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A Letter to Shareholders from EQONEX Chairman Chi-Won Yoon

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SINGAPORE, June 1, 2022 /PRNewswire/ -- EQONEX Limited (NASDAQ: EQOS) ("EQONEX" or the "Company"), a digital assets financial services company, today made available the following letter to shareholders from EQONEX Chairman Mr. Chi-Won Yoon, outlining the company's strategic plan and outlook for 2022 and beyond.

EQONEX Strategic Plan Highlights

Our new strategic plan will focus on three key businesses where EQONEX has significant competitive strengths:

  • Custody: Develop Digivault's proposition as a United Kingdom Financial Conduct Authority (FCA), Anti-Money Laundering (AML) registered, high security digital asset custody solution for EQONEX and third-party clients.

  • Asset Management: Leverage EQONEX's extensive derivative product experience to rapidly scale its asset management businesses - EQONEX Investment Products (exchange-traded and structured products), Bletchley Park Asset Management, and EQONEX Lending.

  • Exchange and Trading: Expand EQONEX Exchange's global licensing framework and enhance its value proposition across derivatives and over-the-counter (OTC) products.

Strategic Opportunity

  • Custody: The industry saw crypto Assets Under Custody (AUC) grow 600% since 2019 to approximately $233 billion[1]. The market opportunity is also reflected in the high valuations of standalone custodians in the private market.

  • Asset Management: Assets Under Management (AUM) across Bitcoin (BTC) Exchange Traded Notes (ETN) globally are estimated to be approximately $3.7 billion in March 2022. A recent State Street survey found that only 21% of institutions are allowed to hold crypto directly so the growth opportunity for institutional investment adoption is immense. These represent high average margin businesses in a developing space.

  • Exchange and Trading: There is a growing appetite for regulated and licensed marketplaces, as well as increased user adoption of bespoke derivatives products such as BTC and ETH Dated and Perpetual Futures. Demand for OTC services for alt tokens and NFTs are also increasing.

[1] According to data from market intelligence platform Blockdata,

Dear Shareholders,

The past two years have been marked by profound changes in the cryptocurrency and digital asset industry. New sectors in the early stages of growth can expect to go through growing pains as they mature. Digital assets are no different. Despite the headwinds caused by extreme market volatility, security threats and lack of regulatory clarity, the sector has marched steadily towards greater adoption. It is now clear that digital assets will play a ubiquitous and defining role in the future of financial services.

In 2021, institutions traded US$1.14 trillion worth of cryptocurrencies, double the value handled by retail investors[2]. This growth validates the opportunity we identified for a digital asset platform for institutions and individuals alike with the same degree of investor protection, regulatory oversight and security they are accustomed to in traditional financial markets.

While the basis of our proposition still rings true today, we have not yet fully harnessed the opportunity or delivered on the promise we made to our shareholders. We acknowledge that we need to reorient our focus to progress strategic opportunities that will be transformational to our business.

In March this year, we entered into a strategic partnership with Bifinity which provided us with financing and the opportunity to collaborate. We were buoyed by the confidence and potential they see in the company. Since March, our efforts have been focused on creating a strategic plan to translate our vision into tangible steps and concrete plans.

The purpose of this letter is to talk you through that strategic plan.

[2] Source: Nikkei Asia – May 23, 2022 - Sumitomo Mitsui Trust to set up digital asset custodian company - (link)

Strengthening Competitiveness

Over the past two months, the board and EQONEX management team conducted a broad strategic review of our business to identify our strengths and weaknesses in the context of harnessing the opportunities available to us in the marketplace, and the resources we have available.

We assessed the competitive environment, the market opportunity, growth potential, revenue mix, and opportunity cost. Our goals were clear and obvious: to unlock the areas of value that we have right now and identify the areas where we see growth and potential in the future.

We are still a young and maturing business. As a group, our resource allocation needs to change to reflect the opportunities that we are best placed to capture. This means that we are shifting resources and focus to areas that offer the most potential.

