WHITE PAPER. v1.5.1 March The cryptocommodity.

Transcription

1 WHITE PAPER v1.5.1 March 2018 The cryptocommodity

2 CONTENTS 1. Introduction i. Elevator pitch ii. Tiberius and the broader team iii. Abstract iv. Product description v. FAQ and marketing content 2. Blockchain disruption as applied to the tiberius coin i. Cash 2.0 tech: a solution to current financial infrastructure ii. The security of real assets: a solution to modern banking mistrust 3. The tiberius coin: the marriage between blockchain and commodities i. Commodities as the ideal underlying ii. The tcoin vision: the near-stateless currency 4. Vision of social adoption of the tcoin: sequential paradigm shifts i. Investor participation (holding): cryptocurrencies will be used for investment ii. Consumer participation (savings and transfers): cryptocurrencies will be used like gold iii. Retailer participation (spending): cryptocurrencies will be used like cash iv. Industrial and financial participation (hedging) 5. Further applications 6. The London Metal Exchange (LME) i. What is the LME ii. LME warrants, clearing brokers, clearing accounts, and warehouse fees iii. Ease of access to metal markets and the link between the financial and physical world iv. Contract specifications v. LME brokers and the division of responsibility vi. Precious metals and vault-receipts 7. Market operations i. Understanding of market price ii. Underlying basket composition iii. Price floor (arbitrage of the lower bound) first revenue stream iv. Bootstrapping and the arbitrage of the upper bound second revenue stream v. Warehouse arbitrage third revenue stream vi. A note on the arbitrage of the upper bound (price cap)

3 CONTENTS 8. Time-line and road map i. Pre-ICO, initial set-up ii. ICO, market launch 9. High level implementation description of Version 1 i. Challenges ii. Process flow iii. High Level Architecture & Component Breakdown Tiberius Crypto AG (Tiberius) brings together the best talent in tech and trading. A subsidiary of Tiberius Group est. 2005, a world leader in commodities with experience in physical trading, asset management, and mining The tiberius coin has intrinsic value because it s backed by physically deliverable metals. It s safer and more stable We want to disrupt consumer finances by creating a more secure and decentralised monetary base on the blockchain, an asset with real value that will actually protect your wealth A cryptocurrency backed by physical commodities is a natural extension of our existing business and builds on our core competencies

4 4 Contents 1. Introduction i. Elevator pitch The blockchain has the ability to redefine the world of consumer finances by making national borders redundant and removing the need for trusted third parties or banks. We like to call these new-andimproved, instantly deliverable features of cryptocurrencies cash 2.0 technology - to describe how digital currency moves, not what underpins the value itself. The incredible 2.0 properties of cryptocurrencies such as Bitcoin should make for an attractive alternative to government fiat currencies, but existing cryptocurrencies are just too risky. The tiberius coin ( tcoin ) has an intrinsic value because it s backed by physically deliverable metal. The tiberius coin allows you to do everything you want to do with Bitcoin, such as transferring money abroad quickly and cheaply, but without exposing yourself to significant swings in value. The tiberius coin is the secure medium that allows you to do all that smart cash 2.0 stuff while knowing that you re safe from price fluctuation. The blockchain s cash 2.0 tech features are a solution to ine cient financial infrastructure, but commodities are a solution to an ine cient banking system. Commodities are protected against inflation, central bank intervention and global debt, the seemingly unlimited monetary policy we see today, and currency manipulation. We re decentralising digital tokens throug blockchain, and we re decentralising the underlying metal through agents who operate a network of >600 warehouses across Asia, Europe and the Americas. ii. Tiberius and the broader team Tiberius is a leading global commodities asset manager, mining operator, metal merchant trader, and Commodities Technology (ComTech) investor based in Zug, Switzerland. Our domicile of Zug has long been a centre for commodities trading, but has recently also gained a reputation as a blockchain hub and is affectionately known as Crypto Valley. Tiberius history goes back to 2005 when we launched Europe s first actively managed commodities fund, which eventually grew to US$ 3bn in assets under management. Commodity and financial market participation has been central to Tiberius for over a decade and a venture into the world of commodities backed cryptocurrencies is a natural extension of Tiberius core competencies.

5 5 The Tiberius Group, who operates a metal trading business, is also registered category 5 member of the London Metals Exchange (LME) and has a founding partner represented on an operational committee at the exchange. Tiberius asset management division is regulated and licensed by FINMA (Switzerland) and the SEC (USA). Tiberius Crypto AG operates the tiberius coin and blockchain business and is held within the ComTech division. Tiberius is collaborating with prominent international law firms who specialise in both financial markets and cryptocurrencies, to ensure the correct regulatory analysis and compliance with global Anti-Money Laundering (AML) and digital currency (FinCEN etc) policy standards. Tiberius intends on operating in the most compliant and transparent manner with all relevant parties, and has been proactive and patient in partnering with the relevant experts to ensure long-term operational excellence. Switzerland, along with Gibraltar, is one of the few countries who are actively embracing cryptocurrencies which helps avoid any surprise legislation or restrictions in the future. Zug, the home of Tiberius, is at the forefront of this drive. The Tiberius Crypto executive team has substantial experience in launching ICOs, smart contract development, and currently manages cryptocurrency exchanges on two continents. The development team is further strengthened by Threat Intelligence (THREAT), Australia, who joined the Tiberius Crypto team to develop and test state of the art security protocol. THREAT has been contracted by the FBI and CIA, and was invited to Black Hat USA to provide training. Tiberius has also struck agreements with four exchanges, in Australia, South Africa, and Venezuela as part of the ICO process.

