02 – 25 – 21

CRYPTOCURRENCIES & DECENTRALIZED FINANCE

THREAT OR OPPORTUNITY?

Strategic Resource Management

Presented By:

Larry Pruss, Senior Executive Vice President

srmcorp.com

SRM Proprietary and Confidential 1 LARRY PRUSS

Senior Vice President

20+ Years of Financial Services Experience

STRATEGIC RESOURCE MANAGEMENT

Doing Business since 1992

Helps financial institutions improve performance through benchmarks, data, and analytics

$3.6 Billion in implemented cost savings/ revenue increases

2 SRM Proprietary and Confidential • All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, or suggestions, expressed or implied herein, are for informational, entertainment or educational DISCLAIMER purposes only and should not be construed as investment advice.

• The industry is extremely fast- moving. Data/statistics become outdated quickly. While the information provided is believed to be accurate, it may include errors or inaccuracies.

3 SRM Proprietary and Confidential WHAT DO THESE COMPANIES HAVE I N C O M M O N ?

4 SRM Proprietary and Confidential W H A T I S CRYPTOCURRENCY?

In broad strokes, a Ownership and transaction are cryptocurrency is a digital records are recorded onto becoming popular with asset used as a medium of a digital called a retail and institutional exchange. “”. investors, sovereign wealth funds, and even countries.

5 SRM Proprietary and Confidential It’s the basis of a decentralized cryptocurrency.

It is a , W H A T I S A hosted on multiple BLOCKCHAIN? computers (or “Nodes”), that tracks transactions between users.

Nodes also continuously cross-reference each others’ local copies to validate the blockchain.

6 SRM Proprietary and Confidential WHAT KINDS OF CRYPTO ARE THERE?

COINS ALTCOINS STABLE COINS NON-FUNGIBLE CENTRAL TOKENS (NFTS) DIGITAL CURRENCIES (CBDC)

7 SRM Proprietary and Confidential HOW CAN FINANCIAL INSTITUTIONS ADAPT CRYPTOCURRENCY OR BLOCKCHAIN CONCEPTS?

Custodial services Crypto wallets or Loyalty programs Cryptography can Blockchain/crypto of keys is integrations into can be introduced convert sensitive technology can be something most existing mobile with crypto-based data into a secure used to speed up and credit wallets can allow debit and credit format to store on settlement periods unions can easily buying, selling, cards the blockchain. and provide P2P provide. and using of solutions. cryptocurrencies.

8 SRM Proprietary and Confidential • Silvergate Bank is doing (crypto) banking. Their crypto products include institutional custody, collateralized by Bitcoin, and real-time transfers to their crypto exchange network’s participants. They will issue Facebook’s : currency. EXAMPLES OF F I N A N C I A L • J.P. Morgan launched this year: JPM Coin. It is a INSTITUTIONS G E T T I N G permissioned, shared ledger system that serves as a INVOLVED WITH payment rail and deposit account ledger, enabling CRYPTOCURRENCIES participating J.P. Morgan clients to transfer US Dollars held on deposit with J.P. Morgan.

• BNY Mellon, Deutsche, Citi, U.S. Bank, BBVA, & Standard Charter are just some of the banks that have announced launching crypto custody services and investigating crypto trading platforms for their clients.

• FIS (Fidelity Information Services), Fiserv, Alkami, NCR, and Q2 have all recently announced partnerships with crypto custody firm NYDIG. Their clients’ customers will soon be able to buy, hold and sell bitcoin through their existing accounts. 9 SRM Proprietary and Confidential EXAMPLES OF F I N A N C I A L INSTITUTIONS INVESTING IN CRYPTO AND BLOCKCHAIN

10 SRM Proprietary and Confidential • Extremely efficient financial activities without a 3rd party intermediary – “peer-to-peer” financing using crypto.

• Open, transparent, permissionless, trustless, W H A T I S decentralized, and has composability. DECENTRALIZED FINANCE (DEFI) – • DeFi applications (DAPPS) are a growing list “OPEN FINANCE” and include borrow/lending, trading, payments, and insurance.

• We’ve seen tremendous growth in the past year alone

• ~$700MM in early 2020 to ~$85B now and growing fast!

• An excellent analogy would be how Uber and Lyft changed the Taxi Industry.

11 SRM Proprietary and Confidential Will expand access to banking products for the World’s nearly 1.7B unbanked.

Allows “banking” options in countries with challenged financial infrastructures.

Provides efficiency gains in D E F I ADVANTAGES offering traditional banking services – offer better rates for all involved

Customers of DeFi never have to worry about branch access since they just need a Wi-Fi connected device

The complexity of DeFi is being quickly solved for.

12 SRM Proprietary and Confidential • It is rapidly growing market (~$85B ) of

borrowing and lending occurring without 3rd

party intermediaries like banks and credit

THE GROWTH OF unions. DECENTRALIZED FINANCE • And they’re using cryptocurrencies and open-

source smart contracts to facilitate this activity.

• There has been MASSIVE interest from customers,

institutional investors, wealth managers and many

private companies.

13 SRM Proprietary and Confidential Hard to tax multiple small transactions 1 since Crypto transactions are subject to capital gains tax.

2 Crypto creates some AML/KYC challenges.

HOW DOES THE Crypto fraud is not nearly a common as has GOVERNMENT V I E W 3 been suggested. CRYPTO?

Hard to implement capital controls since 4 there is no administrator that can restrict trading or movement across borders.

Early adoption could be immensely 5 profitable if crypto keeps its current growth trend.

Increasingly understanding efficiencies & 6 ability to provide solutions to the underbanked. 14 SRM Proprietary and Confidential Right now, there isn’t a lot.

There is no one regulatory body responsible for cryptocurrencies – it’s effectively unregulated. WILL REGULATION C H A N G E I M P A C T C R Y P T O ? Congress formed a working group for cryptocurrency and fintech policy. The Blockchain Caucus or Fintech Task Force will evaluate the current regulatory situation.

The group will have one year to deliberate and then make recommendations for future regulations.

15 SRM Proprietary and Confidential 1. Cryptocurrencies are here to stay.

2. Decentralized Finance (DeFi) is competing with traditional banking solutions.

3. Regulation won’t make cryptocurrency go away but instead will add legitimacy.

4. Developing your own solutions will be difficult.

6 K E Y TAKEAWAYS 5. You are competing with an industry that has no CEOs, no fancy offices, no marketing offices, no regulations, no borders, no limits, and is supported by a community of tens of thousands of active developers using open-source software solutions and focused on taking your business. This community has created a $2 Trillion market in less than 12 years.

6. Don’t underestimate the impact of this technology; avoid learning the hard way like Kodak, Blockbuster, and the Taxi industry.

16 SRM Proprietary and Confidential WHERE CAN I GET M O R E I N F O ?

https://ocw.mit.edu/courses/sloan-school-of- management/15-s12-blockchain-and-money-fall- 2018/video-lectures/session-1-introduction/

The link is for a free twenty-four session, MIT Sloan School of Management course taught by Professor Gary Gensler (Current head of the SEC).

https://www.youtube.com/watch?v=a51OpyZYiA8

The second link is an interview about Decentralized Finance with Jim Bianco who is a macro markets researcher.

17 SRM Proprietary and Confidential 02 – 25 – 21

CRYPTOCURRENCIES & DECENTRALIZED FINANCE

THREAT OR OPPORTUNITY?

THANK YOU!

Presented By:

Larry Pruss, Senior Executive Vice President

srmcorp.com

SRM Proprietary and Confidential 18