The State Of Smart Securities—2019

January 2019
The State of Smart
Securities: 2019
Presented by:
ANDRE SERRANO LEEOR SHIMRON BLAKE RICHMAN ALON GOREN

2
State of Smart
Securities 2019
1. Executive Summary
2. Evolution of Capital Formation
3. Introduction to Smart Securities
4. Benefits of Smart Securities
5. Segments of the Ecosystem
6. Case Studies
7. The Future - 2019 and Beyond
8. About Us

3
Executive Summary
2019: The Year of Smart Securities

4
"As the world's assets become
increasingly liquid, the concept of
ownership will evolve in ways we cannot
yet imagine."
Professor Stephen McKeon

5
Evolution of
Capital
Formation
Section Two:

6
Evolution of Capital Formation
Equity Crowdfunding Initial Coin Offering (ICO) Smart Securities Offering (SSO)
The 2012 JOBS Act ushered in peer-to-
peer lending and crowdfunding growth in
the last decade, of which notable
companies include Lending Club,
Kickstarter, GoFundMe, and Indiegogo.
This enabled retail investors to participate
in the growth of early stage companies in
a regulatory compliant way.
2017 saw the emergence of the Initial
Coin Offering (ICO), in which
thousands of companies launched
“utility” tokens to raise capital. Utility
tokens function by granting owners of
the token a license to access or
transact on a particular network or
service.
By the end of 2018, it became clear that the
majority of ICOs need to comply with existing
U.S. Securities regulations. The technology
has unlocked a wave of innovation that stands
to revolutionize capital markets, change the
way traditional and alternative assets are
bought and sold, and create new business
models for companies servicing the industry.
01 02 03
Democratizing access to private capital.

7
JOBS Act
The JOBS act created regulatory frameworks for retail and accredited participation in exempt offerings
under Regulation D, Regulation A+ and Regulation CF in the US, as well as increased the investor
threshold for registration to 2000 for most issuances.
Reg D Reg A+
Reg CF
506(b) 506(c) Rule 504 Tier 1 Tier 2
Annual Offer Limit None None $5 million $20 million $50 million $1.07 million
General Solicitation No Yes
Permitted in certain
situations
Permitted before
qualification (to
check eligibility)
Permitted before
qualification (to
check eligibility)
Permitted with limits
on advertising
Investor
Requirements
Unlimited Accredited
investors. Up to 35
sophisticated but
non-accredited
investors
Unlimited Accredited
Investors
None None
Non-accredited
investors subject to
limits
Limitations based on
annual income and
net worth
SEC Filing
Requirements
Form D Form D Form D
Form 1-A + 2yrs of
financial statements
Form 1-A + 2yrs of
audited financial
statements
Form C + two years
of audited financial
statements
Restriction on Resale Restricted Restricted Restricted No No 12 month restriction
Preemption of State
Registration
Yes Yes No No Yes Yes

8
Equity Crowdfunding and Peer-to-Peer Lending
Total global volume of transactions in marketplace lending is
projected to grow at 29% CAGR through 2021.
Platforms focused on crowdfunding and peer-to-peer lending have grown at a rapid rate, signaling
the significance of democratized financing.
Source: http://crowdfundcapitaladvisors.com/2017-state-regulation-crowdfunding-report/
Citi Business Advisory Services
29
55
85
116
146
174
197
2015 2016 2017 2018 2019E 2020E 2021E
TransactionVolume($Billions)
Marketplace Lending Growth 2015-2021E
29% CAGR
• Number of unique Reg CF offerings increased 267%
from 179 in 2016 to 481 in 2017
• Average success rate of offerings to date is 66.7%
• Total number of investors increased 158% from 28.2k in
2016 to 44.4k in 2017
• Median revenues for Reg CF issuers increased 131% in
the year following the offering
Crowdfunding
Peer-to-Peer Lending
• Transactional volume for lending platforms reached $55
billion in 2016 and grew to $116 billion in 2018
• By 2021, transaction volume is forecasted to be $197
billion, and $300 billion by 2025