6 6 iii. Abstract The tiberius coin is comprised of both a digital and physical component, whereby the Ethereum blockchain protocol underpinning the digital component of the tcoin, a de facto accounting system, is used to secure and decentralise the transacting of underlying physical commodities. The tcoin will have many applications but the long-term vision is that of an alternative but complementary medium of wealth storage, which exists in parallel to conventional fiat currency. The tcoin will be used like a bank account but will also be liquid enough to be to be used to buy a cup of coffee, effectively facilitating the bartering of commodities in retail transactions. The tcoin employs Ethereum smart contracts to decentralise the holdings of the digital tokens, removing the need for a trusted party or database. At the same time, each token is backed by physically deliverable metals in order to capture the ideal volatility and risk profile of a currency and to provide an intrinsic value and economically rational price floor in order to solve the trading-on-consensus limitation of modern fiat currencies. In order to mitigate concentration risk surrounding the honouring of the physical leg, the delivery, auditing, and operations are managed by independent exchanges that are globally diversified in both their storage and delivery of the underlying metal. This framework allows for maximum transparency, security, and decentralisation of trust. As each tcoin represents a basket of specifically assigned metal in-warehouse, transacting with the tcoin facilitates a bartering system whereby the underlying asset is a geopolitically secure, inflation hedged, currency hedged, and central bank independent basket of precious and base metals. The physical component of each tcoin, which is callable at any time by way of conversion, is held independently by known third-parties in the form of liquid and exchange-traded instruments corresponding to fungible precious and base metals in over >600 warehouses across Europe, the Americas, and Asia. The integration between the physical and digital counterparts of the tcoin is maintained by, but not owned by, Tiberius Crypto AG, a subsidiary of Tiberius Group. Cryptocurrencies have seen significant demand as of late from both retail and institutional buyers in what we believe is a public outcry for a more secure and decentralised method of wealth storage. Ironically, it has been this very flood of interest in cryptocurrencies such as Bitcoin which has undermined the very utility of the blockchain technology as a long-term vehicle for wealth storage given the resulting volatility profile and speculative interest. The tcoin concept perfectly lends itself as a solution to both the ine cient modern financial infrastructure as well as the systemic risks to the global banking system and credit environment amid ballooning global debt and seemingly unlimited monetary intervention.

7 7 iv. Product description The Tiberius coin ( t-coin ) is a commodities backed cryptocurrency and represents physical metal, where the delivery and auditing is facilitated by independent third-party service providers such as the London Metal Exchange ( LME ) and precious metal storage companies. The t-coin is comprised of several components existing in parallel, where the integration between the various components is maintained by, but not owned by, Tiberius Crypto AG ( Tiberius ) based in Zug, Switzerland - The blockchain component of the t-coin exists upon a contract protocol ( tokens ) in order to facilitate trading of the t-coin on Dedicated Crypto Exchanges ( DCEs ) and to enable other smart contract features, as described later The t-coin version 1 will likely be a Ethereum ERC-20 token standard, which may change in later versions The t-coin token will [tentatively] trade under the ticker TCX The holder of a TCX token will be referred to as the t-coin owner - The metal component of the t-coin exists in the form of: LME warrants in the case of non-precious metals, which are LME-cleared financial derivatives and provide exposure to the underlying metals, as described later Vault receipts in the case of precious metals, which are off-exchange proof-of-ownership documents, as described later Each TCX 1.0 token is fully collateralised by an identical composite basket of metals ( basket ), which is a publically disclosed allocation of specified metal in specific quantities, as a collection of LME warrants and vault receipts - The aggregate of all metals which are held by Tiberius to collateralise the token network is called the metal holdings. Again, holdings exist in the form of LME warrants and vault receipts - The metal holdings of Tiberius will be purchased in factors of whole baskets such that all metal held by Tiberius can be divided into a number of identical baskets where the number of baskets corresponds to the number of existing TCX tokens - Each token will be collateralised by the same identically defined basket, and therefore is entirely fungible as each token is backed by the same allocation of metal - Physical metal holdings will be audited and have varying characteristics, defining the audit specifications ( audit specs ), described later but includes: Chemical composition Shape Brand Location

8 8 - The lowest granularity of metal dealt with will be called a contract, the specifications of which will differ between metal Each contract held will have a specific contract ID, used as a unique key to reference the audit specs (location, grade, brand, ) of the given contract of a set quantity - A contract spec defines both (i) the underlying quantity of the metal the contract (e.g. copper 25t, gold 100toz) and (ii) an audit spec equal to, or greater than, some minimum quality standard The contract spec therefore defines both the fixed quantity and minimum quality This ensures deliverability and protects the t-coin owner against receiving low-grade metal Any TCX 1.0 may be at any time exchanged for the underlying metal basket through the process of tcoin cancellation, whereby: 1. The token is sent directly to Tiberius and removed from circulation (described later) through the use of smart contract features The token is referred to as being cancelled because it is no longer freely tradable 2. The cancellation instruction prompts the redemption of the basket of metals, such that the independent 3rd-party trustee who holds the basket will deliver the LME warrants and vault receipts directly a clearing account specified by the former t-coin owner at the time cancellation was triggered After this point the t-coin owner is no longer referred to as such, given that they no longer hold the TCX given they have exercised their right to call the underlying metal The owner of the recipient clearing account may or may not be the former t-coin owner, despite now being in possession of the metal Tiberius will never associate any specific contract ID (i.e. the specific allocation of metal held, as per the unique audit specs) with a given TCX token, ensuring that all tokens are entirely fungible, identical, and of unknown audit spec (i.e. location, brand, shape, ) - Tiberius reserves the right to choose which collection of contract IDs will be delivered to the recipient clearing account at the time of cancellation The exact basket will be subject to change over time, but will incorporate our three strategic commodity themes - Technology metals: copper, tin - Electric Vehicle ( EV ) metals: cobalt, nickel, aluminium - Stability metals: gold, platinum, palladium

9 9 v. FAQ and marketing content What is the Tiberius coin? - The Tiberius-coin uniquely sits at the intersection of cryptocurrencies and traditionally financial markets, pioneering the realm of commodities-backed tokens - The t-coin is redeemable for physically deliverable metal, giving it an intrinsic value and therefore a price floor - An identical and publically disclosed underlying basket of metal each t-coin - so each token is the alike and fungible - The metal underlying each token provides exposure our three strategic commodity themes: The technology play: copper, tin The Electric Vehicle story: cobalt, nickel, aluminium Stability metals: gold, platinum, palladium

