EFTA00590685.pdf

LedgerX Options Exchange + Bitcion Clearinghouse: Series B Confidential O March 2016 Ledger% LLC EFTA00590685 LedgerX: Regulatory Know-How Board of Directors Management Team Investors Mark Wetjen oldman Q Combinator Series A Lead Paul Chou, CEO Garks DTCC Fmr. CFTC Acting Juthica Chou, President ((',omman VENTURE PARTNERS Sachs Chairman & Chief Risk Officer Jim Newsome Zach Dexter, CTO tutorspree Seed Investors Fmr. CFTC Chairman Shabana Paul, CFO & Goldman NYMEX CEO COO CME Board Member SVAngel Kari Larsen, General 0004, Green Counsel & Chief Google Tom Lewis Regulatory Officer ventures Ameritrade CEO Green Exchange CEO LedgerX Confidential 1 EFTA00590686 Money: Before and After Old Money New Money Currencies targeting moderate inflation MO: Bitcoin blockchain as a MO: Cash in circulation rates can be issued on top of the Bitcoin settlement layer blockchain using sidechains technology. M1-M2-M3: Commercial bank ati ISIOloncici. 0 M1-M2-M3: Commercial bank money IISIIC obligations on top of the blockchain lent via traditional ledgers (via sidechains, smart contracts, etc) (er *BARCLAYS )1‘ CREDIT 3uISSE Financial institutions manage cash Financial institutions manage bitcoin volatility risk via CFTC-regulated FX volatility risk by trading on LedgerX's trading CFTC-regulated options exchange UCME Group How the world advance: ice aedgerX © LedgerX Confidential 2 EFTA00590687 CI What is LedgerX? Regulator (CFTC) Bank Reporting USD $ Matched Trade r1LedgerX '7ILedgerX Derivatives Exchange Derivatives Clearing ) Trade Collateral Customer $ LedgerX Confidential 3 EFTA00590688 Revenue Opportunities Derivatives is a good beachhead: There is meaningful demand on both the buy (merchant processors / consumer-facing bitcoin companies) and short (miner) side. Also, derivatives are big business: ICE acquired NYSE in 2012 for $11B, yet NYSE trading revenue (Cash / Spot Trading) is still only — 17% of ICE's total trading revenue. The remaining — 83% is from derivatives. The long-term value is in the clearinghouse. Short-Term Long-Term Trading fees (per unit of put/call options contract Clear for other exchanges (SEFs/DCMs), especially traded) from our beachhead market, "institutional" traditional SEFs/DCMs that want to let participants customers (big bitcoin corporates and miners) post bitcoin as collateral for other assets Clearing fees Bloomberg Terminal for Bitcoin Settlement fees Offer bitcoin futures Bitcoin volatility index (already developed) — Market making on LedgerX exchanges cryptocurrency equivalent of VIX License our SEF market data feed Spot market making Retail derivatives exchange Become the next $3B/year clearinghouse for all commodities asset types, replacing CME LedgerX Confidential 4 EFTA00590689 0 Bitcoin as collateral • Same asset in every jurisdiction • Less FX risk — collateral posts within 10 minutes (or 1 minute on sidechains) • Margin in Europe, Asia and US, using the same collateral, any time • Bitcoin blockchain is the only battle-tested blockchain, operating on public Internet 24/7 for multiple years • CFTC has affirmatively asserted jurisdiction over bitcoin derivatives • It's the most relevant use case "Importantly, while there has been a great deal of discussion around implementing real-time settlement using distributed ledger technology, the current U.S. equity market convention of T+3 is based on laws and market structures. Modernizing current practices and laws to enable real- time settlement are not dependent on the use of blockchain technologies." — "Embracing Disruption" whitepa per, DTCC, January 2016 © Ledge rX Confidential 5 EFTA00590690 5 Bitcoin-as-collateral use cases the LedgerX clearinghouse will implement 1. Out-of-bank-hours collateral posting for any asset - Reduce counterparty risk 2. "Collateral room" for efficient bilateral netting in uncleared trades - Reduce the total number of payments 3. Vertically integrate OTC derivatives payment processing - Replace services like CIS with bitcoin, which delivers even better settlement certainty through cryptography-enforced finality, and is much less costly to operate and integrate with than e.g. CLS 4. Realtime margining for FCM Direct Clearing Members and client clearing - Use multisignature bitcoin wallets for big cost savings for FCMs providing fully segregated, LSOC client clearing - Replace quad-party clearing — multisignature wallets provide the benefits without the costs - Details available upon request © LedgerX Confidential 6 EFTA00590691 5 Ask: Series B Lead LedgerX is raising its Series B to cover the required Derivatives Clearing Organization (DCO) reserve fund, and enough operating expenses to achieve cash-flow positive. We are targeting $30MM pre, $40MM post. Our ask is a $4MM lead check. LedgerX's technology is essentially complete, and has undergone extensive CFTC review. The reserve/operating fund is the only major item blocking launch. © LedgerX Confidential 7 EFTA00590692 Out-of-bank-hours collateral posting for reducing counterparty risk in uncleared trades If you're a US shop and you only have access to US banks in USD. A market-moving event happens overnight in your favor.= like collateral pledged to you overnight, as opposed to beginning-of-next-business-day. Historical collateral posting hours Bitcoin collateral posting hours © LedgerX Confidential 8 EFTA00590693 5 Replacing inefficient bilateral netting with Bitcoin-based escrow Bitcoin "multisignature wallets" let multiple trading counterparties in uncleared OTC transactions put collateral in a secure "room" — then after a period of trading activity, withdraw any extra. This prevents over-collateralization, freeing up collateral for other uses. Before, with cash wires After, with bitcoin multisignature wallets © LedgerX Confidential 9 EFTA00590694 Facilitating the collateral use cases: Extensions on top of bitcoin Unlike R3/DAH/Ethereum, Bitcoin extensions technology is built by the same people who have been developing and running the Bitcoin blockchain 24/7 for multiple years. These are the most capable software developers in the ecosystem. Bitcoin extensions are already live, tied to a source of value (bitcoin), and have additional