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Money Metaverse Crypto Tokenization✭

October 24, 2022

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Money Metaverse How Crypto Is Reinventing Tokenization

How Crypto Is Reinventing Finance and Unlocking Value via Tokenization

DEDICATION
To the world-class investors who have been with me right from the beginning
of my 11 years of independent research: Eric Bushell, Adam Levinson, Amit Rajpal,
David Courtney, Rob Citrone, Tomonori Tani, Todd Tibbetts, Scott Sleyster, and
Gary Ang. Thank you for letting me stand on your tall shoulders.
Paul Schulte
To my father.
William Dogger

CONTENTS
ACKNOWLEDGMENTS v
Foreword vi
Introduction xi
Chapter 1: NFTs and crypto 1
Chapter 2: Fintech and Blockchain 43
Chapter 3: Insurtech and blockchain 95
Chapter 4: Proptech and Blockchain 131
Chapter 5: Case study – The fight for Southeast Asia: Sea, Grab, and Payoneer 152
Index of companies 158
ABOUT THE AUTHORS 160

ACKNOWLEDGMENTS
Many people helped me to drag this book over the finish line. One person
helped me with profound insights on a higher plane, and that is David Lee. Another
is Taiyang Zhang, a unique world-class thinker on crypto issues and the evolving
world of digitization. Adam Levinson is another superb thinker on these issues who
always sees around the corners. Those who offered support, friendship, and sanity
checks along the way were John Fowler, Brian Ganson, JY Phuang, Roman Shemakov, Gary Ang, Dillon Hunter, Jim Stent, Matt Zayco, David Sheldon, David
Halperin, Peter Early, Rob Jesudason, and Austin Groves. Also, great thanks to my
co-author William Dogger, one of the best hires I have made in 10 years! Special
thanks to Marcus Frontera for his great work.
Paul Schulte
For the continuous support by my family in France, Norway, and Iran. For the
friends I have made along the way in Nice, Paris, Milan, London, and Toronto:
Angie, Clément, Jonathan, Benjamin, Vincent, Loubna, Mona, Matthias I., Marcus,
Stefanos, Matthias H., Manó, Giorgos, Isis, Clémence, Rayan, and many others. For
my colleagues JY, Tom, and Dean. Paul, for the trust you placed in me.
Thank you.
William Dogger

FOREWORD
When Amazon bought Whole Foods in 2017, many were scratching their heads. Why
would an offline entity buy a physical property? As it turns out, this was ingenious as
this revolutionized the O2O business model that is ubiquitous. In this same way, the
digital world steeped in crypto and gaming has moved into the physical market of currency, art, wine, entertainment, and even securities to create a new “offline to online”
market leveraging blockchain — let us call it O2B or offline to tokenized blockchain.
The nexus of this is the non-fungible token, or NFT. This is simply a unit of data of a
unique digital object stored on a digital ledger or blockchain, which can then be saved
or traded. In this way, it stands as a unit of exchange and as a store of value.
An example of this is Axie Infinity, developed by Sky Mavis and uses Ethereum. Its
NFT collection is valued at $42 mn. Another example of this is Sygnum, which boasts
NFTs ranging from wine to Picasso’s. The digital world is increasingly bringing the
physical world into its universe via blockchain, and this extends to cards, collectibles,
art, gaming, currency, content, and carbon credits, among many others. As more and
more younger people live in this digitized world for almost all their needs (and with
increasing wealth!), these millennials are creating a metaverse of blockchain-based tokens, which are likely to explode in value. This world promises to be a more inclusive,
more innovative, and more creative than a physical world from which many of these
younger people feel they have been excluded.
This metaverse is parallel to the physical world — a world of avatars, virtual substitutes, and XR designed to interact in what we will call an ABCD fashion. This
form of artificial intelligence (let us call it A), when joined to the blockchain (let us
call this B), could add around 16% to global output, or about $13 trillion. Indeed,
it is clear that both AI and blockchain are immature technologies and are subject to
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glitches. Nevertheless, this is true of all technologies. AI can overcome many types of
human biases that bring about bad outcomes. Blockchain offers a way to create trust
through an immutable transaction with no need for an intermediary that takes a big
cut, often initiates new inefficiencies, and usually involves cartelized franchises. The
governance function of the blockchain I describe is a self-sustaining mechanism to allow for maximum improvement and inclusion for all participants. By buying an NFT
on a blockchain, you own an immutable digital space in the binary trustless virtual
world sustained and protected by the consensus of the decentralized nodes. One of
the most important aspects of a blockchain-based metaverse instead of a centralized
cloud-based network is that ownership on a cloud can disappear with it or be changed
by the centralized authority.
This leads us to the C of ABCD: cryptocurrencies. In the metaverse, crypto is the
foundation of “DeFi”, the D of ABCD. This new form of blockchain-based finance
has evolved for many reasons: impatience with unfair structures, profit-seeking entrenched oligopolies, irresponsible monetary policy, among others.
Crypto is the currency of choice to interact within the metaverse. It relies on
smart contracts, mainly through Ethereum. It bypasses the traditional structure of the
use of paper currency as issued by central banks. (Please refer to my recent book Financial Management in the Digital Economy for more details). This world of crypto
is how almost all non-fungible tokens are traded. The value of these NFTs surged to a
new high of $2.5 bn in the first half of 2021. Christie’s has sold $70 mn of NFT art.
Sotheby’s has also entered the fray. Even Visa has entered the scene, buying a “Cryptopunk” avatar for $150,000.
The D of ABCD is where Paul Schulte’s book, which you are about to explore,
becomes essential. DeFi is seen as integrating AI, blockchain, and crypto with a
digitized metaverse to save, trade, transact, and manage wealth. It does not rely on
centralized financial institutions such as commercial banks, clearing banks, or central banks. It does not rely on traditional securities exchanges or other entities ——
like SWIFT for banks or DTCC for brokers. China has taken a decisive lead here,
with other countries such as Singapore, Thailand, HK, and the UAE in advanced
stages of rollout.
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Here is the rub. This is clearly a threat to most traditional commercial and investment banking structures, although Goldman Sachs and JP Morgan have done
remarkable work in advancing their blockchain systems. However, is it a threat to the
fintech firms that have only recently created a new generation of financial services
which are purely digital but lack blockchain applications? This book explores who in
the fintech space is capable of and ready for more change and upgrades in their relatively new systems.
Among those companies that have a real chance to (yet again) leapfrog into the
world of DeFi, we put our money on Visa and Master Card. Square and PayPal are
also doing quite advanced work in this area. The book nicely covers this. Facebook,
Google, and Apple are threatening to move into this area aggressively, but they are
very low-key in articulating their strategies. The book also covers Coinbase and what
they are up to. The book also addresses some of the more helpful valuation parameters
that can value these companies. On the unlisted side, companies like Circle are in the
middle of the traffic and are essential to understand.
The other part of this book analyses whether the new crop of insurtech will be
capable of making the leap to the blockchain metaverse. So far, Schulte’s conclusions
are somewhat dire. Few if any of them have mastered a purely digital model that offers even a hope of profitability. As they bleed losses trying to master a strictly digital
approach to insurance, can they also pour money into complex new metaverse DeFi
functionalities that require complex blockchain systems? He is skeptical. This is probably because insurtech got off the ground in 2017-18, much later than fintech, in
2013-2014. If the evolution of fintech is anything to go by, insurtech will likely begin
to move into the metaverse in 2022-2023. However, the speed of the pure metaverse
companies like Coinbase, Envelop, Sygnum, or Silvergate could leapfrog them and
move into the insurance space. The blockchain-based world of insurance is open field
running, and there are virtually no players. Surely, this is a place to dig.
Lastly, the book explores two other vital areas. One is the world of proptech.
Schulte and his team have picked Linklogis in China and Bukalapak in Indonesia
as two companies redefining logistics. Linklogis has done more than any other company globally to link blockchain into working capital for small and medium-sized
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enterprises. Their business model is fascinating and represents the best of DeFi — creating a working capital metaverse for entire systems. Bukalapak is looking for a new
way to fund small shops across Indonesia’s archipelago. The best of all worlds would
be Bukalapak’s “distribution and logistics” system and Linklogis blockchain “working
capital and logistics: system.
The last part of the book is essential from the viewpoint of Singapore. SE Asia is a
global hotspot for new finance applications to hundreds of millions of unbanked and
generally unresponsive banks. Grab, Payoneer and SEA are the major players here. As
these morph into digitized payments platforms and then stretch into the metaverse,
his money is on SEA. After all, the world of gaming is the best teacher for the DeFi
metaverse. Grab’s losses grow by the year, and Payoneer operates in dozens of regulated jurisdictions. This will be a battle royale to watch.
Lastly, there is extensive coverage on Chinese Big Tech companies. They are continuously improving AI, data, machine learning capabilities and rolling out blockchain-based services to stay on top of the market, improve margins, and ultimately
reach an interoperable infrastructure. This is fundamental to communicate and share
data on a new set of digital rails: seamless, immutable, secure, and scalable. The “laissez-faire” attitude in the last 20 years in China led to the rise of massive conglomerates
with valuable proprietary databases and the emergence of systemic risk from a narrow
pool of companies.
Recently, these companies confronted political risk underpinning the Chinese
government crackdown. Alibaba, Tencent, and Ping An are technologically and operationally way ahead. However, they are fighting fierce headwinds from aggressive
regulators. The latter are bent on curbing China’s Big Tech and redefining the Chinese
regulatory landscape: greater state control on data, monopolistic activity, payment
channels, and consumer lending habits.
I strongly encourage readers to look into this book. Paul Schulte and his colleague
William Dogger dissect each company in fine detail and then circle back, offering a
strategic view of where things are going sector by sector. Finally, they package everything up in the front of the book with important themes for professors, investors,
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olicymakers, and central bankers to gauge success or failure on a corporate or nap
tional level. It has extensive text at the beginning of each section to offer insight and
context but is also well articulated in PowerPoint for too many of us lost in the Twitterverse. All in all, it is the right book at the right time and in a cutting-edge area of
finance. The metaverse will only grow. There is no way regulators can put this genie
back in the bottle. They must evolve with it and, at best, tame it. Trying to get rid of
it will only broaden it.
David Lee, Ph.D.

INTRODUCTION
This book is a kind of illustrated look at the evolution of finance and insurance as well as property – from the now musty world of digital apps to a very recent shift
into blockchain-based functions. The latter can shape both the quantity and the quality of digital information of people, places, things, and ideas. It is happening at great
speed, as all new technologies can and must. It is happening to several different,
although related, industries simultaneously but in slightly different ways. This book
is very detailed and case-specific about exactly how these changes are happening and
how they will affect the lives of consumers, bankers, investors, and regulators.
The picture below lays out the theme of this book. Fintech, proptech, and insurtech
are now in an intermediate stage of development. They have done what they can for
customer acquisition, AI, edge computing, elaborate credit scoring, telematics, IoT,
cloud, and display. New digital sub-sectors have been created in payments, eCommerce,
wealth management, lending, buyer/seller platforms, smart homes, cities, and end-toend all-digital insurance products. Much of this has been done autonomously from
traditional platforms. In this way, a new industry born twelve years ago, starting with
pioneers such as Alibaba, PayPal, and Square, has now reached a stage of maturity.

Figure 1
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In 2020 and 2021, we have seen this technology move to a whole new level with
the acceptance and integration of blockchain technologies. They are causing a profound fracture in traditional financial services because they can create open- and
closed-chains for all kinds of services as noted above — property, finance, insurance,
broker/dealer activity. At best, all of this can be done without the traditional systems
for banking such as SWIFT, DTCC for securities, or expensive mortgage brokers
for property. At worst, they can exist alongside and offer a fringe group of “financial
anarchists” an opportunity to operate outside a system they have grown to distrust.
We submit that the acceptance and integration of blockchain technologies in finance,
insurance, and property would not have been workable without the increasing acceptance of cryptocurrencies. In many ways, the themes we lay out in this book clarify that
the growing popularity of crypto and the ever-increasing use cases of blockchain are a
“hand in glove” affair. They go together. The chart below shows a new set of tools that
have grown out of blockchain and crypto activity. These include financial services, healthcare, clinical trials for drugs, government and civic action, transportation, and insurance.
We think that the greatest need for blockchain applications lies in insurance. The
spate of newly listed insurtech companies have impressive technologies, but they have
no blockchain applications almost to a man. This is remarkable since insurtech evolved
long after fintech, a recent phenomenon dating back to 2017. There is a gaping hole
in the insurtech landscape for blockchain/crypto projects. Blockchain applications in
property are only now bearing fruit in 2021.
So, the companies we highlight have little blockchain technology but are candidates for “bolt-on” crypto activity.
Centralized blockchain infrastructure
Focus on Government services, Healthcare, and Transport
Banking and Financial
services
Healthcare

Schulte Research

Research & Clinical
trials

Faster and more secure payments, settlements, and clearance

Securely share data across Healthcare institutions

Reconcile disparate data

Increase efficiency, minimize fraud, and increase accountability

Government & public
records

Casting, tracking, and counting votes

Public transportation

Commuting and transit data to improve transportation systems

Claims management

Improve back-end healthcare and insurance infrastructures

Sources: Schulte Research

Figure 2
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As 2021 draws to a close, we think a new phenomenon will become standard
over the next two to three years: NFTs — non-fungible tokens. The manifestations of NFTs we see today are talked about as hype, glamorous, over the top,
activity for those with cash to burn. We think this is a mistake to believe that
this is a flash in the pan. We will show in this book the natural use of blockchain
to extend the maturity and uses of digital fintech products. In the same way, we
believe the use of NFTs is a natural extension of blockchain and crypto. Indeed,
a strong case can be made that NFTs can only arise out of a world encased inside
blockchain and crypto.
The page below shows how NFTs can extend the uses of blockchain and create yet
again a new set of industries that we have never seen. Blockchain’s indelible creation of
universally recognized ownership and identity — as well as fungible smart contracts —
solves many problems of ownership and financial rights for amateur digital art, film
characters, unique avatars, and talented gamers. It solves many issues of minimal royalties for products bought by millions of people. It can play a role in public and civic
activity. It creates whole new digital worlds in gaming and education. And it creates a
store of value that can be in the gate of hundreds of billions.
Initial applications of NFTs
Applications of NFTs are broad and growing
Entertainment
Collecting
Creation
Governance

Schulte Research

Gambling
Investing
Gaming

Own sporting moments, film characters, or amateur memes
Store assets safely, relying on underlying wallet
Unique ownership of an item, with continual proof of authenticity
Anyone can share their talent publicly and own it indefinitely
Claim royalties on future sales, guaranteed by smart contracts
Voting functions (i.e., choosing next signing for sport team)
Could develop to decentralization of political and corporate decisions
Offers a new item to wager

the digital file itself

Zed Run has sold tens of thousands of virtual horses that can be bred and raced for money up to US$65 k
Uniqueness of assets leads to appreciation in price as popularity grows
Both in gambling format and with a more recreational focus
In-game items are tokenised, to be exchanged outside of the game

Sources: Schulte Research

Figure 3

We will also unabashedly explore the political ramifications of this massive shift
in technology. Control of cities along the Silk Road is an essential part of this. We
must examine the US-China conflict to see who will control the new digital railroad
systems these blockchain products will travel. The regulatory issues are paramount
since regulators have sovereign financial autonomy problems to consider. They need
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to raise debt shortly and use old copper-based systems to pump out this debt to old
buyers. New technologies could very well compromise this ability. Exchanges are primarily a private sector affair and are naturally jealous of new entrants that can disrupt
profitable businesses.
Furthermore, when it comes to insurtech and the oncoming freight train of blockchain technology and tokenization, these fairly new creatures with novel solutions
to insurance will need yet another investment cycle reasonably soon. It is not good
enough to say that the technology is three years old, so it is sufficient. Technology is
changing rapidly. Fintech companies like Visa and PayPal have invested in crypto and
blockchain since four or five years ago, so they are ahead.
Insurtech will need costly programs to create newer technological solutions for
2022 dilemmas. This will involve investing in parallel blockchain solutions, which
are expensive. Bolting on blockchain solutions to existing “older” technology is not a
sufficient solution. This will be expensive. And it will require new forms of interoperability. For us, it makes sense to think of insurance products as a universal insurance
offering. The new blockchain technologies speak to a unified platform that can be
spun off later after interoperability is established.
Lastly, we add an insurtech case study that shows the kind of insurance super
app we would want if we had a magic wand. It envisions an easy-to-use interface
that is interoperable and universal in its offerings of insurance products. Specialized
insurance runs against the grain of the ubiquity that is offered by multiple layers of
data. This app lays out the app features which combine the best of health tech and
insurtech with blockchain in the background. Again, these new technologies beg the
use of universal ubiquity and not niche specialization. Platform ubiquity will lead to
specialization. Gathering specialist niche platforms in the hopes of creating one integrated system may be a fool’s errand with blockchain.
The movement from fintech and insurtech based on AI and IoT to blockchain-based NFTs is to us as natural as the move from whale oil to electricity. It is as
easy to grasp as the move from the horse to the car. It is as simple to comprehend as
the move from the telegraph to the telephone. It is unstoppable. It will be accepted
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and regulated. It will provide vital solutions to governments. It will bury those who
refuse to adopt it.
Enjoy this book. We are exploring new trends as they develop – technical, political, geographical, and civilizational. With tokenization achieved through cryptocurrencies, the move from physical to pure digital on all fronts will have massive implications for existing financial, political, and economic infrastructure. Figure 4 to Figure
8 below explain what drives home the front. The economic and financial essence of
tokenization cannot be understood without connecting them to the political and diplomatic shifts appearing before our eyes. May the best man win!
Welcome to the money metaverse.
Key issues in Blockchain infrastructure:
How the public-private intersection will work
Monopoly, data privacy, regulations, systemic risk, proprietary/public infrastructure?

Will the development of Blockchain-based infrastructure be led by privately-owned entities,
governments, or collaboratively?

Schulte Research

VS.?
With?

Sources: Schulte Research

Figure 4
Key issues in Blockchain infrastructure:
How the public-private intersection will work
Monopoly, data privacy, regulations, systemic risk, proprietary/public infrastructure?
Private infrastructure

Public infrastructure

Threat of monopoly behavior can lead to antitrust
investigations, hindering advancements

Government controls data

Fragmented market leads to inefficiencies in the
treatment and usage of Big Data due to unconsolidated
data

and absence of trust in the government

Schulte Research

Lack of incentives in developing proprietary technology
due to systemic risk posed by data monopoly

Fragmented government entities in the US slowing down

Centralized control in China lead to faster advancements
harmonization of internal and external data

Trust and accountability of private companies
Sources: Schult
Schulte Research

Figure 5
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Key issues in Blockchain infrastructure:
How the public-private intersection will work
Monopoly, data privacy, regulations, systemic risk, proprietary/public infrastructure?

Schulte Research

Our take

Data in China will be owned by the PBOC?

Data in the US does not have consolidated
control. Fragmented data in FB, APPL, AMZN,
GOOG plus investments by government in
privately-owned companies

Blockchain and DC/EP powered by the BSN?

Blockchain in the US now heavily funded by the
Department of Defense

Data are the cars on the railroads, Blockchain is the railroad

Railroad monopoly controls how much it charges, when, how, who, and at what frequency its usage
Sources: Schulte Research

Figure 6
Global Summary:
Deviation between sectors
Deviation between sectors on valuation & operating metrics, but all adopting similar business models

Fintech and Crypto companies trading at far higher multiples relative to Proptech and Insurtech

Valuation

Early listings resulting from a plentiful supply of capital that is spurring record valuations and company growth
Fintech giant Visa spearheads trading multiple rankings

Fintech companies are seeking a path to profitability;
They need headway to reach scale and market;

Operating metrics

Fintech is an industry characterised by high technological barriers;
Meanwhile, Insurtech is struggling to reach profitability;
Select Insurtech companies are still achieving loss ratios comparable to traditional insurers due to poor proprietary technology

Schulte Research

Fintech, Insurtech, Crypto, and Proptech

Business Models

A one-stop-shop super app seems to be the weapon of choice to achieve CEN, supporting cross-selling/up-selling benefits. This remains elusive
Ping An has achieved this by leveraging an O2O strategy to offer a variety of services in a single app
PayPal is on this bandwagon by recently announcing the creation of its own one-stop super app

Sources: Schulte Research

Figure 7
Global Summary:
Similarities between US & China
US & China both focused on antitrust & data, whilst shared goals between sectors are driving trend commonalities

Key goals focused on solving pain points at both ends of the value chain

Goals and Limitations

Ultimately look to achieve harmonised decentralized platforms, remove intermediaries and improve efficiency
Limitations are related to poor transparency, uncertain regulatory landscape, fraud, fragmented markets, etc.