New Strategic Plan Highlights

The new strategic plan will focus on three key businesses where EQONEX has significant competitive strengths:

  • Custody: Develop Digivault's proposition as a United Kingdom Financial Conduct Authority (FCA), Anti-Money Laundering (AML) registered, high security digital asset custody solution for EQONEX and third-party clients.

  • Asset Management: Leverage EQONEX's extensive derivative product experience to rapidly scale its asset management businesses - EQONEX Investment Products (exchange-traded and structured products), Bletchley Park Asset Management, and EQONEX Lending.

  • Exchange and Trading: Expand EQONEX Exchange's global licensing framework and enhance its value proposition across derivatives and OTC products.

Our goal is to develop these three robust businesses so that they can achieve growth that aligns with the market opportunity and create synergies amongst them.

In particular, custody and asset management operate in segments that offer unrealized market potential and higher average margins. This means they offer the opportunity to become financially sustainable on their own, which will help to expedite the company's revenue growth. While the exchange is a lower margin business, we recognize it has the ability to attract much higher volumes.

Custody

Digivault was originally positioned as the custodian for EQONEX's ecosystem to remedy the significant cyber security issues that have plagued the sector for years. According to market intelligence platform Blockdata, since the beginning of 2019, assets under custody have grown by approximately 600% to approximately $233 billion in January 2022. We firmly believe the market size is likely to be even higher as various custody providers do not disclose the number of assets under custody. There is an enormous opportunity here.

The valuations of other stand-alone custody solutions also clearly reflect the value these types of businesses deliver.

Last year, Digivault set new industry benchmarks and standards when it became the first AML-registered standalone custody solution to be licensed by the FCA. It is a business that can deliver a valuable service to a total addressable market that is growing rapidly. We have not yet capitalized on Digivault's full potential. For that reason, we are reorienting our efforts to position Digivault as a crypto and digital asset custody solution for EQONEX and third-party clients. This will involve bolstering its technology, product, sales and marketing resources; effectively doubling the size of its team who will be focused on growing and scaling its value proposition.

Today, Digivault is a trusted custodian to global law enforcement agencies, and we are committed to our continuing industry advocacy work for compliance, security and governance. We are also working towards expanding our capabilities to cater to a broader universe of tokens and NFTs. In fact, Digivault recently completed its first ever direct to custody OTC non-fungible token (NFT) trade. This is part of a new offering that provides access to NFTs and alt coins through a network of regulated partners and storage for the assets within Digivault.

By committing additional resourcing and focus towards Digivault, we are confident that our custody solution will be positioned to capitalize on its market potential.

Asset Management

Securitized crypto products that can be accessed via traditional stock exchanges, structured investment products for high-net worth individuals and institutional investors, and fund management are still in the very nascent stages of development and represent a market space that is primed for growth. According to our own internal data, we estimate assets under management across Bitcoin (BTC) Exchange Traded Notes (ETN) globally only to be approximately $3.7 billion in March 2022. According to a recent State Street survey of 300 institutional investors, only 21% of institutions are allowed to hold crypto directly, indicating that the opportunity for future institutional investment is considerable. We have conviction that institutional demand for crypto will continue to grow, in particular for familiar vehicles such as funds, exchange-traded and structured products.

The expertise and experience of our asset management leadership team provides us with a clear competitive advantage. With the addition of new resources across product, sales and marketing, we expect the business to flourish. The sector is ripe for innovation and product development, and I am confident that we have the right team in place to take full advantage of it.

After a long and rigorous application process with Germany's regulator, the Federal Financial Supervisory Authority (BaFin), we are on track to list our first BTC Exchange-traded Note (ETN) on the Deutsche Borse XETRA exchange, with the first structured products set to follow shortly thereafter through our distribution partners in Switzerland. Bletchley Park, our crypto fund of fund's alpha centric strategies offers unique exposure to the sector and has generated returns of 121% (as of April 30, 2022) since its launch in November 2019. By expanding our offerings across exchange-traded and structured products and managed investments, we have more opportunities to insert ourselves within the investment mix of our clients.

