption 49
Looking Ahe...

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Macro
Environment
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FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE

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Blockchain Capital 2020 Year in Revie

  1. 1. 1 2020 Year in Review Blockchain Capital FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  2. 2. 2 Macro Environment 3 Bitcoin 9 Ethereum & DeFi 16 Stablecoins 28 Prime Brokerage 35 Regulation 40 Adoption 49 Looking Ahead 56 Table of Contents FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  3. 3. 3 Macro Environment 1 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  4. 4. 4 $- $1 $2 $3 $4 $5 $6 $7 $8 D-02 D-03 D-04 D-05 D-06 D-07 D-08 D-09 D-10 D-11 D-12 D-13 D-14 D-15 D-16 D-17 D-18 D-19 Trillions Fed. ECB BoJ 2020 brought unprecedent levels of money printing Source: FRED as of 11/16/20 “We’re not out of ammunition by a long shot….there’s really no limit to what we can do with these lending programs that we have.” — Fed Chairman Jerome Powell 5.17.20 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  5. 5. 5 Globally, GDP and interest rates plummeted in the wake of COVID-19’s impact -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 1/31/2019 5/31/2019 9/30/2019 1/31/2020 5/31/2020 9/30/2020 Central bank interest rates United States United Kingdom European Union Japan China Switzerland-10% -8% -6% -4% -2% 0% 2% 4% 6% United StatesUnited KingdomEuropean U nion Japan China Sw itzerland 2019 2020 Source: IMF as of 11/16/20 § COVID-19 accelerated the breakdown of monetary policy, which prompted a more serious consideration of using negative rates to bolster the economy § The use of negative interest rates is becoming increasingly less taboo – China just issued their first debt with negative rates § Economic growth in 2020 has hit a multi-year low in China and the United States § Compared to 2019, where the global economy as a whole rose by just 2.4%, 2020 levels are at its lowest since the 2009 financial crash Real GDP % change from preceding year FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  6. 6. 6 U.S. saw historic unemployment rates as the economy came to a halt 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 0 50 100 150 200 250 300 Consumer Price Index and Unemployment Rate Source: FRED as of 11/16/20, IMF as of 10/20/20 § Unemployment rate reached historic levels as the economy came to a halt for an extended period of time § While growth is expected in 2021, coronavirus arrived amid the longest expansion in modern American history—as the economy had grown for more than 11 years and added jobs for 113 straight months 1970 20201980 1990 2000 2010 Unemployment CPI FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  7. 7. 7 Source: Axios as of 10/20/20 Trust in the federal reserve continued to drop 50% 40% 30% 20% 50% 60% 70% 80% Bachelor’s Degree 50 to 64 years Over 65 years old Some College $50k plus High school or less 18 to 29 years old Under $50k 30 to 49 years old A great deal, fair amount of trust Knowledge of the Fed and its role On average, only ~34% of Americans have a fair amount of trust in the federal reserve FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  8. 8. 8 Source: Yahoo Finance as of 11/12/20. Note: Price data is composed of the following: Invesco 1-30 Year Laddered Treasury ETF (PLW), SPDR Gold Shares (GLD), Markit iBoxx USD Liquid Investment Grade Bond ETF (LQD), Bloomberg Barclays High Yield Corporate Bond ETF (JNK), iShares Russell 3000 Index ETF (IWV), iShares Core MSCI Emerging Markets ETF (IEMG), iShares S&P GSCI Commodity-Indexed Trust (GSG). Since de-leveraging, bitcoin outperformed and decoupled from equities and risk assets -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1/1/2020 2/1/2020 3/1/2020 4/1/2020 5/1/2020 6/1/2020 7/1/2020 8/1/2020 9/1/2020 10/1/2020 11/1/2020 Bitcoin US Treasuries Gold Investment Grade Bonds US Equities Emerging Markets High Yield Bonds Commodities 157% YTD FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  9. 9. 9 Bitcoin 2 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  10. 10. 