Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Hedera Hash g raph is the most used enterprise - grade public network and is looking to become the trust layer of the internet Hedera is the only public ledger that uses the hash graph consensus protocol, leading to a faster, more secure, and greener consensus than prior blockchains such as Bitcoin and Ethereum. Created by Leemon Baird and Mance Harmon, two AirForce computer scie ntists and technology entrepreneurs, Hedera caters its DLT to enterprise clients. Current nodes are run by Hedera’s Governing Council, a group of up to 39 leading global institutions such as Google and IBM, with plans to go permissionless in the future. Hedera provides two core services – the Hedera Consensus Service (HCS) and the Hedera Token Service (HTS). HCS delivers decentralized trust for any application by supplying verifiable timestamps, fair ordering, and immutable logging HTS enables the creati on and management of fungible and non - fungible tokens on Hedera without needing to set up and deploy a smart contract. Obstacles and Solutions Current DLT Technologies (Bitcoin, Ethereum) Hedera Hashgraph 1. Performance Most compelling use cases for DLT require transaction speeds in the hundreds of thousands per second and consensus in seconds. Bitcoin TPS is 4.6 with consensus in approximately 10 minutes. Hashgraph algorithm is incredibly efficient. Initially, the net work will be able to handle 10,000 TPS with consensus in 3 - 5 seconds. Further, the addition of sharding may increase TPS exponentially. 2. Security Public DLT use cases will have to be able to handle billions of dollars in transaction value and will be targ eted by bad actors. Current Blockchain technology ( specifically PoW) is very secure but this comes at the cost of energy use. Bitcoin uses 250 kWh per transaction. Hedera achieves the gold standard for security with asynchronous Byzantine Fault Tolerance (aBFT). This is the highest level possible in the field of distributed consensus all whi le using .000 17 kWh per transaction. 3. Stability Enterprises need to trust stability of network before building commercial or sensitive applications. Forking erodes the stability of these applications. Hedera relies on both technical and legal controls to ensure stability of network. It is not possible for nodes to fork the official ledger. Further, f ees are set in notional dollars 4. Regulatory Compliance Incr eased governmental scrutiny and regulatory concerns over crypto is a potential risk to mass - adoption. Hedera has a dedicated team to ensure compliance with regulatory authorities. Tools such as KYC are built directly into the platform. Executive Summary Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Founder Overvie w Dr. Leemon Baird, Co - Founder, CTO, and Chief Scientist Leemon is the inventor of the hashgroup consensus algorithm. He holds a BA from the US AirForce Academy and a PhD from Carnegie Mellon, both in computer science. Leemon taught computer science at the Airforce Academy for six years and then went on to found several security startups. He has been active in the technology and startup space for over 20 years. Mance Harmon, Co - Founder and CEO Mance is an experienced technology executive with over 20 years of strategic leadership experience in multi - national corporations, government agencies and high - tech startups. He met Leemon at the US Airforce A cademy when he was head of missile defense wargames and an instructor of computer science. Most recently he was the Head of Labs at Ping Identity, a global enterprise security firm. Dr. Baird and Harmon each have a coin grant to two billion HBAR , or 4% of the entire supply, vesting over a six - year period. Both have delayed the release of 76% of their allocation until August 2023 (the fifth anniversary of the launch) and must publicly disclose any selling 30 days prior to execution. The founders have sig nificant vested interest in the success of the platform. Further, much of their equity is locked up until 2023, preventing any rug pull until then. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Governance Structure Hedera ’s unique governing structure consists of up to 39 world - class organizations, reflecting 11 unique sectors, academia, and non - profits globally. These entities manage Hedera’s consensus nodes and are responsible for regulating network rules, the treasury, and approving changes to the protocol. Similar to tr aditional corporate structures, they partake in elected subcommittees to operate legal, finance, and marketing functions. Each member is limited to two 3 - year terms and may rejoin after a 3 - year waiting period. No single company has control nor can the Hed era Governing Council be unduly influenced by individual node operators. Each company has one vote. This distributed governance model brings the positives of decentralization without sacrificing network stability and long - term goals. Current Membership The Hedera network has a phased plan for permisionless or open consensus. Eventually the above governance structure will be secondary to HBAR stakeholders running nodes. The smooth transition from permissioned to open consensus is vital for the longevi ty of the platform. As the network grows and the Council allows for new node operators to join the network, HBAR owners will be able to stake their crypto and be paid for their services in maintaining the hash graph. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Tokenomics HBAR is the native cryptocurrency of the Hedera network. It serves two main functions: 1. Network Security As consensus shifts to permisionless, HBAR will play key in role protecting network against cyberattacks and achieving consensus. 