Investment Thesis on Distributed Ledger Technology in the Financial System

Distributed Ledgers in the Financial System

Distributed Ledger Technologyin the Financial SystemEmre Tekisalp, Columbia Business School Investment Thesis, April 2016@etekis | etekisalp17@gsb.columbia.edu

Financial transactions are settled with the help of intermediariesP2P Wire Transfers: Banks, Central Banks, Clearing HousesInternational Payments: Correspondent BanksSecurities: DTCC (USA)Contracts: Notaries

Source: Ripple

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Financial Institutions are hoping that distributed ledgers will solve a multitude of problems regarding settlementFinancial Institutions are facing:Increased regulatory costsCompetition from fintech startupsAntiquated systems with high maintenance costsLack of financial inclusionCompetition from alternative financial channels

Measured as a percentage of revenues, financial services firms spend more on IT than any other industry. Banks IT costs equal 7.3% of their revenues, compared to an average of 3.7% across all other industries surveyed Source: Deutsche Bank, 2012Distributed ledger technology could reduce banks infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022Source:Santander, 2015

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Source: CBInsights

Many potential use cases.Payments and Capital Markets have seen most tractionSyndicated loans Trade finance Supply chain provenanceUS Treasury repo Clearing / settling OTC derivatives and FXCross-border paymentsIdentity / data authenticationPrivate stock / equity issuance2 Capital Markets & Securities1 Cross-border Payments

Its clear that problems exist with both use cases, but not clear if blockchain is the technology banks needCROSS-BORDER PAYMENTSCAPITAL MARKETS & SECURITIESProblems Blockchain can solve2-4 days to settle transactionsAntiquated messaging (SWIFT) causes problemsEstimated costs of $1.6 trillionIncreasing burden of post-settlement back office work1-3 days to settle securities transactionsCase against Blockchain30 clients, many of the leading players in the fieldHolistic one-stop SaaS service for all Bitcoin/Blockchain enabled applicationsBetterment for the rest of the worldHuge untapped market of retail investors in emerging markets Bitcoin is less volatile than >50% of currenciesVetted by leading banks as leading cross-border solutionLeading regulatory strategyAlready in use by cross-border financial institutions$3.5MSeed raised to datePre-seedRaising ~$1M $38.6MSeries A raised to dateRedwood City, CANew YorkSan Francisco

PlatformConsumerBanking

Questions, thoughts?Emre Tekisalp@etekis | etekisalp17@gsb.columbia.edu