Blockchain a key railroad for all sectors
Record funding

Trends

it is a transportation system for all data

Q1 and Q2 2021 have seen a flurry of capital fuelling growth

IoT, Big Data, AI and analytics becoming a mainstream technology for all sectors across all aspects of their business model
operations and customer experience

fraud,

Schulte Research

Decentralisation and data as a store of value are hot emerging topics

US and China at cross roads on regulation

Regulations

Both are focused on addressing issues related to antitrust, data privacy and data monopoly
Chinese IPOs in the US to redirect to Hong Kong in response to cybersecurity reviews requirements before listing overseas

Sources: Schulte Research

Figure 8

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Chapter 1:
NFTs and crypto
Section 1: The world of finance, insurance, property, and health is rapidly morphing into a crypto-led digital metaverse where all physical movement (people, places,
things, and ideas) is being tokenized, valued, and traded. Increasingly, all of this
must be seen as a whole, and financial institutions which fail to see this will be out
of business.

Global Summary:
Blockchain as the railroad, Big Data as the cars
Fixing transparency, traceability, AML, KYC for future advancements in data analytics (e.g., edge/quantum computing)

US key players

NFT
Intellectual property

Crypto

Fintech

Property
Money
Insurance
Art/Wine/Sports

NFTs

Gaming
Rewards and incentives

China key players

Insurtech

Proptech

Risks

Schulte Research

Monopoly behavior
Antitrust hindering
development

Railroads Required

Blockchain (e.g., BSN)
Central Bank Digital Currency

Incentives to develop
proprietary technology
Fragmented data
Public trust

Sources: Schulte Research

Figure 9

There is a new railroad being laid; only it is digital. This railroad is blockchain.
China has the lead so far, but the western alliance is rapidly catching up. Central
bank digital currency will be the main railroad, though it is unsure who will own
it. More importantly, who will operate the railroad station franchises. In China, it
is Alibaba and Tencent now securely under the thumb of the PBOC and the State
Council. In the West, it is still hard to say, but Visa has done a phenomenal job
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of commandeering much of the activity of railroad stations. PayPal is catching up
quickly. JPM and Square are also powerhouses. Coinbase is a significant player but
just cannot get any love from investors.
Digital currency: institutional investors
CBDCs as the first step to democratization of digital currencies
Remarks

Primary role for a crypto in a portfolio or treasury account
The Economist survey of 200 institutional investor and corporate treasury management

Issuance of CBDCs necessary to establish functioning market for new
financial instruments

Capital appreciation, 33%

will increase demand for other forms of

digital currencies

Alternative asset diversification, 31%

Institutions sees a demand for international institutional-only currency
exchange platform

Monetary transfers for large settlements, 29%

Increased regulatory clarity needed

F/X or currency exchange, 28%

Preference for transactional use in the future, but currently used as a store of
value

Hedge against inflation, 28%

Schulte Research

Governments and regulatory entities:
1. must work together to bring clarity and investor protection when
investing in crypto-assets; and
2. must educate and provide guarantees for both investment in
crypto-assets as a store of value and as a medium of exchange

Hedge against low interest rates, 27%
Protection against geopolitical uncertainty, 25%
Simplified digital settlement/transaction only, 24%
Speculation, 21%
Deflation protection, 16%
They should have no role, 1%

Sources: The Economist Intelligence Unit: Digimentality 2021: Digital currency from fear to inflection

Figure 10

Figure 10 shows just how rapidly cryptocurrencies have become an integral part
of investing. According to the EIU, only 1% of participants in its survey said crypto
does not belong in a portfolio. The suggested uses include capital appreciation, diversification, transfers, inflation hedge, and a political risk hedge.
Digital currency: institutional investors
Catalysts and obstacles to acceptance of digital currencies
Primary triggers to enhanced activity in digital currencies

Primary obstacles to institutional investor of digital currencies

The Economist survey of 200 institutional investor and corporate treasury management

Wider adoption of CDBCs, 31%

Market trust or understanding of digital currencies/assets, 47%

Availability institutional-only digital currency exchange, 29%
Financial market structures, 43%

More robust AML controls, 25%
Increased economic instability, 25%

Asset volatility, 36%

Sharp rise in other asset prices, 23%
Support digital currencies by leading corporations, 23%
Reduction purchasing power, 21%

Provide regulatory
framework and
institutional investor
protection

Sharp fall in other asset prices, 21%

Internal technological challenges, 32%

Regulations, 32%

Lack of related digital financial services, 27%

New regulatory framework, 21%
Lack of corporate support, 24%

Schulte Research

Rising interest rates, 19%
Continued low negative interest rates, 18%

Insufficient interoperability, 19%

Significant social unrest, 13%

Sources: The Economist Intelligence Unit: Digimentality 2021: Digital currency from fear to inflection

Figure 11

Figure 11 shows the obstacles to greater use. Frankly, we boil it down to two:
absence of insurance and regulatory approval as a tradable commodity asset class on
the CBOE.
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Paul Schulte

Stablecoin categories
Growing base of stablecoins displaying a movement beyond traditional crypto use cases
Fiat-backed

Coins backed by a corresponding US$ in a treasury

Crypto collateralized

Stablecoin collateralized by other digital assets (e.g., ETH, BAT, USDC)

Interest-bearing

Token created to represent stablecoin deposit earning interest

Backed by SNX holders who are rewarded for providing collateral and stability
with fees generated by Synth transactions

Schulte Research

Synthetic

Algorithmic

Coin programmed to optimize search of highest yield opportunities

Figure 12

Crypto lending
Crypto lending booming

a trend picked up by blockchain projects

Obtains crypto loans

Deposits fiat currency

Lender

Borrower

Deposits crypto assets as collateral

DeFi Lending
Platform

Schulte Research

Repays the loans with interest

Receives collateral back after
repayment

Receives funds back with interest
(passive income)

Sources: Medium.com

Figure 13

NFTs: Crypto Art Boom
NFTs have grown to account for c.10% global art market sales where Millennials account for 71%+ resell art
NFT sales by category
Collectibles

NFTs quarterly sales1
Sports

Games

Art

Utility

Data in US$ m

Me taverses

$2,929.2
5% 3%
11%
40%
10%

Schulte Research

31%

$424.0
$9.2

$7.7

$18.4

$31.6

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

$503.9

Q2 2021

Q3 2021

Sources: Consensys, NonFungible
(1) Q3 2021 until 15-Sep-2021 included

Figure 14
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Then, we get to the evolution of non-fungible tokens. The first element of this
is the inclusion of DeFi to trade, collateralize, securitize, and perform government
functions (Figure 12, Figure 13, and Figure 14).
The second is to guarantee an immutable, connected, and transparent establishment and public recognition of this thing or this person. Solana is seen as a strong
candidate for this space.
The third element of this is the theme of this report — the metaverse. This includes the public valuing of assets outside of any intermediary. This includes artistic
expressions which live only in the digital domain.
Summary

Schulte Research

Special benefits, opportunities, and use-cases
Authenticity

Validity, uniqueness, and properties
are immortal and decentralized

Connectivity

Immediate access to creators,
buyers, and sellers globally

Smart contracts

Enable price-fixing, royalties, loyalty
rewards, and infinitely many other
functions

Fresh engagement

Incentivise fans and encourage
repeat-purchase of other products

Provide voting rights, with all of the
above benefits

Transparency, yet
anonymity

Assets owned on public keys, visible
and tracked, without direct
identification

Decentralized
governance

Immutability

Once minted, an NFT is immutable

Metaverse immersion

Ownership is validated by the
underlying blockchain

Security

Inclusion

A key step towards a digital,
tokenised world. More
interoperability and sectors must
follow

Involvement of the general public
into any space

Sources: Schulte Research

Figure 15

NFTs unique representation of a digital file
Exist on the blockchain: capable of exchange and ownership, with the benefits of immutability, traceability, and security
Accessibility

Schulte Research

Uniqueness NFT

Anyone can purchase (or even create) an NFT
Most popular public marketplaces: OpenSea and Rarible
Unique: can not be interchanged with another
Underlying digital file allocated to single owner on the blockchain
Similar to cryptocurrencies

Controlled by private
cryptographic key

Most users connect to a wallet (i.e., Coinbase) to the marketplace, allowing non-custodial storage

Laws and regulations

The nascency of NFTs limits the associated laws and regulation currently

Minting

Smart contract

Process of converting a file to an NFT

Usage and ownership of an NFT igoverned by smart contracts

Figure 16
4

Paul Schulte

Initial applications of NFTs
Applications of NFTs are broad and growing
Entertainment

Own sporting moments, film characters, or amateur memes
Store assets safely, relying on underlying wallet

Collecting

Unique ownership of an item, with continual proof of authenticity
Anyone can share their talent publicly and own it indefinitely

Creation

Claim royalties on future sales, guaranteed by smart contracts
Voting functions (i.e., choosing next signing for sport team)

Governance

Could develop to decentralization of political and corporate decisions
Offers a new item to wager

Schulte Research

Gambling

the digital file itself

Zed Run has sold tens of thousands of virtual horses that can be bred and raced for money up to US$65 k

Investing

Uniqueness of assets leads to appreciation in price as popularity grows
Both in gambling format and with a more recreational focus

Gaming

In-game items are tokenised, to be exchanged outside of the game

Sources: Schulte Research

Figure 17
NFTs trends: integrate financial frameworks
Integration into DeFi and Portfolio management
Virtual objects type of cultural capital
Traditional and emerging art expected to be integrated into emerging financial frameworks

Schulte Research

DeFi

Collateral for borrowing or
fractionalized

Portfolio management

Attached to fixed income
instruments

Government participation tokens

Sources: Blockchain Council

Figure 18
NFTs trends: metaverse, DAOs, digital museums
Difficult to implement in the fiat universe

Schulte Research

Ethereum

to send and lock NFTs to individual
addresses

Decentralized autonomous
organizations

Applications

Software-defined investment
collectives that bid on the acquisition
of artistic expressions

Sources: Blockchain Council

Figure 19
5

M O N E Y M E TAV E R S E
NFTs trends to watch: multichain and institutional
protocols & networks
IPFS and multi-chain support to avoid losses of digital assets in case of blockchain discontinuity
IPFS and multi-chain support

Enterprise IP networks and emerging media

Token market collapse in 2018 caused majority of crypto community
to shift focus to institutional enablement models

NFTs allow ownership of a reference to a file stored on IPFS

Led to proprietary protocols and networks
Problem: if business ceases to exist, unclear what happens
to your digital asset

Schulte Research

Resulted in digital asset and consultancy programs aimed
at developing blockchain controlled operations

Expect similar chain of events in traditional media: film, music, and
art

Possible solution: IPFS secures NFTs in the multichain world
Sources: Blockchain Council

Figure 20
NFTs provide new opportunities within
entertainment
Secure and reliable revenue stream, providing traceability, engagement, and governance
New revenue stream

Offerings and transactions can continue outside of the sporting-season
Security and traceability of all tickets

Ticketing

Tickets with fixed price on the blockchain, preventing scalping and touting

Fan engagement
Customer relationship
management

Schulte Research

Fans are willing to pay to for inclusion and interaction

Exclusive offers and loyalty rewards tracked and distributed via ownership of NFTs
Data value at the core
Ownership segmentation, quantity, and composition within a wallet offer insights to the customer base. Leveraged for
tracking improvement, advertising, and collaborations

High-profile NFTs draw attention to the underlying entertainment (e.g., NBA Top Shop for the NBA)

Governance

Fans can contribute to decisions: revenue generation and benefit from wisdom of the crowd

Sources: Schulte Research

Figure 21
Crypto is the cashflow, NFTs are the assets
Nascent market expanding at a rate that can not be ignored
Transaction volume

Famous NFTs

Schulte Research

Ownership of a file?

Pandemic as a catalyst

c.US$2.5 bn of sales in H1 2021

CryptoPunks have had more than US$1 bn in volume
Beeple

Everydays

the most expensive NFT ever sold for US$69 m

How can it be pictured in this PowerPoint, yet sold for US$69 m?
Comparable to photographing or copying the Mona Lisa: the value is in unique ownership

The pause in entertainment and sport required a new way to engage and monetise fans worldwide
Aligning with the surge in blockchain-based products

Figure 22
6

Paul Schulte

The fourth element of this is the enterprise or institutional, which are a betrayal
to the purists in that they are proprietary. This includes central bank coins and aspects
of traditional media like music and film. Figure 15 to Figure 22 are clear pictures
showing the trends in NFTs.
The bottom line for us is that crypto is the cash flow and NFTs are the assets. This
will flow into art and wine but also tickets, fan engagement, advertising, governance,
and member wallets. This market is $2.5 bn and rising sharply by the month.
NFTs: Crypto Art Boom
NFTs have grown to account for c.10% global art market sales where Millennials account for 71%+ resell art
NFT sales by category
Collectibles

NFTs quarterly sales1
Sports

Games

Art

Utility

Data in US$ m

Me taverses

$2,929.2
5% 3%
11%
40%
10%

Schulte Research

31%

$424.0
$9.2

$7.7

$18.4

Q1 2020

Q2 2020

Q3 2020

$31.6
Q4 2020

Q1 2021

$503.9

Q2 2021

Q3 2021

Sources: Consensys, NonFungible
(1) Q3 2021 until 15-Sep-2021 included

Figure 23

Key risks associated with NFTs rollout
Volatility

Environmental

Licensing

Schulte Research

Regulatory

NFTs are difficult/impossible to value, due to their unique nature. Combined with rapid and global exchange; prices
change quickly
Ethereum, currently the leading blockchain for NFTs, demands vast amounts of energy for its Proof-of-Work structure
Ethereum switching to Proof-of-Stake consensus mechanism
Owners-rights are dependent on the marketplace and NFT, these should be reviewed prior to purchase
Newer projects are offering more commercial rights
Novelty, uniqueness, and complexity combine to uncertainty of future regulation and laws for NFTs
Global reach and semi-anonymity further disrupts regulation

Criminal activity

High fees

Blockchain transactions fees, marketplace fees, and infrastructure costs cause expenditure upon purchasing an NFT
(typically between 1-10% of the price)

Sources: Schulte Research

Figure 24

Figure 23 shows the art market activity. Ethereum and Flow are likely winners in
this area. Figure 24 shows all the risks, and there are many.
7

M O N E Y M E TAV E R S E

Section 2: The integration of crypto into the new blockchain rails created a digital
data transportation system that confers ownership. This is the metaverse. A perfect
“tangible” example of this metaverse is Somnium. Somnium is a self-contained VR
reality customizable and ‘lovable’ because it has AI capabilities that bring avatars to
life. It is a “persistent” social VR world. You can live in this world and buy, sell, transact, learn, shop, and travel. (Somnium means “dream” in Latin. Kepler wrote a book
called Somnium and anticipated space travel — in 1608).
Partners of Somnium
-level specifications

Pimax
Somnium has partnered with Pimax

-based domain

Somnium has partnered with Sony via their state-of-the-art 3D model creation technology
In addition, Sony houses a VR-based store within the Somnium universe that is one of the first in the world

Somnium is a part of the specialized Microsoft for Startups program.

Schulte Research

Bring advertising revenue for users on the platform

platform transactions.

-two solution offers speed and near-zero transaction costs for Somnium users with respect to on-

Sources: Metaverse series Part II

Figure 25

Partners of Somnium
OpenSea provides an accessibility, highly-liquid marketplace to empower these new economies, and offers tools that
permit developers to build such marketplaces for their digital assets

VR Education uses the Somnium space VR platform to enhance experiences and drive more education with respect to VR
adoption

Collaborative efforts towards constructing a truly decentralized and immersive metaverse

Schulte Research

Enabling teleportation between VR worlds

One of the most trusted and secure digital currency exchanges/custodians globally enabling customers to transact and
store digital assets
Sources: Metaverse series Part II

Figure 26

Paul Schulte

People who never had a computer in their home wondered why you needed a
computer – until you got one. People who never had smartphones wondered why
you needed them — until you got one. The same will be true, in our opinion, for
new equipment which offers us a self-contained world of AI-driven entertainment,
learning, and commerce. This is the gamification of finance and investment. To
this end, Somnium has partnered with Sony, Microsoft, and Polygon, among many
others – Figure 25 and Figure 26.
Economy in Somnium
Product/service offerings that allow platform users to generate revenue

Schulte Research

Characteristics

Economic activities

VR-based economies are unfettered by restrictions such as physics
and geography

Tokenizing and selling their productions directly via open
marketplaces

Applications involving blockchain and digital asset

Owning and monetizing broader digital assets within the Somnium
Economy

Safety, privacy, encryption, traceability, and verifiability of ownership
of digital items/asset transacted on platform via the network.

VR world navigable by thousands of users simultaneously

Users to maintain full ownership over their digital assets/possessions in
the form of NFTs.

Creation, building, and monetization of land

Sources: Metaverse series Part II

Figure 27

Figure 27 is a taste of what is to come in the metaverse — everything can be tokenized in Somnium. Players have a digital wallet, NFTs, marketplaces, art, learning,
events, thousands of interactive friends, and even land.

Developers

Collectors

NFT collectors exhibiting their collections on their land as
well trading amongst each other

Entrepreneurs

Entrepreneurs can build and sell digital/tangible goods

Traditional companies

Schulte Research

Developers selling tokenized digital assets and avatars

Game developers

Cornerstone principles
Sominium Economy

Somnium Space monetization and business
models
Tokenization of virtual land
Tokenization of digital
assets/experiences
Decentralized marketplaces

Traditional companies and businesses creating a store presence within the Somnium Space

Game developers inserting short/large demos or gaming experiences into the Somnium Space

Sources: Metaverse series Part II

Figure 28

M O N E Y M E TAV E R S E
Somnium Space monetization and business
models
Content creators

Content creators can showcase a variety of virtual
experiences (e.g., vlogs, commentary, etc.) and monetize
them within the Somnium Space/platform

Universities

Universities and other higher-learning institutions building
courses and experiences such as an immersive
planetarium

Artists

Artists can showcase a variety of creations such as 2D/3D
paintings and sculptures

Native token of Somnium: Somnium CUBEs
CUBEs can be used for a broad array of product/service
offerings including:
interacting in entertainment (e.g., race cars)

Schulte Research

land purchases or renting
digital asset/item sales in the marketplace
eCommerce

Streamers

Streamers (e.g., Twitch, etc.) having their own virtual studio from which they can record within the Somnium Space

Unity SDK

Developers can build anything – for fees or otherwise – and upload it via the Somnium Unity SDK for other users to engage,
interact, and transact with

Sources: Metaverse series Part II

Figure 29

Investing, Buying & Renting Land
Brand new area of virtual real estate
Overview

Value of parcels

Each land parcel is unique, unreplicable, non-forgeable, and has verifiable
ownership.

The value of various parcels within the Somnium Space varies as a function
of factors: popularity of areas, the view of different areas, size, etc.

Owners of these NFT-based land parcels have direct autonomy over
contents that are built on top of their land parcels

The average land parcel in the Somnium Space across the different size
ranges sold for roughly 6.57 ETH, or equivalently US$14,560
Throughout the COVID-19 pandemic, as more users enter the Somnium
scarce digital real estate within the Somnium Space will continue to
increase in value.

Schulte Research

Metaverse Property: the first VR-based real estate company in the entire industry
Property Management
Renting property to clients, maintenance of
technical and visual aesthetic, collecting rents from
clients

Property Development
Architecting, designing, and developing the build, as well
as establishing on-map development

Consulting
Helping property owners/renters make important
decisions in VR-based real estate using their
knowledge of virtual land across metaverses

Marketing
Metaverse Property has strong access to the burgeoning
advertising network that exists across the various
metaverses

Sources: Metaverse series Part II

Figure 30

The world of “Ready Player One” is here – Figure 28, Figure 29, and Figure 30.
The future of conferences is here. Think of a world where every elementary or high
school has a chance to become an avatar for their students. It is scary, but that is where
this is going.
PayPal is one of the major companies which is young enough to be hungry and
not yet old enough to rest on its laurels. It is aggressively moving forward with a
broader product range and expanding geographically. Square is also doing terrific
things in this area, but we prefer PayPal on valuation grounds.
10

Paul Schulte

Visa vs. Mastercard vs. PayPal vs. Square
Content/Section Title

1.
2.
3.
4.