10 10 Where is the t-coin s edge? - The Tiberius coin in essence boils down to less price risk than other cryptocurrencies - Although the metal-backed cryptocurrency has multiple applications, users of varying background and profile, and is more complicated than described here: the Tiberius coin begins and ends with less price risk - Less price risk during normal trading: The Tiberius coin has a market price which is (1) less volatile than other cryptocurrencies, and (2) can drop by only a limited amount this is because the market price of the token is supported by the intrinsic value of the underlying metal - Secured value in a global melt-down: Even in the case of a collapse of several cryptocurrency exchanges or metal markets, the underlying metal is always 100% collateralised and therefore a secure storage of wealth What supports the security and integrity of the t-coin network? - The blockchain decentralises the risk-of-theft of a token (digital asset), reducing the need for a trusted third-party. The utility of the blockchain can be thought of as a decentralised auditing solution for digital assets. - Use of the London Metals Exchange (LME) and other service providers decentralises the risk-of-theft of the physical metal (physical asset), because the collateralised asset is audited by independent parties and stored across multiple warehousing companies in >600 locations globally (i.e. decentralised) Decentralised physical asset auditing is ensured as the task is outsourced to multiple, independent, and competing warehousing companies such that game-theory and economic principles dictate that collusion across the system would be irrational [collusion is needed to cheat the system by undermining the verification of the existing collateral]

11 11 Who uses the t-coin? - Investors: the t-coin provides exposure to the cryptocurrency market but is designed to have a price floor which means it can never, and will never, go to zero or be exposed to the same risks as traditional cryptocurrencies. When cryptocurrencies crash: there is a huge bottleneck between cryptocurrencies and fiat currencies (e.g. USD, EUR). Only a few cryptocurrencies can be exchanged for fiat, driving huge price drops when these few crypto-to-fiat liquidity channels (BTC, ETH, ) become distressed. Cryptocurrency market hedge: the t-coin is not only more stable in price, but it solves the biggest problem in the crypto market: crypto-to-fiat liquidity. The t-coin is not only easily tradable for commodities (can be easily converted into fiat on exchanges), but the commodities themselves are uncorrelated to cryptocurrency markets themselves. Cryptocurrency market participation: we are in the midst of the legitimisation of cryptocurrencies as an asset class, which means a huge inflow of institutional capital. The t-coin risk profile perfectly lends itself as an investment vehicle for funds, family o ces, and high net worth individuals. The t-coin is an excellent sales pitch for the new entrant money manager desiring crypto exposure; an investor who has less trust in crypto than millennials but has a lot more capital. - Consumer finance: t-coin enables all the clever applications of the blockchain, except now you don t need to worry about price risk. We all want to transfer money cross-border more quickly and cheaply, but why save 2% on transaction fees and lose 10% on price volatility? - Wealth management tool: if you combine the previous points you see that the t-coin provides ideal exposure to a de-correlated, inflation hedged, currency hedged basket of metals perfectly combining investment solutions with consumer finance - Anyone who uses metals: t-coin offers value for metal traders and corporates alike. For example, treasury departments of large automotive companies traditionally sit on a lot of cash yet continually consume metal

12 12 What do I care about intrinsic value? - Intrinsic value is the value of the underlying metal. It means that the price of the t-coin can never go to zero and keeps the token price de-correlated from other cryptocurrencies - The intrinsic value is secured as it is: inflation hedged, so prices increase over time with inflation because the metal is a tangible store of wealth currency hedged, because it is a tangible asset irrespective of exchange rates, so it keeps its value in dollars, euro, or yen fully collateralised, providing security even in a potential systematic banking crisis or a collapse of ballooning government debt. Money in a bank account can vanish but metal cannot What is a price floor and how does it work? - The price of a t-coin should not stay far below the intrinsic value because of economically rational incentives - Tiberius and other market participants will always be willing to buy a t-coin in the market for almost as much the underlying metal can be sold for (i.e. the intrinsic value) - When the t-coin is too cheap you can buy the undervalued token in order to obtain the metal, which can then be sold higher at a profit (this is called arbitrage ) - Free money doesn t exist for long - as competition increases so does the strength of the price floor I can t actually take delivery of metal so how does the price floor apply to me? - Even if you can t transport metal there will always be an investor who can. It is the job of investors to keep markets e cient, not regular people - Investors support the price floor, not customers. If prices fall too much below intrinsic value there should always be an investor in the market who will be willing to pay buy it at a higher price - Think about currencies, or when you buy gas to fill up your car: regular people only make up a small portion of the market, it is the investors who act on a much larger scale who keep prices stable

13 13 Who is Tiberius? - Tiberius has been a trusted world class commodities asset manager for over a decade and has an established presence in mining, trading, and commodities technology - The Tiberius Group marquee business is the asset management division: it was the first actively managed commodities hedge fund in Europe and at one time the largest, with over US$ 3bn in assets under management - Tiberius Crypto AG is a natural extension of an existing and integrated commodities business. We are based in Zug, Switzerland (aka Crypto Valley) and sit within the Tiberius Group family - Tiberius Crypto AG is a partnership of metals traders, portfolio managers and quants, tech-experts who operate crypto-exchanges across continents, leaders in digital security, and world-class lawyers Converting a token to physical metal: the t-coin cancellation process - A cancellation instruction is triggered - The token is cancelled through the use of secure and private smart contract features - The token is removed from circulation as it is no longer collateralised (hence cancelled ) - Encoded into the cancellation instructions are the details of the recipient of the basket of underlying metal (a clearing account). The account may or may not be held by the t-coin owner - The former token holder is now no longer considered a t-coin owner, as they are no longer in possession of the digital contract - The basket of underlying metal, in the form of securities (essentially digitalised financial contracts), is sent to the recipient clearing account - The securities correspond to the underlying allocation of metal in-warehouse and in-vault (of specific location, quality, brand, ) - Smart contracts automate the instruction of the transfer: prior to transfer, the securities are held by a trusted third party broker after transfer, the recipient is wholly responsible for the metal which includes any costs subsequently accrued - The securities, now held in the recipient s clearing account, can be either: - Easily sold in the terminal market for USD, EUR, or JPY - Further called for physical delivery at the respective warehouse locations

14 14 Can players deliver a complete basket of LME metals and vault-receipts and receive a TCX token in return? - Yes, players will be able to deliver the full underlying basket to Tiberius and will be entitled to receive a tcoin token in exchange - Not only does this fully decentralise the tcoin in terms of pegging the TCX token value to the underlying intrinsic value, but it means that Tiberius can never act like a central bank and cannot control token supply

