FunFair ICO Overview John Street Capital

Contact: Johnstreetcapital@gmail.com
 FUN ICO Overview & Analysis

Bottom Line: The newly created FUN token is the most compelling way to invest in the broader gambling
industry since the invention of physical casinos. With a finite supply of 17.0bn FUN tokens ever created,
coupled with the company burning tokens when FUN generates revenue, and the multi-purpose use
between players making wages, game makers and affiliates compensation, and operators receiving
profits, this is one of the purest uses of an ICO token to date. Despite the numerous issues with the
current online gambling landscape in 2016 estimates for this market were pegged at $41.8bn. FUN offers
a better alternative to any existing competitor for players, casino operators, and affiliates alike and should
not only be able to take market share in this growing market, but grow online gambling itself to take share
from the ~$400.0bn global gaming market, as the underlying blockchain technology addresses many of
the trust issues gamblers have with the existing online platforms.

In terms of developing a price target per FUN token we analyze the business prospects from both a
bottoms up and top down perspective. We use consensus estimates for the online gaming industry
(assuming no incremental growth from FUN) over the next 10 years, assume a FUN market share take
rate, ascribe a value to the overall platform, and divide that by the estimated tokens outstanding in 2027
and discount it back to today. Our bottoms up approach projects out user growth in FUN, alongside the
number and size of transactions (based on current gaming statistics), again projects this out 10 years and
discounts this back to today.

In both scenarios, its hard to see a situation in which FUN is not worth 25-50.0x from here or ~$0.25-
$0.50/FUN. Given the asymmetric risk/reward at the pre-sale ICO price we look forward to the additional
liquidity of FUN once its listed on several exchanges and view this as one of the more compelling
opportunities in the cryptocurrency space presently.

Overview of Online Gaming + Current Headwinds

In 2016 the online gambling market was a $41.8bn industry, and Research & Markets projects this metric
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to grow at a 10.8% CAGR through 2020 reaching $66.6bn three years from now. The FUN whitepaper
cites H2 Gambling Capitals May Study predicting that there are presently over 6.0mn adult gamers
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around the world with that metric expecting to rise to 10.0mn+ by 2020.

The biggest growth drivers of online gambling continue to be the use of alternative options to cash,
affiliate changing marketing strategies and compensation structure, changing consumer gambling habits,
and the growing number of online women gamblers. FUN is in position to capitalize on each of these
trends and address some of the main headwinds restricting growth today.

The biggest headwind facing online gambling today vs. physical casinos continues to be the Trust Issue.
How can players ensure that the online game is not rigged in the houses favor? We know the house
always has an edge; however, in physical casinos we know there is an audit track by which the payouts
over time should be roughly equivalent to the probability associated with each individual game. Online
casinos are rarely ever audited, and given the information asymmetry, existing operators have the ability
to skew results drastically.

Gamers also experience severe counterparty risk in the current gamin ecosystem as they often have to
deposit cash, and then hope they are able to withdraw this cash upon their winnings. There have been
high profile examples of fraud and mismanagement including the collapse of Full Tilt Poker in 2014 ,
Absolute Poker and Ultimate Bet in 2007 and 2008.

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Research & Markets- http://www.prnewswire.com/news-releases/global-3597-billion-online-gambling-market-
growth-at-cagr-of-1081-2014-2020---market-to-reach-6659-billion-with-growth-very-geography-specific---research-
and-markets-300348358.html
FUN Whitepaper- https://funfair.io/wp-content/uploads/2017/06/FunFair-Commercial-White-Paper.pdf
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Finally, despite the increase penetration in mobile gaming, affiliates that recruit players still use direct mail
as the most common market technique for attracting potential gamblers. With the increased transparency
surrounding FUN, and the incentive around the FUN token, affiliates should be able to directly market to
potential and past gamers via mobile & social conduits which should increase the overall participation
rate.

Opportunity for Disruption with Blockchain Technology

If youre reading this write-up youre fully aware of the potential for block chain to disrupt and improve
nearly every industry we can think of today. Online gambling is one of the lowest hanging fruits, given
users are already accustomed to a token system (and prefer it to fiat currency), and it solves the two
biggest issues associated with gaming currently 1) The Audit Issue 2) Counterparty Risk.

The FUN offering eliminates the trust issue from the equation as every game built on the FunFair
ecosystem will be publicly auditable, so players are assured that the odds arent stacked against them in
excess of the normal house advantage. FUN will be more transparent that your most transparent
physical casino, that includes state and local regulators hanging around to audit tables / machines. FUN
will provide an audit button so the least technologically capable user will be able to ensure the results
are fair and transparent.