9
Initial Coin Offering (ICO)
Approximately $12 billion was raised through ICOs globally in 2018, despite a significant reduction in Q4.
• Blockchain-enabled smart contracts have formed
the basis for a novel funding model, allowing the
formation and exchange of digital assets.
• Teams were able to crowdfund development of
their platform or service with 90% of ICOs issued
on the Ethereum based ERC-20 token standard.
• The success of fundraising via ICOs
has established the significance of
a democratized capital market based on ERC-20
or next-generation protocols.
Source: https://icobench.com/stats
$1,360
$1,685
$1,749
$1,103
$1,086
$1,610
$672
$779
$390
$533
$375
$270
168
185
230
222
251
267
214
167
168
167
177
275
January
February
March
April
May
June
July
August
September
October
November
December
Number of ICOs & Amount Raised ($Millions USD)
Number of ICOs Amount Raised
2018

10
Smart Security Offering (SSO)
01
Automatically Verify
Investor Eligibility
02
Improve Cap Table
Management
03
Automate Investor Rights
04
Enforce Regulations for
Investor Participation
• As regulators crack down on non-
compliant ICOs, digital securities emerged
as a new framework to ensure initial and
on-going compliance.
• Digital Security Offerings use blockchain
technology to significantly automate
securities offerings while enabling a large
investor base to participate.
Whereas "utility tokens" provide access to a platform or network, smart securities (AKA security
tokens) represent programmable ownership of traditional assets.

11
Introduction to
Smart
Securities
Section Three:

12
What is a Smart
Security?
Definition:
A smart security is a blockchain-based digital interest that
represents an ownership claim in an underlying asset which
may include real estate, private placements, equities, debt,
derivatives, and other instruments of value.
Synonyms:
digital security (DSO), security token (STO), tokenized asset
(TAO), asset-backed token
*Note: at the moment, the terms above are used
interchangeably. We propose the industry coalesce around
Smart Securities because it accurately reflects the
programmability of these new financial instruments.
Tokenized Gold
Funds / Private Placements
Real Estate Shares

13
Market Sizing
$228T
Global Real Estate
$8T
Gold
$70T
Global Private Equity
$544T
Global Derivates
How big is the opportunity?
Values in USD ($Trillions)
Introduction to Smart Securities
Source: http://www.mcguire.com/blog/2017/04/savills-world-worth/

14
Smart Security Stack
1. Financial Rights
Tokens may represent total value of equity and/or debt of
the underlying asset and a claim on asset appreciation,
dividends, or cashflow.
2. Ownership Rights
Tokens are treated as any other asset class and holders can
sell/transfer ownership at their discretion. Tokens may also
include specific investor obligations such as holding periods
or voting rights.
3. Utilization Rights
Tokens may include a new set of utilization rights that
include incentives from the assets they invest in. These
incentives may come in the form of discounted rates or
preferential access to use the asset.
Investor rights, transfer restrictions, dividend payments, company obligations, and more can be
programmed directly intro the smart contract.
Conditional Dividends
Conditional Cash Flows
Goal-Based Corporate
Behavior
Conditional Incentives &
Restrictions
Minimum Holding
Periods
Investment Longevity
Rights
Early Access
Preferred Pricing
Collaborative Credits
Milestone-based
Financial Rights
Company
Obligations
Investor
Obligations
Investor
Utilization Rights
Distributed Ledger
Terms listed in smart
contract
Conditional Financing
Source: Citi Business Advisory Services

15
Public Sector Resources Private Assets Luxury Items Individual Assets
Smart Security Asset Classes
The variety of potential asset classes that can be tokenized is expansive.
Infrastructure
Natural
Resources
Commodities
National Parks
Professional
Sports Team
Commercial
Real Estate
Debt
Art
Planes
Precious Gems
& Metals
Homes
Personal IP
Collectibles
The introduction of Smart Securities as an investment vehicle creates an
arms race to tokenize previously illiquid asset classes. These developments
provide an unprecedented set of choices for accredited and institutional
investors to gain portfolio diversification, long-term asset appreciation, and
additional sources of revenue across an asset’s lifecycle.
Source: Citi Business Advisory Services

16
Smart Security
Launch Process
Set up phase. Company is formed and offering
is structured. Legal review and marketing activities.
Issuance phase. Token is issued, and investor
eligibility (KYC/AML/Accreditation) evaluated.
Overview
Lifecycle management phase. Secondary trading on
exchanges commences; ongoing compliance;
investor communications.