15 15 2. Blockchain disruption as applied to the tiberius coin Classifying the various benefits of the blockchain and tcoin concept helps us to identify from where the comparative advantage is derived. The tcoin has utility as a solution to two different problems: the first problem being the limitations in how capital moves within contemporary fragmented and ine cient financial infrastructure, the second problem being the systemic risk inherent in the modern banking system. i. Cash 2.0 tech: a solution to current financial infrastructure The concept of digitalised currency has a unique set of benefits relating to the way wealth moves, independent from what underpins the wealth itself. The ability to transfer assets bilaterally using blockchain technology removes the need for trusted intermediaries who serve to increase transaction costs through fees and lengthy on-boarding procedures, thus allowing for a more frictionless movement of wealth around the globe. Our financial infrastructure still relies on costly KYC data validation, multi-layered processing given lack of integration between payment systems, and monopolistic cross-border networks. Holding an asset in a digital wallet - be it on a laptop or smartphone affords financial accessibility in a world where two billion adults are without bank accounts due to prohibitively high costs. This applied technology is particularly pertinent to cases such as the undergoing process of demonetisation in India, or parts of Africa where personal finances are managed on mobile phones due to affordability issues. We like to call this improved architecture cash 2.0 technology to highlight the separate utility derived from the near instantly settled, cheaper, and more secure payment system. With respect to fund transfers, blockchain allows for much cheaper, quicker, and secure transactions given they are bilateral, digitally secured and maintained through cryptography, and agnostic to national borders. With respect to retail transactions, digital encryption mitigates fraud and affords more transparent pricing. The tcoin will find many initial uses such as wealth and inheritance management due to the characteristics of the underlying, but the ultimate vision is of full integration between consumers, retailers, and savings accounts existing in parallel to your regular bank account. It is because of this long-term vision that we have highlighted the advantages of the tcoin applied in the context of retail payments and transactions, as well as personal savings. There are many cryptocurrencies leveraging the revolutionary properties of the blockchain, but none have proposed an underlying asset which has the characteristics or risk profile that lend itself to a currency or viable storage of personal wealth.

16 16 ii. The security of real assets: a solution to modern banking mistrust Cryptocurrencies are no longer exclusively for a fringe group of countercultural cypherpunks and cryptoanarchists, or criminals who wish to launder money. The huge influx of retail investment must be recognised as a clear and undeniable message that consumers at a very real level are looking for a more secure way to store wealth amidst growing mistrust in the financial system. In the case of Bitcoin, it is true that a large portion of the price action has been driven by speculation, but the initial impetus behind the movement has a much greater meaning as the technology stemmed from the financial crisis just weeks after the collapse of Lehman Brothers. This technology is unstoppable and will continue to disrupt finance, payments, and the storage of wealth for years to come; the market is simply in the midst of the process of determining what form it will take. This underlying trend echoes recent economic hardships such as various bank runs in peripheral European countries such as Ireland - and in Greece and Cyprus where the entire population of developed economies were unable to withdraw personal savings. In a day-and-age of ballooning government debt amid seemingly unlimited monetary manipulation in the form of quantitative easing in the US and EU, Abenomics in Japan, shadow banking in China the value of a physically-backed bartering system is becoming increasingly attractive to a growing section of the population. Consumers like to think that fiat currency is secure even despite historical truths such as the Pound Sterling having lost 99% of its value since inception but the fact is that value is purely determined by consensus and sentiment while central banks are freely able to contract and expand the money supply as issued paper has no intrinsic value. Bitcoin, like most other cryptocurrencies, also have no intrinsic value and purely trades-on-consensus, that is to say that price is based on trust and a consensus of safety rather than an intrinsic value. This structure ultimately leaves the market open to collapse. Given the motivation behind the rise of cryptocurrencies, none of which so far have solved the problem of trading-on-consensus, we believe that the market is ripe for a marriage between conventional commodities and this disruptive technology. We propose that our inflation-hedged alternative to fiat currency, which is independent of both central bank intervention and systemic credit stress, is indeed a better solution. The tcoin is a return to the traditional bartering system - the oldest method of trading in existence - whereby wealth is backed by real assets to protect consumers from the various key risks previously highlighted.

17 17 3. tiberius coins: the marriage between blockchain and commodities i. Commodities as the ideal underlying Let us ask ourselves an honest question: if we could engineer a blockchain ledger to create a coin that has a price pegged to the value of the US dollar, would it not be best to exclusively capture the cash 2.0 tech component and remove the exposure to commodities prices? If we intend on creating a better way to store wealth, we need to be asking these questions. Let us provide a case as to why physical commodities are a better solution in an attempt to decentralise the monetary base. In the tcoin, we are trying to create the most secure means for wealth storage possible. We leverage a blockchain protocol to reduce dependence on trusted third parties and financial infrastructure, and we peg its value to commodities through economically rational market forces given physical deliverability. The derived intrinsic value thus gives a basis for value and a price floor, removing the trading-on-consensus limitation of Bitcoin and most fiat currencies. The cash 2.0 component (blockchain) of the tcoin is a near perfect solution to liquidity limitations and credit stress, but there is still concentration risk in the honouring of the physical conversion rights. However, this is mitigated as delivery, auditing, and operations of the physical conversion is managed by independent exchanges which are globally diversified in both their storage and delivery services. Given these commodities exchanges are amongst the largest and oldest in the world, it is economically rational for them to maintain their integrity due to reputational risks given that the maintenance of the tcoin is relatively small in comparison to their core business. Note that the tcoin was not primarily created as a means to source physical material or to securitise the underlying metals, but rather has been designed as such because it perfectly fits the desired volatility and risk profile of a bartering tool. A key virtue of metals is that they are inflation hedged, and relying on the expertise of the Tiberius team, have been selected to minimise the volatility profile through an allocation of precious metals (gold, platinum, palladium) and industrial metals (copper, aluminium, nickel, cobalt, and tin). The resulting underlying asset is a highly liquid, auditable, and fungible asset which allows to mitigate liquidity risk, concentration risk, and any conflict of interest. Again, liquidity risks, concentration risks, and conflicts of interest are further reduced as operations, clearing, auditing, and delivery are managed by independent parties that are globally diversified.