Products

Buy, hold, sell using Visa credentials
Cash-out to Visa credentials
Crypto APIs
Direct settlement in USDC

Customer segment

Visa network to facilitate access for
partners to crypto APIs and transaction
settlement
B2B Visa Connect for blockchain crossborder payments
Visa sees a global opportunity in crypto,
besides China, which is restricted by Union

Geographies

Buy, hold, sell using Mastercard
credentials
Cash-out to Mastercard credentials
Crypto APIs

2.
3.

Cryptocurrency trading and as a funding
source
Adds a lower cost of funding for PayPal
Supportive of users & engagement
1.
2.

Mastercard network to facilitate access
for partners to blockchain APIs (smart
contracts, fast pay network in P2P, P2M,
and B2B)
Stablecoins settlement in 2021

Crypto Checkout: settled in fiat currency
Buy, hold, and sell Bitcoin, Bitcoin Cash,
Litecoin, and Ethereum
No Balance sheet exposure
Product exposures: benefits from buying
and selling via third-party Paxos. No
exposure to the volatility of underlying
crypto-assets

Looking for consumer protections, strict
compliance protocols with regulations, and
pure payment not as an investment in
potential crypto-assets

No direct exposure to crypto as Visa
enables partners to leverage crypto APIs
and access its network

Risk exposure

Schulte Research

Through partnerships and collaboration
Issuance of Mastercard credit cards with
crypto-related rewards
Plans on rolling out stablecoins settlement
in 2021

Through partnerships and collaboration
Issuance of Visa credit cards with cryptorelated rewards
Involvement in stablecoins

Crypto approach

PayPal users – Retail consumers

Mastercard network

Launch in the US first
UK rollout in Q3 2021

Transactions settled in fiat currency only
89 blockchain patents granted, 285
pending
Acquisition CipherTrade for crypto analytics

Transactions are settled in fiat currency
No private key issued: impossible to transfer
crypto out of digital wallet

Cryptocurrency trading and as a funding
source
Buys and sell crypto directly from its
customers

1.
2.

Buy, hold, and sell Bitcoin
P2P transfers
Balance sheet: holds $220m in Bitcoin
Product exposures: benefits from buying
and selling of consumers without volatility
exposure. Square earns spread from buying
and selling

Square users – Retail consumers

Launch in the US

network
Visa Research Team to improve scalability
and offline use of digital currencies
CryptoPunk
Plans crypto services integration in Brazil

Other

Withdrawing to an external wallet possible
Plans for decentralized exchange

Sources: PayPal public filings, Capital IQ, Credit Suisse, CNBC, Wall Street Journal, Pymnts, Financial Times

Figure 31
PayPal approach to crypto
Safe rollout on/off ramp to traditional crypto products in the US and in the UK
Crypto products: Crypto Checkout and PayPal Crypto
Products Overview

Crypto Checkout: Launch Q2 2021, cryptocurrency as a funding source to pay. Transactions settled with fiat currency1

Cryptocurrencies

Bitcoin, Bitcoin Cash, Ethereum, and Litecoin

International Expansion

Planned in H1 2021

Rationale

Adds a lower cost funding for PayPal. More supportive of users & engagement

Regulation

BitLicense from the NYState Department of Financial Services in Q4 2020
PayPal Crypto: ~2.5% take rate

Transaction fees

Schulte Research

PayPal Crypto: Buy, hold, and sell experience since Q3 2020 in the US on PayPal, Q2 2021 through Venmo

including variable fee based on the amount from 150bps to 230bps and a spread of ~50bps

Crypto Checkout: only spread on the conversion from crypto to US$

User engagement

Crypto users sign into the app twice as much as they did before buying crypto on PayPal
Cannot transfer crypto in and out of the wallet

Limitations

Limited crypto-assets available

Sources: PayPal public filings, Capital IQ, Credit Suisse, CNBC, Wall Street Journal, Pymnts, Financial Times

Figure 32
PayPal crypto investments
Indirect exposure to digital assets and blockchain-related companies via acquisitions, investments, and partnerships
Investments in the Crypto space
Company

Transaction

Details

Acquisition announced Q1 2021

Cloud-based wallet for storing and protecting digital assets using cryptography

Estimated ~$200 million

Bring secure-storage expertise

Private investment

Cryptocurrency tax software solutions for consumers and enterprises

Undisclosed amount

Serves regulatory agencies worldwide

Q1 2021
Partnership since Q3 2020

Powers

PayPal participated in Series C funding in Q4 2020

Crypto compliance and Risk Management

Private investment Q4 2019

Schulte Research

crypto service enabling US users to buy, hold, and sell crypto

APIs, market expertise, and regulatory framework

PayPal participated in Series D funding in Q2 2021

Anti-money laundering, prevent fraud, and compliance

Acquired by Blockchains Management in Q4 2020

Blockchain-based identity management and compliance software solutions for
financial institutions

Private investment in Q4 2019
Deal fell through Q4 2020

Crypto custody and trading firm

Estimated ~$750
Sources: PayPal public filings, Capital IQ, Credit Suisse, CNBC, Wall Street Journal, Pymnts, Financial Times

Figure 33
11

M O N E Y M E TAV E R S E

Visa approach to Crypto
Crypto steps as partnerships instead of solo initiatives, with the aim to provide ecosystem infrastructure surrounding crypto
Late implication but significant impact in the crypto space

Created Zether1 & Fly Client2

Different approach than Square or PayPal, as in Visa takes crypto steps as
partnerships instead of solo initiatives

Team is now focused on new mechanisms to improve scalability and
enable offline digital currency transactions

Collaboration with the World Economic Forum on a set of policy
recommendations for central banks exploring CBDC

Offline use of CBDC transactions via Bluetooth or NFC to
expand financial inclusion by helping unbanked individuals

2016

2018

Announced B2B Connect with Chain Core,
enterprise blockchain infrastructure
Patent blockchain-based transaction system
Partnership BTL cross-border settlement

Schulte Research

Visa Research Team

Visa approach to crypto came later than its direct competitors

2020
Engagement with World Economic Forum
Circle joined Visa Fintech Fast Track
Settlement of USDC in fiat currency

Partnership IBM
Integration open source Hyperledger Fabric

Pilot phase B2B Connect in collaboration with
Commerce Bank, Shinhan Bank, Union Bank,
and United Overseas Bank

FIS integrated Visa B2B Connect
Commercial launch B2B Connect
Collaboration Infosys
Patent for digital fiat currency

2017

Settlement in USDC directly
Launch API Offerings for First Boulevard
Partnership with Tala for API Offerings

2019

2021

Sources: Visa public filings
(1) Zether is a privacy-preserving payment mechanism. JP Morgan Chase announced plans to integrate into its own blockchain efforts.
(2) FlyClient is a framework that makes it easier for mobile devices to validate blockchain transactions

Figure 34
Visa crypto and blockchain partnerships
Visa estimates that these partnerships could yield 50m+ new Visa credentials1
35 partnerships in the Crypto space2
Details

Details

Transactions settled in UDSC, stablecoin powered by Ethereum
Circle Visa Corporate Card to spend USDC

Improve process of interest disbursements and create new crypto
products

First Federally Chartered Digital Asset Bank
Powers Visa crypto-native settlement with USDC through APIs
Exclusive relationship with Visa2

World
Economic
Forum

Fiat lending with crypto collateral via Crypto.com Visa Card at 9.9%
interest. Up to 8% cashback on purchases
10 million users

Visa Cards

Visa engaged with policy makers and organizations to shape the
future of digital currencies
Visa provided set of policy recommendations for CBDC

USDC co-founded with Circle

Schulte Research

Rewards program of 4% in Stellar or 1% in Bitcoin
International B2B Payment Solution
technology since 2017

Visa
Innovation
Program

Partnership for development of new Fintech solutions powered by
blockchain technology for B2B and cross-border payments

Visa Fintech
Fast Track

Example Visa leveraging partnerships
Co-founded

Created USDC

Blockchain based solution for cross-border money transfer
Log sentinel: Secure audit trail solutions through blockchain
Mobile blockchain-based loyalty program
pay with Visa at over 70m+ merchants
Most crypto partnerships have been borne out of this program

Anchorage powers

Partnership

1st USDC-settled Card

Sources: Anchorage, Business Insider, Circle, Crypto.com, Coinbase, BlockFi, Fold, Binance, Xapo, Line, Visa public filings, Nasdaq, Centre, Paytm, Bitpanda, Lastbit, Coinzoom
(1) Table is non-exhaustive. 35 digital currency platforms and wallets. Alfred Kelly, Visa CEO at Q2 2021 Earnings Call on 27th April 2021
(2) Ryan McInerney, Visa President at KBW Fintech Payments Conference on 23rd February 2021

Figure 35

Purchase

Schulte Research

APIs2

Settlement

Differentiated value: brand, capabilities, reputation, safety, security, and experience1

Working crypto exchanges and wallets to allow customers to cash-out onto a Visa credential
Opportunities in the cross-border B2B space

APIs to offer the ability to purchase, custody, and trade cryptocurrencies
Partnership with Anchorage to provide back-office infrastructure

Visa Key Partnerships

Cash-out

Wallets and exchanges to use Visa credentials to purchase cryptocurrencies

Settle in digital currency starting with USDC stablecoin
Potential for crypto settlements for their B2B Connect product

Sources: Visa public filings
(1) Alfred Kelly, Visa CEO at Goldman Sachs Technology & Internet Virtual Conference on 11th February 2021

etwork for the neobank and clients
s customers will have access to USDC for remittances

Figure 36
12

Paul Schulte

Stablecoins settlement and Anchorage
Coinbase, Visa, Circle, and Anchorage working together to bridge the gap for USDC adoption via settlement on Visa Card
Stablecoins
Visa started investing in stablecoins
20 months ago1

Anchorage partnership
backed 1:1 with fiat currencies

First federally chartered digital asset bank

over

Exclusive Visa digital currency settlement partner to provide back-office
infrastructure, such as custodial, security services, accounts tracking, etc.

Visa upgraded infrastructure to enable partners to settle in digital currency
starting with USDC stablecoin

Launched pilot of USDC settlement with Crypto.com Visa Card

Increased conversation with central banks about designing CBDCs2

Anchorage and Visa plan to expand to other partners soon

Visa sees potential for crypto settlements for their B2B Connect product3,
leveraging Circle partnership to enable payments with crypto wallets3

Besides Crypto.com Visa Card, USDC standard settlement process requires
partners to settle in a traditional fiat currency

Schulte Research

Share of Total Stablecoin Supply

Total Stablecoin supply in US$ bn

Sources: Visa public filings, Coin metrics
(1) Ryan McInerney, Visa President at KBW Fintech Payments Conference on 23rd February 2021
(2) Oliver Jenkyn, Visa Executive President at Morgan Stanley TMT Conference on 1st March 2021
(3) Vasant Prabhu, Visa CFO at Wolf Research Fintech Forum on 10th March 2021

Figure 37

Visa vs. PayPal. Figure 31 to Figure 37 review our work comparing Visa, MasterCard, PayPal, and Square. Every time you turn around, Visa is in the right place and
at the right time. Figure 34 to Figure 37 review the partnerships and product launches
that allow Visa to go from strength to strength and remain highly relevant and profitable. It is a marvel how a monolithic credit card company managed to pull this off.
And valuations are simply not demanding. As the Cold War with China accelerates
and the NATO alliance takes a much more aggressive line toward China not only to
contain it but to weaken it, Visa is in an advantageous position to challenge Alibaba
and Tencent.
BOTTOM LINE: Blockchain confirms identity, so we need digital theft insurance (for cases like blackmail and kidnapping). It ensures trades, so we need
digital fraud insurance. It proves property ownership, so we need digital property
insurance. It confirms intellectual property, so we need digital insurance remedies
for corporates, patents, trademarks, and copyrights. It secures smart contracts, so
we need insurance for digital breaches of smart contracts. And blockchain CBDC
will require a substantial new market for digital insurance for sovereign CBDC distribution (counterfeit insurance), store of value (deposit insurance), and means of
exchange (fraud and larceny).
This is the real Insurtech that the world craves. It is nowhere in the current
crop of Insurtech. Our real worry is that by the time this generation of Insurtech
13

M O N E Y M E TAV E R S E

makes the transition from a “half in and half out” approach involving off-the-shelf
digital solutions to physical harms, they will have missed the boat when it comes to
the purely digital world of blockchain-based solutions. This is true terra incognita
where there are NO incumbents. Entities like Sygnum and Silvergate are quickly
filling this void.

Section 3: The new crypto exchanges and banks have finally gotten big enough to
merit their sector.
Company overview
Towards full-stack crypto platform, from trading crypto to providing services for DeFi, NFTs, cloud, lending, and derivatives
Business model

Go-to-market strategy

Easy-to-use platform for accessing the broader cryptoeconomy by
investing, spending, saving, earning, and using crypto

Retail: provides investments, storage, spending, earning, and use of crypto
assets

Build brand as trusted space

Institutions: provides hedge funds, money managers, and corporations a
one-stop-shop for accessing crypto markets through advanced trading
and custody technology

Focus Coinbase Cloud, equivalent to Amazon Web Services (AWS) for the
global cryptoeconomy

Ecosystem partners: provides developers, merchants, and asset issuers a
platform with technology and services that enables them to build
applications that leverage crypto protocols, participate in crypto networks,
and securely accept crypto as payments

Continuous development of new products and services to enhance value
for consumer and business partners
Since inception, c.US$3.4 bn in revenue, largely from transaction fees
earned from volume-based trades by retail users and institutions

Goals

Limitations

Create a one-stop shop for institutional investors and solve ecosystem
issues:

Due to a different standard of regulatory scrutiny, competitors:
1. Operate under less stringent local rules and regulations;

Lack distribution, trust and usability

2. Can more quickly adapt to trends;

Schulte Research

Availability of easy-to-use and scalable infrastructure

3. Support a greater number of crypto assets; and

Offset effects of any future fee pressure due to economies of scale

4. Develop new crypto-based products and services faster

Proprietary full-stack scalable infrastructure surrounding crypto (e.g.,
blockchain integrations, crypto compliance infrastructure, cybersecurity,
cryptography)

Reliant on crypto asset volatility
Uncertainty regarding regulatory framework globally

Sources: Coinbase public filings

Figure 38

Future prospects, products, and services
8.8m Monthly Transacting Users, 9k institutions, and 160k ecosystem partners as of Q2 2021
New products and services developments

Coinbase direct listing implications

Coinbase Asset Hub to help asset issuers integrate tokens with Coinbase
Bitcoin-collateralized loan product and a staking product 6% APR for staked
ETH2

1. Public listings amongst crypto firms;
2. Greater legitimacy of crypto within global finance;

Coinbase Cloud powered by Bison Trails for new suite of cloud-based crypto
computing services (similar to AWS)

3. Bridging the gap between crypto and traditional investors;
4. Playing a pivotal role in

; and

Smart order router product for institutional investors, routing orders to the
exchange with the best pricing amongst 10 liquidity venues

5. Increasing the market capitalization of large crypto assets through
enhanced investor participation

Launch Crypto Council for Innovation in partnership with Fidelity, Paradigm,
and Square: help regulators, policy makers to understand crypto
Recent partnerships with PNC Bank, SpaceX, Tesla, Third Point, and
WisdomTree Investments

Outlook and future potential for growth
Non-fungible tokens (NFTs) represent unique opportunity to transform the
relationship between creators and consumers

Now offers reward across six tokens, including ETH2 staking
Launch Coinbase Card and Coinbase Prime brokerage

Schulte Research

Diversification revenue streams with addition of new products and services,
notably Coinbase Cloud

Acquired Skew for institutional data analytics

Future growth in nascent services for institutional investors such as Borrow &
Lend in addition to Trading and Custody
Crypto long-term prospects (i) crypto as an investment; (ii) as a financial
service with the rise of DeFi; and (iii) as an app platform such as NFT usage
Lending with Ethereum as collateral provided enough liquidity
Sources: Coinbase public filings

Figure 39
14

Paul Schulte
Quarterly catalysts 2021 earnings
Catalysts Q1 2021 earnings

Catalysts Q2 2021 earnings

Higher MTUs and elevated trading volumes per MTU

MTUs +44% QoQ to 8.8m

Addition 7 new assets for trading and 13 new assets for custody

High volatility with Bitcoin reaching c.US$64k in April followed by c.45% drop
to c.US$30k

Growth institutional trading customers and volume traded per institution

Assets on Platform c.US$180 bn, -19.3% QoQ

Growth institutional interest in Ethereum and other crypto assets for
commerce, payroll, and custom white label solutions

Elevated Trading Volume at c.US462 bn, +37.9% QoQ driving trading
revenue growth

Substantial growth Subscription and services revenue
Increase interest in stablecoins, added support for Tether
Top 10 free app on iOS and Android

Schulte Research

Outlook Q3/Q4 2021
Lower MTUs and
Lo
d ttotal
t l Tradi
Trading Vol
Volume iin Q3 compared
d tto Q2
Meaningful growth institutional revenue in 2021 driven by transaction and
custody
Increase ARPU compared to historical US$34

45 per month

Sources: Coinbase public filings

Figure 40

Coinbase has been a preferred holding for us, but we must admit there is much
resistance among our client base. Its move from higher-margin consumer to lower margin but more reliable (and much higher volume longer-term) enterprise customer has
investors nervous. Also, Coinbase’s strategy of bigness and cartel structure is the kind of
structure that crypto is precisely designed to undermine. We do not see “strong hands”
holding Coinbase despite compelling valuations – Figure 38, Figure 39, and Figure 40.
SEN Leverage product
Access to capital through US$ loans collateralized by bitcoin

Provides credit

Enters into an
agreement with the
Bank to borrow US$ to
deposit at exchange

US$

leverage account on its
platform

EXCHANGE
EX

TRADER
ADER

Settlements
M
Maintains order
book

Executes tradess
Moves assets

Holds assets

US$ & Bitcoin

Schulte Research

Exchange uses SEN to

Holds/moves
assets

(Collateral)
US$ & Bitcoin

Trading activity
SEN US$ Transfers
Sources: Silvergate public filings

Figure 41

Silvergate vs. Sygnum. These are the first two purely “digital universal banks”.
Among its similar peers, Silvergate is trading at a sharp premium on P/E and P/B, so
we think it may have a breather here. It has a solid business model and a good product
line. Figure 41 explains the business model very simply.
15

M O N E Y M E TAV E R S E
approach to digital assets: custody as
first layer
Create series of global partnerships to launch a comprehensive suite of crypto products and services
Institutional-grade security to invest in the digital asset economy

Development

Launched institutional-grade access to DeFi in Q2 2021

Partners

Co-developed custody platform with Custodigit, a joint venture with Swisscom

Schulte Research

Competitors

Examples
cryptocurrencies
supported

Bitcoin

Aave

Ethereum

1inch

Ripple

ICP

Litecoin

Maker

Tezos

Uniswap

Sources: Sygnum public filings

Figure 42
Brokerage and trading: 2nd layer;
Lending: 3rd layer

3rd layer: lending

Schulte Research

2nd layer: brokerage

Extending to brokerage and trading for crypto, and lending via crypto-collateralized LTV
Brokerage and trading services for digital assets in a secure and seamless way

Brokerage

Trade BTC, ETH, XRP, XTZ, LTC, BCH, and DeFi tokens
Exchange from major fiat currencies (e.g., CHF, EUR, SGD, USD)

Functionalities

Settlement within Sygnum platform
Regulated European OTC options for BTC and ETH

Increase fiat liquidity against digital assets (e.g., Bitcoin, Ethereum, XRP, Litecoin, Bitcoin Cash, and Tezos)

Investors

Interest paid on actual drawings to dynamically adjust liquidity based on current needs

Flexible Loan-To-Value (LTV) to optimize interest rates charged on loan amount

Flexible LTV

Achieved through LTV of c.40%

Sources: Sygnum public filings
Sources

Figure 43
Asset management and DeFi: 4th layer
Asset management

Focus on asset management: vehicle for digital asset and high net worth investors

Customer segment

Sygnum Platform
Winners Index ETP

First focus on digital asset investors, second for high-net-worth investors via ETP
Provides range asset management investment products including alpha-oriented multi-manager fund

Tracks index leading protocol tokens, dynamically weighted by real world adoption, tracking the network effect
of the investor, user, and developer communities
Fully collateralized and physically backed, beta exposure to blockchain protocols

