Compliant Tokenized Investment instruments

1. Compliant Tokenized Investment instruments

2. Tokenized Securities Private placement exemptions Trading restrictions NO Action letters- TurnKey Jet, Pocketful of Quarters Problems with tokenizing securities Limited trading venues Broker dealers are restricted Buyer confusion Types of instruments: Future Security Token Trading Marketplaces Waiting for FINRA approval of these primary and secondary trading platforms

3. Tokenized Securities Private placements: Exemptions from registration requirements of the 33 Act that allow an issuer to market and sell securities without becoming a public reporting company under the 34 act. Frequently used exemptions: Regulation D Regulation S Regulation CF Regulation A+

4. Registered Public Security Publicly File Form S-1. See 15 USC 78I: Describe the company's properties and business; Describe the security to be offered for sale; Information about the management of the company; and Profit and loss statements for not more than the three preceding fiscal years, certified if required by the rules and regulations of the Commission by a registered public accounting firm;  Security trades on National Securities Exchange Sold through Investment Bankers, Broker Dealers No cap as to funds to be raised Not “approved”- “becomes effective”

5. Tokenized Securities Accredited investor: 501 of Regulation D Individual: net worth over $1mm USD (excluding the value of the primary residence), or an individual that earned an income of at least $200,000, for each of the last two years, and reasonably expects the same for the current year. Married Couple: net worth over $1mm USD (excluding the value of the primary residence), more than a combined $300,000, for each of the last two years, and reasonably expects the same for the current year. Little used additional qualification: “Has such knowledge and experience in financial and business matters that he is capable of evaluating, alone, or together with other purchaser representatives of the purchaser, or together with the purchaser, the merits and risks of the prospective investment”

6. Tokenized Securities HR 1585 “Fair Investment Opportunities for Professional Experts Act”

7. Tokenized Securities Regulation D- safe harbor from 4(a)(2) of the 33 Act. Unlimited raise Issuer may sell debt or equity interests 504(d)- $5mm limit, cannot generally solicit, comply with blue sky 506(b)- no limit, accredited investors plus 35 “sophisticated” non accredited (must receive disclosures), cannot generally solicit, exempted from state blue sky 506(c)- no limit, accredited investors only, may broadly/generally solicit, issuer must verify accreditation status of buyers File a Form D within 15 days of first sale Disclosing name of issuer, basic information No ongoing reporting requirement States may require notice filings and fees Securities are Restricted (subject to 6mo/1 year holdbacks) Purchasers receive “restricted” securities Bad actor disqualifications

8. Tokenized Securities Regulation S- safe harbor from 33 Act, created to prevent abuses by issuers selling securities offshore exclusion from the Section 5 registration requirements of the 33 act for offerings made outside the United States by both U.S. and foreign issuers. For “offers & sales of securities outside the United States” made in good faith & not as a means of circumventing the registration provisions of the 33 Act. Offer & sale must be made in an offshore transaction No offer to US person, executed in a foreign jurisdiction No directed selling efforts in the US; must segregate US/Non-US-facing marketing materials Must be prevented from “flowing back” into the US Frequently used in conjunction with withRegD May not be sold to US persons during distribution holding period- usually 6 months

9. Tokenized Securities Regulation CF (Crowdfunding) Raise up to $1.07mm per 12 months Must be offered solely through a designated crowdfunding platform registered with SEC/FINRA Available to non funds Exempt from state blue sky May be sold to anyone including unaccredited investors Subject to transfer restrictions for 1 year Must file Form C with SEC, disclose information about officers, directors, and owners of 20 percent or more of the issuer; a description of the issuer’s business and the use of proceeds from the offering; the price to the public of the securities or the method for determining the price, the target offering amount and the deadline to reach the target offering amount, whether the issuer will accept investments in excess of the target offering amount; certain related-party transactions; and a discussion of the issuer’s financial condition and financial statements. 8. Ongoing reporting requirements- sales progress reports, annual updates

10. Tokenized Securities Regulation A+ Raise amount: Tier 1: $20mm/12 months Tier 2: $50mm/12 months Tier 1: No investor requirement, Tier 2: limited non-accredited investors General solicitation permitted US or Canadian issuers Must file Form A-1, 2 years of audited financial statements Ongoing reporting Sales permitted after A-1 Qualified Sold assets freely tradeable State blue sky pre emption for Tier 2 only Bad actor disqualification provisions Recently approved Blockstack sale of “investment contracts”

11. Tokenized Securities Private placement trading restrictions Certain private placements cannot be traded unless an exception exists RegS securities cannot be traded to US persons during certain periods RegD securities may not be traded during certain periods Trading of RegA+ securities may capped at a percentage of overall value