2. Network Fuel HBAR will be used to pay for network services, such as file storage and using the HCS, and to incentivize nodes to contribute computing power to the network. Security Permisionless DLT’s need a scarce resource to guard the network against malicious actors. For Bitcoin and Ethereum – and other PoW protocols – this resource is computing power and energy consumption. Miners group transactions into blocks by expending energy to solve a cryptographic puzzle and are rewarded by crypto payment. Hackers are deterred because disrupting consensus would require a prohibitively expensive amount of computer hardware and energy consumption. In Hedera’s proof - of - stake consensus, the scarce resour ce is HBAR. A nodes ability to impact consensus is directly proportional to its stake of coins. Think one coin is equal to one vote. Consensus is achieved when over 2/3s of votes align so a malicious actor will need to attain 1/3 of the voting power to dis rupt consensus. To ensure security of the network, Hedera will remain permissioned until the total value of all the circulating coins is high enough to be too expensive for a malicious user to buy a third. Owners of hbar will be able to actively particip ate in transaction validation by staking and proxy - staking their coins to nodes. Hedera incentivizes staking by providing a “significant” staking reward directly proportional to total amount of hbars staked. Staking creates demand for hbars and create an i ntrinsic future value of the coin. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Fuel Hbar is also used as fuel to pay for network services . For example, f ees are incurred when data is added to the hashgraph ledger or hbars are transferred and are paid by the end user. The overall fee for an action on the network is called the transaction fee and can be broken up into three distinct fees: 1. Node Fee A user looking to add a transaction to the network will send information to a node, which will then s ubmit the transaction to the network. Node fees compensate nodes for expending resources and incentivize node participation. 2. Network Fee After a transaction is submitted by a node, other nodes gossip to each other to validate and reach consensus. Network fees compensate all participa ting nodes for consensus calculations. 3. Service Fee End users pay this fee to compensate the network for services associated with the transaction. Fees are paid to the Hedera Treasury and are re - distributed to stakeholders through node reward payments. 4. A pplication Fees (Optional) Developers who build applications on top of the Hedera network may charge additional fees to monetize the ir added value. Fees are paid directly to the developer’s account. Fees for a particular action will depend on network se rvices used (cryptocurrency, HCS, smart contracts) and degree and duration of the network. For simple transactions, the gas fees are incredibly low at less than .0001(one - hundredth) of a cent. Bitcoin and Ethereum gas fees are above 10$. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Coin Release Schedule Hedera raised capital initially through simple agreements for future tokens (“SAFTs”). In aggregate, 17.45% of hbars were sold via SAFT. Restricted Coin Units (“RCUs”) are pre - settled grants to pay employees and contractors for their services and makeup l ess than 3% of all coin sales to date. At launch, Hedera minted a fixed supply of 50 billion coins. As of 2021 only 18% of the total supply has been released. Coin roll - out is purposeful and deliberate , commensurate with the adoption and use of the Heder a network. The strategy may change depending on demand conditions, network security considerations, and as needed to comply with regulatory authorities. All changes must be passed by the Hedera Governing Council. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 Hedera Ripple Cardano Polkadot Ethereum General Media Presence Twitter Followers Reddit Subscribers Coinmarketcap watchlists 0.00017 kWh 0.003 kWh 55 kWh 250 kWh 0.0001 0.0032 0.1600 8.0000 400.0000 Log Scale Energy Consumption, per transaction 4,900,000 1,018,585 1,229,000 239,079 10,000 1,500 15 7 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Hedera (Hbar) Ripple (XRP) Ethereum Bitcoin TPD/TPS Average Transactions per Day, current Transactions per Second Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Enterprise Demand Enteprise transaction volume is a key demand generator and driver of hbar price growth. Developers building an application on top of the Hedera protocol open up a perpetual and sustained relationship with the mainnet. Every time a transaction between the mainnet and the application takes place, the developer must pay a set fee in hbars. To pa y the USD fee, the developer will have to purchase hbars , creating instant demand at the spot price. This instant demand will be constant and increase proportionally to enterprise adoption. Notable Use Cases The Coupon Bureau (TCB), a non - profit industry managed coalition is building a new universal coupon standard on top of Hedera. Backed by CPGs s uch as Target and General Mills, the project aims to use the HCS to provide a real time, tamper - proof log for all coupon events. In this project, coupons will be digital and registered on the Hedera network. Once redeemed, the network will check the ledger to make sure it is valid, and then mark it to prevent double - spend. This relationship solves many of the current issues plaguing the current archaic coupon system. The current coupon ecosystem currently handles over 250billion transactions per year and wo uld realize 25million in fees if completely