Launched regulated banking services for DeFi tokens, first step in

ambition

Next focus on suite of DeFi yield-generating products and services across banking and asset management
offering
Finally, custom solutions for clients with selected DeFi partners

DeFi

Schulte Research

Platform DeFi

DeFi tokens

Aave, Aragon, Curve, Maker, Synthetix, Uniswap, 1inch Network, USDC, Bancor, Chainlink, Compound, Polygon

Sources: Sygnum public filings
Sources

Figure 44
16

Paul Schulte
Tokenization of physical assets and Bank-tobank white-label as 5th and 6th layer
Tokenization of physical and digital assets and white-label for traditional financial intermediaries
Tokenization physical and digital assets, focus on equity shares next

Tokenization

For example, Digital Swiss Franc (DCHF), wine in collaboration with Fine Wine Capital, and Fillette au
Artemundi

by Picasso with

Primary market issuance platform

Desygnate

Digital securitization of assets on the blockchain
Increases efficiency of capital raising and automates corporate housekeeping processes

Secondary market trading venue

SygnEx

Access to Venture Capital, Mid Cap, Real Estate, and Arts & Collectibles

Schulte Research

Payment and settlement instant and direct with Digital CHF token
Provides regulated digital asset products and services through B2B banking and operational compliance services

Bank-to-bank activity

One-stop-shop modular suite of banking services including accounts, payments and custody, brokerage, tokenization,
lending, and asset management
Partners can broaden offering and access new client segment, with wallets segregated off balance sheet

Sources: Sygnum public filings

Figure 45

Silvergate also has impressive marquee partnerships. Sygnum also has an impressive array of partnerships – Figure 42. Sygnum, as we see it, is looking to act
as a global crypto exchange to legitimate the coming world of NFTs. It uses its
exchanges to create liquidity, increase product range, offer leverage, and become a
significant asset manager of crypto assets – Figure 43 and Figure 44. In Figure 45,
it also wants to become a white label connector between crypto and banks. Sygnum is finishing a Series A imminently but is in the right place at the right time
and working very closely with Swiss and Singapore regulators to embed crypto
into the financial system as a legitimate asset class with which regulators can feel
comfortable.
Exchange revenue model
Redesigned the exchange to benefit asset holders, enable traders, & increase market integrity
Generated from trading activity
attributed to margin trading and
interest received

Margin interest fees

Market making fees

Spot (Maker) fees: 10bp
spread

Net revenues
Charge 25% on all revenues

Traders

Generated from trading activity on the
G
hybrid order book

No taker fees

Share weighted

Liquidity
providers

Schulte Research

Bullish Treasury

Sources: Bullish SPAC Investor Presentation

Figure 46
17

M O N E Y M E TAV E R S E

Circle and Bullish are hybrid entities — think of Cisco and BAML for crypto.
Circle can be a powerhouse in this space, but its valuation out of the SPAC gate is
very rich, and it has a narrow pool of customers. It is bleeding losses also. Circle is
an important player, but the stink of SPAC lingers. Circle is no exception. Beware.
Lastly, we look at Bullish. It is a pure-play — for now — on its holdings of BTC and
Brendan Blumer’s EOS. Its platform will be operational sometime in 2021. The exchange model is in Figure 46. Is this another potentially great company that lists too
early when it is only half-baked?

Section 4: Additional research in PowerPoint format.

Schulte Research

Chapter I: NFTs and Crypto

Global Summary:
Blockchain as the railroad, Big Data as the cars
Fixing transparency, traceability, AML, KYC for future advancements in data analytics (e.g., edge/quantum computing)

US key players

NFT
Intellectual property

Crypto

Fintech

Property
Money
Insurance
Art/Wine/Sports

NFTs

Gaming
Rewards and incentives

China key players

Insurtech

Proptech

Risks

Schulte Research

Monopoly behavior
Antitrust hindering
development

Railroads Required

Blockchain (e.g., BSN)
Central Bank Digital Currency

Incentives to develop
proprietary technology
Fragmented data
Public trust

Sources: Schulte Research

Paul Schulte

Stablecoin use cases
Stablecoin is faster, lower cost, borderless, transparent, and programmable
Settlement

Payments

Operates 24/7 allowing instant
transaction

Avoid transaction fees that
accompany the intermediary
processing fees

Remittance

Lending & Alternative Banking

Schulte Research

Avoid high fees related to crossborder payments
Inherent price stability could lower
fees further

Lending is high yield opportunity for
debt investor
Only need internet access to own a
stablecoin bank account, increasing
bank accessibility

Payroll

Escrow

Streamline sending and converting
payroll

Automate escrow process through
smart contracts

Sources: Medium.com

Stablecoin categories
Growing base of stablecoins displaying a movement beyond traditional crypto use cases
Fiat-backed

Coins backed by a corresponding US$ in a treasury

Crypto collateralized

Interest-bearing

Token created to represent stablecoin deposit earning interest

Backed by SNX holders who are rewarded for providing collateral and stability
with fees generated by Synth transactions

Synthetic

Schulte Research

Stablecoin collateralized by other digital assets (e.g., ETH, BAT, USDC)

Algorithmic

Coin programmed to optimize search of highest yield opportunities

DEX Volume Growth
DeFi has gained immense traction

automates exchanges, portfolio management, lending, and market-making functions

DEX Volume1
Data in US$ bn

162.8
142.0

92.7

86.2

95.3

87.0

62.3
49.5
39.5

Schulte Research

30.9
14.0
0.7

1.5

1.7

1.0

1.2

1.9

1-Jan-20 1-Feb-20 1-Mar-20 1-Apr-20 1-May-20 1-Jun-20

21.4

18.1

26.3

4.9
1-Jul-20 1-Aug-20 1-Sep-20 1-Oct-20 1-Nov-20 1-Dec-20 1-Jan-21 1-Feb-21 1-Mar-21 1-Apr-21 1-May-21 1-Jun-21

1-Jul-21 1-Aug-21 1-Sep-21

Sources: Dune Analytics
(1) DEX is a decentralized exchange volume tracker provided by Dune Analytics

M O N E Y M E TAV E R S E

Crypto lending
Crypto lending booming

a trend picked up by blockchain projects

Obtains crypto loans

Deposits fiat currency

Lender

Borrower

Deposits crypto assets as collateral

DeFi Lending
Platform

Schulte Research

Repays the loans with interest

Receives collateral back after
repayment

Receives funds back with interest
(passive income)

Sources: Medium.com

NFTs: Crypto Art Boom
NFTs have grown to account for c.10% global art market sales where Millennials account for 71%+ resell art
NFT sales by category
Collectibles

NFTs quarterly sales1
Sports

Games

Art

Utility

Data in US$ m

Metaverses

$2,929.2
5% 3%
11%
40%
10%

Schulte Research

31%

$424.0
$9.2

$7.7

$18.4

$31.6

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

$503.9

Q2 2021

Q3 2021

Sources: Consensys, NonFungible
(1) Q3 2021 until 15-Sep-2021 included

Digital currency: institutional investors
CBDCs as the first step to democratization of digital currencies
Remarks

Primary role for a crypto in a portfolio or treasury account
The Economist survey of 200 institutional investor and corporate treasury management

Issuance of CBDCs necessary to establish functioning market for new
financial instruments
digital currencies

Capital appreciation, 33%

will increase demand for other forms of

Alternative asset diversification, 31%

Institutions sees a demand for international institutional-only currency
exchange platform

Monetary transfers for large settlements, 29%

Increased regulatory clarity needed

F/X or currency exchange, 28%

Preference for transactional use in the future, but currently used as a store of
value

Hedge against inflation, 28%

Schulte Research

Sources: The Economist Intelligence Unit: Digimentality 2021: Digital currency from fear to inflection

Paul Schulte

Digital currency: institutional investors
Catalysts and obstacles to acceptance of digital currencies
Primary triggers to enhanced activity in digital currencies

Primary obstacles to institutional investor of digital currencies

The Economist survey of 200 institutional investor and corporate treasury management

Wider adoption of CDBCs, 31%

Market trust or understanding of digital currencies/assets, 47%

Availability institutional-only digital currency exchange, 29%
Financial market structures, 43%

More robust AML controls, 25%
Increased economic instability, 25%

Asset volatility, 36%

Sharp rise in other asset prices, 23%
Support digital currencies by leading corporations, 23%
Reduction purchasing power, 21%

Provide regulatory
framework and
institutional investor
protection

Sharp fall in other asset prices, 21%

Internal technological challenges, 32%

Regulations, 32%

Lack of related digital financial services, 27%

New regulatory framework, 21%
Lack of corporate support, 24%

Schulte Research

Rising interest rates, 19%
Continued low negative interest rates, 18%

Insufficient interoperability, 19%

Significant social unrest, 13%

Sources: The Economist Intelligence Unit: Digimentality 2021: Digital currency from fear to inflection

Digital currency: consumers
Need to educate consumers on the benefits of cashless society as catalyst to widespread acceptance of digital currencies
Remarks

Consumer expectations of major barriers to cashless society
The Economist survey of 3,053 people in February and March 2021

Covid-19 heightened use case for digital currencies/assets especially
CBDCs and open-source digital currencies
Actual public use of CBDCs is extremely limited and primarily in test phases

Habits with physical cash, 40%

Move to cashless society increasingly accepted and anticipated by
consumers

Understanding of the technology, 38%
Data privacy concerns, 36%

Governments and Businesses as key players for the current trend towards
digital cash

Low customer acceptance, 29%

Benefits include contactless transactions, real-time monitoring, and
improved money laundering initiatives

Unable to pay small transactions, 25%

Risks include asset volatility and uncertainty regarding market structures and
regulations

Government regulations, 20%
Unproven technology, 14%

Schulte Research

Low business acceptance, 13%

Need to educate
consumers on the
benefits of cashless
society

Ease of use inadequate, 12%
Don’t know, 5%
Other, 2%

Sources: The Economist Intelligence Unit: Digimentality 2021: Digital currency from fear to inflection

M O N E Y M E TAV E R S E

Schulte Research

Section 1: NFT landscape

Summary

Schulte Research

Special benefits, opportunities, and use-cases
Authenticity

Validity, uniqueness, and properties
are immortal and decentralized

Connectivity

Immediate access to creators,
buyers, and sellers globally

Smart contracts

Enable price-fixing, royalties, loyalty
rewards, and infinitely many other
functions

Fresh engagement

Incentivise fans and encourage
repeat-purchase of other products

Provide voting rights, with all of the
above benefits

Transparency, yet
anonymity

Assets owned on public keys, visible
and tracked, without direct
identification

Decentralized
governance

Immutability

Once minted, an NFT is immutable

Metaverse immersion

Ownership is validated by the
underlying blockchain

Security

Inclusion

A key step towards a digital,
tokenised world. More
interoperability and sectors must
follow

Involvement of the general public
into any space

Sources: Schulte Research

NFTs unique representation of a digital file
Exist on the blockchain: capable of exchange and ownership, with the benefits of immutability, traceability, and security
Accessibility

Schulte Research

Uniqueness NFT

Controlled by private
cryptographic key

Most users connect to a wallet (i.e., Coinbase) to the marketplace, allowing non-custodial storage

Laws and regulations

The nascency of NFTs limits the associated laws and regulation currently

Minting

Smart contract

Process of converting a file to an NFT

Usage and ownership of an NFT igoverned by smart contracts

Paul Schulte

Initial applications of NFTs
Applications of NFTs are broad and growing
Entertainment

Own sporting moments, film characters, or amateur memes
Store assets safely, relying on underlying wallet

Collecting

Unique ownership of an item, with continual proof of authenticity
Anyone can share their talent publicly and own it indefinitely

Creation

Claim royalties on future sales, guaranteed by smart contracts
Voting functions (i.e., choosing next signing for sport team)

Governance

Could develop to decentralization of political and corporate decisions
Offers a new item to wager

Schulte Research

Gambling

the digital file itself

Zed Run has sold tens of thousands of virtual horses that can be bred and raced for money up to US$65 k

Investing

Uniqueness of assets leads to appreciation in price as popularity grows
Both in gambling format and with a more recreational focus

Gaming

In-game items are tokenised, to be exchanged outside of the game

Sources: Schulte Research

NFTs trends: integrate financial frameworks
Integration into DeFi and Portfolio management
Virtual objects type of cultural capital
Traditional and emerging art expected to be integrated into emerging financial frameworks

Schulte Research

DeFi

Collateral for borrowing or
fractionalized

Portfolio management

Attached to fixed income
instruments

Government participation tokens

Sources: Blockchain Council

NFTs trends: metaverse, DAOs, digital museums
Difficult to implement in the fiat universe

Schulte Research

Ethereum

to send and lock NFTs to individual
addresses

Decentralized autonomous
organizations

Applications

Software-defined investment
collectives that bid on the acquisition
of artistic expressions

Sources: Blockchain Council

Enterprise IP networks and emerging media

Token market collapse in 2018 caused majority of crypto community
to shift focus to institutional enablement models

NFTs allow ownership of a reference to a file stored on IPFS

Led to proprietary protocols and networks
Problem: if business ceases to exist, unclear what happens
to your digital asset

Schulte Research

Resulted in digital asset and consultancy programs aimed
at developing blockchain controlled operations

Expect similar chain of events in traditional media: film, music, and
art

Possible solution: IPFS secures NFTs in the multichain world
Sources: Blockchain Council

NFTs provide new opportunities within
entertainment
Secure and reliable revenue stream, providing traceability, engagement, and governance
New revenue stream

Offerings and transactions can continue outside of the sporting-season
Security and traceability of all tickets

Ticketing

Tickets with fixed price on the blockchain, preventing scalping and touting

Fan engagement
Customer relationship
management

Schulte Research

Fans are willing to pay to for inclusion and interaction

High-profile NFTs draw attention to the underlying entertainment (e.g., NBA Top Shop for the NBA)

Governance

Fans can contribute to decisions: revenue generation and benefit from wisdom of the crowd

Sources: Schulte Research

Crypto is the cashflow, NFTs are the assets
Nascent market expanding at a rate that can not be ignored
Transaction volume

Famous NFTs

Schulte Research

Ownership of a file?

Pandemic as a catalyst

c.US$2.5 bn of sales in H1 2021

CryptoPunks have had more than US$1 bn in volume
Beeple

Everydays

the most expensive NFT ever sold for US$69 m

How can it be pictured in this PowerPoint, yet sold for US$69 m?
Comparable to photographing or copying the Mona Lisa: the value is in unique ownership

The pause in entertainment and sport required a new way to engage and monetise fans worldwide
Aligning with the surge in blockchain-based products

Paul Schulte
Ethereum and Flow as primary contenders for
the underlying blockchain
Optimal choice of blockchain depends on the purpose of the NFT
Majority of NFTs are built upon Ethereum
2nd largest market capitalization cryptocurrency, robust ecosystem of users, developers, wallets, and applications

Ethereum

Transaction fees are high, due to gas fees (compensation for miners in the Proof-of-Work blockchain validation)
Ethereum moving to Proof-of-Stake consensus mechanism
Some companies opt for a 2nd layer network on top of Ethereum, to achieve lower fees and higher transaction speed

Hosts NBA Top Shot
Energy-efficient blockchain transaction validation approach. Lowering gas costs, to encourage developers and customers
Built to have a greater throughput

Schulte Research

Early-stage, causing limited developer and application ecosystem
Proof-of-Stake mechanism causes energy/environmental advantage over Ethereum (temporary advantage)

Considerations include transaction costs, throughput, applications and developer ecosystem, extent of decentralisation, and degree of focus on NFTs
In the future, NFT infrastructure could become interoperable inter-blockchain
Sources: Schulte Research

Minting protocol to access public ledger, become immutable, and tamper-proof digital art
Minting

Storage
Directly on the blockchain: however, limited storage capacity limits
size file to avoid large costs

Digital contents decided for the NFT
Cryptographic key generated to create token on the blockchain

Decentralized: NFT content spread across distributed network (P2P
storage)

Properties (i.e., name, description edition, and file size) included in
the minting
NFT becomes immortal and immutable on the blockchain

Schulte Research
Centralized: Cloud storage cheap and readily available, however
trust and reliability required to avoid losing NFT on discontinued
blockchain

Minting dictates the smart contract: governs future behaviour of the
NFT, including royalties, provenance, and functionality

Custodial and non-custodial wallets: easy access for the general
public with security reliant on wallet-provider

Schulte Research

NFT minting platforms suitable for particular needs (e.g., Rarible to
Bitski NFT drop for Adidas offerings)
Minting can contain reference to the digital file instead of the
complete digital file

Sources: Schulte Research

Marketplace is another decision for NFTs
Open marketplaces
Crypto native curated
marketplaces
Existing closed
marketplaces
White-labelled
marketplaces

Anyone can create then sell NFTs
Cryptocurrency only for transactions

Similar functionality to open marketplaces, except that creators require approval

More general-public focused
Custodial and accepting of fiat currency (often via card payment)

Varying levels of infrastructure, including a storefront, branding, and back-end

Schulte Research

Largest and oldest (2017) NFT marketplace

Community-centric (2020)
RARI token provides governance rights to holders
Sources: Schulte Research

M O N E Y M E TAV E R S E

Further opportunities for NFTs
Loyalty

Gamifying

Governance

Schulte Research

Metaverse cohesion
Analyze fan data with
pseudo-anonymity
Ticketing

Incentivize habits and behaviour of fans
Smart contracts facilitate rewards for tailored actions

Tokens can make attendance (and spending on related products) quest-like, again driving engagement

Fans gain voting rights and can compete in online leaderboards (e.g., choosing a fantasy team)
Offers revenue stream and enhanced engagement
Immerse fans into a virtual world
Harness collaborations with other NFTs

identity
Marketing strategies can be evaluated
Before the event, it can regain royalties on secondary sales and has clear validity
Post-event it survives as a collectible/memento

Sources: Schulte Research

Key risks associated with NFTs rollout
Volatility

Environmental

Licensing

Schulte Research

Regulatory

Criminal activity

High fees

Blockchain transactions fees, marketplace fees, and infrastructure costs cause expenditure upon purchasing an NFT
(typically between 1-10% of the price)

Sources: Schulte Research

Paul Schulte

Schulte Research

Section 2: Metaverse case study: Somnium Space

What is Somnium?
Metaverse: collectively shared virtual space that arises through convergence of virtual and augmented reality, and Internet

Schulte Research

Somnium is a metaverse implementation
Open, social, and persistent VR world with its own economy and currency, marketplace, social
experiences, games, land ownership, and more

Open, social, persistent Blockchain VR metaverse

Built with proven/secured standards

Ownership security

Variety of creative tools: software development kit (SDK),
Builder, etc.

Origin authenticity

Cross-platform VR client

Tradable/translatable via decentralized marketplaces
Sources: Metaverse series Part II

Metaverse mechanics

Schulte Research

A metaverse VR world on Ethereum
Cross-platform usability

All major VR headsets

Social

Persistent social VR world

Customizable PC client

Somnium users create and manage
own layout setup for quick and easy
in-game interactions

Ownership

Ownership of virtual land

Long-term livability

automated recording mode for
-game avatars on their
properties that enables an AI-based
analysis to bring avatars to life

Programmability /
scriptability

users can program/develop personal
experiences within the Somnium
universe, as well as monetize these
developments via the asset store or
on their property

Blockchain integration

operates on top of the Ethereum
blockchain network, which enables
transparency and authenticity for
transactions, thus verification of
ownership of a wide variety of digital
assets across the platform including
virtual land, avatars, wearable
items/accessories, and other digital
goods

Space monetization

fully programmatic VR advertisement
plug-in enables users/developers to
capture and analyze gaze tracking,
engagement, and conversion rates

Sources: Metaverse series Part II

M O N E Y M E TAV E R S E

Metaverse mechanics
A metaverse VR world on Ethereum
Programmability /
scriptability

Program/develop personal experiences within the
Somnium universe
Monetize asset store or on property

Fully programmatic VR advertisement plug-in

Space monetization

Schulte Research

Long-term livability

Blockchain integration

Capture and analyze gaze tracking, engagement, and
conversion rates

Automated recording mode of avatars on properties
Enables AI-based analysis to bring avatars to life

Cross-platform
usability

All major VR headsets

Customizable PC
client

Create and manage
own layout setup for
quick and easy in-game
interactions

Social

Persistent social VR world

Ownership

Ownership of virtual land

Verification of ownership of digital assets
Sources: Metaverse series Part II

Technology stack

VR Headsets

Compatibliity with all major VR headsets, including Oculus,
HTC VIVE, HP, Valve, all Windows Mixed Reality headsets,
and others

Native builder

Most well-equipped/featured with respect to the desktop,
where included native assets enable users to build a widevariety of things as desired

In-house server
architecture

In-house server architecture enables thousands of users to
simultaneously interact in the same, persistent VR world
without the need for network sharding via sub-servers or
mirrored instances

Karma

Social status and how others perceive them in the
metaverse. Karma level is calculated through a
variety of factors:
Building activity on parcels

Schulte Research

Organization and participation in events
Total play time
World discovery rate
Land ownership
Active engagement in economic
activities/transactions

Unity-based SDK

Somnium supports the creation of bespoke, unique user
avatars via imports and a Unity-based SDK enabling highlevel of design flexibility

Ratings from other Somnium Space users

Sources: Metaverse series Part II

Partners of Somnium
-level specifications

Pimax
Somnium has partnered with Pimax

-based domain

Somnium has partnered with Sony via their state-of-the-art 3D model creation technology
In addition, Sony houses a VR-based store within the Somnium universe that is one of the first in the world

Somnium is a part of the specialized Microsoft for Startups program.

