Cryptoventures – Spring 2017 Logo BeneChain Cryptoventures – Spring 2017 Team 5 Wes Day, Amar Jain, Jimmy Kozlow, Trey Lundgren

Table of Contents Cover Page Table of Contents Problem Statement & Market Size Existing State Process Future State Process Implementation of Blockchain Technology Advantages of Using Blockchain Implementation & Rollout Business Model & Monetization Financial Model Risk Analysis Competitive Analysis Future Opportunities Timeline & Next Steps

Improper Payment Rate - By State Quantifying waste, fraud, and error in the US government Unemployment Insurance System Unemployment Insurance (UI) has the fifth highest rate of improper payments among all government departments Improper Payment Rate - By State In 2015: $3.5B in improper payments || 10.7% of UI Benefits Causes of improper payments include: Payments to claimant continue after individuals have returned to work Failure or claimant to register for reemployment services Failure of employers to timely or correctly report on worker separation Inaccurate calculation of benefits based on wages earned prior to unemployment Source: https://dupress.deloitte.com/dup-us-en/multimedia/interactives/fraud-waste-and-abuse-in-entitlement-programs-benefits-fraud.html

Existing Process – Unemployment Insurance is administered at the state level 1 Federal Unemployment Benefit Fund Administered by States Manual Processes High Admin Costs ER Report ER Report EE Report EE Report 2 Weeks Time Delay 4 Employee Hired at Co. 2, Benefits stop 2 Employee Terminated Co. 1 Both parties report EE Report Fees 3 Benefits Start, Job Search

Future State - Blockchain based solution reduces admin needs and increases visibility across stakeholders Federal and state funds managed on private blockchain 1 ER Report ER Report EE Report EE Report 4 Employee Hired at Co. 2, Benefits stop 2 Employee Terminated Co. 1 Automated EE Report 3 Benefits Start, Job Search – “Fedcoin” for benefit funding

How will blockchain technology be implemented? Permissioned Blockchain, Ethereum Protocol Termination Report 1 4 Ex-Employer New Employer Employer files termination report (see contents below) to register change in employment status. New employer confirms that employee has been rehired. Validation New Employee Report 2 Claimant Claimant 5 Claimant must validate status and confirm they are seeking re-employment services. Claim request is initiated via ETH smart contract. If valid, benefits are administered. Once re-employed, smart contract validation terminates benefits. Claim Request Smart Contract Contents of Termination Report Notifications Benefits Info: Employee ID Employer ID Reason of Termination Salary Date of Employment 3 State Agency State agency receives notifications of benefits as they are administered and as they expire. Data collected and used to analyze improper payments.

Blockchain technology be advantageous for each stakeholder group and meets key criteria for implementation Five criteria for using blockchain applications: Distributed Ledger Multiple states and agencies require read/write access Remote Independent Writers Each party must contribute to share information Existence in Absence of Trust Causing Disintermediation Blockchain technology reduces touchpoints and effort required to manage Economic Benefits for Participants Major savings opportunity to reduce admin costs and improper payments Employers Transparency with privacy Reduces improper payments from manual reporting Claimants Improved efficiency Benefits can be received <two weeks Benefits can also be applied retroactively State Agencies Allows multiple parties to write to the system without burdensome oversight Reduction in fees paid to third parties (banks, Visa, etc..) BeneChain

The first implementation of Benechain will focus on one state The first implementation of Benechain will focus on one state. If successful, expansion will follow Full State Adoption Under Federal solution In Future: “Fed Coin” could be used to administer payments Multi-State Unemployment Insurance (UI) Ethereum Solution Full blockchain solution; distributed ledger network for all states Each state represents a node on the private UI blockchain Single State POC (NC) Hybrid database/blockchain solution 3 Key Parties: Employers, Claimants, US Dept. Labor Validate process and cooperation among parties