17
2018 Accomplishments
First Publicly traded
Smart Security
02 03 04 05
First
Regulated Exchange
Goes Live
First Real Estate
Smart Security
Offering
First Tokenized
Student Housing
First Tokenized
Accelerator Fund
01

18
Benefits of
Smart
Securities
Section Four:

19
Benefits of Smart Securities
Fractional Ownership 24/7 Global Markets Automated Compliance
Cost ReductionIncreased LiquidityRapid Settlement
Smart securities transform the capital formation process by automating costly compliance requirements
through a transparent, immutable ledger. Additional benefits include:

20
Fractional Ownership
Blockchain enables fractional ownership, which allows investment assets to be easily divided into smaller
parts. Several unrelated parties are able to share in the ownership of a high-value tangible asset.
• Commercial and residential real estate, early-stage private
companies, infrastructure, commodities and more can be
transformed by lowering the barrier to entry and
reducing capital requirements.
• Issuers are able to access a wider pool of capital.
Reducing Initial and ongoing compliance costs enables
asset managers to lower investment minimums for
accredited and retail investors.
• This advancement in technology creates greater
opportunities for portfolio diversification and the
potential for new types of ownership.
Bundling
Unitization

21
LONG
SHORT
1. Midtown Manhattan
2. French Impressionists
1. Brooklyn
2. Modern Art
Targeted Investment Theses
http://fortune.com/go/tech/security-token-harbor-ceo/
1. Real Estate: create index funds of Class A in Midtown
Manhattan, Upper East Side, Downtown, Brooklyn, NJ
2. Fine Art: create index fund of minority ownership in
various Monet pieces
• REITs and index funds bundle together thousands of
different properties and assets. As a result, investor
choice is limited.
• Fractionalization enables customizable portfolios and
leveraged long and short positions.
• Unbundling value can create new investment products
• Securitization of distinct revenue streams (i.e. Long
iPhone, Short Apple Watch)
• Commercial real estate cash flow (i.e. rental income
stream vs. property appreciation)
Fractional ownership allows for targeted investment theses to be expressed, enabling a new
class of potential investment vehicles.

22
24/7 Global Markets
• US blue chip stocks are listed on foreign exchanges,
but other mid – large cap companies are harder for
International investors to access.
• Smart securities will allow for global participation in
investment assets: an individual in Estonia can have
exposure to a diversified portfolio of Manhattan
commercial real estate, high tech early stage
ventures, and blue chip stocks.
• The US equity markets are only active Monday
through Friday 9:30 AM – 4:00 PM EST, and subject
to closure on US holidays. Blockchains enable smart
securities to be traded 24/7 with near instant
settlement.
Smart securities are creating global pools of liquidity for retail and accredited investors across jurisdictions.

23
Automated Compliance
Compliance can be automated at the protocol level, reducing the cost burden of companies
and regulators.
01
02
03
04
05
KYC/AML
Accreditation Status
Private placement
exemption-specific
restrictions
(I.e. number of
investors, offer limit)
Transfer restrictions in
secondary transactions
Disclosures and investor
communications
Compliance procedures that can be automated include:
Each procedure can be programmed
into an immutable ledger, ensuring
transparency and authenticity

24
Efficient Settlement
• Fragmentation of internal ledgers results in costly
reconciliation processes
• Designated trust companies provide final clearing and
settlement for all public equities
• Every broker/bank maintains own ledger of ownership
that ultimately resolves to the Trust company's ledger
• Common settlement time for any given transaction is
T+3 days
• Blockchain allows for near instant settlement
Source: https://www.bloomberg.com/opinion/articles/2017-02-17/dole-food-had-too-many-shares
• In 2013, CEO of Dole Food took the company private
for $13.50/share. Shareholders thought this was too
low and sued, winning an additional $2.74/share
• The class action covered 36.8M shares, but
shareholders made claims for 49.1M shares due to
cap table mismanagement by intermediaries
• Blockchain would have eliminated the need for a
claim process because each participant would be able
to reconcile their claim on the shared ledger
Dole Foods Case
Smart securities use blockchain as an immutable ledger in which every cap table change and
transaction is recorded chronologically.