regulatory certainty. A "sidechain" is a private extension that can be operated by one or more financial institutions or intermediaries. The side part means that value represented on the sidechain as tokens or assets can be freely moved back and forth with the main Bitcoin blockchain, subject to pre-determined rules set by regulated entities participating in the project. This means regulated entities like clearinghouses, FCMs and brokers can, right now, use bitcoin to implement custom collateral and settlement technology that follows business rules approved by risk and regulatory oversight committees. LedgerX is the only company with both the in-depth bitcoin technical know-how and regulatory progress to quickly implement sidechains technology for collateral. LedgerX Confidential 10 EFTA00590695 Collateral Posting: Before and After Before sidechains After sidechains + LedgerX (LX) clearinghouse Before Bitcoin After Bitcoin Clearinghouse Clearinghouse No delay because no additional transfer — clearinghouse-as- X Another 10min, sidechain-member ACH/wire delay and txn amount maintains running log of revealed FCM collateral balances Futures Commission Merchant Futures Commission Merchant <lmin; Confidential Transactions protect X 10min, but txn amounts ACH/wire delay amount revealed Exchange Not OK for a participant $100MM trade by Exchange a major player participant Also, the LX clearinghouse can use issued-assets to completely revolutionize cross- margining, which involves collateralizing one type of financial contract with another. LedgerX Confidential 11 EFTA00590696 US Financial System: Before and After Before Bitcoin + sidechains After Bitcoin + sidechains + LedgerX clearinghouse Time risk everywhere! Arrows are collateral and asset transfers LX Commodities/Swaps Clearinghouse Clearinghouse • heals clearing requirement - Dodd-Frank req that certain swaps transactions in the US are Exchange participant cleared by a licensed clearinghouse (aka trader) • Reports swaps transactions to Bitcoin Swap Data Repositories, as required by law, before signing Main Chain blocks containing them Circle of Economic Profit Value of underlying assets could for Sidechain Members change between cash settlement Bank consortium node(s) Securities/Stocks (from clearinghouse) and delivery • Participating bank> can let their - Each node can be a Clearinghouse customers post collateral to swaps functionary, or run its • Fulfills requirement to clear Going from exchange participant (to exchange participants) and securities clearinghouses securities transactions through within minutes - a huge boon for own sidechain SEC-licensed clearinghouse deposits to swaps or securities - Everyone in the old clearinghouse requires 2 system experiences intermediaries and risk-creating competitive delays ACH Clearinghouse disadvantages and is forced to switch ACH Clearinghouse • Relines to ssn b'otks II AMLiKYC chrci>lail LedgerX Confidential 12 EFTA00590697 Are US Financial Institutions Solvent? Before and After Before Bitcoin + sidechains After Bitcoin + sidechains + LedgerX clearinghouse At the clearinghouse level, regulators rely on the legally- mandated reports containing the outstanding obligations for ????? Unclear each market participant. Currently there is no Issued-assets means system to analyze clearinghouses can use these counterparty reports to construct a exercise chains, Bitcoin comprehensive picture of all LX clearinghouse sidechain outstanding obligations for any cross-clearinghouse, Main Chain to find the riskiest asset: Counterparty default events Issued-assets for title obligations transfer of physically-settled Without a top-down Government can't financial contracts view of the riskiest - Issued-assets for cash analyze cross- default chains, settlement of cash-settled clearinghouse individual shops financial contracts financial exposure of (hedge funds, - Bitcoin for btc-settled market participants traders, banks) have contracts (e.g. hashrate no idea what their derivatives for miners; true exposure is options on bitcoin) Clearinghouse Legally-mandated Swap If you can see all obligations, Data Repository you know whether the system is solvent. LedgerX Confidential 13 EFTA00590698 0 Disclaimers The information contained herein is confidential and proprietary information of NYBX Inc. ("LedgerX" or the "Company"). By accepting such information, each recipient agrees that it will, and will cause its directors, officers, employees and representatives to, use such information only to evaluate LedgerX's information and not for any other purpose and will not divulge any such information to any other party. Any reproduction of such information, in whole or in part, is prohibited unless permitted in writing by an authorized representative of LedgerX. Circulation must be restricted accordingly. This presentation contains forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. The results or developments anticipated by management may not be realized or even if realized, may not have the expected consequences to, or effects on, LedgerX or the Company's business prospects, financial condition or results of operations. Readers are cautioned not to place undue reliance on these forward-looking statements in making any investment decision. The information within this presentation has been compiled by LedgerX for general purposes only. LedgerX assumes no responsibility for any errors or omissions. Additionally, the above information is provided for explanation purposes only, and should not be considered investment advice or the results of actual market experience. This communication is not a recommendation to buy, sell or retain any specific investment. Derivatives and bitcoin trading is not suitable for all investors and involves the risk of loss. LedgerX products and platforms are subject to regulatory oversight and approval. All references to specifications herein are made subject to and are superseded by official LedgerX rules. Current rules should be consulted in all cases concerning contract specifications. LedgerXTM is a trademark of NYBX Inc. All other trademarks are held by their respective owners. © LedgerX Confidential 14 EFTA00590699