LedgerX Options Exchange + Bitcion

LedgerX Options Exchange + Bitcion Clearinghouse: Series B Confidential O March 2016 Ledger% LLC EFTA01110414 LedgerX: Regulatory Know-How Board of Directors Mark Wetjen DTCC Fmr. CFTC Acting Chairman Jim Newsome Fmr. CFTC Chairman NYMEX CEO CME Board Member Tom Lewis Ameritrade CEO Green Exchange CEO Management Team Paul Chou, CEO Juthica Chou, President & Chief Risk Officer Zach Dexter, CTO Shabana Paul, CFO & COO Kari Larsen, General Counsel & Chief Regulatory Officer G oldman arks ((',omman Sachs Investors Q Combinator Series A Lead tutorspree Goldman 0004, Green VENTURE PARTNERS Seed Investors SVAngel Google ventures LedgerX Confidential 1 EFTA01110415 Money: Before and After Old Money MO: Cash in circulation M1-M2-M3: Commercial bank money lent via traditional ledgers Financial institutions manage cash volatility risk via CFTC-regulated FX trading UCME Group How the world advance: ice New Money MO: Bitcoin blockchain as a settlement layer M1-M2-M3: Commercial bank obligations on top of the blockchain (via sidechains, smart contracts, etc) Financial institutions manage bitcoin volatility risk by trading on LedgerX's CFTC-regulated options exchange aedgerX Currencies targeting moderate inflation rates can be issued on top of the Bitcoin blockchain using sidechains technology. ati IISIIC ISIOloncici. 0 (er *BARCLAYS )1‘ CREDIT 3uISSE © LedgerX Confidential 2 EFTA01110416 CI What is LedgerX? Reporting Regulator (CFTC) r1LedgerX Derivatives Exchange Trade LedgerX Matched Trade Collateral $ Customer '7ILedgerX Derivatives Clearing ) Bank USD $ Confidential 3 EFTA01110417 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 Trading fees (per unit of put/call options contract traded) from our beachhead market, "institutional" customers (big bitcoin corporates and miners) Clearing fees Settlement fees Bitcoin volatility index (already developed) — cryptocurrency equivalent of VIX License our SEF market data feed Long-Term Clear for other exchanges (SEFs/DCMs), especially traditional SEFs/DCMs that want to let participants post bitcoin as collateral for other assets Bloomberg Terminal for Bitcoin Offer bitcoin futures Market making on LedgerX exchanges Spot market making Retail derivatives exchange Become the next $3B/year clearinghouse for all commodities asset types, replacing CME LedgerX Confidential 4 EFTA01110418 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 EFTA01110419 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 EFTA01110420 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 EFTA01110421 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 EFTA01110422 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 EFTA01110423 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 EFTA01110424 Collateral Posting: Before and After Before sidechains Before Bitcoin After Bitcoin X ACH/wire delay X ACH/wire delay Clearinghouse Futures Commission Merchant Exchange participant Another 10min, and txn amount revealed 10min, but txn amount revealed Not OK for a $100MM trade by a major player After sidechains + LedgerX (LX) clearinghouse Clearinghouse Futures Commission Merchant Exchange participant No delay because no additional transfer — clearinghouse-as- sidechain-member maintains running log of FCM collateral balances <lmin; Confidential Transactions protect amounts 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 EFTA01110425 US Financial System: Before and After Before Bitcoin + sidechains Time risk everywhere! Arrows are collateral and asset transfers Clearinghouse Going from exchange participant to swaps or securities clearinghouse requires 2 intermediaries and risk-creating delays Exchange participant (aka trader) Value of underlying assets could change between cash settlement (from clearinghouse) and delivery (to exchange participants) ACH Clearinghouse After Bitcoin + sidechains + LedgerX clearinghouse Bitcoin Main Chain Bank consortium node(s) • Participating bank> can let their customers post collateral to swaps and securities clearinghouses within minutes - a huge boon for deposits LX Commodities/Swaps Clearinghouse • heals clearing requirement - Dodd-Frank req that certain swaps transactions in the US are cleared by a licensed clearinghouse • Reports swaps transactions to Swap Data Repositories, as required by law, before signing blocks containing them Circle of Economic Profit for Sidechain Members - Each node can be a functionary, or run its own sidechain - Everyone in the old system experiences competitive disadvantages and is forced to switch ACH Clearinghouse • Relines to ssn b'otks II AMLiKYC chrci>lail Securities/Stocks Clearinghouse • Fulfills requirement to clear securities transactions through SEC-licensed clearinghouse LedgerX Confidential 12 EFTA01110426 Are US Financial Institutions Solvent? Before and After Before Bitcoin + sidechains ????? Unclear Counterparty obligations Government can't analyze cross- clearinghouse financial exposure of market participants Clearinghouse Currently there is no system to analyze counterparty exercise chains, cross-clearinghouse, to find the riskiest default events Without a top-down view of the riskiest default chains, individual shops (hedge funds, traders, banks) have no idea what their true exposure is After Bitcoin + sidechains + LedgerX clearinghouse Bitcoin Main Chain Legally-mandated Swap Data Repository LX clearinghouse sidechain At the clearinghouse level, regulators rely on the legally- mandated reports containing the outstanding obligations for each market participant. Issued-assets means clearinghouses can use these reports to construct a comprehensive picture of all outstanding obligations for any asset: Issued-assets for title transfer of physically-settled financial contracts - Issued-assets for cash settlement of cash-settled financial contracts - Bitcoin for btc-settled contracts (e.g. hashrate derivatives for miners; options on bitcoin) If you can see all obligations, you know whether the system is solvent. LedgerX Confidential 13 EFTA01110427 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 EFTA01110428