25
Increased Liquidity
• Frictions to buy and sell alternative assets (i.e. lack of market depth, high spreads, and high
settlement costs) cause many assets to trade at a discount to NAV.
• Eliminating the illiquidity discount may increase net asset valuations 20-50%.
• Blockchain transactions reduce frictions by providing divisibility, low cost global transfers of
ownership, automated compliance, and an immutable record of ownership claims.
Source: http://people.stern.nyu.edu/adamodar/pdfiles/country/illiquidity.pdf
Smart securities enable marketplaces and peer to peer transfers for previously illiquid assets.
Most Liquid Least Liquid
Treasury
bonds
Private business
without control
Highly rated
corporate bonds
Stock in liquid, highly
developed market
Lightly traded, OTC, or
emerging market stock
Real Assets Private business
with control
More opportunity for tokenization

26
Cost Reduction
• The majority of cost savings
accrued through ongoing
legal, administrative and
compliance automation
• Post issuance, burdensome
administrative costs around
ownership reconciliation can
be effectively eliminated
$835
$690
$738
$260
TRADITIONAL TOKEN/DIGITAL
Initial Offering Ongoing
Cost Savings Analysis – Traditional vs. Digital Security
$1.6M
$950K
Ongoing
• Regulatory Compliance
• Tax Compliance
• Ownership Transfers
• Admin
• Listing Fees
Initial Offering
• Legal
• Accounting
• Executive Compensation
• Travel/Roadshows
• Automation/Platform
Digitization of private placement issuance has estimated cost savings of 40% over a five year period.
Source: Entoro Capital – Cost Benefit of Digitization vs. Private Placement

27
Segments of the
Ecosystem
Section Five:

28
Securitize utilizes the DS protocol to provide end-to-end
compliance for digitizing securities on the blockchain. Digital
issuers on the platform include Spice VC, Science Blockchain,
and Blockchain Capital, which have tokenized their LP interests
to add secondary-market liquidity.
Polymath is developing a suite of tools for participants to
launch, invest and trade in financial products on the
blockchain. The Polymath platform will facilitate interactions
between issuers, service providers (specifically KYC providers
and legal firms), investors and developers. The POLY token is
used for payments between participants on the platform.
Harbor is an all in one platform for tokenizing private investments.
Harbor provides a fully compliant solution with KYC/AML integrated into
the blockchain protocol. Primary focus is on real estate with initial
investment offerings including housing complexes across the US.
Trust Token aims to build a legally enforceable protocol
with blockchain-based ownership and control of real-world assets via
smart contracts. The company created TrueUSD, the current largest
USD backed stablecoin by market capitalization, and plans to tokenize
assets including fiat currencies, commodities, and real estate.
Issuance Platforms
Technology and service providers that write the smart contract code to tokenize assets.
Segments of the Ecosystem

29
PrimeTrust is a global blockchain-focused financial
institution. The company provides custody services for digital
and traditional assets; escrow services; exchange & OTC services;
as well as traditional banking services.
BitGo is blockchain security company and the leading custody
provider for digital assets. The company provides multi-
signature wallet solutions for enterprise.
Kingdom Trust is a qualified custodian servicing individual
and institutional investors, including fund managers, broker
dealers, and metals brokers.
Bankex is a diversified fintech company with retail and
institutional custody services. Tokenizing blockbuster movie
production, real estate, art, and other verticals.
Custody
Implement institutional grade security to hold digital assets and prevent theft or loss of the assets
under management.

30
Through its broker-dealer, Propellr provides vertically
integrated, digital end-to-end capital markets services
for clients and investors seeking
alternative investments. Services include capital raise,
structuring, and on-going compliance.
Entoro is a global investment bank that
offers blockchain ecosystem advisory and STO
strategy frameworks. The company serves as a
placement agent for capital formation and also
services clients on M&A advisory solutions.
Atomic Capital is a digital investment bank that offers an
underwriting consulting service, digital issuance platform, and
fundraising. The company has offices in NYC and LA and launched in
July 2018.
In July 2018, Coinbase announced its progress towards a
broker dealer license following its acquisition of Keystone Capital
Corp., Venovate Marketplace, Inc., and Digital Wealth. The
Company subsequently indicated its plans to work with regulators
to tokenize existing types of securities.
Broker Dealers
Broker dealers have legal authority (registered through FINRA) to sell securities and primary
issuances to investors.