12. Tokenized Securities 4(a)(1-1/2) 4(a)(2) of the 33 Act exempts from registration "transactions by an issuer not involving any public offering,“ and permits an issuer to sell securities in a "private placement" without registration under the Act. Only available to issuer and not to buyers of private placements. 4(a)(1) of the Act exempts from registration "transactions by any person other than an issuer, underwriter, or dealer." A holder of securities who is not an issuer or a dealer can therefore sell his securities in a private sale without registration if the holder is not an underwriter as defined in section 2(a)(11). Generally, a person is an "underwriter" if he acquires securities with a view to "distribution" or is participating in a "distribution," which generally means an offering that is not a private offering. Under Rule 144, a holder of private placements may sell them on public markets but not privately. Compromise: Permit sales under 4(a)(1-1/2) limited to fewer than 25 purchasers No public solicitation Seller to provide information to buyer Purchasers must be sophisticated Generally 6 months holding period Purchaser must acquire for investment not for resale

13. Tokenized Securities 2. 4(a)(7)- non exclusive safe harbor for private resales Codifies 4(a)(1-1/2) to permit sales if: Securities have been outstanding for at least 90 days Seller provides issuer 2 years of financial statements under GAAP, recent balance sheet, P/L Purchaer is an “accredited investor” within the meaning of 501, Regulation D; Neither the seller, nor any person acting on its behalf, uses any form of general solicitation or advertising; The seller is not the issuer or a subsidiary of the issuer; Neither Seller or buyer is a Bad Actor Issuer is actually in business (i.e. not blank check, not bankrupt) Does not relate to an unsold allotment to, or a subscription /participation by a BD or underwriter Securities acquired under Section 4(a)(7) are “restricted securities” and cannot be further transferred except pursuant to registration or another exemption from registration. Securities sold under Section 4(a)(7) are “covered securities” under Section 18 of the Securities Act, which means that any state blue sky restrictions are preempted and therefore inapplicable.

14. Tokenized Securities 3. Rule 144- safe harbor that allows public resale of restricted and control securities Holding Period. Public reporting company: six months. Private placement: one year. Current Public Information.  There must be adequate current information about the issuing company publicly available before the sale can be made. For non-reporting companies, this means that certain company information, including information regarding the nature of its business, the identity of its officers and directors, and its financial statements, is publicly available. Trading Volume Formula. If you are an affiliate, the number of equity securities you may sell during any three-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock exchange, the greater of 1% or the average reported weekly trading volume during the four weeks preceding the filing of a notice of sale on Form 144.  Over-the-counter stocks, including those quoted on the OTC Bulletin Board and the Pink Sheets, can only be sold using the 1% measurement. Ordinary Brokerage Transactions.  If you are an affiliate, the sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission.  Neither the seller nor the broker can solicit orders to buy the securities. Filing a Notice of Proposed Sale With the SEC.  If you are an affiliate, you must file a notice with the SEC on Form 144 if the sale involves more than 5,000 shares or the aggregate dollar amount is greater than $50,000 in any three-month period.   Restrictive legend must be removed by a transfer agent, which requires consent of issuer, usually in the form of an opinion letter from issuer’s counsel that the label may be removed.

15. Tokenized Securities 4. 144a- exception for sale of private placements to Qualified Institutional Buyers- (QIBs) May be used by anyone but the issuer to sell to a QIB The reseller must take reasonable steps to ensure that the buyer is aware that the reseller may rely on Rule 144A in connection with the resale The securities reoffered or resold (a) when issued were not of the same class as securities listed on a U.S. national securities exchange or quoted on a U.S. automated inter-dealer quotation system The securities reoffered or resold are not securities of an open-end investment company, unit investment trust, or face-amount certificate company that is, or is required to be, registered under the Investment Company Act of 1940; and For private placements, the seller and a prospective buyer designated by the holder must have the right to obtain from the issuer and must receive, upon request, certain “reasonably current” information about the issuer. Securities sold via 144a remain restricted securities Holding period: 6 months.

16. Private Placement Liqudity Private placements (i.e. exempted securities issuances) are generally illiquid Highly frictioned transaction process May require 3 law firms, cooperation of issuer, reporting to SEC Thus, limited, slow trading of private placements:

17. Tokenized Securities Rule 12(g)-1 of the 34 Act-Requires issuer to register as a public reporting company if issuer has: more than $10mm total assets and more than 2000 “holders of record” a class of equity securities or more than 500 unaccredited “holders of record” Reg A+ Tier 2 is conditionally exempt from 12(g) requirement for so long as the issuer remains subject to, and is current in (as of its fiscal year end), its Regulation A periodic reporting obligations - Must use an SEC registered transfer agent - If raise becomes too large, (>$75mm public float, > $50mm revenues) given a 2 year transition period to register its securities.