10 Bitcoin’s thesis matures, accelerating amid COVID-19 backdrop Diversified Investors On-Ramps § PayPal, Square and fintech companies provide bitcoin onramps for millions of new users § Global exchange infrastructure continues to develop, with stablecoins playing a key role in on / off ramps Macro § COVID-19 initiated unprecedented macro policy and currency printing, increasing the risks of future inflation § Geopolitical tensions escalated, increasing the importance of censorship resistant platforms Institutional Growth § Public companies, like Square, buy bitcoin as a part of treasury strategy, treating bitcoin as a reserve asset § Institutional investors, like Paul Tudor Jones, publicly announce their bitcoin positions § Bitcoin options and CME bitcoin futures hit all time highs § Growth of crypto-native credit exploded, tightening spreads and expanding liquidity FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  11. 11. 11 Bitcoin remains king, reaching new market cap all time highs Libertarians / Crypto Enthusiasts Early Adopters Retail Investors Institutions+ Source: CoinMetrics as of 12/7/20 Proof of concept for e-money Peer-to-peer payments Censorship- resistant store of value Safe haven asset Digital gold 0.01 0.1 1 10 100 1000 10000 100000 7/18/10 7/18/11 7/18/12 7/18/13 7/18/14 7/18/15 7/18/16 7/18/17 7/18/18 7/18/19 7/18/20 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  12. 12. 12 The evolution of bitcoin’s infrastructure is shifting quickly to institutional grade ProjectEarly Retail ProjectInstitutional & Fintech 2009-2017 2018 - Present Exchanges & Retail Wallets Self Custody Solutions Payment Applications Trading & Analytics Prime Brokerage Stack Crypto-native Credit Derivatives & Options Investment Products Crossover Fintech products FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  13. 13. 13 Public companies purchase bitcoin as a part of their reserve strategy 0 200 400 600 800 1000 1200 1400 Microstrategy Galaxy Digital Holdings Square Hut 8 Mining Corp Voyager Digital LTD Riot Blockchain Millions Public Company Bitcoin Purchases (Selection) bitcoin purchase present value Source: Bitcointreasuries.org as of 12/7/20. Microstrategy includes recent raise of $400M to buy more bitcoin We believe that bitcoin has the potential to be a more ubiquitous currency in the future. As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey. - Square FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  14. 14. 14 Increase in sophisticated investor tools like futures points to maturing markets § The growth of bitcoin futures markets points to an increase in ability to hedge exposure, particularly for traders and miners who are very sensitive to price volatility. The more sophisticated tools in the bitcoin market, the greater capital inflows the markets can accommodate § CME, a highly-regulated exchange, saw all time highs for bitcoin futures open interest. The prominence of these onshore exchanges and growing liquidity supports the potential for a bitcoin ETF, as markets are heavily surveilled and considered to be reliable Source: Skew Analytics FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  15. 15. 15 Growth of crypto-native credit reaches all time highs § With an increase in crypto-native credit, market makers, funds and traders can seek out greater leverage with capital efficiencies § Providers like Genesis are quickly growing their active loans, leading to tighter spreads, greater convenience and capital efficiencies § Although crypto-credit markets are early, the growth supports the institutional acceleration of bitcoin Active Loans of Genesis Global Trading Source: The Block FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  16. 16. 16 ETH & DeFi 3 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  17. 17. 17 An update on ETH 2.0 0 100 200 300 400 500 600 0 5 10 15 20 1/1/20 2/1/20 3/1/20 4/1/20 5/1/20 6/1/20 7/1/20 8/1/20 9/1/20 10/1/20 11/1/20 Millions Ethereum Price & Fees, 2020 Total Fees Price § ETH 2.0 is in the transition phase to Proof of Stake, with the beacon chain launched, followed by the shard chains in 2021 § With ETH 2.0 underway, the scaling conversation shifted to developments with rollups and other scaling solutions § Projects like Optimism, Matter Labs and other L2 scaling solutions gained momentum as the community looked for immediate scaling in the face of rising gas prices Source: CoinMetrics FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  18. 18. 