Schulte Research

Bring advertising revenue for users on the platform

platform transactions.

-two solution offers speed and near-zero transaction costs for Somnium users with respect to on-

Sources: Metaverse series Part II

Paul Schulte

VR Education uses the Somnium space VR platform to enhance experiences and drive more education with respect to VR
adoption

Collaborative efforts towards constructing a truly decentralized and immersive metaverse

Schulte Research

Enabling teleportation between VR worlds

One of the most trusted and secure digital currency exchanges/custodians globally enabling customers to transact and
store digital assets
Sources: Metaverse series Part II

Economy in Somnium
Product/service offerings that allow platform users to generate revenue

Schulte Research

Characteristics

Economic activities

VR-based economies are unfettered by restrictions such as physics
and geography

Tokenizing and selling their productions directly via open
marketplaces

Applications involving blockchain and digital asset

Owning and monetizing broader digital assets within the Somnium
Economy

Safety, privacy, encryption, traceability, and verifiability of ownership
of digital items/asset transacted on platform via the network.

VR world navigable by thousands of users simultaneously

Users to maintain full ownership over their digital assets/possessions in
the form of NFTs.

Creation, building, and monetization of land

Sources: Metaverse series Part II

Developers

Collectors

NFT collectors exhibiting their collections on their land as
well trading amongst each other

Entrepreneurs

Entrepreneurs can build and sell digital/tangible goods

Traditional companies

Schulte Research

Developers selling tokenized digital assets and avatars

Game developers

Cornerstone principles
Sominium Economy

Somnium Space monetization and business
models
Tokenization of virtual land
Tokenization of digital
assets/experiences
Decentralized marketplaces

Traditional companies and businesses creating a store presence within the Somnium Space

Game developers inserting short/large demos or gaming experiences into the Somnium Space

Sources: Metaverse series Part II

M O N E Y M E TAV E R S E
Somnium Space monetization and business
models
Content creators

Content creators can showcase a variety of virtual
experiences (e.g., vlogs, commentary, etc.) and monetize
them within the Somnium Space/platform

Universities

Universities and other higher-learning institutions building
courses and experiences such as an immersive
planetarium

Artists

Artists can showcase a variety of creations such as 2D/3D
paintings and sculptures

Native token of Somnium: Somnium CUBEs
CUBEs can be used for a broad array of product/service
offerings including:
interacting in entertainment (e.g., race cars)

Schulte Research

land purchases or renting
digital asset/item sales in the marketplace
eCommerce

Streamers

Streamers (e.g., Twitch, etc.) having their own virtual studio from which they can record within the Somnium Space

Unity SDK

Developers can build anything – for fees or otherwise – and upload it via the Somnium Unity SDK for other users to engage,
interact, and transact with

Sources: Metaverse series Part II

Investing, Buying & Renting Land
Brand new area of virtual real estate
Overview

Value of parcels

Each land parcel is unique, unreplicable, non-forgeable, and has verifiable
ownership.

The value of various parcels within the Somnium Space varies as a function
of factors: popularity of areas, the view of different areas, size, etc.

Owners of these NFT-based land parcels have direct autonomy over
contents that are built on top of their land parcels

Schulte Research

Property Development
Architecting, designing, and developing the build, as well
as establishing on-map development

Consulting
Helping property owners/renters make important
decisions in VR-based real estate using their
knowledge of virtual land across metaverses

Marketing
Metaverse Property has strong access to the burgeoning
advertising network that exists across the various
metaverses

Sources: Metaverse series Part II

Paul Schulte

Schulte Research

Section 3: Visa, PayPal, Square, and Mastercard in
the crypto space

Visa vs. Mastercard vs. PayPal vs. Square
Content/Section Title

Products

1.
2.
3.
4.

Schulte Research

Geographies

Buy, hold, sell using Visa credentials
Cash-out to Visa credentials
Crypto APIs
Direct settlement in USDC

1.
2.
3.

Buy, hold, sell using Mastercard
credentials
Cash-out to Mastercard credentials
Crypto APIs
Looking for consumer protections, strict
compliance protocols with regulations, and
pure payment not as an investment in
potential crypto-assets

No direct exposure to crypto as Visa
enables partners to leverage crypto APIs
and access its network

Risk exposure

Customer segment

Through partnerships and collaboration
Issuance of Mastercard credit cards with
crypto-related rewards
Plans on rolling out stablecoins settlement
in 2021

Through partnerships and collaboration
Issuance of Visa credit cards with cryptorelated rewards
Involvement in stablecoins

Crypto approach

Mastercard network to facilitate access
for partners to blockchain APIs (smart
contracts, fast pay network in P2P, P2M,
and B2B)
Stablecoins settlement in 2021

Cryptocurrency trading and as a funding
source
Adds a lower cost of funding for PayPal
Supportive of users & engagement
1.
2.

PayPal users – Retail consumers

Mastercard network

Launch in the US first
UK rollout in Q3 2021

Transactions settled in fiat currency only
89 blockchain patents granted, 285
pending
Acquisition CipherTrade for crypto analytics

Transactions are settled in fiat currency
No private key issued: impossible to transfer
crypto out of digital wallet

Cryptocurrency trading and as a funding
source
Buys and sell crypto directly from its
customers

1.
2.

Square users – Retail consumers

Launch in the US

network

Other

Visa Research Team to improve scalability
and offline use of digital currencies
CryptoPunk
Plans crypto services integration in Brazil

Withdrawing to an external wallet possible
Plans for decentralized exchange

Sources: PayPal public filings, Capital IQ, Credit Suisse, CNBC, Wall Street Journal, Pymnts, Financial Times

M O N E Y M E TAV E R S E

PayPal in the Crypto space

Schulte Research

Case Study

Case study 1 – PayPal in the crypto space

PayPal approach to crypto
Safe rollout on/off ramp to traditional crypto products in the US and in the UK
Crypto products: Crypto Checkout and PayPal Crypto
Products Overview

Crypto Checkout: Launch Q2 2021, cryptocurrency as a funding source to pay. Transactions settled with fiat currency1

Cryptocurrencies

Bitcoin, Bitcoin Cash, Ethereum, and Litecoin

International Expansion

Planned in H1 2021

Rationale

Adds a lower cost funding for PayPal. More supportive of users & engagement

Regulation

BitLicense from the NYState Department of Financial Services in Q4 2020
PayPal Crypto: ~2.5% take rate

Transaction fees

Schulte Research

PayPal Crypto: Buy, hold, and sell experience since Q3 2020 in the US on PayPal, Q2 2021 through Venmo

including variable fee based on the amount from 150bps to 230bps and a spread of ~50bps

Crypto Checkout: only spread on the conversion from crypto to US$

User engagement

Crypto users sign into the app twice as much as they did before buying crypto on PayPal
Cannot transfer crypto in and out of the wallet

Limitations

Limited crypto-assets available

Sources: PayPal public filings, Capital IQ, Credit Suisse, CNBC, Wall Street Journal, Pymnts, Financial Times

PayPal crypto investments
Indirect exposure to digital assets and blockchain-related companies via acquisitions, investments, and partnerships
Investments in the Crypto space
Company

Transaction

Details

Acquisition announced Q1 2021

Cloud-based wallet for storing and protecting digital assets using cryptography

Estimated ~$200 million

Bring secure-storage expertise

Private investment

Cryptocurrency tax software solutions for consumers and enterprises

Undisclosed amount

Serves regulatory agencies worldwide

Q1 2021
Partnership since Q3 2020

Powers

PayPal participated in Series C funding in Q4 2020

Crypto compliance and Risk Management

Private investment Q4 2019

Schulte Research

crypto service enabling US users to buy, hold, and sell crypto

APIs, market expertise, and regulatory framework

PayPal participated in Series D funding in Q2 2021

Anti-money laundering, prevent fraud, and compliance

Acquired by Blockchains Management in Q4 2020

Blockchain-based identity management and compliance software solutions for
financial institutions

Private investment in Q4 2019
Deal fell through Q4 2020

Crypto custody and trading firm

Estimated ~$750
Sources: PayPal public filings, Capital IQ, Credit Suisse, CNBC, Wall Street Journal, Pymnts, Financial Times

Paul Schulte

Visa in the Crypto space

Schulte Research

Case Study

Case study 2 – Visa in the crypto space

Created Zether1 & Fly Client2

Different approach than Square or PayPal, as in Visa takes crypto steps as
partnerships instead of solo initiatives

Team is now focused on new mechanisms to improve scalability and
enable offline digital currency transactions

Collaboration with the World Economic Forum on a set of policy
recommendations for central banks exploring CBDC

Offline use of CBDC transactions via Bluetooth or NFC to
expand financial inclusion by helping unbanked individuals

2016

2018

Announced B2B Connect with Chain Core,
enterprise blockchain infrastructure
Patent blockchain-based transaction system
Partnership BTL cross-border settlement

Schulte Research

Visa Research Team

Visa approach to crypto came later than its direct competitors

2020
Engagement with World Economic Forum
Circle joined Visa Fintech Fast Track
Settlement of USDC in fiat currency

Partnership IBM
Integration open source Hyperledger Fabric

Pilot phase B2B Connect in collaboration with
Commerce Bank, Shinhan Bank, Union Bank,
and United Overseas Bank

FIS integrated Visa B2B Connect
Commercial launch B2B Connect
Collaboration Infosys
Patent for digital fiat currency

2017

Settlement in USDC directly
Launch API Offerings for First Boulevard
Partnership with Tala for API Offerings

2019

2021

Visa crypto and blockchain partnerships
Visa estimates that these partnerships could yield 50m+ new Visa credentials1
35 partnerships in the Crypto space2
Details

Details

Transactions settled in UDSC, stablecoin powered by Ethereum
Circle Visa Corporate Card to spend USDC

Improve process of interest disbursements and create new crypto
products

First Federally Chartered Digital Asset Bank
Powers Visa crypto-native settlement with USDC through APIs
Exclusive relationship with Visa2

World
Economic
Forum

Fiat lending with crypto collateral via Crypto.com Visa Card at 9.9%
interest. Up to 8% cashback on purchases
10 million users

Visa Cards

Visa engaged with policy makers and organizations to shape the
future of digital currencies
Visa provided set of policy recommendations for CBDC

USDC co-founded with Circle

Schulte Research

Rewards program of 4% in Stellar or 1% in Bitcoin
International B2B Payment Solution
technology since 2017

Visa
Innovation
Program

Partnership for development of new Fintech solutions powered by
blockchain technology for B2B and cross-border payments

Visa Fintech
Fast Track

Example Visa leveraging partnerships
Co-founded

Created USDC

Anchorage powers

Partnership

1st USDC-settled Card

M O N E Y M E TAV E R S E

Purchase

Schulte Research

APIs2

Settlement

Differentiated value: brand, capabilities, reputation, safety, security, and experience1

Working crypto exchanges and wallets to allow customers to cash-out onto a Visa credential
Opportunities in the cross-border B2B space

APIs to offer the ability to purchase, custody, and trade cryptocurrencies
Partnership with Anchorage to provide back-office infrastructure

Visa Key Partnerships

Cash-out

Wallets and exchanges to use Visa credentials to purchase cryptocurrencies

Settle in digital currency starting with USDC stablecoin
Potential for crypto settlements for their B2B Connect product

Sources: Visa public filings
(1) Alfred Kelly, Visa CEO at Goldman Sachs Technology & Internet Virtual Conference on 11th February 2021

etwork for the neobank and clients
s customers will have access to USDC for remittances

Anchorage partnership
backed 1:1 with fiat currencies

First federally chartered digital asset bank

over

Exclusive Visa digital currency settlement partner to provide back-office
infrastructure, such as custodial, security services, accounts tracking, etc.

Visa upgraded infrastructure to enable partners to settle in digital currency
starting with USDC stablecoin

Launched pilot of USDC settlement with Crypto.com Visa Card

Increased conversation with central banks about designing CBDCs2

Anchorage and Visa plan to expand to other partners soon

Visa sees potential for crypto settlements for their B2B Connect product3,
leveraging Circle partnership to enable payments with crypto wallets3

Besides Crypto.com Visa Card, USDC standard settlement process requires
partners to settle in a traditional fiat currency

Schulte Research

Share of Total Stablecoin Supply

Total Stablecoin supply in US$ bn

Paul Schulte

Schulte Research

Section 4: US corporate

Coinbase

Schulte Research

Case Study

Case study 3 – Coinbase

Company overview
Towards full-stack crypto platform, from trading crypto to providing services for DeFi, NFTs, cloud, lending, and derivatives
Business model

Go-to-market strategy

Easy-to-use platform for accessing the broader cryptoeconomy by
investing, spending, saving, earning, and using crypto

Retail: provides investments, storage, spending, earning, and use of crypto
assets

Build brand as trusted space

Institutions: provides hedge funds, money managers, and corporations a
one-stop-shop for accessing crypto markets through advanced trading
and custody technology

Focus Coinbase Cloud, equivalent to Amazon Web Services (AWS) for the
global cryptoeconomy

Goals

Limitations

Create a one-stop shop for institutional investors and solve ecosystem
issues:

Due to a different standard of regulatory scrutiny, competitors:
1. Operate under less stringent local rules and regulations;

Lack distribution, trust and usability

2. Can more quickly adapt to trends;

Schulte Research

Availability of easy-to-use and scalable infrastructure

3. Support a greater number of crypto assets; and

Offset effects of any future fee pressure due to economies of scale

4. Develop new crypto-based products and services faster

Proprietary full-stack scalable infrastructure surrounding crypto (e.g.,
blockchain integrations, crypto compliance infrastructure, cybersecurity,
cryptography)

Reliant on crypto asset volatility
Uncertainty regarding regulatory framework globally

Sources: Coinbase public filings

M O N E Y M E TAV E R S E

Future prospects, products, and services
8.8m Monthly Transacting Users, 9k institutions, and 160k ecosystem partners as of Q2 2021
New products and services developments

Coinbase direct listing implications

Coinbase Asset Hub to help asset issuers integrate tokens with Coinbase
Bitcoin-collateralized loan product and a staking product 6% APR for staked
ETH2

1. Public listings amongst crypto firms;
2. Greater legitimacy of crypto within global finance;

Coinbase Cloud powered by Bison Trails for new suite of cloud-based crypto
computing services (similar to AWS)

3. Bridging the gap between crypto and traditional investors;
4. Playing a pivotal role in

; and

Smart order router product for institutional investors, routing orders to the
exchange with the best pricing amongst 10 liquidity venues

5. Increasing the market capitalization of large crypto assets through
enhanced investor participation

Outlook and future potential for growth
Non-fungible tokens (NFTs) represent unique opportunity to transform the
relationship between creators and consumers

Now offers reward across six tokens, including ETH2 staking
Launch Coinbase Card and Coinbase Prime brokerage

Schulte Research

Diversification revenue streams with addition of new products and services,
notably Coinbase Cloud

Acquired Skew for institutional data analytics

Quarterly catalysts 2021 earnings
Catalysts Q1 2021 earnings

Catalysts Q2 2021 earnings

Higher MTUs and elevated trading volumes per MTU

MTUs +44% QoQ to 8.8m

Addition 7 new assets for trading and 13 new assets for custody

High volatility with Bitcoin reaching c.US$64k in April followed by c.45% drop
to c.US$30k

Growth institutional trading customers and volume traded per institution

Assets on Platform c.US$180 bn, -19.3% QoQ

Growth institutional interest in Ethereum and other crypto assets for
commerce, payroll, and custom white label solutions

Elevated Trading Volume at c.US462 bn, +37.9% QoQ driving trading
revenue growth

Substantial growth Subscription and services revenue
Increase interest in stablecoins, added support for Tether
Top 10 free app on iOS and Android

Schulte Research

Outlook Q3/Q4 2021
Lower MTUs and
Lo
d ttotal
t l Trading
Tradi
Volume
Vol
in
i Q3 compared
d tto Q2
Meaningful growth institutional revenue in 2021 driven by transaction and
custody
Increase ARPU compared to historical US$34

45 per month

Sources: Coinbase public filings

Paul Schulte

Silvergate

Schulte Research

Case Study

Case study 4 – Silvergate

Company overview
Cash management services for digital currency-related businesses on top of traditional banking products and services
Business model

Go-to-market strategy
Precise targets:

Traditional finance: Business checking, Business savings, Commercial real
estate, Cash management, Personal banking

Digital currency exchanges: advanced integration and support
services for well-established digital currency exchanges

Digital currency business:
Silvergate Exchange Network (SEN) enables digital currency realtime settlement in US$ between counterparties

Institutional investors: bank accounts, services, and support tailored
to the unique needs of digital currency investors

c.US$239.6 bn transaction volume in Q2 2021, +44% QoQ and
+968% YoY

Software developers: bank accounts, advanced APIs, and expert
support for digital currency developers
Fintech companies: bank accounts, services, and support designed
to meet the needs of Fintech companies

Exchanges tied into the SEN via an API, connecting SEN deposit
clients

Schulte Research

Goals

Limitations

Leading provider of innovative financial infrastructure solutions and services
for the growing digital currency industry

Growing competitive landscape from incumbents (e.g., JP Morgan
accepting Coinbase and Gemini as digital asset customers)

Develop and deploy fee-based solutions in connection with their digital
currency initiative

Regulations surrounding digital currencies, especially SEN Leverage (e.g.,
SEC threatened to sue Coinbase over lending product)

Expand solutions and collaborations with Fintech companies, Institutional
investors, Digital currency exchanges, and Software developers

Downturn in digital currencies market, volatility, and regulations intensifying
Requires frequent funding to increase loans provided (e.g., ATM equity
offering in Q2 2021, issuance preferred stock in Q3 2021)

On/off ramp network for institutional investors to access digital currencies
(stablecoins and legacy digital currencies)

Potential outflow due to nature of non-interest-bearing deposits

Exclusive minting and burning issuer of Diem US$ stablecoin
Sources: Silvergate public filings

SEN Leverage product
Access to capital through US$ loans collateralized by bitcoin

Provides credit

Enters into an
agreement with the
Bank to borrow US$ to
deposit at exchange

US$

leverage account on its
platform

EXCHANGE
EX

TRADER
ADER

Settlements
M
Maintains
order
book

Executes tradess
Moves assets

Holds assets

US$ & Bitcoin

Schulte Research

Exchange uses SEN to

Holds/moves
assets

(Collateral)
US$ & Bitcoin

Trading activity
SEN US$ Transfers
Sources: Silvergate public filings

M O N E Y M E TAV E R S E

Silvergate Exchange Network framework
The SEN executes in virtually real-time what legacy solutions do in several hours to several days
SEN

virtually real-time execution

API enabled
Sell BTC

Institutional
investor

Buy BTC

24/7/365
Digital currency
exchange A

Digital currency
exchange A

Schulte Research

Legacy solutions

longer execution

Sell BTC

Institutional
investor

Buy BTC

Traditional bank

Digital currency
exchange A

Clearing bank

Traditional bank

Digital currency
exchange A

Institutional
investor

Sources: Silvergate public filings

Key metrics and consumers
Focus on expanding digital currency offering, especially via lending and continuous innovation in the digital asset space
Digital currency and other deposits