18. Tokenized Securities Two “No Action” letters, pursuant to Securities Act of 1933, 2(a)(1) issued related to tokens. TurnKey Jet, Inc.- April 3, 2019 “Slam dunk” not a security -Tokens sold by issuer for private jet flights -Only exist on a private network and wallets created by and controlled by issuer. -Only transferrable to wallets on the platform -No public resale market for tokens -Jet network already existed and operational -funds not to be used to develop infrastructure -immediately usable upon sale date -Marketed to emphasize functionality of token, not for increase of market value -Sold at $1 per token at all times -Tokens represent obligation to provide air charger services at the price of $1 per token -Any repurchase of tokens by issuer will be at a dscount to the face value of the token

19. Tokenized Securities Pocketful of Quarters- July 25, 2019 Funds from sale will not be used to build the platform PoQ Platform has been fully developed & will be fully functional and operational upon its launch & before any of the Quarters are sold; Quarters will be immediately usable for their intended purpose (gaming) at the time they are sold; PoQ will implement technological & contractual restrictions to restrict the transfer of Quarters to PoQ or to wallets on the Quarters Platform; Users will only be able to transfer Quarters from their Quarters Hot Wallets for gameplay to addresses of Developers with Approved Accounts or to PoQ in connection with participation in e-sports tournaments; Only approved Developers & Influencers can exchange Quarters for ETH at pre-determined exchange rates by transferring their Quarters to the Quarters Smart Contract; Developers and Influencers seeking “approval” will be subject to KYC / AML checks Quarters are continuously available to gamers in unlimited quantities at a fixed price; Purchase price of Quarters related to the market price of accessing and interacting with Participating Games; and Quarters marketed and sold to gamers solely for consumptive use as a means of accessing and interacting with Participating Games.

20. Tokenized Securities What are the current limitations to tokenizing securities Technology platforms Capital table tracking Trading venues Broker dealer infrastructure/distribution Custody Market awareness/education Pricing

21. Tokenized Securities Broker dealers are restricted - SIPA does not cover digital securities - Custody is not yet defined - FINRA has yet to approve a Form BD change of business line for digital securities or digital securities

22. Tokenized Securities Buyer confusion Custody, valuation, trading restrictions Product/instrument mismatch Nomenclature- tokens/securities

23. Tokenized Securities Types of instruments: Tokenized utilities ICO instruments offered pursuant to securities exemptions. Product/format misfit Tokenized Equity/Debt Traditional instruments sold in tokenized form How attractive is the underlying opportunity? Tokenized asset backed- Will succeed if there’s an additional feature or lower cost than conventional/existing counterparts Tokenized transforming instruments The future

24. Tokenized Securities All rely upon compliant marketplaces Dao report- tokenized securities must be traded on ATS or National Securities Exchanges Waiting for FINRA approval of these primary and secondary trading platforms

25. Alterative Trading System Why an ATS may make a big difference 1. “Onboarded” traders on platform = built in, prequalified consumer base 2. Potential for automation of secondary functions to de-friction trade 3. Marketing to broader market base than typical offering 4. Market + consumer base + broad marketing (maybe) = additional demand, transaction volume. What ATS’ are looking at tokenized securities so far? Templum (https://www.tradetemplum.com/) Open Finance (https://www.openfinance.io/) Tzero (www.tzero.com) Coming soon: Bittrex/Rialto, Coinbase (A+ only), others…

26. Tokenized Securities Blockstack A+ qualified and approved on July 10, 2019 Project: Create decentralized internet backbone. Stacks Tokens to be used to pay for services and products on blockstack system $28mm investment contract sale via Regulation A+, Tier 2 $12mm in Stacks Tokens will be allocated to Blockstack’s App Mining Program, which rewards developers who create the applications within the Blockstack ecosystem. Approx 10months, $2mm in legal fees to get approval. First legally sold “utility tokens” No equity or debt interest provided- used for payment on platform 165 existing operating DAPPS on Blockstack May be sold to retail and accredited investors May be freely transacted

27. Tokenized Securities Blockstack A+ open questions & issues: - Still subject to 12(g) restrictions- may quickly be forced to become public - No platforms for legal trading of instrument no restriction preventing private party trades unclear if Broker Dealers can take transaction-based compensation for trades of these assets - Indicates that stack tokens may at a time in the future no longer be considered securities- no clarity as to how or when.