18 Ethereum’s investment case and ecosystem matured since 2017 2017 2020 ICO Era DeFi Tokens Era § Characterized by utility tokens with obscure means of value creation § ICOs raised billions of dollars without any product in attempt to bootstrap and fund networks § Market struggled to prove out the NASDAQ 2.0 model at scale § Characterized by well-defined tokens with traditional value capture mechanisms § DeFi validated bootstrapping on Ethereum, with token distributions creating user owned networks § Stablecoins and major financial platforms are predominantly secured by the Ethereum blockchain FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  19. 19. 19 Ethereum & bitcoin daily settlement values crossed briefly, as transactions grew *Ethereum Settlement Value includes ETH and major ERC-20 Tokens Source: Digital Asset Data Bitcoin Ethereum TransactionTransferValue(30-DRollingAverage) FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  20. 20. 20 DeFi found early product market fit across many categories, with TVL crossing $13B § Lending and decentralized exchanges were the breakout DeFi categories of 2020 § Six protocols have over $1B in total value locked § The ability to apply composability in new categories expanded as the “building blocks” of DeFi were established § Rapid experimentation led to the rise of projects like Yearn. Finance, Curve and more Source: Digital Asset Data FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  21. 21. 21 DeFi Protocols vs Traditional Fintech § Assets move through membership-based messaging networks that rely on extensive intermediation (limited hours, high latency + manual error) § Infrastructure is closed and proprietary § High compliance burden § New entrants require licenses and/or partnerships with banks § Corporations own the services + extract value from users § Assets move through open, secure settlement networks that run 24/7 § Infrastructure is open source + open liquidity § Protocols are global and agnostic to jurisdictional regulations à compliance is handled at the application layer § Startup costs are low § Users own the services + capture value FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  22. 22. 22 The open source fintech stack Settlement Layer Fungible Asset Standard Asset Layer Protocol Layer Native Protocol Asset (ETH) Non-Fungible Asset Standard Exchange Lending Derivatives Insurance App Layer ERC20 ERC721 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  23. 23. 23 What’s changed in 2020? Tokenomics User Improvements § User experience improvements lead to greater adoption, from base protocol to aggregator layers § Early protocols have been “battle-tested” Ownership Distribution § Ownership is distributed to users using mechanisms like yield farming and liquidity mining to distribute tokens Innovative Landscape § Protocol tokens launched with existing communities, providing cash flows and governance rights § Distributed ownership tested on a larger scale § Composability realized as many “building blocks” were defined across lending, exchange, stablecoins and more § The community experimented rapidly with liquidity mining, forked protocols and token distribution methods FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  24. 24. 24 Liquidity mining launched a new era of community-based liquidity Token issuer or exchange provides rewards Users provide liquidity with idle crypto assets Project Users Bootstrap liquidity Onboard new users Earn Yield Participate in governance Protocol Users FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  25. 25. 25 AMMs find product market fit, with Uniswap surpassing Coinbase daily exchange volumes 2017-18 2020 $1 $16 $54 $211 $485 $201 $294 $379 $297 $321 $223 $333 $680 $473 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Average Daily Exchange Volume Uniswap Coinbase Source: Dune, Digital Asset Data FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  26. 26. 26 Composability allows for quicker product innovation Ability to fork and use open source standards Liquidity mining incentivizes growth and user participation AMMs provide a venue to bootstrap networks with limited liquidity Liquidity providers play important role Tokens are listed on centralized and decentralized exchanges Protocols transition to partial or full community governance models Long term sustainability & community development The DeFi token lifecycle evolved from ideation to token maturity MaturityIssuanceIdeation & Innovation 1 2 3 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  27. 27. 