Business Model & Monetization Strategy Cyclical Revenue Model Opportunity for Immediate Monetization Implementation Contract: Charge pilot state - NC (and successive partner states) a platform development, implementation, and training fee commensurate with comparable IT system implementations Transaction Fees: Extract minimal transaction fee from state (<$1) every time a new record (initial claim, job offer, etc.) is written to the blockchain by an employer; in this model, states could seek direct reimbursement from companies, or pay fees with admin $ saved by program Ongoing Services: Receive revenue from ongoing maintenance of state systems, training/consulting on Benechain updates, and eventual move to 100% blockchain solution Implementation Contract Transaction Fees Ongoing Services This three phase model is repeatable across every additional state (and benefit program) Benechain supports and provides a certain level of stability in cash flows

Financial Implications North Carolina Use Case Some Important NC Unemployment Statistics*: High Level Revenue Projections Only Includes State Level Unemployment Systems 10 Year Unemployment Average. = 7.4% 5 Year Avg. Weekly Initial Unemployment Claims: ~5,250 Improper Unemployment Payments: >14% October 2015 Total Benefits Paid: $17.5 M 5 Year Average Annual Unemployment Benefits $321 M x Estimated Fraudulent Payment % 15% = Annual Estimated Fraudulent Payments $48 M + Annual Estimated Card Fees (@1.5%) $5 M = Total Annual Addressable Program Costs $53 M Annual Estimated Benechain Cost Savings** $35 M Revenue Source (Avg. State) Est. Contribution Implementation Charge ~$250k Transaction Fees $205k (annually) Ongoing Services ~$35k (annually) *Source of all information: United States Department of Labor; North Carolina Division of Employment Security **Assumes fraudulent payments reduced to 5% and transaction fees reduced to .5% as a result of Benechain solution

Risk Analysis Description: This initiative requires funding and buy-in from congress and government agencies Mitigation: Seek bipartisan supporters within state and federal ranks. Maintain a narrow focus early to demonstrate benefit early on, which can help drive adoption rates as expansion occurs. Risk: Political climate prevents implementation New data allows for more thorough analysis of waste, identifying more improper payments than the agency was aware of before Incorporate data analytics and predictive models into the product to increase transparency during and right after implementation. Communicate this paradox and early and often Risk: The improper payment rate increase in the short term “Fraud is dynamic “ and people will always adapt to find new ways to take advantage of the system “Create a learning system that responds to ever changing threats.” Deloitte suggests this strategy and it can be implemented using the data from the blockchain. Statistical models can help define business rules that can constantly search the system for potential improper payments Risk: People will find new ways around the system

Competitive Analysis London based firm previously known as GovCoin Direct Competition – DISC Holdings London based firm previously known as GovCoin Worked on a 6 month pilot for UK Gov’t to rollout welfare benefits through Blockchain, claimed it was a success Known to work on a broader pilot program as of today Companies that provide Blockchain enterprise services could be a potential threat due to low barriers to entry Companies with advanced smart contract implementations capabilities are a threat as well Potential Competition

Future opportunities for Benechain include implementation across to other gov. agencies Longer Term Plans & Additional Application Opportunities (2+ years away) Multi-State Rollout : Expand Benechain beyond North Carolina by targeting other states in the region who also have large %’s of improper unemployment payments Fed Coin Currency: Champion implementation of proposed currency to interact with Benechain applications and expand use of blockchain for benefits nationwide Food Stamps: Provide more secure (and less expensive) method of managing and distributing nutritional benefits through blockchain solutions Social Security: Expand solutions to larger, Federal level programs, such as Social Security, where blockchain can make wage record and benefit distribution more transparent

Benechain rollout will ramp up over the next 1-2 yrs Next Steps (next 1-2 Years) Secure additional funding to continue building out team with coding talent and business development professional(s) in anticipation of pilot implementation Secure contract with state of North Carolina to build hybrid blockchain/database system & continue to refine platform technology and capabilities Onboard North Carolina platform and train state employees to use system and communicate new requirements to companies employing people in the state Facilitate seminars on new documentation requirements and beta test Benechain NC; outreach to additional state employment agencies in the South East (likely TN & SC) Begin writing and storing employment and unemployment records on the platform Begin contractual process with additional state employment agencies in the South East A B C D E F 2017 2018 2019