18 18 While commodities have been chosen because it is the most liquid and fungible asset class which is physically deliverable, they also happen to have an intrinsic value which captures an ideal volatility and risk profile. So much so that metals were indeed the first currency, were once a ubiquitous backing for printed paper (gold standard, Bretton Woods system), and studies have shown that gold-backed currencies have a smoother volatility profile than those moderated by inflation-targeting central bank intervention. The chart on the right counts the number of countries experiencing a banking crisis per year since It is based on the book This Time is Different: Eight Centuries of Financial Folly and only covers 70 nations. Despite the alarming upward trend, the most pertinent feature of this chart is the lack of crises during the Bretton Woods system ( ) which pegged the value of currencies to physical gold. Bretton Woods was a monetary policy agreement between Western Europe, the United States, Canada, Australia, and Japan

19 19 ii. The tcoin vision: the near-stateless currency As the underlying metal is guaranteed to be of exchange-approved quality and brand it immediately finds a liquid terminal market in multiple currencies. To this end, the value of the tcoin no longer needs to be thought of in USD terms but rather as its own uncorrelated and independent asset denominated in tonnes of metal, whereby the currency risk is full hedged as the exchanges provide ample liquidity in major FX pairs. The value of a liquid terminal market cannot be understated, as the ability to easily sell the underlying metal creates an economically-rational price floor for the digital token. The price of the tcoin can be modelled as the sum of the intrinsic value of the underlying commodities, plus a free floating risk premium component. Given that the tcoin is semi-centralised, the free-floating risk premium can also be capped to prevent excessive long-term over-speculation and can act as a buffer to smooth volatility in the medium-term, such that; The lower bound to the price of the tcoin is achieved through an arbitrage mechanism: 1. An undervalued tcoin is bought at market; 2. The tcoin is converted and the underlying basket of exchange-traded securitised ownership-deeds are received electronically from an independent clearing broker s escrow account; 3. The exchange-traded securities are effectively electronic deeds to material in-warehouse, which can either be: swapped in the market for another securitised deed pertaining to metal of a different brand in a different warehouse within the global network; sold directly in the market on the most liquid metals exchange globally in USD, EUR, or JPY; further marked for delivery, which will trigger delivering-out of the corresponding physical material of defined brand and location for real consumption or trade. The tcoin can facilitate a supranational platform for wealth exchange but will always rely on the existence of these exchanges. One of the virtues of the Bitcoin is that it is essentially stateless and therefore does not rely on any compliant third-party or even a government. Whilst the tcoin will never be intended to be used connection with any illegal activity, we are engineering an architecture that is robust enough to create a rational argument to incentivise the diversification and decentralisation of the monetary base.

20 20 The only operational risk for the tcoin is concentrated within the existence of these exchanges and although it might sound strange to question the stability of some of the largest financial institutions in the world (or perhaps not?), the point must be addressed. The exchanges and gold smelters, which operate independently of Tiberius, will hold the material in escrow within their globally diversified warehouse network. Given that each tcoin will be fully collateralised and will never be leveraged unlike modern day fractional reserve banking the value of a tcoin should not be significantly affected in the case of the collapse of some of the largest exchanges in the world.

21 21 4. Vision of social adoption of the tcoin: sequential paradigm shifts The technology underpinning blockchain is well known, so before we talk about what is new and what is borrowed in our tech, let us first talk about the softer yet more relevant topic of the required changes to consumer and public attitude. The application of the tcoin is more of a socioeconomic change than a technological development. The tech already exists (mostly rooted in Ethereum/ smart contracts ) but the trust of the public must be won before the tcoin can realise its potential as a ubiquitous retail payment method. i. Investor participation (holding): cryptocurrencies will be used for investment The first shift in paradigm is already well underway. It can be described as the acceptance of cryptocurrencies as investment assets and is necessary due to the need for the broader community to willingly hold tcoins. Today, retail investment has seen the value of the cryptocurrency-complex skyrocket - with Bitcoin alone having a market capitalisation greater than many S&P 500 stocks (at the time of writing). Much of this investment is mindless speculation, which prompted negative commentary from various high profile figures, but the underlying trend is still that of a proliferation of awareness and education of blockchain technology. Despite the risk profile of Bitcoin, blockchain has ironically been propagated and legitimised by this flood of retail interest. Blockchain-based assets have been legitimised to such an extent that in our domicile of Switzerland we are seeing private banks sell crypto-coins to high net worth individuals. The first step in our plan is to have both sophisticated and retail investors hold tcoins in order to provide the first liquidity mechanism. Examples include Tiberius placing a perpetual bid on crypto-exchanges, given the economic incentives to buy undervalued tcoins. Alternative assets are trending in popularity and the properties of the inflation hedged, currency hedged, and central bank independent tcoin will provide an attractive investment profile as a wealth management tool. Note that the tcoin is fundamentally different to an ETF as it is not a certificate or debenture managed by a central party. Nor does an ETF bear any function as a currency as it cannot be transferred by way of payment. The first shift, in its most basic form, is the acceptance of cryptocurrencies but has a much greater and more uncertain future as more advanced digital coins appear. The value of many of today s cryptocurrencies will wane and change as new, superior technologies are developed. However, the tcoin is immune to this as the technology underpinning the token s protocol can be adapted to incorporate developments as the valueadded comes from the integration between the physical metals market.

22 22 ii. Consumer participation (savings and transfers): cryptocurrencies will be used like gold The second change in attitude has already been adopted by a small group of people, but not by the greater population. It can be described as the acceptance of crypto s as means to store and transfer wealth in the context of your savings account (and not the retail environment). As we just hinted at, those early adopters were unfortunately mostly criminals using Bitcoin as an almostuntraceable and secure bartering asset to finance illegal activities so secure in fact that governments could not break the integrity of the blockchain or confiscate tokens. That is to predict that eventually everyone will see blockchain (and a few specific cryptocurrencies) as secure assets. The tiberius coin has immediate uses as: - a wealth transfer mechanism which is cheaper, faster, and more secure than traditional banking. Larger-value transactions will be less costly cross-border given no need for trusted third parties, multi-layered processing, or monopolistic and fragmented networks; - a payment method which is accepted as a tangible currency, providing price stability and trust between consumers and sellers; - a wealth inheritance tool, given that smart contracts enable immediate and secure transfer-upon conditions; - an insurance or escrow service, as smart contracts facilitate transfer-upon rules such that no trust is needed. The tcoin transfer-upon protocol (using smart contracts) can be based on conditions not maintained by either party (e.g. conditional on a Bloomberg price publication, a multi-party aggregation of data such as votes or weather, or triggered upon-declaration by a third party such as a trustee or a bank awaiting funds); - a lending service, as smart contracts can maintain rule based procedures prior to the triggering of the transfer-upon condition (e.g. pre-defined spending limitations such as a monthly budget or allowance, or interest payments that are automatically pulled from the holders wallet); - any agreement protocol whereby multiple parties trigger a transfer-upon condition (multi-sig). As we will describe in the next chapter, the revolutionary power of Ethereum smart contracts will disrupt the consumer-level financial and lending space. Smart contracts must be entered to upon willingly by all involved parties and are robust and secure once initiated. Smart contracts are fully decentralised and rely upon no compliant party to function. The only constraint of smart contracts is that the asset in question (the asset which will be transferred/regulated) must be an Ether/Ethereum-powered cryptocurrency.