31
Airswap is a scalable, peer-to-peer trading platform based on
Ethereum. The product is primarily intended to attract
institutional/OTC clients through its bulletin board-style user
interface. Airswap facilitated the first compliant security token
transfer on a public blockchain for the Spice VC token.
OpenFinance Network is a US regulated trading platform for
digital alternative assets. It is the first exchange for smart
securities to go live with listings including Spice VC and BCAP.
Through its affiliated broker dealer, Templum plans to create a primary
issuance platform for ICO/STOs and will also create a secondary trading
facility for registered and unregistered digital securities. Issuers will be able to
launch a digital security through a Tokenized Asset Offering, in order to raise
capital while being regulatory compliant.
Raising $134M, tZero is one of the higher profile STOs of 2018. tZero is
creating a regulated security token exchange that is planning on using
blockchain to reduce the antiquated standard settlement cycle of T+2 to
instantaneous settlement.
Trading
Exchanges provide liquidity for digital assets post-issuance and are marketplaces for buyers and
sellers to trade.

32
Vertalo is a digital asset compliance platform that
certifies ownership (provenance) and investor
eligibility (KYC/AML/Accreditation) on the blockchain in
order to reduce costs for issuers and streamline the process
for buying and selling digital securities.
VerifyInvestor provides a fast and cost-effective method
of compliance for companies seeking to verify their
investors as accredited investors.
Onfido is an AI based software platform that uses photo IDs and a
selfie to confirm identity. The identity can then be cross-references
against international credit and watchlist databases.
IdentityMind provides a plug-in software solution that handles the
necessary KYC/AML compliance process required for primary
issuance.
Compliance
Technology and service providers that ensure issuance of digital securities are regulatory compliant, pre
and post-issuance.

34
Property Details Key Parties
436 & 442 East 13th Street, NYC
Deal Structure Two Token Waterfall

35
Investment Terms Property Details Key Parties
St. Regis Resort in Aspen, CO
https://aspencoin.io/
https://templummarkets.com/aspen

36
Investment Terms Property Details Key Parties
Hub at Columbia, Luxury Housing at University of South Carolina
https://hubatcolumbiareit.com/

37
Portfolio Companies Key Personnel
Blockchain Capital (BCAP)
Blockchain Capital is a blockchain-focused VC fund that launched the BCAP token for one of its funds. The BCAP
token represents a liquid LP interest in Blockchain Capital III Digital Liquid Venture Fund, LP.
Performance*
NAV: $2.93
NAV up +193% since
inception (April 2017)
Exits
Block.one (+50x return)
ZeroX (+25x return)
Power Ledger (+15x return)
*Data as of 12/31/2018
Source: https://blockchainloop.com/blockchain-capital-releases-q3-2018-bcap-token-nav/
P. Bart Stephens
Co-founder & Managing Partner
W. Bradford Stephens
Co-founder & Managing Partner
Spencer Bogart
Partner

38
"As a sharing economy marketplace, Airbnb succeeds when these hosts
succeed… We believe that enabling private companies to grant hosts and
other sharing economy participants equity in the company from an earlier
stage would further align incentives between such companies and their
sharing economy participants to the benefit of both.”
- Company Executive
• Airbnb announced their intention to give hosts
that utilize their platform ownership over the
company. The company requested a change to
SEC’s rule 701, which governs ownership of
equity in companies. Particularly, this change
would enable a new kind of shareholder class
for workers who participate in the gig economy.
• In this example, hosts are able to earn tokens
that represent non-voting shares of equity in
the company by providing key services (listing
their homes) and receiving positive reviews,
which improves the value of the company
overall, and ensures that incentives are aligned
with all ecosystem participants.
Sharing Economy
Hypothetical Case Study
Source: https://techcrunch.com/2018/09/23/airbnb-wants-to-give-its-hosts-equity-in-its-business/

39
Professional Sports
Hypothetical Case Study
Green Bay Packers are notable for being the only publicly owned sports
franchise in the United States. Instead of having one owner, or a
handful or partners like most professional teams, the Packers are
owned by thousands of fans across Wisconsin. The company first sold
shares in 1923 to finance operations when the franchise was on the
verge of bankruptcy. According to its website, there have been five
issuance of stock through a public offering and today, there are over
360,000 owners of the franchise, representing 5,000,000 shares.
• There are limited financial and ownership rights
associated with the common stock the Packers
issued. Shareholders do not receive any dividends
and there is no liquidity or secondary market for
those shares.
• However, the franchise could elect to create a
subclass of shareholders for diehard fans and sell a
percentage of equity in exchange for capital to fund
team operations, players salaries, and improve
stadium amenities.
• The smart contract could be programmed to include:
• Financial rights: dividends, claim on cash flows
• Utilization rights: priority access to season
tickets, annual meetings with franchise players
and management, and exclusive merchandise
• Ownership Obligations: residential requirements,
minimum holding periods
Source: https://www.si.com/nfl/green-bay-packers-shareholders-team-owners

40
The Future -
2019 and
Beyond
Section Seven:

41
The Future -
2019
And Beyond
01
02
03
Market Education
Smart Securities NOT Security Tokens
BUIDL and Deploy Infrastructure
Frameworks
04

42
Challenges to Overcome
Liquidity
Need to build buy-side volume
for organic liquidity. Early days,
exchange volume will be low
and order books will be thin.
Possibility that digital securities
will trade at discount to NAV.
Regulatory Compliance
KYC/AML/OFAC and sanctions
screening mechanisms need to be
automated. Legal frameworks need
to be established to reduce
legal barriers to entry (I.e.
accredited investor restrictions, cap
table limits, etc.).
Custody & Insurance
Secure and regulated qualified
custodians are a pre-requisite for
larger institutions to become
involved. The largest asset managers
will only be comfortable when
traditional asset custodians (I.e. State
Street) enter the space.
Digital Identity
Need to have robust solutions
for digital identity. Self-
soveriegn identity solutions
will enhace privacy by removing
data honeypots and ensuring
users retain ownership of
personal data .

44
NovaBlock Capital is a digital asset investment firm building the foundation for a
blockchain capital markets ecosystem. We believe blockchain technology will
fundamentally change society’s conception of ownership and alter the way people buy, sell
and trade financial assets. Our mission is to identify and invest in blockchain-based digital
assets and companies that are developing infrastructure for broader adoption.
LEEOR SHIMRON
CEO & GP
ANDRE SERRANO
COO
BLAKE RICHMAN
CIO
Novablock.io

45
The Ownera concept is a global base-layer Proof of Ownership protocol on which the
market can compete to manage all regulated asset ownership and trade. Digitizing the
ownership of trillions of dollars in assets, and creating a global liquid market is an
unparalleled financial opportunity with massive socio-economic implications.
AMI BEN-DAVID ALON GOREN JOSEF HOLM TAL ELYASHIV DIEGO BESPROSVAN YUVAL CARMEL
Founding Team:
Ownera.io

46
April 8th, The Ritz-Carlton Los Angeles
From the producers of Crypto Invest Summit (Josef Holm & Alon Goren), the world’s largest investment
focused blockchain and cryptocurrency conference, Security Token Summit is the preeminent Digital
Securities Industry event of the year. Security Token Summit is a one-day, exclusive, high-end Security
Token and Digital Asset focused event.
SecurityTokenSummit.com

47
Thank You!
To this amazing, collaborative industry….
Vertalo for the industry sector graphics, see the updated infographic here:
https://www.vertalo.com/st-ecosystem/
And especially our friends and advisors who gave us incredible feedback
and helped us shape this report.

48
Disclaimer
The information contained in this report is for discussion purposes
only and is not exhaustive. Information provided does not
constitute or include professional financial and legal or any other
form of advice and should not be relied on as such.

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