27 Risks compound across protocols and users, new solutions are working to address Risks Technical Risk The risk that there’s a bug that produces unintended consequences and potentially losses for users Cascading Failures The effects of the failure in one protocol would reverberate through other protocols Governance Risk Governance rights could, in theory, also be used against the protocol (or, at least, not in its best interests) Governance Token Risk The value accrual method for these governance tokens is unproven and it is unknown to what extent these protocols/applications will be able to subsequently implement additional fees that accrue to governance holders Compensation Risk It’s not known if liquidity providers are being over- or under-compensated for bootstrapping liquidity – primarily because it’s not yet known to what extent this subsidized activity will/can translate to strictly organic activity FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  28. 28. 28 Stablecoins & CBDCs 4 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  29. 29. 29 Stablecoins surged 500%, reaching a supply issuance of $23B § There are currently $23 billion of stablecoins in circulation—compared to $31 billion PayPal dollars in existence. Stablecoins are quickly growing to become one of the most used payment networks in the world § Stablecoin’s daily settlement value increased over 300% as DeFi and derivative markets experienced substantial growth $0 $5 $10 $15 $20 $25 1/1/20 4/1/20 7/1/20 10/1/20 Billions Stablecoin Supply Issuance Source: Digital Asset Data Stablecoin Rolling 30-day Average Settlement FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  30. 30. 30 Tether continues to dominate the market with ~80% market share Source: Digital Asset Data Tether FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  31. 31. 31 What changed in 2020? DeFi § Liquidity mining and defi growth caused stablecoins like USDC and Dai to balloon in issuance § Users of defi continue to trade, collateralize and pay using stablecoins USD Demand § Macro conditions and COVID-19 increased demand for the US dollar, particularly in the spring; stablecoins provided an avenue for exposure Derivatives Growth § Accelerated usage of stablecoins as collateral in a rapidly growing derivatives market Exchange Infrastructure § Abundant global infrastructure and wallets make it possible to handle surge in stablecoin issuance and usage FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  32. 32. 32 Stablecoin sector is building out new infrastructure and use cases Stablecoins Infrastructure Payments / Remittances Stablecoin AMMs / DeFi Projects FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  33. 33. 33 Stablecoins account for 40% of daily settlement value on BTC and ETH Public Blockchains Are Dollarizing Source: Digital Asset Data FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  34. 34. 34 CBDCs around the world gain momentum China tested DCEP, with over 4M transactions ECB begins exploring CBDC, making a decision in Jan 2021 Fed Powell says CBDC could improve US Payments Digital dollar project announced Bahamas launches Sand Dollar CBDC Japan exploring CBDC seriously ResearchPilot DevelopmentLaunched Cancelled Source: CBDC Tracker FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  35. 35. 35 Prime Brokerage 5 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  36. 36. 36 Exchange volumes start to spike, Binance remains market leader Crypto Exchange Volumes Offshore exchange, Binance, continues to be the market leader in global crypto exchange volumes Source: The Block FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  37. 37. 37 Prime brokerage stack matures with fully fledged offerings Staking Custody Execution Lending Settlement FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  38. 38. 38 Centralized finance preliminarily leans into DeFi, but it remains early FTX announced Serum, their own decentralized exchange built on the Solana chain Binance introduced a $100M fund to support DeFi projects on Binance Smart Chain Coinbase quickly listed DeFi tokens with rumors of a token launching platform underway Jump Capital backed Serum, and started funding more DeFi startups through the DeFi Alliance FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  39. 39. 