Why ICOs Could Eat Delaware's Lunch

Blockchain issuers raised an estimated $5 billion in 2017 through ICOs and, while these transactions varied widely in their quality, the popularity of ICOs has persisted into 2018 despite well-publicized scams, declining cryptocurrency prices, enforcement actions and strong cautionary pronouncements by the SEC and other regulators.

Given the continued development of public blockchain use cases and that tokens are the fuel of public blockchains, we expect interest in token offerings to persist.

Rather, the tokens confer something akin to a license or a coupon, that gives the token holder the right to use the company's blockchain platform and/or service, which may or may not exist at the time that the token is issued.

For these companies, the appeal of Delaware's brand of expertise that focuses on shareholder rights in traditional business frameworks could wane, particularly as other states, such as Wyoming and Nevada, actively vie to become the go-to states for blockchain companies and technology.

A new breed of blockchain entrepreneurs as well as traditional companies deploying blockchain technology to issue tokens can be expected to seek out other jurisdictions that can provide clear regulatory guidance on the issuance of tokens and the rights of token holders.

To the credit of its leadership, in August 2017, the State of Delaware was the first in the nation to enact legislation expressly authorizing corporations to maintain their corporate shares in a stock ledger on a blockchain.

In fact the State of Wyoming recently passed several pieces of legislation that not only copied Delaware's blockchain amendments but went a step further by providing guidance.

The State of Delaware is currently making thoughtful efforts to facilitate the use of blockchain technology so companies can file UCC financing statements and issue shares directly on a blockchain.

In particular, Delaware could benefit by, and should seriously consider, providing additional guidance around the issuance of tokens and cryptocurrency, and by leveraging the state's refined body of business law and expert judiciary to attract responsible blockchain projects; indeed, the industry would stand to benefit from Delaware's unique brand of expertise regarding governance.

If we have seen anything in the blockchain space it is that blockchain companies will need a strong governance regime if they are to succeed both individually and as a sector.