Key Customers

Data in US$ bn
Digital currenc y deposits

Other deposits
$11.4 bn

$7.0 bn
$5.2 bn
$1.7 bn

$2.3 bn

$1.5 bn

$2.1 bn

Q2 2020

Q3 2020

Loan composition

$5.0 bn
Q4 2020

$11.1 bn
$6.8 bn

Q1 2021

Q2 2021

c.12% of Total assets
1-4 Family Real
Estate, 9.7%

Schulte Research

SEN Leverage,
13.7%

Commercial Real
Estate & Other,
23.0%

US$1.5 bn
Yield: 4.46%

Mortgage
Warehouse, 53.6%

Sources: Silvergate public filings

Paul Schulte

Sygnum

Schulte Research

Case Study

Case study 5 – Sygnum
approach to digital assets: custody as
first layer
Create series of global partnerships to launch a comprehensive suite of crypto products and services

Development

Institutional-grade security to invest in the digital asset economy
Launched institutional-grade access to DeFi in Q2 2021

Partners

Co-developed custody platform with Custodigit, a joint venture with Swisscom

Schulte Research

Competitors

Examples
cryptocurrencies
supported

Bitcoin

Aave

Ethereum

1inch

Ripple

ICP

Litecoin

Maker

Tezos

Uniswap

Sources: Sygnum public filings

Brokerage and trading: 2nd layer;
Lending: 3rd layer

3rd layer: lending

Schulte Research

2nd layer: brokerage

Extending to brokerage and trading for crypto, and lending via crypto-collateralized LTV
Brokerage and trading services for digital assets in a secure and seamless way

Brokerage

Trade BTC, ETH, XRP, XTZ, LTC, BCH, and DeFi tokens
Exchange from major fiat currencies (e.g., CHF, EUR, SGD, USD)

Functionalities

Investors

Flexible LTV

Settlement within Sygnum platform
Regulated European OTC options for BTC and ETH

Increase fiat liquidity against digital assets (e.g., Bitcoin, Ethereum, XRP, Litecoin, Bitcoin Cash, and Tezos)
Interest paid on actual drawings to dynamically adjust liquidity based on current needs

Flexible Loan-To-Value (LTV) to optimize interest rates charged on loan amount
Achieved through LTV of c.40%

Sources: Sygnum public filings
Sources

M O N E Y M E TAV E R S E

Asset management and DeFi: 4th layer
Asset management

Focus on asset management: vehicle for digital asset and high net worth investors

Customer segment

Sygnum Platform
Winners Index ETP

First focus on digital asset investors, second for high-net-worth investors via ETP
Provides range asset management investment products including alpha-oriented multi-manager fund

Launched regulated banking services for DeFi tokens, first step in

ambition

Next focus on suite of DeFi yield-generating products and services across banking and asset management
offering
Finally, custom solutions for clients with selected DeFi partners

DeFi

Schulte Research

Platform DeFi

DeFi tokens

Aave, Aragon, Curve, Maker, Synthetix, Uniswap, 1inch Network, USDC, Bancor, Chainlink, Compound, Polygon

Sources: Sygnum public filings
Sources

Tokenization of physical assets and Bank-tobank white-label as 5th and 6th layer
Tokenization of physical and digital assets and white-label for traditional financial intermediaries
Tokenization physical and digital assets, focus on equity shares next

Tokenization

For example, Digital Swiss Franc (DCHF), wine in collaboration with Fine Wine Capital, and Fillette au
Artemundi

by Picasso with

Primary market issuance platform

Desygnate

Digital securitization of assets on the blockchain
Increases efficiency of capital raising and automates corporate housekeeping processes

Secondary market trading venue

SygnEx

Access to Venture Capital, Mid Cap, Real Estate, and Arts & Collectibles

Schulte Research

Payment and settlement instant and direct with Digital CHF token
Provides regulated digital asset products and services through B2B banking and operational compliance services

Bank-to-bank activity

Sources: Sygnum public filings

Paul Schulte

Circle

Schulte Research

Case Study

Case study 6 – Circle

Company overview
Organically building a global internet-native settlement infrastructure
Business model

Go-to-market strategy
Target customer base: FIG, institutional traders, crypto finance, digital
content, fintechs, blockchain startups, and commerce & marketplaces

Building internet-native settlement infrastructure to operate a suite of
financial services:
USDC: created and operates core market infrastructure of USDC in
partnership with Coinbase

Free Circle account is first point of entry for using USDC & Digital Currency
service customers

Transaction & Treasury Services (TTS): Accounts and API services
provide comprehensive suite of payments and treasury services

API services provides an attractive alternative for customers to build custom
payments, commerce and financial apps only available once a
registered free member

SeedInvest: crowdfunding platform evolving into a platform for
tokenization of private capital markets

Utilize internet-native settlement infrastructure connecting USDC rails to over
180 countries

Goals

Limitations

Open, connected, and interoperable financial system

Trust among users: Crypto is an early-stage technology, and with increasing
occurrence of fraudulent behaviour, many companies are hesitant to trust
the security of such technology

Payments that are frictionless, immediate, and free

Schulte Research

Borrowing and lending decisions embedded in autonomous software

Blockchain interoperability: tendency for organizations to develop own
blockchain systems that are disjoint from others. Creates a non-universal
standard that is difficult to integrate
Political risk: still no transparency on digital assets regulation in US and
Europe

Sources: Circle SPAC Investor Presentation

Demonstrative illustrations
CBDC a focal avenue for Circle
Coinbase & Circle linked together to create first stablecoin authorized on the network that powers Visa

Co-founded

Created USDC

Anchorage powers

Partnership

1st USDC-settled Card

Single point of entry account to utilize CBDC & Digital Currency services

Schulte Research

Free Circle Account acts as first entry
point

Add on services

API & Yield

Convert, Mint, Redeem
USDC

USDC Storage & Custody

API Services

Yield Services

Send & receive on-chain
payments free and easy

Open accounts from 180+
countries

Embed
E
b d Ci
Circle
cle payments,
nt
payouts, and account
capabilities into customs
apps

Earn interest on USDC lent
into collateralized
borrowing markets

Sources: Circle SPAC Investor Presentation

M O N E Y M E TAV E R S E

Bullish

Schulte Research

Case Study

Case study 7 – Bullish

Company overview
Highly speculative play at c.US$9 bn valuation

Strong management in the crypto space despite Block.One track record

Business model

Go-to-market strategy

Bullish Exchange: Beta Trading Interface generating revenues from trading
fees and margin revenues

Institutional: focusing on institutional investors, financial service corporates
and other corporates who produce, hold and/or manage crypto

Hybrid order book: AMM provides liquidity at prices calculated
deterministically based on the size of the liquidity pool and ratio of assets

Retail:
Advanced retail investors

Bullish Treasury: participates in liquidity pool to earn & add liquidity, create
barriers & competitive advantages, and create trust & alignment

VIP/Whales
Global strategy, but focusing on Asia

Combines benefits of traditional crypto exchanges with DeFi

Large liquidity pool: pricing less impacted by single trades
book depth at same price level of competitors

Goals

Bullish better

Limitations
Platform not operational yet, expected in H2 2021

Increase market integrity

c.US$9 bn valuation includes 142.0k BTC and 20.2 m EOS
and volatile

Generate high yield for investors

Schulte Research

highly speculative

Block.One disappointing track record with smart-contract platforms EOS
that raised c.US$4.1 billion via ICO in H1 2018

Power traders with liquidity
Eliminate hidden slippage costs

Sources: Bullish SPAC Investor Presentation

Exchange revenue model
Redesigned the exchange to benefit asset holders, enable traders, & increase market integrity
Generated from trading activity
attributed to margin trading and
interest received

Margin interest fees

Market making fees

Spot (Maker) fees: 10bp
spread

Net revenues
Charge 25% on all revenues

Traders

Generated from trading activity on the
G
hybrid order book

No taker fees

Share weighted

Liquidity
providers

Schulte Research

Bullish Treasury

Sources: Bullish SPAC Investor Presentation

Chapter 2:
Fintech and Blockchain
Section 1: Focus on the fintech firms only and compare the US and China. First, let’s
look at the large caps.
Global Summary:
Blockchain as the railroad, Big Data as the cars
Fixing transparency, traceability, AML, KYC for future advancements in data analytics (e.g., edge/quantum computing)

US key players

NFT
Intellectual property

Crypto

Fintech

Property
Money
Insurance
Art/Wine/Sports

NFTs

Gaming
Rewards and incentives

China key players

Insurtech

Proptech

Risks

Schulte Research

Monopoly behavior
Antitrust hindering
development

Railroads Required

Blockchain (e.g., BSN)
Central Bank Digital Currency

Incentives to develop
proprietary technology
Fragmented data
Public trust

Sources: Schulte Research

Figure 47

Who can safely and quickly create a super app (while pleasing regulators) to
incorporate fintech, insurtech, proptech, and crypto to bring a rapidly digitizing
physical world to a whole new level via ecosystems of non-fungible tokens, which
are liquid, tradable, and legal? And which can connect to CBDCs in the coming 2-3
years? See Figure 47 for an illustration that we think explains where this is all going
(Alibaba was closest to this until Jack Ma’s waxen wings melted as he approached
the sun).

M O N E Y M E TAV E R S E

We conclude that PayPal and Visa are the two most plugged in, adaptive, and capable of gaining acquisitions and partnerships to achieve this target in the US. Square
is also a likely candidate, but it is among the most expensive stocks in the world. Mastercard also has exceptional capabilities, but Visa always seems to be ahead.
Consumer and Merchants ecosystem
Business lines
Payments
Checkout

Payment Processing

Charitable
Giving

P2P

QR Code

Checkout

Merchant Services

Schulte Research

Debit Card

Check
Cashing

Direct Deposit

Goals

Remittances

Business Debit
Card

PayPal
Working
Capital

Transactional
Credit

Buy Now, Pay
Later

Credit Card

Crypto
Buy/Hold/Sell

Money Pools

Consumer
Financing

Risk Services

Shopper
Insights

Dynamic
Banners

Shopping Tools
Droplist

Price Tracking

Business Loans

Point of Sale

Inventory
Management

Payouts

Invoicing

QR Code

Merchants

Consumer

Financial Services

Deals and
Offers

Unbranded
Processing

Marketing Tools
Rewards

Deals Engine

Store Cash

Business
Profiles

Sources: PayPal public filings

Figure 48

Consumer and Merchants ecosystem
PayPal objectives for Merchants and Consumers centred around a single platform

Schulte Research

Merchants

Consumers

Power all aspects of digital
checkout online, on mobile, and in
store

Provide solutions to help people
manage and move money both
domestically and internationally

Offer access to seamless credit
solutions to enable growth

Offer credit services that are
accessible and cost effective

Help identify fraud and improve risk
management

Facilitate simple, secure payments
across devices

Offer tools and insights to attract
new customers and increase sales

Deliver flexibility with payment
options globally, across platforms
and merchants

Sources: PayPal public filings

Figure 49

PayPal is giving birth to a super app whose algorithms resemble the exceptional
abilities of Alibaba five years ago. It is getting there (see Figure 48 and Figure 49).

Paul Schulte

Multi-sided platform
Foundations

Value-added services

New flows

Issuer & Consumer Solutions

Technology

Consumer
Payments
Merchant & Acquirer Solutions
P2P

G2C

Core Business

Security

Schulte Research

Brand

Credit Debit
Prepaid
Global ATM

Fraud Management &
Security Services

B2b

B2C

Data Solutions

Visa Consulting & Analytics
Talent

B2B

Sources: Visa public filings

Figure 50

Visa is outstanding at creating partnerships that can leverage Visa’s platform to enter any B2B or B2C business line. Figure 50 shows the powerful places where Visa can
go that few firms in the US can go simultaneously, reinforcing circles of overlapping
data. These include government to consumer; logistics for SMEs; B2B, B2C; and P2P.
Visa is rapidly entering the tokenization of digitized data. And Visa is a natural digital
rail if the Fed wants to launch a digital coin.
Company Overview
Business model

Go-to-market strategy
Frictionless Seller ecosystem, enabling cross-selling / up-selling financial
services and products including loans

Square Seller end-to-end solution for merchants (i.e., Hardware, software,
data analytics, payments, financing)

Cash App ex-Bitcoin revenue at US$605.9 m (+86.5%) in Q2 2021

Square for Restaurants and Square for Retail key POS software verticals,
offering all-in-one POS systems

Seller Ecosystem revenue at US$1.4 bn (+86.7%) in Q2 2021

Square Cash App P2P transactions expanding into super app (i.e., full suite
financial services)

Global expansion underway across key markets (e.g., UK, Europe, Australia,
Japan)

7 m weekly Cash Card actives
Revenue generated from transaction fees (merchants) or value-added
services (e.g., trading, instant deposits)

Goals

Limitations

Expand SMEs financing (Square Bank launched Q1 2021), facilitated 136 k
loans for US$923 m in Q1 2021, +68% YoY

Increasing credit risk from SMEs financing and BNPL following
acquisition

Schulte Research

Super app potential with Cash App (e.g., BNPL following Afterpay
acquisition, enhance crypto offering)

Direct exposure to bitcoin volatility, holding US$220 m on BS
Competitive landscape from incumbents with similar products (e.g., iZettle
and Venmo by PayPal)

Square Financial Services Bank in Q1 2021, suite financial products for SMEs
Embark merchants with US$125
>US$500 k

500 k in GPV and larger sellers with

c.7.4% ex-Bitcoin revenue from International

Sources: Square public filings, Financial Times, Wall Street Journal, Credit Suisse

104

Figure 51

M O N E Y M E TAV E R S E

Funding since inception
Valued at c.US$2.9 bn at IPO, Square is approaching US$130 bn market cap in 2021
Amount raised, lead investors, and post-money valuation
IPO: US$243 m raised at a US$2.9 bn valuation, now approaching US$130 bn
Investor base: Vanguard, BlackRock, Morgan Stanley, and FMR LLC as top institutional holders
Post-money valuation

Amount raised

$10m

$32m

$100m

$200m

$150m

$243m

6-Nov-09

5-Jan-11

29-Jun-11

17-Sep-12

6-Oct-14

19-Nov-15

$6,000m

Schulte Research

$3,250m

$2,900m

$1,600m
$45m

$240m

Series A

Series B

Series C

Series D

Series E

IPO

Sources: CB Insights, Crunchbase Pro

105

Figure 52

Square dual-sided platform
High cross-selling / up-selling potential with dual-sided platform merging merchants and consumers
Seller Ecosystem

Cash App Ecosystem

POINT OF SALE

P2P

HARDWARE

PAYROLL
DIRECT DEPOSIT

ONLINE

CROSS-BORDER

MANAGED
PAYMENTS

Schulte Research

CASH CARD

TEAM
MANAGEMENT

Sources: Square public filings

BITCOIN

CUSTOMER
RELATIONSHIP
MANAGEMENT

DEVELOPER
PLATFORM

BOOST

BUSINESS
BANKING

STOCKS

106

Figure 53

Mastercard is similar but seems to be behind Visa. Square’s buildout is on Figure
51, Figure 52, and Figure 53 and is fascinating — it is going in the same direction but
brings echoes of Cisco or IBM. PayPal makes more sense.

Paul Schulte

Section 2: Fintech small caps. Prefer Marqeta for technical reasons.

Company Overview
Blue Ocean B2B solution allowing flexible and quick go-to-market access for companies
Business model

Go-to-market strategy
Focused on new channels of card issuance vs. traditional banks

Tailored cloud-based open API platform delivers card issuing and
transaction processing services
Usage-based model based on processing volume

Enables any company or brand to issue card across a wide range of use
cases

Majority revenue from Interchange Fees generated by card transactions

Offers flexible and reliable on-demand service for modern card issuance

Substantial product & technology hiring to improve and expand products
and services offering

Backend-as-a-Service becoming the option of choice for costeffectiveness and go-to-market speed

Focused around single solution for best performance instead of end-to-end
solution

B2B customers: employers, on-demand platforms, challenger banks, core
payments & P2P platforms, Fintech issuers, brands

Schulte Research

Goals

Limitations

Diversify revenue streams by increasing transaction volumes with recent
partnerships (e.g., Marcus by Goldman Sachs)

Revenue highly dependent on Square, generating 60% and 70% in FY2019
and FY2020 respectively

Targeted sales strategies to act as both Program Manager and Issuer
Processor

Increasing competitive landscape from emerging issuers such as Adyen
and Stripe

Focused on improving current specialization instead of providing end-toend solution

Revenue streams dependent on Marqeta acting as Program Manager
revenues are more lucrative since Marqeta earns interchange fees and
processing fees
Risk consumers such as Square develop technology in-house

Sources: Marqeta public filings, FT Partners, Credit Suisse, Financeit

110

Figure 54

Funding since inception
Prominent investor base, including Visa and IconIQ as lead investors
Amount raised, lead investors, and post-money valuation
IPO: raised US$1,228 m at higher price of US$27 rather than initial price range of US$20

Post-money valuation

Amount raised

$6m

$14m

$25m

$45m

$260m

$150m

$1,228m

16-Jun-11

15-Mar-13

27-Apr-15

26-Jul-17

5-Jun-18

21-May-19

28-May-20

9-Jun-21

Schulte Research

$14,317m

$4,300m

$9m

$64m

$87m

$414m

$500m

Series A

Series B

Series C

Series D

Series D-II

$2,000m
Series E

Series E-II

IPO

Sources: CB Insights, Crunchbase Pro

111

Figure 55

M O N E Y M E TAV E R S E

Modern card issuance framework

Issuing Bank1
Issuer
Processor
Program
Manager

Schulte Research

Payment Network Providers

Non-bank
Issuer

Roles and key players in Modern Card Issuance
!

Owns the cardholder relationship

Marketing and/or distribution of cards

Holds bank license

Final approval on account creation

Minimal role

Routing of card transactions for approval

Account number & card generation

Offer APIs to developers

Oversees P&L of program, along with fraud and compliance

Maintains relationship with issuing bank and card networks

(1) Bank Partners used by FinTechs are typically exempt from Durbin debit interchange caps. Institutions with assets of less than $10 billion are exempts from interchange fee

112

Figure 56

Interchange Fee Regulations
High interchange fee in the US; Potential limits to international expansion
US average debit card interchange fee in 2019

Interchange take rate estimates
0.94%

Covered transactions: purchase transactions covered by interchange fee standard
Exempt Transactions: purchase transactions exempt from the interchange fee standard

Single -message interchange fee average

0.64%
0.69%

0.24%

0.19%
0.03%

Dual-message interchange fee average

0.54%

Square
rre

Source: Federal Reserve Regulation II (Debit Card Interchange Fees and Routing)

Marq
Marqeta
rrq eta

Sutton
Sutto
tto n Bank

Source: Federal Reserve Regulation II (Debit Card Interchange Fees and Routing); Marqeta S1
(1) Square used as a figurative example
(2) Square estimated based on exempt transactions dual-message interchange fee less fees
incurred by Card Networks, Marqeta, and Issuing Bank
(3) Card Networks, Marqeta, and Issuing Bank fees estimated based on net revenue from
Interchange and Processing fees and Costs of Revenue from Card Network and Issuing Bank

Durbin Amendment to the Dodd-Frank Act provides that Interchange Fees
that an issuing Bank or Card Network receives for debit transactions are
regulated by the Federal Reserve. Marqeta only contract with Issuing Banks
(Sutton Bank), who are exempt from the Durbin Amendment, to access
higher interchange rates

Schulte Research

Card
rrd Net
Network
t wor

1.41%

Interchange caps in Europe on credit (0.3%) and debit (0.2%)1, potentially

Federal Reserve proposing changes to Regulation II2 that would require
merchants have a choice in how online transactions are routed. Potentially
reduce interchange fee as merchants would be able to route their
transactions across Visa, Mastercard or smaller debit networks with lower
fees
Sources: Marqeta, Federal Reserve, Credit Suisse
(1) Interchange Fee Regulation 2015 and 2016
(2) May 7 2021: Federal Reserve Board invites public comment on proposed changes to Regulation II regarding network availability for card-not-present debit card transactions

113

Figure 57

Marqeta has a lot going for it. It is dependent on Square for much of its business –
Figure 54 to Figure 57.

