Finally the Killer Crypto App Why Stablecoins and

Finally, the Killer Crypto App: Why Stablecoins and CBDC’s Will Fundamentally Change the Payments Universe Innovative Payments Association Day of Payments © Copyright 2016 by K&L Gates LLP. All rights reserved. Judie Rinearson Partner K&L Gates LLP New York City and London Judith. rinearson@klgates. com

AGENDA § Introductions; Three Themes – J. Rinearson § Stablecoins and Libra – J. Mc. Laughlin § Central Bank Digital Currencies (CBDCs) and the Digital Dollar – D. Cohen § GMO and Stablecoins – K. Nakamura § Qs & As klgates. com 2

#1 - THE U. S. FINANCIAL INFRASTRUCTURE FACING OBSOLESCENCE § Chris Giancarlo: “Systems for payment and settlement …and indeed, financial system regulatory oversight, that were once state of the art and global models in the twentieth century, have fallen behind the times and, in some cases, embarrassingly so in the twenty-first century. ” § Lengthy delays to settle payments, securities transactions, real estate title insurance. § COVID-19 relief payments by check – taking more than a month. klgates. com 3

#2 - THE CRITICAL ROLE OF DISTRIBUTED LEDGER TECHNOLOGY – “BLOCKCHAIN” § Moving value that does not require trusted central institutions but instead a decentralized network of computational algorithms using collaborative cryptography. § Enabling instantaneous P 2 P transfer of value, including shares of stock, land or automobile titles or US Dollars or other value. § Must have appropriate global regulation and dependable technology. klgates. com 4

#3 – FINANCIAL INCLUSION FINALLY § Roughly 1 billion people globally, including 14 million Americans, lack bank accounts. § Delays in COVID-19 payments demonstrates the significant impact on underbanked citizens. § Tokenized value can provide a range of solutions for those without access to the traditional financial system. § Mark Zuckerberg: Libra will be a global payments system that is fully reinforced by cash and other liquid assets. Access to the financial system will help pull people out of poverty. Women in developing countries especially need this type of unencumbered inclusion to financial access klgates. com 5

SPEAKERS Judie Rinearson Partner, New York & London Judith. rinearson@klgates. com Jeremy Mc. Laughlin Partner, San Francisco Jeremy. mclaughlin@klgates. com Dan Cohen Associate, Washington DC Dan. s. cohen@klgates. com Ken Nakamura GMO Internet, Inc. , Head of Stablecoin kentaro-nakamura@gmo-trust. com klgates. com 6

WHAT ARE STABLECOINS? § A type of cryptoasset that attempts to provide a stable value relative to a specified asset or pool of assets (fiat or other crypto) § Some backed by “cash, ” some by baskets of other cryptocurrencies or other assets, some are not backed but maintain stable value through use of algorithms governing issuance and destruction § Value of assets typically determines or affects value of coin § “Libra” is a stablecoin, sort of § Backed by portfolio of currencies and short-term assets § Characteristics of Libra in flux klgates. com 7

HOW ARE STABLECOINS REGULATED? § State § § Legislation Regulation Guidance Documents Range of topics: money transmission; abandoned property; taxes § Federal § Pending Bills § Agency action- OCC; Fin. CEN; CFTC; SEC; IRS § International-Intergovernmental klgates. com 8

SAMPLE OF STABLECOIN USES § § Facilitate e-commerce payments Remittance Smart contract/escrow Tendency to become store of value? klgates. com 9

WHAT ARE CBDCS? § Definition: a digital tokenized unit issued by a central bank as legal tender § Features: full faith and credit; all digital; potential DLT-based; direct or indirect retail access § Examples: § DE/CP – ongoing testing in Chengdu and other cities § e. Kroner – pilot program through Feb. 2021 § South Korea – 22 month pilot to be launched klgates. com 10

KEY DIFFERENCES WITH CRYPTOCURRENCIES § § § Issuer: Government v. Private Entities Validators: Permissioned v. Permissionless Consensus: Varying, unlikely Po. W Architecture: DLT, Blockchain or Other Supply: Unfixed v. Fixed (not universal) klgates. com 11

STATE OF THE DIGITAL DOLLAR § August 2020: Fed reveals it has conduct experiments with a DLT-based currency for the last few years § August 2020: Fed and MIT will work on a “hypothetical” digital dollar over the next few years § The Fed is interested in a digital currency “as a complement to cash and other payment options” klgates. com 12

POLICY CONSIDERATIONS FOR A DIGITAL DOLLAR § § § Payment Efficiency and Speed Operational Resiliency and Security Privacy and Censorship Financial Inclusion Financial Stability Financial Crime Enforcement klgates. com 13