39 Impending M&A and IPO activity builds as prime brokerage market consolidates Acquirer Acquisition Suggested Value Sub-Sector Binance CoinMarketCap $400M Analytics / Retail FTX Exchange Blockfolio $150M Retail Coinbase Tagomi ~$75M Inst’l Prime Brokerage Galaxy Digital Drawbridge Lending & Blue Fire Capital Undisclosed Lending / Inst’l DCG Luno Wallet Undisclosed Retail Voyager Digital Circle Invest Undisclosed Retail Genesis Trading Vo1t Undisclosed Custody Coinbase Xapo (Custody) Undisclosed Custody Kraken Circle – OTC, BitTrade Undisclosed OTC / Trading BitGo Harbor Undisclosed Tokenization Market entering early M&A phase as the race to become a prime broker accelerated FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  40. 40. 40 Regulation 6 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  41. 41. 41 Regulatory landscape advances in key areas Token Issuance § Key cases on token issuance decided: Telegram & Kik § The prototypical “2017 ICO” is officially dead § Federal judicial decisions provide template for token protocols that are actually decentralized Token Markets § “Offshore” exchanges & markets, formerly considered unregulated, face US civil and criminal actions § Actions against bad actors open opportunities for *regulated* market participants to move forward Global Outlook § Governments increasingly contemplate CBDCs and perhaps the inevitability of private stablecoin solutions § India strikes down crypto ban, nations move to regulate crypto FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  42. 42. 42 Major regulatory events timeline January June December SEC continues to reject Bitcoin ETF Mar 2020 Abra settles with CFTC / SEC over digital asset swap violation Jul 2020 OCC grants banks authority to custody crypto Jul 2020 BitMEX charged by CFTC, DOJ Oct 2020 John McAfee sued by SEC for ICO Promotions Oct 2020 SEC grants no-action letter to certain ATD Broker-Dealers Sept 2020 Engigma settles with SEC over $45M ICO Feb 2020 NYDFS grants BitLicense to ErisX May 2020 India Supreme Court Strikes Down Crypto Ban Mar 2020 Salt Lending hit with cease-and- desist over $47M ICO Sept 2020 TOKEN ISSUANCE TOKEN MARKETS OTHER Source: FinCEN, SEC, Blockchain Capital Analysis SEC wins summary judgment against Kik Sept 2020 SEC Commissioner Peirce proposes token safe harbor April 2020 SEC wins preliminary injunction against Telegram March 2020 SEC grants no-action letter to IMVU token Nov 2020 Securitize gets SEC/FINRA approval for digital assets ATS & Broker-Dealer Oct 2020 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  43. 43. 43 ICO regulation ultimately benefits non-token- issuing industry service providers § Centralized issuers of tokens like Kik and Telegram conclusively disfavored § Federal courts reaffirm that (a) using token sale proceeds to develop network or protocol, and (b) issuing tokens with no significant use case are both hallmarks of an investment contract § However, tokens themselves post- issuance may not represent securities § Providers servicing already decentralized ecosystems (e.g., Bitcoin, Ethereum) have enjoyed greater opportunities to work alongside existing regulatory frameworks and consolidate market share FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  44. 44. 44 The rise of DeFi presents new regulatory considerations for token issuance DeFi’s remedy – literal decentralization § Protocols built / in use before token is issued § Tokens generated as compensation for protocol participation – not sold § Token value primarily resides in governing rights over the protocol § Users act as shareholders AND directors Genuinely decentralized protocols can avoid the the ’Cardinal Sins’ of token issuance: Using proceeds to build network Promising increase in token value Promoting token secondary trading FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  45. 45. 45 …result in enforcement Unregulated token market concerns long expressed by regulators… Dark and manipulated markets receive US regulatory reckoning § Commodities markets, like BitMEX, are susceptible to market manipulation and conflicts of interest; no efforts to comply with US regulations, including KYC/AML requirements § Coin mixing services, like Helix, allow users to transfer value without knowing whether the “money” was used to facilitate or obfuscate criminal activity § CFTC and FinCEN finally took civil action; DOJ filed criminal charges BitMEX Action § “Bad Actor” designation § Disgorgement § Contract rescission § Restitution § Civil penalties Helix / Ninja Coin Action § Alleged to have flouted regulations § Alleged to have actively aided cybercriminals § $60 million penalty (but could have been $210 million) Criminal Liability § BitMEX: counts of violating and conspiracy to violate the BSA § Helix: unlicensed money trans. & conspiracy to launder money § Founders indicted and arrested or “at large” FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  46. 