23 23 That is to say that smart contracts, which facilitate the decentralisation of trust and compliance, only have the power to dictate the flow of ETH-based coins/tcoins and not fiat currency or other assets which are independent of the blockchain. The tcoin will still mostly be traded independently of smart contracts in a normal bilateral manner, but we want to highlight that further applications exist. The comparative advantage of the tcoin is that smart contracts can now have more valuesecured underlying assets. iii. Retailer participation (spending): cryptocurrencies will be used like cash There is already interest in using cryptocurrencies in a retail environment, especially in our domicile of Zug, Switzerland. Here in Zug, as well as in cities like New York and London, you can pay for services with Bitcoin (some regions of Switzerland even allow you to pay your taxes in Bitcoin). However, this last change in opinion will be the most protracted as it is structural. Applications of tcoin as a cash alternative (as opposed to digital gold) are limited by market structure and not just infrastructure. Note that any currency must first be commonly held and accepted before it can be spent, and it is important that the demand to spend tcoins is a natural consequence of its ubiquitous holding. Second only to being secure, retail payments need to be cheap. Not only is it expensive to transact in some crypto-coins, but the cost of transacting is also volatile, given trends in the mining community. Below shows a graph of average transaction fees for Bitcoin, Bitcoin Cash, and Ethereum.

24 24 The Raiden Network solves the problems of scalability, latency, transaction fees, and privacy. The tcoin in the retail environment will utilise a solution such as the Raiden Network for scaling transactions. Raiden is an off-chain scaling solution (like the Lightning Network for Bitcoin) which enables near-instant, low-fee, scalable, and privacy-preserving payments and makes it economic to deal in cents. tcoin uses the proprietary cpay system to facilitate mobile and in-store payments The cpay system is a propriety hardware and software payments solution. cpay provides an Android and ios integrated service which uses the Near-Field Communications (NFC) hardware on your smart phone to allow contactless, cash-like transactions. We have partnered with Cinovo, the developers of cpay, who hold a German utility patent protecting cpay and cpay-like applications. iiii. Industrial and financial participation (hedging) Although not the primary intention, industrial participants will find utility in the tcoin in hedging their exposure to physical metal. Treasury departments of large corporates (e.g. automotive industry) will also find usage for the tcoin, as they generally sit on cash but could more easily offset their exposure. The tcoin would also encourage investment from new players, previously unable to participate in financial markets. The tcoin increases accessibility to markets for first-time investors wanting commodities exposure but in a less regulated manner than ETFs.

25 25 5. Further applications The Tiberius Group is extremely engaged with financial market players in a very broad context, and we see many applications for the tcoin stemming from the keen interest and curiosity expressed by investors. HNWIs and family o ces desire participation but are side-lined, and rightly so, given the general concern that either the run-up is over or they don t understand all the risks. The tcoin has a straightforward risk profile for these investors and will benefit from the structure of the market, as there is appetite for a solution and Tiberius is well placed to execute the project. The tcoin also acts as a hedge to the broader cryptocurrency market as the intrinsic value will protect against large-scale forced liquidations amid exchange contagion. Most of the largest exchanges do not facilitate the direct trading between fiat currencies (USD, EUR, JPY etc) vs cryptocurrencies, but rather only make markets in crypto vs crypto pairs (eg BTC vs USDT). This means if major cryptocurrency prices experience a prolonged sell-off then exchange liquidity constraints will drive broader, inescapable negative price action.

26 26 6. The London Metal Exchange (LME) i. What is the LME The London Metal Exchange is the oldest and largest metal exchange in the world. It is the venue for trading and price benchmarking for six base metals (copper, aluminium, zinc, lead, nickel, tin) and two minor metals (cobalt, molybdenum). The LME also provides services for some precious and ferrous metals. An exchange, in general, concentrates trading to provide liquidity and facilitate price discovery. The LME in particular provides increased stability through its clearing services LMEclear, which is designed to mitigate counterparty risk as each market participant will trade directly with the exchange itself and not bilaterally with untrusted parties. These financial products are referred to as securities, with are digitalised and fungible to facilitate trading. A security can be thought of as a liability. Therefore, stocks are securities yet physical commodities are not (as they are bearer goods ). However, commodities may be securitised through the financial instruments (which then correspond to a liability). The LME clears several types of securities, such as futures and options. LME futures are not physically settled i.e. short positions do not require physical delivery at expiry, nor do long future positions translate into receipt of physical metal. Rather, futures expire into (or are settled against) another type of security called an LME warrant. ii. LME warrants, clearing brokers, clearing accounts, and warehouse fees An LME warrant is essentially a securitised ownership document each of which corresponds to a specific allocation of metal which is stored somewhere within the exchange s network of >600 warehouses across Asia, Europe, or the Americas. The LME operates a secure electronic transfer system for warrants called LMEsword, where warrants are held in a central depository. Each warrant is of a standard format and is fungible with respect to the settlement of any contract of the same underlying metals, although each warrant has a unique barcode which identifies that specific unit of metal. Warrants are issued by the London Agent of an LME-registered warehouse company, such that the number of outstanding warrants directly corresponds to the quantity of metal within the LME warehouse network. As a warrant is a liability for physical metal, it can be thought of as being like a securitised form of physical metal; digitalised and standardised to increase fungibility and liquidity. Warrants accrue warehouse fees over time, which are publically disclosed on the exchange website ( As warrants are securities, they are cleared by the exchange and must therefore be stored within a clearing account.