shifted over to Hedera. Calaxy – Created by NBA point guard Spencer Dinwiddie (CEO) , this application is looking to become a next generation social media app. Creators issue their own tokens using the Hedera T oken Service and fans can buy these tokens for direct access and special perks to the star. For example, you could purchase x amount of tokens and facetime with Dinwiddie, or have a personalized basketball clinic – the possibilities are endless. The app is going live October 2021 and numerous NBA players and singers have already signed on. Micropayments – Hedera enables entirely new revenue streams and application usage. Previously, it was not economically or technically feasible to pay another party a fraction of a penny – it costs VISA ~50 cents per transaction. However, with fees below .0001$, hbar could lead to the realization of entirely new business models such as pay - per - second Netflix or pay - per - view Wikipedia. It is still early and specific uses have not been fleshed out, but a successful implementation will lead to thousands of new transactions per second. There are over 100 dAPPs being developed on the n etwork including apps from UPS, Reuters, Sanofi, the Mayo Clinic, Delta, DLA Piper, and more. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Fear, Uncertainty, and Doubt • Many of the current application use cases are speculative in natur e and have not been fully developed. Ideas, such as the Fed’s Central Bank Digital Currency , are just that – ideas. • Tokenomics are not incredibly favorable. Nearly 250,000,000 are released every month up until the 50billion hbar cap. However, as long as demand outstrips inflationary pressures, this should not matter. • Current TPS has been throttled down from the hypothetical 10,0 00 and sits at around ~60. The hypothetical maximums are estimated on basic interactions between nodes such as sending crypto and there is sparse evidence they will hold up with more complicated transactions that use smart contracts. Bandwidth limitations may slow down the network. Sharding could fix this issue – however, this also an unproven facet. • What is the relationship between Swirlds and Hashgraph and will this get in the way of potential CBDC implementation? Hedera pays a monthly 625,000$ to Swirlds for an exclusive license over the hash graph technology. However, “the MLA does not preclude Swirlds from licensing its technology or providing servic es using the hashgraph technology platform other than for a general - purpose ledger, and specifically does not precule Swirlds from licensing its technology or providing services directly to governments or central banks for the purpose of a central bank dig ital currency. (Hedera.com)” Until the CBDC rollout we won’t know. • Potential hijinks in the path towards decentralization. When will this happen? What does staking and proxy - staking look like? What are the staking rewards? The deployment of open consensu s is critical for the success and acceptance of the Hedera platform. Questions surrounding its efficacy and timeframe remain. • The upgrade of Ethereum to “Serenity” and proof - of - stake solves its current energy and scalability issues. Does Ethereum2.0 pose a threat to mass Hedera adoption? • Are transaction volumes enough to justify hbar price? Assume a generous 150million transactions per day (in - line with Visa) *.001 (~generous average of transaction fees, estimate) comes out to 150,000$ per day. Multiply that by 365 and it comes out to 55million per year. Conventional valuation methodology would suggest otherwise, however, this is a crypto... Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Investment Thesis Believe in the technology. Come for the hype and stay for the tech. Hedera’s proprietary hash graph technology has found an optimal point in the Blockchain trilemma of security, scalability, and decentralization. Promising asynchronous Byzantine Fault Tolerance, transactions per second of 10,000 (or greater with sharding), 3 - 5 second consensus finality, incredibly low energy consumption at .00017 kWh per transaction, and a governance council with the largest and m ost respected corporations in the world, Hedera seems poised for success. Hedera has no qualms about who its trying to accommodate. Going against the very ethos of crypto and pegging fees to fiat and instituting anti - forking mechanisms, Hedera doesn’t pr etend to dismantle institutions, but rather it seeks to be adopted by them. Many of the current cryptos will fade along with the hype and “the long night” – as most have little real - world applications or enterprise solutions – but those that add value to p rivate enterprise will stay. If more enterprises start building on Hedera, we are looking good. If they stop, well – get out. Believe in the backing. World class brands such as Google, Boeing , Deutsche Bank, etc have all done their research and believe in the network. Joining the governance council is no run in the park. Each company legally joins a limited liability company in Delaware and contributes capital and human resources to run a node and participate in governance. Further, these companies face reputational risks associated with failure so there must be strong economic incentives to join. Believe in Leemon. A certified genius with a weird smile, I will follow Leemon into battle. DYOR. Deal : Hedera Hashgraph Date: May 20, 2021 From : Jeff Subject: Investment Memo Footnotes: All information current as of May 26, 2021. Information from the graphs can be found at Bitinfocharts.com Other information comes directly from https://hedera.com/papers and https://www.reddit.com/r/hashgraph/ This is not financial advice. Best of luck, Jeff