Initial Crypto-asset Offerings (ICOs), tokenization and corporate governance

TL;DR

This paper explores how ICOs and DLT-based developments could significantly alter corporate governance by introducing new stakeholders and changing traditional governance structures, especially in SMEs and publicly traded firms.

Contribution

It provides an analysis of the impact of ICOs and DLT on corporate governance, focusing on new stakeholder roles and governance changes beyond legal classifications.

Findings

ICO emergence affects SME and public company governance

Crypto-asset holders become significant new stakeholders

Potential for substantial governance reforms due to DLT adoption

Abstract

This paper discusses the potential impacts of the so-called `initial coin offerings', and of several developments based on distributed ledger technology (`DLT'), on corporate governance. While many academic papers focus mainly on the legal qualification of DLT and crypto-assets, and most notably in relation to the potential definition of the latter as securities/financial instruments, the authors analyze some of the use cases based on DLT technology and their potential for significant changes of the corporate governance analyses. This article studies the consequences due to the emergence of new kinds of firm stakeholders, i.e. the crypto-assets holders, on the governance of small and medium-sized enterprises (`SMEs') as well as of publicly traded companies. Since early 2016, a new way of raising funds has rapidly emerged as a major issue for FinTech founders and financial regulators. Frequently referred to as initial coin offerings, Initial Token Offerings (`ITO'), Token Generation Events (`TGE') or simply `token sales', we use in our paper the terminology Initial Crypto-asset Offerings (`ICO'), as it describes more effectively than `initial coin offerings' the vast diversity of assets that could be created and which goes far beyond the payment instrument issue.