46. 46 Regulators begin to favor regulated and “regulator-friendly” entities Broker/Dealers get no-action letter for simplified ATS execution of digital asset securities Regulated exchanges expand market share and product offerings on and offshore Building blockchain analytics for law enforcement and financial institutions FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  47. 47. 47 Decentralization… the final frontier of digital asset regulation? Idyllic decentralized protocols are ‘Software, not a Service’ § DeFi markets are properly enabled where decentralized users interact with each other via smart contract, not central intermediary § Smart contracts, critically, must be open source software and not subject to ongoing technical or governance control of developers § At minimum, developers should not have ability to “turn the protocol off” § By design, DeFi protocols should make protocol users also protocol governors FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  48. 48. 48 The global conversation primarily revolves around CBDCs and stablecoins Major Events Stance China China launches pilot of DCEP, their central bank digital currency China launched their blockchain ecosystem, BSN Pro-blockchain Anti decentralized, censorship resistant technologies Hong Kong SFC opens path for crypto exchanges to be regulated Cautiously positive sentiment UK UK regulates crypto derivative products, announces upcoming stablecoin guidance Cautiously positive sentiment EU EU explores CBDC designs and stablecoin regulation, ECB pushes forward on a digital Euro Proactive stance acknowledges the future of digital currencies India Supreme court strikes down crypto ban on banks Cautiously positive sentiment FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  49. 49. 49 User Adoption 7 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  50. 50. 50 Market adoption makes progress across key segments 2011 2019 2030+ Fringe Mainstream Retail Users Institutions Governments 2020 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  51. 51. 51 Phase 1 Learning Phase 2 Conviction Phase 3 Adoption Bitcoin’s perception and awareness remains high across U.S. adults Awareness Familiarity Perception Conviction Preference Rates Purchase Propensity Owners / Users Source: Blockchain Capital Harris Poll Survey FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  52. 52. 52 Phase 1 Learning Phase 2 Conviction Phase 3 Adoption 38% of people expect bitcoin to exist longer than the euro – in strongly growing conviction Awareness Familiarity Perception Conviction Preference Rates Purchase Propensity Source: Blockchain Capital Harris Poll Survey Owners / Users FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  53. 53. 53 Phase 1 Learning Phase 2 Conviction Phase 3 Adoption Estimates suggest there are ~100M worldwide crypto users with major onramps incoming Awareness Familiarity Perception Conviction Preference Rates Purchase Propensity 45 139 191 5 35 101 0 50 100 150 200 250 2016 2018 2020 Lower Bound Estimate of Total Crypto Asset Users & Accounts, In Millions Total Number of Accounts Total Number of Users Source: Cambridge Crypto Asset Benchmarking Report Owners / Users FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  54. 54. 54 MetaMask adoption showcases Ethereum & DeFi’s growing presence with 1M active users MetaMask Monthly Active Users Source: Metamask FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  55. 55. 55 Retail bitcoin interest filtering in through fintech gateways 0 20 40 60 80 100 120 11/22/15 5/22/16 11/22/16 5/22/17 11/22/17 5/22/18 11/22/18 5/22/19 11/22/19 5/22/20 Google Search Trends Cash App Bitcoin Robinhood Bitcoin PayPal Bitcoin § PayPal rolled out crypto buy-and-sell to over 300M users § Square saw record bitcoin volumes and revenues § eToro bolstered its crypto offerings with staking rewards and asset expansion § SoFi received NYBitlicense, clearing the way for crypto trading services § Revolut turned on crypto services across the worldSource: Google Search FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  56. 56. 56 Looking Ahead 8 FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  57. 57. 