Via the FUN token, FunFair also immediately eliminates the counterparty cash risk associated with the
current online ecosystem. No longer will gamblers have to deposit cash and store it with an unknown or
untrustworthy counterparty, in hopes that their winnings (if they can beat the stacked odds) are actually
delivered to them when they go to withdraw them. Instead FUN users will be able to wager with existing
FUN tokens which will be convertible to Ethereum at any time, eliminating that counterparty risk, and
ensuring a smoother online gaming experience.

Whitespace / Growth Opportunity

Not only will FUN be the first blockchain platform capable of meeting the online gaming experience
demand, and the FUN token will be the mechanism of gambling on this platform, but FUN will also
provide FunFair licenses to allow operators to easily set up and host their own casino under a private
label. Individuals or organizations will be able to select games form a marketplace and offer standard or
VIP rooms with customized in-house bonuses for their players.

The FunFair management team has pre-existing relationships in the gaming industry and has developed
this ecosystem to disrupt the current issues involved between operators, affiliates, game makers, and
players. FUN will truly sit at the nexus of this interconnected web and can have growth drivers from any
and all of the constituents.

While we already mentioned the benefits associated with the platform from the player perspective, we
havent addressed the competitive advantage for the other stakeholders. Operators and developers who
license the FunFair platform have the ability to create fully-customized player experiences for traditional
games of chance such as slots, blackjack, roulette and baccarat, and publish these platforms with just the
click of a button.

Given managements background in gaming, the platform was designed with game developers in mind.
Anyone can go demo the current offering at FunFair.IO, but these games already show the competitive
advantage and superiority of the FunFair platform. This platform and the interconnected FUN ecosystem
will allow developers to more quickly, and efficiently reap the benefits of their published games.

Consistent with other forward looking moves by management, FUN investors have already acquired
several gaming-related .eth domains, including blackjack.eth, for FunFair operators and affiliates
exclusive use. Full details on how to access these domains will be published in Q3 2017.

Finally as mentioned affiliates will be incentivized through FUN tokens to recruit players and will be able
to more seamlessly target them via social & mobile offerings. Given the inherent social nature of online
gaming, FUN management designed the platform to encourage viral uptake allowing users to easily incite
and share with other players. Post launch functionality will allow operators to grant affiliate revenue to
social players. And of course the ICO in it of itself will encourage social sharing in excess of anything
weve seen to date in the online gaming space.

If one thinks about the job of a casino operator its to market & recruit players, and they earn a revenue
share and a rake based on player winnings. While FunFair doesnt take any rake at all, FunFair generates
income from small transaction fees from every bet. FuNFairs own income is burned which adds to that
deflationary aspect discussed previously.

Competition / Differentiation
As mentioned our bullish thesis on FUN centers around blockchain technology, augmenting user, affiliate,
operator, and game maker experiences for online gaming. But who is to say the exiting blockchain
competitors or those to come in the future could not compete with FUN? While we cannot speculate on
future competition (although we know this will inevitably result), we can see why FUN is already vastly
superior to the current product offering and first mover advantage will be key here given the captive
ecosystem amongst all of the various constituents.

The current competitive landscape is unsustainable. To date developers have not been able to crease
blockchain-based games worth playing as wait times are in excess of a minute to wait for dice rolls while
multiple blocks are mined. This time lag isnt the only current headwind, the existing blockchain
competitors have been unable to deal with the high transaction costs which wipe out any potential profits,
especially when one considers the built in house advantage. Current Ethereum blockchain-based casinos
result in gas costs of ~$1.00 in a single hand of blackjack, and $0.75/bet on average in a dice game. With
the average bet size $1-$10.00, users will never be able to generate a profit, even momentarily, which will
dissuade them from coming back to play again. Even when a player wishes to make larger bets in the
$20 range, the transaction costs can still overwhelm the house edge in total an average 12% cost
between house edge and fees

Competitor cost can be as much as 10% per bet for each player, while FUNs goal is 0.1%. The FUN
team has created a patent pending State Channel technology (Depicted below and described in more
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detail in their tech whitepaper) which result in just two blockchain transactions per player.

Another interesting point of differentiation about the current model is the benefit for casino operators.
Casino operators typically have high operating costs because they manage severs, and are responsible
for other infrastructure costs. On the FUN model there are no server or infrastructure costs at all, yielding
higher incremental margins for the operator.