27 27 A clearing account (like brokerage account), is held by a specific clearing broker. The clearing broker keeps possession of the securities (warrants) in your name, and deals with the exchange directly to improve e ciencies. Therefore, any exchange fees and rental costs are paid directly to the broker as opposed to the LME or warehousing company. Warrants are paid of in-full, as opposed to bought on margin in the case of futures. Holders of t-coin tokens will not pay warehouse fees directly to brokers, as discussed later. iii. Ease of access to metal markets and the link between the financial and physical world Although most t-coin participants will never need to deal with LME brokers or physical metal, we see the LME warrant system as being (by far) the easiest way to participate in metal markets. A wide variety of financial brokers are able to clear LME products, which increases accessibility in the dealing of warrants. Although on-boarding with an appropriate clearing broker still requires KYC completion, the trading of cleared securities through brokers still grants the easiest entry into metal markets as handling physical commodities requires a unique set of expertise such as logistics. To reiterate, most t-coin traders will never need to deal with a broker, the LME, or physical metal. Warrants are liquid contracts and can easily be sold on the LME for fiat currency, at a slight differential to a daily published LME benchmark price. This liquidity mechanism means that the holder of a warrant can receive USD, EUR, or JPY for their warrants without needing to take physical delivery. An LME warrant can also be cancelled, which means the underlying metal corresponding to the unique barcode is earmarked for delivery. The warehouse company will then load-out the physical metal and the warrant (as a security) will be taken out of circulation. As the LME warrant corresponds to a liability, the security needs to be taken out of circulation as it cannot exist if the underlying metal is no longer held within the warehouse network. Delivery or loading-out of the material from the warehouse is fully managed by the LME and its relevant service providers iv. Contract specifications Clearing services require fungibility through the standardisation of contracts, which implies a minimum deliverable quality grade. Audit specs, as described in the overview, correspond to all possible specifications at the level of granularity contained with reference to a warrant barcode. As we deal with LME warrants, which are LME cleared, it can be assumed that all audit specs will also be of contract compliant spec and exist units of regular contract size. Contract compliant specs are detailed on the LME website.

28 28 For example, contract compliant specs for aluminium warrants (LME deliverable aluminium) are: - Quality: P1020A standard, Al 99.7%, etc - Shapes: ingots, t-bars, sows - Brands: LME approved brands as per Contract compliant specs of the physical metal can be assumed. Further, the amount of metal settled against each LME contract is determined by the contract specs. The smallest unit of metal dealt with is known as a lot, where the number of metric tonnes per lot varies in accordance to the value of the metal in order to limit the notional dollar value of each contract. Lot sizes are determined by the LME and listed below: - Copper: 25mt - Aluminium: 25mt - Nickel: 6mt - Tin: 5mt - Cobalt: 1mt Contract IDs used by Tiberius can be thought of as being the same as warrant barcodes. v. LME brokers and the division of responsibility Tiberius is responsible for collateralising the t-coin token network with warrants, which will be held by our own clearing broker. The t-coin token cancellation process also creates a clear division of responsibility, as Tiberius is no longer involved in the management of warrants once they are released to the recipient clearing account upon instruction. The recipient can easily sell the warrant on the LME or take further delivery, but both actions will be managed directly by the recipient s clearing broker and/or the LME. In other words, Tiberius is not involved in the management of the physical metal or the execution of the sale of the warrant itself (the security) at any point. This is the most e cient allocation of responsibilities, given that: (i) In terms of physical management, the LME warehouse network is already fully optimised in its economies scale. Load-out fees and handling costs are paid directly to the relevant party. (ii) In terms of trading of the security, the LME is the best liquidity provider.

29 29 vi. Precious metals and vault-receipts The LME does not provide warrants on precious metals, meaning that we will need to use an additional service provider for gold, platinum, and palladium. Vault-receipts is a term coined by Tiberius and is simply an analogy of the securitisation precious metal, in the same way that warrants are a securitisation of base metals. Currently, vault-receipts are just a concept and no service provider has been identified. Specifically, we need to address the below issues: (i) Sourcing and storage of precious metal of a defined contract spec (ii) A third party auditor of the precious metals (iii) Transference of ownership rights, in the same way that a warrant can be transferred between brokers If we can find a single service provider to fulfil the above duties, vault-receipts can be thought of as being similar to warrants although will still suffer from not having a liquid terminal exchange meaning the same liquidity may not be found as it would be on the LME. We keep the term contract ID to represent a specific allocation of precious metal. Contract IDs will therefore exist for all metals held, corresponding to warrant barcodes for base metal although an equivalent is yet to be determined for precious metal.

30 30 7. Market operations i. Understanding of market price The market price of the TCX token can be thought of as: Token Price (TCX) = Intrinsic Value (IV) + Market Premium (MP) Intrinsic value (IV): is the market value of the underlying basket of metal of each 1.0 token. Market Premium (MP): is the differential between the t-coin market price (TCX) and the value of the underlying metal, or intrinsic value (IV). The market premium (MP) is expected to be positive at most points in time, as market participants should pay a premium for the utility provided by the t-coin. It is important to note that the market premium can go also negative, in cases where there is a broader market sell-off or when liquidity is thin. At any point in time, the exact underlying basket of metal which collateralises each t-coin (TCX 1.0 unit) will be disclosed to the public on the Tiberius website, meaning that anyone is able to calculate the IV of each token and back-solve to find the MP. ii. Underlying basket composition The underlying basket of metal will reflect the below strategic commodities themes (units per lot): 1. Technology metals: copper (25mt), tin (5mt) 2. EV metals: cobalt (1mt), nickel (6mt), aluminium (25mt) 3. Stability metals: gold (100toz), platinum (100toz), palladium (100toz) In the long-run we aim to, but do not guarantee to, allocate a basket comprised of an equal number (N) of contracts of each metal (as shown below). However, it is also at the discretion of Tiberius to modify this long-term allocation guidance according to changing market environments and operational constraints. Only factors of TCX 1.0 whole tokens are cancellable (redeemable) and therefore each token corresponds to a full basket. #contracts #units per contract Est. US$ composition Copper N many 25t 23% Tin N many 5t 13% Cobalt N many 1t 10% Nickel N many 6t 10% Aluminium N many 25t 7% Gold N many 100toz 17% Platinum N many 100toz 6% Palladium N many 100toz 14%