57 Revisiting 2020’s Bold Predictions 1. A crypto company is acquired for more than $500m 2. Value locked in DeFi hits $5B 3. In the face of competition from China, Libra will receive the green light for a dollar-backed stablecoin 4. A federal judge rules against the SEC in a crypto case 5. Not a single 2020 L1 network launch achieves "top 10” status, as defined by network value 6. USDC sees 300%+ growth (as measured by transaction value, issuance, market cap and trading volume) 7. Demand for bitcoin transactions drives fees to exceed $100, catalyzing scaling up the stack 8. FinCEN / FATF hold stablecoins to a stricter standard than paper cash by requiring broad application of the travel rule 9. KYC / AML becomes the primary regulatory battleground for DeFi 10. Privacy coins are de-listed from major exchanges 11. Bitcoin price blows past all-time high FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  58. 58. 58 2021’s Bold Predictions 1. Coinbase debuts as the first IPO in crypto, market cap surpasses $30B 2. Industry sees two acquisitions above $500M and one acquisition above $1B 3. USD-backed stablecoin market issuance (Tether, USDC, Libra) surpasses $150B+ 4. The combined market cap of top 3 DeFi governance tokens increases from 33% to 66% of ETH’s market cap 5. Loans outstanding in DeFi protocols increases by 10x, surpassing $30B 6. 33% of all crypto exchange spot volumes will come from DEXes 7. WeChat Pay and Alipay support China’s CBDC 8. SEC approves first BTC ETF and first *custodial* digital asset Broker-Dealer 9. Bitcoin market cap grows from 4% to 10% of gold’s market cap 10. Microstrategy rebrands to Macrostrategy ;) FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  59. 59. 59 About Blockchain Capital Bart Stephens Co-founder & Managing Partner Brad Stephens Co-founder and Managing Partner Spencer Bogart General Partner MANAGEMENT TEAM H. Joshua Rivera General Counsel and Chief Compliance Officer Stephens Inv. Mmgt Fidelity Ventures CSFB Technology Group Stephens Inv. Mmgt Ivanhoe Capital E*TRADE Group Needham & Company ETF.com CFA JoAnne Lauer Director of Investor Relations Zalia Aliriza CFO Allie Spencer Office Manager and Executive Assistant OPERATIONS TEAM Lindsey Crawford Executive Assistant INVESTMENT TEAM Kinjal Shah Senior Associate Aleks Larsen Senior Associate Derek Hsue Associate Jimmy Song Bitcoin Fellow Ben Davenport Venture Partner Shishi Feng Data Scientist FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  60. 60. 60 THE INFORMATION PRESENTED IN THIS DOCUMENT HAS BEEN DEVELOPED INTERNALLY AND/OR OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, BLOCKCHAIN CAPITAL DOES NOT GUARANTEE THE ACCURACY, ADEQUACY OR COMPLETENESS OF SUCH INFORMATION. BLOCKCHAIN CAPITAL IS NOT UNDER ANY OBLIGATION TO UPDATE OR KEEP CURRENT THE INFORMATION CONTAINED HEREIN. PREDICTIONS, OPINIONS, AND OTHER INFORMATION CONTAINED IN THIS ARTICLE ARE SUBJECT TO CHANGE CONTINUALLY AND WITHOUT NOTICE OF ANY KIND AND MAY NO LONGER BE TRUE AFTER THE DATE INDICATED. ANY FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE AND ARE SUBJECT TO NUMEROUS ASSUMPTIONS, RISKS AND UNCERTAINTIES, WHICH CHANGE OVER TIME. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN FORWARD-LOOKINGSTATEMENTS. EXAMPLES OF PORTFOLIO COMPANIES ARE PURELY FOR ILLUSTRATIVE PURPOSES. THIS LIST IS ONLY PARTIAL, AND READERS SHOULD NOT ASSUME THAT THE INVESTMENTS IDENTIFIED WERE OR WILL BE PROFITABLE OR ARE REPRESENTATIVE OF INVESTMENTS BY BLOCKCHAIN CAPITAL’S ADVISED FUNDS. THERE IS NO GUARANTEE THAT ANY FUND WILL ACHIEVE THE SAME EXPOSURE TO, OR QUALITY OF, INVESTMENTS HELD BY ANY EXISTING FUND. THIS MATERIAL IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY; IT IS NEITHER A PROSPECTUS NOR AN ADVERTISEMENT, AND NO OFFERING IS BEING MADE TO THE PUBLIC. RECIPIENTS OF THIS DOCUMENT ARE NOT TO CONSTRUE IT AS INVESTMENT, LEGAL, OR TAX ADVICE AND IT IS NOT INTENDED TO PROVIDE THE BASIS FOR ANY EVALUATION OF ANY INVESTMENT. BLOCKCHAIN CAPITAL DOES NOT PROVIDE INVESTMENT ADVICE TO INVESTORS AND NO COMMUNICATION, THROUGH THIS DOCUMENT OR IN ANY OTHER MEDIUM, SHOULD BE CONSTRUED AS A RECOMMENDATION FOR ANY SECURITY. VENTURE INVESTING INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR SOPHISTICATED AND QUALIFIED ACCREDITED INVESTORS. Disclaimer FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE
  61. 61. 61 Thank You FOR INFORMATIONAL PURPOSES ONLY | NOT INVESTMENT ADVICE

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