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https://funfair.io/wp-content/uploads/2017/06/FunFair-Technical-White-Paper.pdf
FunFair is entirely server-less and decentralized which is one of its biggest competitive advantages
versus existing blockchain based competitors. FUN also uses a proprietary settlement system to reduce
network fees using this Fate Channel technology highlighted below and patented by the FUN team. This
off-chain method of processing transactions allows for instant settlement without requiring users to wait
up to a minute for a block confirmation like existing Ethereum based gambling platforms. In addition to
being instant, Fate Channels reduce the cost of transaction fees by 99%, reducing the standard cost from
10% to just 0.1%.

Technological Overview

The core design goals of FunFair are to be 1) Provably Fair 2) Bankless 3) Fast and 3) Flexible. While
this sounds obvious, the undertaking is one no other company has been able to execute on to date.

The core to any casino game is a Random Number Generator which has been the biggest headwind for
blockchain casino games to date. Some blockchain games generate randomness one play at a time, a
slow and costly approach that isnt viable for players or operators. Additionally, these typically require a
daily commit and reveal of secret information. The gamer can verify after-the-fact that the operator did
not cheat, but must trust during the game

FunFair has invented Fate Channels; a provably fair system using state channels containing pre-
committed partial RNG seeds provided separately by the player and operator. During gaming, they create
a Fate Channel; a State channel with the added ability to verify a progressive reveal scheme by both
parties, advancing a deterministic (fated) but unpredictable sequence of random numbers.

Wed encourage others to read the entire tech white paper footnoted above and on their website

Management Team
While we have invested in several ICOs over the past 2+ years the FUN management team is one of the
most impressive collection of talent weve seen to date at the point of the ICO.

CEO and Founder Jez San founded one of the earliest British game developers Argonaut in 1982,
creating multiple multi-million-selling video games. Jez was a pioneer in the field of real-time 3D computer
graphics and his first game, StarGlider, was one of the earliest 3D games ever published. He co-invented
the Super FX graphics RISC processor for Nintendo, the first custom chip to render 3D computer graphics
in a game system. Jez was part of two separate IPOs during the last tech bubble and is an active angel
investor included his investment in Kraken. Given Jezs investment in Kraken we would assume FUN has
an advantage over most similar sized ICOs in being listed on an exchange ahead of the follow on ICO in
September.

Jez put together a good video discussing Fun and his background here prior to the token pre-sale which
is worth watching.
While Jez has a full team working with him, Jeremy Longley is the defacto CTO and has a wealth of
experience in online gaming sites. This ecosystem is very important for nay company to work, and
knowing the interconnectivity between affiliates, operators, players, and developers is crucial in how the
team structured the FUN token. Jeremy co-founded the online gaming site PKR.com with Jez San and
served as its CTO, leading a team of over 100 technical employees to develop an award-winning fully 3D
game environment. PKR developed a range of 2D and 3D casino games, including iOS, Android and
HTML5 products as well as a customization avatar system. Jeremy has also led development of a full in-
site account management and cashier system, and systems integration with third-party providers
including PlayTech, OpenBet and Ladbrokes/GBE as wel as extensive back office and business
intelligence functionality.

FunFair Offering
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FUN had a presale ICO on June 22 in which the company raised $26.0mn through the issuance of
1.7bn FUN tokens. This was raised with $18.0mn through traditional crypto funding and another $8.0m
through traditional fait investments, in less than 5 hours.

Phase 2 will occur in September and be a reverse Dutch Auction where FUN will sell 3x the total amount
sold in Phase 1. Phase 1 holders will receive Phase 2 tokens on a pro rata basis. These tokens go to the
token holder at the item of Phase 2 as opposed to the initial investor. This suggests the opportunity to
invest on the secondary market today even if you missed the pre-sale.

There is a deflationary aspect to the token and post Phase II issuance there will be a total supply of FUN
tokens of 17.0bn, which will only move lower from there over time.

Token Price Target Derivation

In arriving at our $0.25-$0.50 PT per token we conducted by a bottoms up and top down assessment of
FUNs prospects and what that translates to in terminal value. For our full model please reach out to us.
Below is a snapshot of how to think about the various inputs that went into our framework.
Note the full model builds in ancillary revenue sources for the affiliate fees, and white label operator
agreements.

We encourage and appreciate any and all feedback / criticism. In open sourcing our own research &
analysis of companies we look at pre & post ICO we look to engage with other ICO investors about their
respective findings and best ideas.