Paul Schulte

Company Overview
Strong tailwinds with Galileo and conditional approval on Bank charter
Business model

Go-to-market strategy

Business lines: Borrow, Invest, Spend, Protect, and Business

Targets Highly Educated Not Rich Yet (HENRY) consumers notably student
debt lending and refinancing

Heavily relies on technology base for Lending to develop new products and
services

Focus shifting to High Earners Not Well Served (HENWS) consumers
Galileo provides API and payments platform powering the infrastructure of
SoFi and white label for card issuing and digital banking (e.g., Chime,
Monzo, Robinhood, Wise)

Cross-selling by offering diverse product portfolio at a one-stop-shop
Q1 2021 revenue of US$220.6 m (up 159.9% YoY) from Lending (76.2%
growing 105.5% YoY), Tech platform Galileo (20.9% up 46.2x YoY), and
Financial Services (2.9% up 200.0% YoY)

Capture share from traditional financial institutions

Limitations

Schulte Research

Goals
Widening comprehensive suite of products aiming to gain further market
share from single point solution providers

Risk of being overtaken by more agile competitors on innovation, brand
awareness, etc. (e.g., well-funded legacy banks, digital banks)

Aim to own entire technology stack by benefitting from developing inhouse to reach scalability, capitalising on the acquisition of Galileo

Unprofitable business with US($44.6) m in Adjusted EBITDA, expecting to
reach Adj. EBITDA profitability in 2021E of US$27 m

Preliminary approval for national bank charter (Q4 2020), plans to acquire
community bank to accelerate process

Lack of bank charter impacting access to lower cost of capital and
increasing lending capabilities

Fragmented nature of financial products and services landscape in the US
present opportunity for consolidation, with significant economies of scale
potential

Management projects cumulative incremental EBITDA gain from
bank charter of US$1,005 m until 2025E)

Sources: SoFi, Forbes, Seeking Alpha, Credit Suisse

115

Figure 58

Funding since inception
SoftBank-backed prominent one-stop shop in the US
Amount raised, lead investors, and post-money valuation
SPAC: raised US$2.4 bn at a US$8.7 bn valuation, including US$1,225 m from PIPE and US$370 m from T. Rowe
Softbank, SilverLake, and Qatar Investment Authority as Lead investors
Post-money valuation

Amount raised

$2m

$77m

$30m

$80m

$200m

$1,000m

$150m

$500m

$2,400m

8-Sep-11

11-Sep-12

2-Oct-13

3-Apr-14

3-Feb-15

19-Aug-15

27-Oct-15

24-Feb-17

29-May-19

1-Jun-21
$8,650m

$4,300m

Schulte Research

$4,000m

$4,800m

$3,065m

$7m

$195m

$87m

$413m

Series A

Series B

Series C

Series C-II

$1,300m
Series D

Series E

Series E-II

Series F

Series G

SPAC (completed)

Sources: CB Insights, Crunchbase Pro

116

Figure 59

M O N E Y M E TAV E R S E

One-stop shop for financial services
SoFi diversification to full play financial services
Student Loan Refinancing

Borrow

Private Student Loans
Personal Loans
Home Loans
Active Investing

Invest

Automated Investing
Retirement Accounts
Crypto
Home/Auto Insurance

Protect

Life Insurance
Real Estate Planning

Business

SoFi at Work

Schulte Research

Small Business Financing

Spend

SoFi Credit Card
Bank accounts

Sources: SoFi, Forbes, Seeking Alpha, Credit Suisse

117

Figure 60

SoFi’s significant X factor is Galileo as a payment processing platform. The API
provides card issuing, virtual card solutions and powers digital banking infrastructure.
Overall, we are skeptical – Figure 58 to Figure 60.

Section 3: Patterns emerging in China: did China suddenly wake up in the middle
of a pandemic raging in Asia, as well as a much-needed economic recovery and start
worrying about data security, education, wages, tutorial services, and adolescent gaming all at the same time?

What is common about the industries that the PRC government is targeting?
Nothing. What is common about the charges against the companies? Nothing.
Are these companies antagonistic toward the state? Except for Alibaba, no! Are
they in a particular region that is a gadfly for the center? No. Are they part of the
Shanghai mafia? No. So, talking about the 5-year programs and saying, “well,
there were concerns about education or tutoring or ‘too much gaming’ or data
breaches in the 5-year plan, so we should have known better” is rubbish. These

Paul Schulte

narratives are noise and miss the point. Should we conclude that a government
that is very busy trying to jump-start a $14 trillion economy and keep a dangerous virus at bay is suddenly interested in adolescent stress from after-school tutoring or driver data from Didi? Or wages at Meituan? Come on. We are looking
in the wrong place.

Tencent

Schulte Research

Case Study

139

Figure 61

Company Overview
Value-added propositions in B2B and B2C in Fintech
Business model

Go-to-market strategy

Key verticals: Gaming (#1 Global game operator by revenue on mobile
and PC), Fintech & Business, and Social Media (QQ, WeChat)

Minimize expenses across value chain through automation and low-price
value-added proposition

Most popular instant messaging platforms (QQ), and social mobile app
(WeChat). Revenue from digital advertising, digital content subscriptions,
and membership privileges

Value-added proposition:
Mobile payments for end-users with WePay
B2B-focused in online advertising and financial services

Tencent Games with internal development studios, investments in external
companies globally, and partnerships

B2C-focused in financial services, games, and social networks

Fintech (B2B and B2C): payments, wealth management, lending, insurance

Increased focus in Fintech services, greater transaction costs as TPV grows
Increased spending on Cloud Services business to enlarge scale

Limitations

Goals
BNPL access with Fenfu and repayment through WeChat

Anti-trust investigations due to Tencent potential position as a monopoly
(e.g., Tencent only offering their own payments systems instead of
competitors such as Alipay)

Schulte Research

Dive deeper into financial products for SMEs (c.90% businesses in China),
especially lending capabilities and supply chain financing with Linklogis
(c.15% equity stake post-IPO)

Chinese regulations on Big Tech

WeBank expanded credit to SMEs, leveraging massive user bases to bring
financial institutions on board

Tencent finance-related businesses ordered to restructure as a new
Financial Holding Company

Flywheel effect by leveraging existing payment app to encourage existing
customer base across all verticals

Sources: Tencent public filings, PBOC

140

Figure 62

M O N E Y M E TAV E R S E

Diversified revenue streams
Fintech and Business Services growing at a fast pace, benefitting from flywheel effects of other key verticals
Revenue from Business Segment1
Data in

Segment

5-year CAGR 33%

Fintech and Business services

28%

27%

Transaction-based revenue

Enterprise and consumers
E

Payments, Wealth management, Fintech services
Cloud and other enterprise services

2%
2%

27%

Online advertising

17%

Traffic-based revenue

Enterprise
E

Social: WePay, QQ, app store, browser, etc.
Media: news, video and music, etc.

23%
18%

18%
19%

Schulte Research

17%
11%
18%

41%

33%

47%
24%
2016

VAS: Games

32%

23%

22%

2020

LTM 2021

Fee-based revenue

30%

24%

23%

2017

2018

2019

VAS: Social networks
Fee-based revenue

Consumers
C

Mobile games
PC games
Console games

Consumers
C

Digital content subscriptions
Membership privileges
Virtual item sales

Sources: Tencent public filings
(1) Others include Fintech and Business services for FY2016 and FY2017

141

Figure 63

Fintech and Business services verticals
WeChat Pay and Alipay dominating micro-payments in China
Payment Solutions

Other Fintech services

LiCaiTong

Wealth management services including compliant and inclusive
financial products

Insurance services

c.1 bn average daily commercial payment transactions since Q4 2019

WeSure

Take rate from merchants for commercial transactions

Small-sized and maturity consumer loans

Social and other transactions including red packets, bill sharing, and utility
payment

WeiLiDai

Cloud Services

Distribution fees from WeBank with no credit risk or BS exposure

Other Business services
Tailored smart industry solutions to transform businesses to digital across all
major verticals

Schulte Research

Tencent Cloud

WeCom

Tencent Meeting

IaaS, PaaS, SaaS, and technology solutions for enterprises

Smart Retail

Smart Healthcare

Smart Transportation

Smart Education

IaaS: Star Lake server and T-block technology enhance service
PaaS: Security and real-time communication PaaS
SaaS: Tencent Meeting, WeCom, Tencent Docs for digitalisation
Sources: Tencent public filings

142

Figure 64

Paul Schulte

Tencent Cloud & Fintech sub-verticals
Investments in Blockchain, Cloud infrastructure, and AI paying off across Fintech sub-verticals
Technological capabilities

Fintech sub-verticals

Connecting industries, consumers, and business partners
Smart industry solutions leveraging Tencent Cloud infrastructure, proprietary technologies to assist
businesses achieve digital transformation

Leverages blockchain, AI, big data, cloud
computing, and edge computing capabilities to
power proprietary technologies across all Fintech
sub-verticals
Payments: Weixin Pay, QQ wallet, Transit QR
code

Smart Solutions
Retail

Software and
Services

Healthcare

WeCom

Meeting

Education

Docs

Transportation

Weixin

Weixin Pay

Wealth Management: LiCaiTong offers
financial products (e.g., money market fund,
investment-linked products, overseas
investment funds)

Finance

Trading platforms: Tencent Portfolio provide
users real-time market information

Security

Tax refund: WeTax Refund
B2B Payments: Business Tenpay offers secure,
compliant, and flexible corporate account
management system for eCommerce
platforms

Technologies

Schulte Research

Security

Autonomous driving YouTu AI Lab

AI Lab

Big Data

Location services

Range products & services (>300) on top of computing and storage
Infrastructure in 27 regions and 62 availability zones as of Q1 2021
c.1m+ paying customers since Q4 2019

Infrastructure
Sources: Tencent p
public
blic filings

143

Figure 65

AI, Machine learning, Big data, Blockchain
AI operating across all Tencent current and future verticals, continuously innovating (e.g., Big Data Tiangong)
AI & Machine learning

Big data and Blockchain

Artificial Intelligence Labs in 2016

Tencent blockchain applied to e-receipt, supply chain finance (equity stake
in Linklogis), judicial evidence management, etc.

Deep focus on machine learning, speech recognition, natural language
processing, and computer vision

Big data to target right audience accurately:

Ambition to help China become a leader in personalized medicine using AI

Integrate intelligent data management platform combining internal
and external data

Aim to integrate medical institutions with WeChat:

Provide advertisers with diversified, open, and safe communication
service platform

Book appointments online
Accept payments
Train AI algorithms with consumer data from these services
Partnership with Babylon Health, consumers access virtual
healthcare assistant

Platform launched in April 2021

Mying healthcare platform launched in 2017 to help diagnose cancer,
analyse, and manage healthcare records

Self-developed 4th generation fusion computing platform
Big data and AI basic operators, unifying metadata for execution
optimization, batch unification, stream, and graph computing

Schulte Research

Global investments on AI equity deals, notably in the US

Unify computing and compiling engine
trillions of data analysis

Sources: Tencent public filings, INF, Pandadaily, Bernard Marr & Co.

144

Figure 66

M O N E Y M E TAV E R S E

Ant Group

Schulte Research

Case Study

145

Figure 67

Company Overview
-payment for SMEs and consumers
Business model
consumers and merchants

Go-to-market strategy
Drive user engagement and expand user base through Alipay to propel
flywheel effect across Food and Beverage, Mobility, Entertainment, and
Healthcare & Municipal verticals

delivering micro-payments between

Develop comprehensive digital payment, finance, and daily life services
beyond China

Build value and maintain open platform with partners (i.e., Financial
institutions, Merchants, Service providers)

Constant product innovation to anticipate consumer and business needs
and deliver differentiated products and services

Refocus on core business following regulatory backlash

Focus on SMEs financing and helping them grow their businesses on a
global scale

Goals

Limitations

Technology innovation, especially blockchain:

Regulatory backlash following IPO

Build and upgrade digital infrastructure for new services

Forced to share Credit Data with SOEs, as a joint-venture with state-owned
enterprises in Q3 2021

Schulte Research

Improve understanding of customers and enable partners

Establish Ant Group as Financial Holding company, separating Jiebei and
Huabei as separate consumer finance company

Expand applications of AntChain
Continue digitalization of assets on AntChain

SMEs and consumers

Enable circulation of digitalized assets on a wider scale

, focusing on micro-payment for

Hold increasing amount of capital to offer loans, with commercial banks
limited to hold no more than 70% of capital when providing loans

Expand cross-border payment and merchant services by serving more
users, enabling more merchants, and broaden service offerings

Sources: Ant public filings, Schulte Research

146

Figure 68

Paul Schulte

Ant Ecosystem

Schulte Research

Alibaba entity

Chinese equivalent

West equivalent

Sources: Alibaba public filings, Quartz, Schulte Research

147

Figure 69

Alibaba Ecosystem, directly or via investments

Schulte Research

Alibaba entity

Key vertical

West equivalent

Alibaba entity

Key vertical

Online payments

Mobile messaging

Cloud services

Car service, ride sharing

Mobile apps

C2C e-Commerce

Mobile OS

Online travel booking

Maps and navigation

B2C e-Commerce

Retail outlets

E-learning

Group buying

Microblogging

Cloud storage

Streaming video

West equivalent

Sources: Alibaba public filings, Quartz, Schulte Research

148

Figure 70

M O N E Y M E TAV E R S E

Business and size
Summary size and scope of Ant Group
1,000+ m

80+ m

Alipay app

Annual Active Users

Monthly Active Merchants

711 m

729 m

Alipay app

Monthly Active Users

Digital Finance Annual Active Users

2,000+

200+

Partner Financial Institutions

Alipay app
Countries and Regions with Online Payment Services

118 tn

1.7 / 0.4 tn

Schulte Research

Digital Payments

CreditTech

Total Payment Volume in Mainland China

Consumer / SME Credit Balance

4.1 tn

52 bn

InvestmentTech

InsurTech

Assets Under Management
Sources: Ant public filings

Insurance Premiums and Contributions

Data as of 30th June 2020

149

Figure 71

Ant Cloud

Fintech & Smart Banking

Fintech of Ant & core products

Smart banking

Ant Cloud 100% owned by Ant Financial

Smart Banking service provides:
Intelligent customer service
Marketing
Big data risk control
Product and channel operation
Improve user experience
Improve operational efficiency
Reduce operating costs

Ali Cloud 100% owned by Alibaba
Close relationship: Many Ant Cloud products can be found in Ali Cloud
For life cycle of application, fintech will focus on: Financial intelligence,
financial security, financial distributed architecture, mobile development,
blockchain and financial distributed database

Advantages

Several core products:

SOFAStack

Advanced Risk Control

Fi
Financial
i l distributed
distrib t d architecture,
hit cture
t
providing
idi
project
p j t managementt and
nd
monitoring allowing for remote disaster recovery and low cost expansion

Integrates
t
t iinternal
t
l and
nd external
t
l
data,
Builds unified financial-level
intelligent risk platform,

mPaaS

Schulte Research

Financial-grade mobile development
opment platform
platf
providing cloud-to-endone-stop solution for App development, testing, operation & maintenance

Realizing comprehensive risk
management such as:
Marketing protection
Account protection
Transaction protection
Credit protection
Channel protection
Content protection

OceanBase
Financial-grade
i
i
distributed
is ri
relational
i
database developed by Ant
databa
Financial and Alibaba with online horizontal expansion capabilities

Sources: Ant public filings

Advanced Marketing
Build
il an online
li
and flexible
f i
marketing management platform
for financial institutions, including:
Customer insight
Event management
Channel push
Targeted delivery
Process automation
Marketing effect analysis
Marketing experiment
Event marketing
Creative center

Data as of 30th June 2020

150

Figure 72

Paul Schulte

Figure 73

Schulte Research

Participate in all parts of life

Sources: Ant public filings

152

Figure 74

M O N E Y M E TAV E R S E

How to get a loan in 3 seconds

Schulte Research

Credit line approval, drawdown, and repayment process

Sources: Ant public filings. Schulte Research

153

Figure 75

SME Credit risk management

Schulte Research

Process for SME lending

Sources: Ant public filings. Schulte Research

154

Figure 76

Paul Schulte

Services for partner Asset managers & Insurers
Value-added services powering asset management and insurance partners
Infrastructure for asset management
Ant leverages customer insights and massive
user base to enable partner asset managers:
To distribute simple, low-investment threshold,
and easy-to-understand investment products
for customers

Partner Asset Managers

Product Design

Product
Screening

Partner Asset Managers
Customer
Acquisition /
Education

Investment
Advisory

Interactive
Communication

Product Delivery

Infrastructure for insurance
Ant leverages deep customer insights, risk
management solutions, and technology to
enable partner issuers to:

+ Partner Insurers

Schulte Research

1. Acquire customers at scale and at low cost

Partner Insurers

2. Co-innovate products
3. Improve underwriting capabilities through
enhanced customer selection and pricing

Customer
Education /
Acquisition

Product Design

Underwriting
(Customer
Selection)

Claim

Solvency
Requirement

Product Delivery

4. Improve claims management through service
automation and fraud detection systems
Sources: Ant public filings. Schulte Research

155

Figure 77

Global Partnership & Investments
Independent

3rd

party credit agency under Ant Financial that uses cloud computing & machine learning

List of global partnerships & investments1
US

Delta Air Lines
EyeVerify
First Data
Marriott international
Stripe
Uber
United Airlines
V-Key
VeriFone Systems

UK & Ireland
InterContinental Hotels Group
Premier Tax Free

Schulte Research

Germany & France
Ingenico Group
PrestaShop
Worldline
Concardis
Wirecard
Singapore, India & Thailand
Alpha Payments Cloud
Grab
Resorts World Sentosa
Paytm
Ascend Money
Paysbuy
Sources: Ant public filings Data as of 30th June 2020
(1) Please note that words highlighted in blue indicate a partnership & words highlighted in orange indicate an investment

South Korea & Japan
Bankware Global
Orix

156

Figure 78

There is one commonality of all the investigations. First, they are ALL political
and mostly come from the CAC, which reports to the Vice Premier who reports to
the Premier. They come from the very top. Second, they are aimed at PRC companies that foreigners heavily own. Third, they all contain the most valuable resource in
the world: data. And we conclude that this vital national commodity (no longer oil,
gold, diamonds, or uranium) is digitized personal and credit data. This is now being
nationalized. The value of this data is being taken away from foreign investors in HK
59

M O N E Y M E TAV E R S E

and the US and being nationalized by the state. At the very least, this vital commodity
is being restricted to domestic ownership. That is why the stock prices in HK and NY
are falling. The trend is likely to continue. Our research on Tencent and Alibaba can
be found in Figure 61 to Figure 78.
Who is likely to remain untouched? Companies that stay in line with national
priorities will thrive.
•
•
•

•

Global cell phone and cell phone tower connections for innovative city
initiatives like Huawei.
Semiconductor producers will be revalued as the consumer fintech is
devalued.
Those who are genuinely involved in SOE reform like Ping An. Ping
An has embraced China Life to rehabilitate it, and it is at the center of
another national priority – healthcare.
Environment/climate change initiatives to clean up China’s air, land,
and sea.

As for companies in gaming, consumer eCommerce, tutoring, food delivery, and
self-interested data collection, value is emerging. But it will be decided by the state.
Watch for bottom fishing by entities like CIC. They are the ultimate insiders, for they
will be told when to buy.

Paul Schulte

Section 4: Additional research in PowerPoint format.

Schulte Research

Chapter II: Fintech and Blockchain

Global Summary:
Blockchain as the railroad, Big Data as the cars
Fixing transparency, traceability, AML, KYC for future advancements in data analytics (e.g., edge/quantum computing)

US key players

NFT
Intellectual property

Crypto

Fintech

Property
Money
Insurance
Art/Wine/Sports

NFTs

Gaming
Rewards and incentives

China key players

Insurtech

Proptech

Risks

Schulte Research

Monopoly behavior
Antitrust hindering
development

Railroads Required

Blockchain (e.g., BSN)
Central Bank Digital Currency

Incentives to develop
proprietary technology
Fragmented data
Public trust

Sources: Schulte Research

M O N E Y M E TAV E R S E

Schulte Research

Section 1: The architecture and infrastructure of
Fintech and Blockchain

Categorizing Fintech Business Models
He who makes the safest, cheapest and fastest Super App wins

Schulte Research

By Market

By Technology

Lending

Application Program Interface (API)

Payments

Artificial Intelligence

Wealth Management

Blockchain and distributed ledger technologies (DLT)

Insurance Technology (Insurtech)

Cloud computing (Cloud)

Regulatory Technology (Regtech)

Edge computing (Edge)

Quantum computing (Quantum)
Sources: Imperial College London

Online banking payment solutions: how it works
Payment model including Payment Initiation Service Provider (PISP)
Lower external fees

Risk mitigation

Schulte Research

Speed of funds

Operational efficiency
Sources: Everyday Bank Research, Federal Reserve

Paul Schulte

Online banking payment solutions: solutions
Instant payment use case opportunities
Individuals can transfer money
between accounts instantly

A2A

Request for payments electronically

Pay bills instantly, avoiding late fees
and improving cash flow
management

B2C

On-demand payment, freeing up
working capital by paying suppliers
upon receipt

B2B

Prepaid cards, electronic wallets,
investment account management,
and corporate cash pooling

Home service payment upon
delivery

C2B

E-commerce

Request for payment electronically

Pay family & friends immediately or
pay individual for services

Schulte Research

P2P

One-time payments such as
insurance payouts or rebate claims

B2C

Immediate payroll for expedited
payments

Screen-scraping1
make online payments: under PSD2, A2A providers can now access current accounts directly and initiate credit
transfers more securely using open APIs provided by banks
Sources: Every
Everyday
r day Bank Research
ry
Research, Federal Reserve
(1) Automated process whereby data displayed on one site is extracted to be displayed/used on another site

Key Trends Product Radar
Adoption in many areas is still primitive
Sales &
Marketing

Insurtech
L&H + P&C

P2P

!
!