Exchange and Trading

The crypto exchange marketplace has grown significantly albeit on an uneven playing field. While EQONEX sought a path towards regulation and licensing, many of our competitors followed a different path which led them to much faster growth, but arguably at the expense of customer protections and governance. The industry is beginning to change. Global regulators are now rolling out firm regulatory frameworks and standards that will provide greater clarity and comfort to aspiring investors. Now with an understanding of some of the intrinsic risks of the digital asset space, customers are increasingly looking for the type of regulated marketplace that EQONEX can already offer.

To that end, our focus for the exchange will continue to be driven by our mission to provide a safe and regulated marketplace for investors. In short, our near-term focus for the Exchange will be on expanding its licensing framework which we believe will unlock its longer-term potential. Gibraltar has grown in prominence as a digital asset hub with several well-known companies such as eToro, Huobi and FTX securing licenses there. We are also in the process of applying for the Gibraltar Distributed Ledger Technology (DLT) license in addition to the Monetary Authority of Singapore (MAS) license. We are already operating under their exemption as they work through our application. The more broadly we can operate securely and legally, the broader our market opportunity is.

We have successfully built a solid product offering that includes innovative products such as perpetuals and dated futures. We are one of very few exchanges to offer four quarters of dated futures. Despite launching them just recently, we are already achieving low double-digit volumes in them as a percentage of the incumbent's volumes. This style of product that resembles the derivatives we see in traditional finance shows great promise.

Moving forward, we will add to our derivative product suite with the launch of ETH Dated Futures, whilst delisting some illiquid spot pairs. At the same time, we are committed to enhancing our platform stability to improve our customer experience. We will also explore ways we can expand the utility of the EQO token.

2022 and Beyond

2022 has already been a transformational year for the company, and this is just the start. The strategic partnership with Bifinity in early March has been a catalyst for change and our new management team has helped us look at our company with fresh eyes and new perspectives.

Now under the leadership of our new CEO Jonathan Farnell, we are confident that we have the people, resource allocation and strategy in place to build our businesses and ensure our financial future.

The Bifinity strategic partnership has provided us with financial resources to pursue the initiatives that will move the needle. The collaboration between the two companies will continue as we explore commercial synergies and opportunities for deeper ties. But it is also important to state unequivocally that EQONEX is very much on a trajectory to secure its own destiny.

We are grateful to our hardworking and loyal employee base who are committed to this shared vision, and our customers and investors who continue to have faith in the company we are building. And we look forward to providing more updates as we execute on our plans.

Best regards,

Chi-Won Yoon

About EQONEX

EQONEX Limited (NASDAQ: EQOS) is a technology-driven digital assets financial services group that provides institutional-grade infrastructure and a full suite of trading, custody and asset management solutions to clients. The Group's digital assets ecosystem has been designed to accommodate the needs of institutions and individuals with the same degree of regulatory oversight and security they are accustomed to in traditional financial markets. EQONEX's ecosystem primarily encompasses the EQONEX Exchange, a digital asset exchange; Digivault, an FCA accredited hot and cold digital assets custodian and Asset Management which includes exchange-traded and structured products and Bletchley Park Asset Management, a fund of crypto-hedge funds.

For more information visit: https://group.eqonex.com/

Follow EQONEX on social media on Twitter @eqonex, on Facebook @eqonex, and on LinkedIn.

About Bifinity

Bifinity, powered by Binance, is a payments technology company that provides an entry point to the new world of digital currency for businesses. It offers on-and-off-ramp solutions to empower businesses to convert fiat-to-crypto transactions using major payment methods directly.

For more information, visit: https://www.bifinity.com/.

Forward-Looking Information

Any forward-looking statements in this press release are based on available current market material and management's expectations, beliefs and forecasts concerning future events impacting EQONEX. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of EQONEX to differ materially from those expressed or implied by such forward-looking statements. The forward-looking statements made in this press release speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

SOURCE EQONEX