31 31 Tiberius reserves the right to modify the basket at their discretion without any forward guidance, subject only to the below rules: 1. The fully collateralised rule: as previously stated, Tiberius will hold an identical underlying basket of metal for each and every circulating TCX token such that all freely tradable t-coin are fully collateralised. 2. The fully transparent rule: the basket will be fully disclosed on the Tiberius website, where all changes in allocation will be posted no later than midnight the same day that the additions are made (note: referred to as additions due to the strictly-additive rule) iii. Price floor (arbitrage of the lower bound) first revenue stream The price floor is based on economically rational arbitrage principles, which means market participants are incentivised to support the token price (and can expect to profit in doing so). As any t-coin holder has the right to cancel a token, the free participation in this arbitrage activity provides the cornerstone for mitigating price risk. As stated before, only traders with LME clearing brokers will be able to participate in the cancellation process but that does not mean that retail investors do not benefit from the liquidity they provide investors will still provide a bid (buy order) for fractions of tokens as they aggregate full units. The economic break-even to arbitrage the lower bound is determined by (i) the tradable t-coin price (TCX), (ii) the estimated intrinsic value (IV) of the basket inclusive of costs which is unobservable at any time (but can be reasonably estimated given basket composition and live prices), and (iii) and some risk premium (RISK) demanded by the investor. The RISK will be a function of liquidity constraints and incorporates the volatility of the securities, market depth, and expected time required to sell the securities on the LME or otherwise. Investors, including Tiberius, are incentivised to place a bid (buy order) at the given price: TXC IV - RISKest

32 32 Tiberius intends to work a perpetual bid (PB) in the market, such that at any time a seller is able to find liquidity. Our perpetual bid will change dependant on the described parameters, but will generate positive returns as part of open market operations. The transparent pricing of the LME along with the fact that warrants can be sold on-exchange (without incurring costs of physical delivery) should increase investor participation, creating competition in order to improve the best bid in the market. A detailed example of Tiberius supporting the price floor (arbitrage of the lower bound) is given: 1. Markets conditions are such that, according to Tiberius, the t-coin trades well below the estimated intrinsic value IV (what US$ value Tiberius expects to receive in market per token) less the cost of execution, RISK. TCX PB << IV - RISKest 2. Tiberius works a bid (works to buy) at PBT=t. Over some interval of time TCXT = PBT such that Tiberius has acquired TCX 1.0 at an average cost of PB 3. Tiberius, the owner of TCX 1.0 (one t-coin), uses the smart contract features of the token to trigger cancellation procedure. Tiberius instructs the independent trustee (holder of the metal) to deliver the basket to a clearing account which is owned by themselves (Tiberius). Human operations involved (by t-coin holder) i. Triggering the cancellation instruction (a token feature) ii. Detailing a recipient clearing broker and clearing account (embedded within the cancellation instructions, secured within the smart contract) Smart contract procedure i. The token is taken out of circulation and can no longer be traded ii. Once cancelled, a smart contract feature will notify the trustee broker (an independent thirdparty holder) to transfer the underlying basket of metal to the intended recipient clearing broker. Tiberius Crypto AG will not be privy to the details of the recipient as the information is embedded within the smart contract in the form of a secure bilateral communication between the token holder and trustee broker.

33 33 iii. The cancelled token is removed from circulation and no longer in the possession of the original owner. iv. The original t-coin owner is now no longer considered as such, as they are no longer in possession of the token. Human operations involved (by trustee and Tiberius Crypto AG) i. Delivery instructions are received by the independent third-party trustee (who holds all metal underlying the entire t-coin network) to transfer one full basket to the privately disclosed recipient clearing account ii. The trustee notifies Tiberius Crypto AG that one basket has been cancelled iii. Tiberius Crypto AG will decide which specific contract IDs (a collection of LME warrants and vault-receipts) are to be transferred to the unknown recipient. The chosen contracts will satisfy the basket obligation in full. iiii. The trustee broker will then deliver the specified contracts to the recipient. All LME fees and transaction costs will be assumed by the recipient of the metal. 4. The full basket of metal is received in the clearing account owned by Tiberius. Tiberius assumes the costs of transferring the securities between the trustee and their own clearing broker. Tiberius now has two possibilities: i. Tiberius can sell the exchange-cleared products directly in market. This is the quickest and least risky method of liquidation, and can be done in USD, EUR, or JPY. ii. Tiberius could further instruct delivery of the underlying metals, such that the LME would initiate physical load-out of the corresponding warrants (as defined by contract ID, as defined by barcode) where the precious metal service providers would do the same. Tiberius could also sell some contracts on exchange while take physical delivery of others, fully at the discretion of Tiberius so long as delivery is done at the minimum granularity of whole contracts.

34 34 5. Regardless of the chosen method of liquidation of the basket, it can be assumed that Tiberius receives some sale price net of costs (SALE) in the form of fiat currency. For Tiberius, Pay-off = SALE PBaverage - RISKrealised So, Tiberius makes money if SALE > PBaverage - RISKrealised Cryptocurrency TAM arbs prices Independent clearing broker exchange Exchange-traded security Swapped in T-coin wallet TIBERIUS market: location Cancellation or brand [above] exists electronically Independent commodities [below] real, tangible assets Direct sale exchange /ICO Sold on Called for Fiat currency used to buy exchange delivery T-coins Cash settled, receive Physical delivery of material [left] [right] USD, EUR, etc. of specific location, brand entirely decentralised semi-centralised iv. Bootstrapping and the arbitrage of the upper bound second revenue stream Assuming the trust in the price floor, the greatest amount a t-coin holder can lose would be the full market premium. It is highly likely that the market premium (MP) of the t-coin will trend higher as the token gains traction amongst investors. Without an increase in the underlying intrinsic value (in the form of appreciating commodities prices), the MP could increase to an extent such that it exposes investors to meaningful price risk. Rather than pegging the t-coin directly to the basket of metal (i.e. a tight price floor and a price cap) we will let the MP increase over time, and leverage the premium the market is willing to pay as a mechanism to fund the purchase of additional metal to which will be contributed to the underlying basket. The result is an increase in the intrinsic value of each token through the addition of metal to the basket; increasing the IV over and above the simple appreciation of metal prices. This is facilitating through the arbitrage of the upper bound, but is different to an outright price cap (and therefore a direct pegging of the token to the intrinsic value) as the intrinsic value is no longer static (assuming constant metal prices). The arbitrage of the upper bound is the counterpart to the protection of the price floor, although Tiberius reserves the exclusively right to participate due to operational constraints. A brief example is given: