OLX Ventures blockchain perspective, Feb 2018

Blockchain Perspective
State of affairs, outlook and opportunity
Dobo Radichkov
February 2018

2
Contents
▪ Introduction
▪ State of affairs
▪ Outlook
▪ Opportunity
▪ Plan

3
Blockchain – the most hyped technology since the Internet

4
At the same time – the most poorly understood

5
Contents
▪ Introduction
▪ Outlook
▪ Opportunity
▪ Plan

6
In 2017, crypto market cap increased 33x ($20B to $800B)
Source: https://coin.dance/stats/marketcaphistorical
$0
$200
$400
$600
$800
01/2017
02/2017
03/2017
04/2017
05/2017
06/2017
07/2017
08/2017
09/2017
10/2017
11/2017
12/2017
01/2018
Billions
Cryptocurrency market capitalisation

7
Top cryptos grew via price inflation; Bitcoin lagged behind others
Source: https://coinmarketcap.com/historical
Name Symbol
Change 2018 vs 2017
Price
Circulating
supply
Market cap
Bitcoin BTC 12x 1.0x 13x
Ethereum ETH 126x 1.1x 140x
Ripple XRP 202x 1.1x 215x
Bitcoin Cash BCH 9x 1.0x 9x
Cardano ADA 28x 1.0x 28x
Litecoin LTC 45x 1.1x 50x
NEO NEO 1047x 1.3x 1362x
IOTA MIOTA 7x 1.0x 7x

8
Number of active cryptocurrencies doubled
0
200
400
600
800
1,000
1,200
1,400
1,600
01/2017
02/2017
03/2017
04/2017
05/2017
06/2017
07/2017
08/2017
09/2017
10/2017
11/2017
12/2017
01/2018
Number of active cryptocurrencies

9
Top 5 cryptos now control ~80% share; Bitcoin lost its monopoly
0%
20%
40%
60%
80%
100%
01/2017
02/2017
03/2017
04/2017
05/2017
06/2017
07/2017
08/2017
09/2017
10/2017
11/2017
12/2017
01/2018
Share of total crypto currency market cap
Other
Cardano
Bitcoin Cash
Ripple
Ethereum
Bitcoin

10
$7.6T $7.7T $73T $37T $90T
Crypto is now significant portion of the world economy
Source: http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017
7.9% 7.8%
0.8%
1.6%
0.7%
Coins and
banknotes
Gold Stock markets Narrow money Broad money
$600B (Jan 2017) crypto currency market
as % of other global markets

11
Number of unique active crypto users reached 6-12M in 2018
Source: Global Cryptocurrency Benchmarking Study
Note: 2017 is Apr 2017 (study publishing date); 2018 is Jan 2018 and assumes 2x growth vs Apr 2017 based on wallet growth benchmarks
0M
5M
10M
15M
20M
25M
2013 2014 2015 2016 2017 2018 2019
Number of unique active users with crypto currency wallets
Upper
bound
Lower
bound
Mid
point

12
Institutions are getting involved
Private enterprise
blockchain solution for
global payments run by
100+ banks & payment
providers including AMEX,
UBS, Santander, etc.
Source: https://www.bloomberg.com/news/articles/2017-12-21/goldman-is-said-to-be-building-a-cryptocurrency-trading-desk
https://www.bloomberg.com/news/articles/2017-12-21/goldman-is-said-to-be-building-a-cryptocurrency-trading-desk
https://cointelegraph.com/news/morgan-stanley-now-clearing-bitcoin-futures-for-clients-helping-institutions-gain-exposure
https://news.bitcoin.com/u-s-rating-agency-to-issue-bitcoin-and-cryptocurrency-grades-wednesday/
https://seekingalpha.com/article/4131814-state-bitcoin-etf-race
Two Bitcoin futures
products launched in Dec
2017 by Chicago Board
Options Exchange and CME
Group – largest derivative
market exchanges
Numerous crypto currency
ETFs currently undergoing
approval and expected to
list on NYSE / Nasdaq in
2018 opening up
institutional investment
Setting up trading desk to
make markets in crypto
currencies with plans to
launch by June 2018
Set up clearing house for
Bitcoin futures serving the
bank’s institutional investors
U.S. independent rating
agency to issue letter
grades on cryptocurrencies
end of January

13
Total ICO value reached ~$800M monthly; Average ICO = $35M
Note: Latest data available as of Nov 2017; trend expected to have continued into early 2018
Source: https://www.coindesk.com/ico-tracker/
$0M
$200M
$400M
$600M
$800M
06/2016
07/2016
08/2016
09/2016
10/2016
11/2016
12/2016
01/2017
02/2017
03/2017
04/2017
05/2017
06/2017
07/2017
08/2017
09/2017
10/2017
11/2017
Combined ICO size

14
Vast majority of users are buying into and hoarding cryptos
Note: Latest available data is from end of 2014; distribution expected to be similar or more skewed as of today
Source: https://www.reddit.com/r/Bitcoin/comments/2n205b/an_area_chart_showing_the_distribution_of
15%
28% 27%
20%
10%
4+ years 1-4 years 6-12 months 1-6 months <1 month
% of Bitcoin value, by time since last transaction
~70% of Bitcoin
value locked in
coins that were
last used 6 or
more months ago

15
Contents
▪ Introduction
▪ Outlook
▪ Opportunity
▪ Plan

16
Gartner Hype cycle
Source: https://en.wikipedia.org/wiki/Hype_cycle

17
We believe the technology is at peak of the hype cycle and
expect large and imminent correction ahead of wider adoption
Source: OLX Ventures point of view
Blockchain

18
As the crypto bubble bursts, expect a tectonic shift
▪ Speculation and value hoarding
dominate use cases
▪ Minimal real-world impact and
limited utility & intrinsic value
▪ User base dominated by
inexperienced retail investors
▪ ICO galore & 1000’s of cryptos
▪ Light-handed regulation
▪ Wild price inflation & volatility
▪ Fortunes are made
Demand >> Supply
Hype (2009-2018)
Demand << Supply
Correction (2018/19)
Demand ~ Supply
Equilibrium (2019+)
▪ Decline in public confidence
▪ Market liquidity disappears
▪ Speculators panic
▪ Institution, banks and
governments get actively
involved
▪ Heavy-handed regulation
▪ ICOs wind down and most crypto
currencies collapse
▪ Precipitous price drop
▪ Fortunes are lost
▪ Focus on innovation, utilisation
and sustainable value creation
▪ Speculators are minority
▪ Prices stabilise, liquidity returns
▪ ICOs are few, unpopular and
more scrutinised
▪ Select few blockchains / cryptos
emerge as global standards and
become mainstream
▪ Blockchain technology is widely
adopted by enterprises

19
Credit Suisse Bitcoin price model implies 2x over-valuation
▪Model explains 96% of
price movement using
just 3 variables
▪Bitcoin's implied
leverage to credit
exceeds that of the toxic
securities on offer prior
to the financial crisis!
▪Almost 50% expensive
at the moment – model
suggests that fair value
is closer to USD 6K
Source: Credit Suisse, “Cryptocurrency chronicles part I: Bitcoin is a leveraged credit and momentum exposure”

20
Now is the right time to build our Blockchain capability
Invest in building
expertise, acquiring
talent and testing
Blockchain-enabled
ventures Capitalise on
investment & renewed
public interest
and scale & grow
successful ventures

21
Contents
▪ Introduction
▪ Outlook
▪ Opportunity
▪ Plan

22
Blockchain could disrupt how we trade in several ways
Payments
Escrow
Reputation
Provenance
Ownership
Fast, safe, cheap cross-
border crypto payments
Secure, automated smart
contract-based escrow
Decentralised reputation and
identity management
4
5
1
2
3
Item authenticity, quality
verification, transaction history
Transfer and proof of
ownership

23
Payments
Escrow
Reputation
Provenance
Ownership
identity management
4
5
1
2
3
ownership

24
Crypto-currency based payments enable fast, safe,
cheap cross-border exchange of money
1
Buyer and seller agree on deal1 Buyer pays with cryptocurrency2
Seller receives payment within
seconds / minutes and dispatches
item to buyer
3Buyer receives item. WIN-WIN.4

25
Despite evident benefits, crypto payments present many
challenges
▪ Fast – depending on currency, payments
typically complete in seconds / minutes
▪ Cross-border – enables peer-to-peer cross-
country trade at low cost
▪ Cheap – low transaction fees relative to
average transaction size
▪ OLX need not keep funds on its balance
sheet, reducing regulatory overheard
▪ Can become part of transaction and
generate commission on payments
▪ Tap into new audience and demographic
▪ If meeting in person, can pay with mobile
wallet on the spot & track deal geolocation
1
Benefits / value-add Challenges
▪ Trust – How can buyers trust that sellers will
dispatch the item once payment is made?
(stay tuned for solution)
▪ Crypto currency ownership not yet
mainstream; current overlap with our core
audience is small
▪ Depending on operating model, might
require complex legal / regulatory setup

26
Several crypto payments operating models depending on
how close we stay to the transaction
1
MODEL DESCRIPTION PROS CONS
Facilitate
only
▪ Publish crypto public
addresses and let the user
take care of payment outside
of OLX platform
▪ Simplest model – zero
operational involvement
▪ Not really part of the
transaction
Wallet
▪ Embed crypto currency wallet
in platform and execute
transactions on behalf of
buyer
▪ Keep commission from
buyer’s payment
▪ Opens door to smart contract
based VAS (escrow, shipping)
▪ Time and cost to develop
▪ Exposure to security risk
3rd party
▪ Partner with 3rd party
exchange or payment service
provider
▪ Many players to choose from
▪ Go to market fast
▪ Fiat/crypto-to-crypto excha-
nge broadens target audience
▪ 3rd party commissions
▪ Not owning end-to-end
transaction
OLX coin
▪ ICO an OLX token on top of
e.g. Ethereum blockchain
▪ Be a proper Blockchain player
▪ Incentivise token holders to
drive liquidity, content quality
▪ Can decentralise parts of
operations like moderation
▪ Exposure to speculative ICO
environment
▪ Risk of shooting ourselves in
the foot

27
Two ways to ensure safe transaction
BEFORE THE DEAL AFTER THE DEAL
Zero-risk
pay & ship
experience
Rock solid
buyer & seller
reputation
EscrowReputation

28
Payments
Escrow
Reputation
Provenance
Ownership
identity management
4
5
1
2
3
ownership

29
Smart-contract based escrow has the potential to solve
trust & safety once and for all
2
Buyer and seller agree on deal1 Buyer sends crypto payment to OLX2
3 OLX places payment in smart contract-based escrow
Seller dispatches item
via shipping partner
4Buyer receives and inspects item;
chooses to KEEP or RETURN
5
Smart contract releases payment to
seller (triggered by shipping partner).
WIN-WIN
6 Smart contract releases
refund back to buyer
8Buyer returns item to seller
via shipping partner
7
KEEP
RETURN

30
✔✔ ✔
✔ ❓
Smart contract can be executed automatically as long as
payment is done with crypto and / or trading digital asset
Crypto
Fiat
PAYMENTTYPE
ASSET TYPE
Digital Physical
For physical goods
purchased with fiat
money, escrow smart
contract cannot be
executed automatically.
Though legally binding,
contract needs to be
enforced offline.
This model only works
if cost of mediation
<< item value.
2

31
Payments
Escrow
Reputation
Provenance
Ownership
identity management
4
5
1
2
3
ownership

32
Decentralised reputation makes it safer to trust a stranger
Jane Doe
Los Angeles, CA
4.95
754 ratings
Enable business-like transparency and reputation for private individuals
3

33
Elements of Blockchain-based reputation system
KYC & VERIFICATION TRANSACTION HISTORY FEEDBACK & RATINGS
Verify new user
identify via
government-
recognised
documents
Store trans-
actions across
marketplaces in
public blockchain
Enable users to
rate each other
and provide
feedback, stored
in blockchain
Compute user
reputation
based on past
transactions and
feedback
SCORE ALGORITHM SMART CONTRACT MEDIATION
Completed
transactions
trigger smart
contract to update
user reputation
Escalated
transactions are
mediated and
resolved by
third party
3

35
Payments
Escrow
Reputation
Provenance
Ownership
identity management
4
5
1
2
3
ownership

37
SUPPLY CHAIN
By tracking and recording every stage of the supply chain,
we can establish product origin and ensure authenticity
MANUFACTURING WAREHOUSE TRANSPORTATION DISTRIBUTOR RETAILER END CONSUMER
BLOCKCHAIN
4

38
SUPPLY CHAIN
SECONDARY TRADE
BLOCKCHAIN
We can apply this process across the extended product
lifecycle in the secondary trade market
…
C2C TRADE INSPECTION C2C TRADE INSPECTION C2C TRADE
WAREHOUSE DISTRIBUTOR RETAILER END CONSUMERMANUFACTURING
4
TRANSPORTATION

39
Provenance operating model considerations
SUITABLE CATEGORIES SYNERGY WITH OTHER MODELS
High value items where
authenticity and/or quality
is essential – jewellery,
watches, electronics,
cars, high fashion, etc.
Works great with
X-it-for-me and instant
cash models as OLX can
inspect & verify the
product
Item must have
embedded & immutable
identifier (RFID tag, serial
number, laser engraving)
linking it to its digital form
in the blockchain
DIGITISATION OF PHYSICAL GOODS PROVENANCE LIMITATIONS
For goods already in
circulation, origin may not
be possible to establish;
for those items, record
keeping starts with
earliest known data point
4

40
Examples
4
Focuses on tracking every step of the
supply chain in food retail, fashion, fishing
and agriculture. Emphasis on origin, fair
trade and sustainability.
Provides an easy and secure way to certify
and verify artworks and collectibles in real
time using mobile app. Targets artists,
collectors and dealers. Uses image
recognition to protect from forgery.
Tracks and digitises valuable physical goods
(i.e. diamonds, watches, wine), placing a
permanent record in the blockchain.
Emphasis on reducing risk, theft, fraud.
Tracks car history from centralised
sources (country registries, police
databases, insurance databases and
others). Targets businesses with several
products built on top of blockchain protocol.

41
Payments
Escrow
Reputation
Provenance
Ownership
identity management
ownership
4
5
1
2
3

42
As transaction history of physical asset is recorded, we can
enforce legally binding transfer of ownership
5
TITLE TITLE

43
Transfer of ownership can be combined with simultaneous
crypto payment in a single smart contract
A single smart contract could:
▪Execute crypto payment from
buyer to seller
▪Transfer ownership of asset from
seller to buyer
▪Include lease, financing and / or
contract duration details
▪Link to physical asset’s unique
identifier (e.g. car RFID tag)
▪Challenge: Transition from legacy
government title registration systems
5
TITLE

44
Examples
“Dubai Land Department to
adopt blockchain technology.
Smart database to allow
instant electronic real estate
transactions.”
Arabian Business
“The velox.RE - Cook County
(Chicago) pilot program
produced the first ever legal
blockchain deed software
and procedural protocol.”
velox.RE
“We are piloting the first
project in Sweden to model
a property purchase using
blockchain and smart
contract technology.”
ChromaWay.com
5

45
Summary: End-to-end blockchain-powered trade experience
BEFORE DEAL AFTER DEALDEAL
Provenance
gives buyer
trust in item
authenticity and
quality
Existing
reputation gives
both buyer +
seller confidence
to proceed with
trade
Crypto payment
ensures fast,
safe and cheap
transfer of
money
Payment placed
in smart
contract-based
escrow
Optionally, OLX
can inspect and
update item’s
provenance
Smart contract
releases escrow
payment to seller
Smart contract
transfers
ownership of
asset to buyer
Smart contract
updates buyer +
seller repu-
tation based on
ratings and
feedback

OLX Ventures blockchain perspective, Feb 2018

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