Direct

!
!

Schulte Research

Management &
Marketplaces

Banking

SaaS

APIs

Team up &
consolidate
premiums

Digitization
Digital wallets
Banking-as-aservice

MAINSTREAM

Real-time
payments

Cross-border

Digital
distribution

Compare &
price terms

LOW

P2P

Traditional
Crypto
Marketplace
DeFi

!
LOW

Buy Now Pay
Later

Tracking &
administration
EMERGING

Crypto + Fintech +
Proptech

Payments

Currency &
Tokens

NFTs
Stablecoins

EMERGING

MAINSTREAM

Market Adoption
Sources: Schulte Research

Traditional 4-Party infrastructure:
How it works
Roles and key players
Diagram 4-party model
Customer

Provides
credit

Pays
debt

Key roles
Card Payment

ork

e
fe

n
tio
za
ori
th
Au

tw
Ne

Issuing Bank

Merchant

Network
(Clearing &
Settling)

Ne
tw

ork
Au
fe
th
e
ori
za
tio
n

Provides funds to merchant bank

Pays
MDR

Back-end
processing

Merchant
Acquirer

(net of interchange)

Merchant

Accepts payments and pays discount rate (MDR) to the
merchant acquirer

Network

Hub card payment transactions, relaying authorization and
settlement messages between issuing and acquiring banks

Merchant
Acquirer

Front-end: enables individual merchants to accept card
payments; captures card/transaction data, routes the message
to appropriate network for authorization
Back-end: Handles settlement and clearing messages, deposits
funds into
accounts

Card Issuer

Provides consumers and businesses with bank accounts, credit
extension, and cards

Issuer
Processor

Receives authorization request from the card network and relays
decision to the card network; clears and settles transactions for
the issuing bank

Key players

Schulte Research

Merchant

Network

Merchant Acquirer

Card Issuer

Issuer Processor

Front-end Back-end

Sources: Schulte Research

M O N E Y M E TAV E R S E
Online Banking Payment Solutions:
How it works
Payment model including Payment Initiation Service Provider

Instant Payment use case opportunities
Individuals can transfer money between accounts instantly

A2A

Prepaid cards, electronic wallets, investment account
management, and corporate cash pooling
Pay bills instantly, avoiding late fees and improving cash flow
management

B2C

Request for payment electronically

P2P

Pay family & friends immediately or pay individual for services
On-demand payment, freeing up working capital by paying
suppliers upon receipt

B2B

Request for payments electronically
Home service payment upon delivery

C2B

E-commerce
One-time payments such as insurance payouts or rebate
claims

Schulte Research

B2C

Immediate payroll for expedited payments

Lower external fees

Risk mitigation

Speed of funds

Operational Efficiency

Screenaccounts and use credit transfers to make online payments: under PSD2, A2A
providers can now access current accounts directly and initiate credit transfers
more securely using open APIs provided by banks

Sources: Everyday Bank Research, Federal Reserve
(1) Automated process whereby data displayed on one site is extracted to be displayed/used on another site

SMEs Cross-border segment:
How it works
Cross-border platforms focusing on SMEs merchants
Selected competitors for SMEs cross-border payments

Cross-border eCommerce market size growth1
in US$

HK-based platform focused in APAC
130+ countries and 50+ currencies

Cross-border is the fastest growing
g
g sub-segment
g
of eCommerce

Brazilian-based offering payments for eCommerce transaction
Provides global merchants access to Brazilian consumers

Cross-border payment volumes pre-COVID: c.50-60% tourism & travel and c.40-50% eCommerce
Cross-border payment volumes around 5 years ago: c.70% tourism & travel
Cross-border payment volumes around 20 years ago: c.90% tourism & travel

China-based platform with US$ 10bn+ in payments volume
Reduces cross-border fees for third-party sellers in China

$4.9 tn

CAGR 27%

Targets SMEs with emphasis on companies with less 100 employees
Simplifies cross-border payments for customers
International money transfer for marketplace sellers and freelancers
Working capital offerings, payout capabilities, fraud prevention
c.200 countries and c.150 currencies

$560 bn
2018

Payment solutions for SMEs, mostly cross-border payments
White-labels solution to banks

2027E

Expanded into B2B payments with business accounts for SMEs
150 countries, 90+ currencies

Schulte Research

Global B2B2X platform
Serves payments providers, challenger banks & issuers, marketplace
platforms, and traditional banks for multi-currency accounts
Payment platform and network with vertical-specific software
Facilitates payments flows across currencies, payment types, and
payment options
Operates through Fleet, Travel, Corporate, Health and Benefits verticals
210 countries and 150 currencies
Corporate payments solutions (e.g., AP, cross-border, virtual card)
200 countries and 145 currencies

Sources: Company filings, Credit Suisse, Payoneer public filings, Wise public filings, Capital IQ
(1) Zion Market Research
(2) Payoneer FY2021; pro-forma Market Cap and Enterprise Value adjusted based on number of shares outstanding disclosed in the SPAC investor deck

Global Fintech financing volume
Global Fintech Financing set to outpace 2019 and 2020 by a large margin; Q1 2021 YoY growth 153%
Global Fintech financing volume
Volume of 3 Largest Deals

$53.9
$4.8

$14.0

$45.3

$2.6

$3.8

Ant $14 bn private
placement
$29.0
$21.9
$17.5

$9.0

$29.1

$27.0

$5.2

$4.1

$2.6

Schulte Research

$4.4

$5.2
$1.7

2010

$7.0

$6.6

$1.4

$2.7

$1.0

2011

2012

$6.1

Sources: Financial Technology Partners (FT Partners)

2013

Q1 2020
$11.5

2014

2015

2016

2017

2018

2019

2020

Q1 2021

Q1 2021 Fintech Insights

Paul Schulte

P2P Cross-border
Global cross-border payments market
2020 Global cross-border payments market1

Global cross-border payments market volume growth1

Estimated take rate in percentage for each segment

in US$ tn

Personal

SMBs

Enterprise

Personal

SMBs

Enterprise

$12.5bn

$15.3
0.10%

$12.5tn

$164.3bn

$12.5

13.9

1.69%

$9.7tn

9.7

Schulte Research

5% CAGR

$87.8bn
3.14%

$2.8tn

2.8

Volume (US$tn)

Reve nue (US$bn)

11% CAGR

4.2

2020

2026E

Sources: Wise public filings
(2) Wise Prospectus from Edgar Dunn & Co. data

Consumer & Business growth
Volume per consumer and business customer as key growth drivers of revenue
Consumer growth rates1

Mix of transaction type by company1

2018 to 2020 CAGR

All digital

Mon
on
eyG
G ra
m
o ey
e
rram

Remit
Remitly

Ria

ria
Western Union

Digital

yGra
ra
Mone yGram
r m

s
se
Wise

W or
or d
l rre
e mit

-10%

10%

20%

30%

40%

50%

25%

50%

75%

100%

60%

Business growth rates1

P2P cross-border market

2018 to 2020 CAGR

Cross-border money transfer market: banks (c.68%), traditional money
transfer operators (c.13%), other non-banks (c.18%)

Wes
e te
es
t rn Un ion
o Bus
on
u ine ss
us
s

Competitors switching to digital transactions (e.g., Western Union switching
to digital remittances, with digital transactions grown from 15% of C2C
transactions in Q2 2019 to 31% in Q3 2020)

OFX

Schulte Research

All c ash

Worl
WorldRemit
rrl dRemit

Int er
e me
m x
digital
Wes
e te
es
t rn Un ion
o di
on
dgita
t l
ta

Digital initiated to cash payout

Wis
iise
Wise

OF
OFX

Ebur y

Argen
Arg
r en
rg
e te
t x

Wise
s
se

-10%

10%

Sources:
(1) FXC Intelligence estimates

20%

30%

40%

50%

60%

70%

80%

Wise and OFX FY ended 31st March

M O N E Y M E TAV E R S E

Schulte Research

Section 2: US corporate

PayPal

Schulte Research

Case Study

Case study 8 – PayPal

Company Overview
PayPal following Chinese Big Tech firms path with super app initiative
Business model

Go-to-market strategy
Industry-leading checkout conversion rate

Buy safely from merchants and accept worldwide payments

PayPal tech platform and brand recognized as one of the most trusted

Consumers: payments, financial services, and shopping
Merchants: payments processing, merchant services, and marketing

global leadership in payments

P2P payments, debit and credit card offerings with Venmo

Careful direct investments and acquisitions of prominent companies

Crypto Checkout and PayPal Crypto offerings

Venmo adding new products (crypto, bill-pay, credit card, Honey
integration, international expansion)

Payment processing with Braintree
Online and POS financing solutions including BNPL, credit card, working
capital and business loans for merchants with PayPal Credit

Braintree undertaking global expansion

Limitations

Goals
Super app initiative announced in Q2 2021, personalized to the end user
using AI and machine learning capabilities to

High checkout fees of 1.9% + 0.30 per card transactions in Europe and
3.45% + US$0.49 per PayPal checkout and 2.59% + US$0.49 card transactions
in the US Recent hike in prices from 2.90% + US$0.30 in August 2021

Schulte Research

Full-stack payments platform improving Alternative Payment Methods (e.g.,
BNPL) and Omnichannel payment processing with Braintree

High take rate on FX and Crypto take rate (c.2.5%)
Populated competitive landscape in POS (e.g., Square), BNPL (e.g., Klarna)

One-stop-shop for SMEs worldwide to take payments, register, track sales,
and get financing solutions with iZettle

Sources: PayPal public filings, Credit Suisse, TechCrunch, Forbes

Paul Schulte

Consumer and Merchants ecosystem
Business lines
Payments
Checkout

Payment Processing

Charitable
Giving

P2P

QR Code

Checkout

Merchant Services

Schulte Research

Debit Card

Check
Cashing

Direct Deposit

Goals

Remittances

Business Debit
Card

PayPal
Working
Capital

Transactional
Credit

Buy Now, Pay
Later

Credit Card

Crypto
Buy/Hold/Sell

Money Pools

Consumer
Financing

Risk Services

Shopper
Insights

Dynamic
Banners

Shopping Tools
Droplist

Price Tracking

Business Loans

Point of Sale

Inventory
Management

Payouts

Invoicing

QR Code

Merchants

Consumer

Financial Services

Deals and
Offers

Unbranded
Processing

Marketing Tools
Rewards

Deals Engine

Store Cash

Business
Profiles

Sources: PayPal public filings

Consumer and Merchants ecosystem
PayPal objectives for Merchants and Consumers centred around a single platform

Schulte Research

Merchants

Consumers

Power all aspects of digital
checkout online, on mobile, and in
store

Provide solutions to help people
manage and move money both
domestically and internationally

Offer access to seamless credit
solutions to enable growth

Offer credit services that are
accessible and cost effective

Help identify fraud and improve risk
management

Facilitate simple, secure payments
across devices

Offer tools and insights to attract
new customers and increase sales

Deliver flexibility with payment
options globally, across platforms
and merchants

Sources: PayPal public filings

M O N E Y M E TAV E R S E

Visa

Schulte Research

Case Study

Case study 9 – Visa

Company Overview
Built on top of proprietary processing network VisaNet, expanding into Blockchain with B2B Connect
Business model

Go-to-market strategy
Global presence in 200+ countries & territories, settlement in c.25 currencies

VisaNet proprietary processing network powers multi-sided platform,
connecting acquirers, merchants, cardholders, and issuers

Focus on eCommerce growth, catalysts in travel industry recovery and POS
payments volume following the COVID-19 pandemic

Revenue from US (c.47%) and International (c.53%)

Aggressively expand into digital (e.g., eCommerce, contactless payments)

Key revenue streams: cross-border transactions, value-added services, data
processing

Emerging cross-border mix with B2B Connect scalability potential and
remittances: less cyclicality in cross-border volumes

Competes directly with Global or multi-regional networks (e.g., Mastercard,
American Express) and indirectly with Square, PayPal, Local and regional
networks, APMs, ACH and RTP networks, payment processors

Well-positioned to capture the trend of payments going towards digital
Continuous investments in emerging and prominent companies to keep up
as an incumbent (e.g., Klarna for BNPL)

At the centre of the traditional 4-party model

Goals

Limitations

Schulte Research

Continuously expand beyond B2C into emerging market opportunities (e.g.,
crypto, A2A) into G2C, B2B, B2b, and P2P

Requires unceasing investments to deliver continuous value to merchants,
cardholders, banks, and ultimately shareholders

Partnerships-oriented approach to innovation to stay on top of increasingly
complex network of payments

Card network processing fees pressure in the US (e.g., interchange caps in
Europe on credit 0.3% and debit 0.2%)

Provide rails across the entire payments industry for partners to build on top
(e.g., B2B Connect infrastructure based on blockchain architecture)

Set to raise fees in the UK following Brexit at 1.5% for credit and 1.15% on
debit. Plans on raising domestic UK and UK-EU transaction fees in 2022
More agile disruptors can rapidly scale technology in niche cases
Layers of regulatory oversights and compliance requirements

Sources: Visa public filings, Financial Times, Wall Street Journal, Medium, Lumos

Multi-sided platform
Foundations

Value-added services

New flows

Issuer & Consumer Solutions

Technology

Consumer
Payments
Merchant & Acquirer Solutions
P2P

Schulte Research

Brand

G2C

Core Business

Security

Credit Debit
Prepaid
Global ATM

Fraud Management &
Security Services

B2b

B2C

Data Solutions

Visa Consulting & Analytics
Talent

B2B

Sources: Visa public filings

Paul Schulte

MasterCard

Schulte Research

Case Study

100

Case study 10 – Mastercard

Company Overview
Higher exposure to international market and credit business compared to Visa
Business model

Go-to-market strategy

Core of the traditional 4-party model, providing network for acquirers,
processors, issuers, and cardholders

Purchase volume of Credit, Debit, and Prepaid represents c.36.8% in the US,
c.27.4% in EU

Revenue US$4.5 bn in Q2 2021 (+36% YoY), driven by Transaction processing
and Domestic assessments (+37% and +39% respectively)

Higher exposure to International & credit business compared to Visa
Proprietary data analytics and consulting for businesses

Notable increase of cross-border volume fees to US$1.1 bn in Q2 2021
(+69%), resulting from reopening of economies following COVID-19

Focus on eCommerce payments and Credit platforms, highest margins
Continuous partnerships and investments in emerging and prominent
companies to keep up with the pace of increasingly complex payments
landscape

Focus on product and services innovation to further gain market share or be
at the forefront of emerging business models in response to new entrants

Goals

Limitations

Schulte Research

Diversify revenue streams by expanding digital payments in emerging
markets and via financial inclusion

Payments, privacy, data, and security regulations

Develop data analytics, cybersecurity, AI organically or via M&A

Card network processing fees pressure in the US (e.g., interchange caps in
Europe on credit 0.3% and debit 0.2%)

Initiatives in new payments flows, including open banking (e.g., acquisition
of Finicity in Q2 2020)

Set to raise fees in the UK following Brexit at 1.5% for credit and 1.15% on
debit. Plans on raising domestic UK and UK-EU transaction fees in 2022

B2B expansion supporting multi-rail payments

Complex competitive landscape with Global payments network (e.g., Visa,
Amex, JCB, UnionPay), LPMs/APMs, Value-added products and service
providers

Sources: Mastercard, Credit Suisse, Financial Times, Lumos, Forbes, Wall Street Journal

101

Products & Services
-rail payment products and core position in the 4-party model
Core network

Products & Services

Core Network

Loyalty &
Rewards
wards
Cyber &
Intelligence

Consulting
Switching
Authorisation | Clearing | Settlement

Multi-rail
payment
products

Schulte Research

Data Analytics

Processing
Payment System Security

Value-added Products and Service
Loyalty and Rewards | Analytics Insights and Consulting
Processing | Cyber and Intelligence

Open Banking

Enabling digital payments

Sources: Mastercard public filings

102

M O N E Y M E TAV E R S E

Case study 11 – Square

Company Overview
Business model

Go-to-market strategy
Frictionless Seller ecosystem, enabling cross-selling / up-selling financial
services and products including loans

Square Seller end-to-end solution for merchants (i.e., Hardware, software,
data analytics, payments, financing)

Cash App ex-Bitcoin revenue at US$605.9 m (+86.5%) in Q2 2021

Square for Restaurants and Square for Retail key POS software verticals,
offering all-in-one POS systems

Seller Ecosystem revenue at US$1.4 bn (+86.7%) in Q2 2021

Square Cash App P2P transactions expanding into super app (i.e., full suite
financial services)

Global expansion underway across key markets (e.g., UK, Europe, Australia,
Japan)

7 m weekly Cash Card actives
Revenue generated from transaction fees (merchants) or value-added
services (e.g., trading, instant deposits)

Goals

Limitations

Expand SMEs financing (Square Bank launched Q1 2021), facilitated 136 k
loans for US$923 m in Q1 2021, +68% YoY

Increasing credit risk from SMEs financing and BNPL following
acquisition

Schulte Research

Super app potential with Cash App (e.g., BNPL following Afterpay
acquisition, enhance crypto offering)

Direct exposure to bitcoin volatility, holding US$220 m on BS
Competitive landscape from incumbents with similar products (e.g., iZettle
and Venmo by PayPal)

Square Financial Services Bank in Q1 2021, suite financial products for SMEs
Embark merchants with US$125
>US$500 k

500 k in GPV and larger sellers with

c.7.4% ex-Bitcoin revenue from International

Sources: Square public filings, Financial Times, Wall Street Journal, Credit Suisse

104

Amount raised

$10m

$32m

$100m

$200m

$150m

$243m

6-Nov-09

5-Jan-11

29-Jun-11

17-Sep-12

6-Oct-14

19-Nov-15

$6,000m

Schulte Research

$3,250m

$2,900m

$1,600m
$45m

$240m

Series A

Series B

Series C

Series D

Series E

IPO

Sources: CB Insights, Crunchbase Pro

105

Paul Schulte

Square dual-sided platform
High cross-selling / up-selling potential with dual-sided platform merging merchants and consumers
Seller Ecosystem

Cash App Ecosystem

POINT OF SALE

P2P

HARDWARE

PAYROLL
DIRECT DEPOSIT

ONLINE

CROSS-BORDER

MANAGED
PAYMENTS

Schulte Research

CASH CARD

TEAM
MANAGEMENT

Sources: Square public filings

BITCOIN

CUSTOMER
RELATIONSHIP
MANAGEMENT

DEVELOPER
PLATFORM

BOOST

BUSINESS
BANKING

STOCKS

106

Seller Ecosystem
Seller Ecosystem
Managed payments

Payments

POS + Business tools

Vertical-specific software
V

Square Point of Sale

Services

(Appointments, Invoices,
Virtual Terminal)

(in-person and online)

Financial services

Access to Funds

(Instant Deposit, Square
Card)

Customers

(Marketing, Loyalty, Gift
Cards)

Retail

Hardware

(Square for Retail)

Employee tracking &
reporting

Payroll

(Team management)

Risk Management +
Disputes

Food + Drink

(Square for Restaurants)

eCommerce

Financing

(Square Capital,
Installments)

Schulte Research

(Square Online Store)

Platform

(Integration & customization tools)

Payments API Integrations

(Reader SDK, in App Payments SDK,
eCommerce API)

Commerce APIs & Integrations
(8 APIs including Employees API,
Inventory API, and Customers API)

Partner App Marketplace

Sources: SSquare public
Sou
bli fili
filings

107

M O N E Y M E TAV E R S E

Schulte Research

US corporate second tier names

108

Marqeta

Schulte Research

Case Study

109

Case study 12 – Marqeta