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Your Next IPO Could Be on the Blockchain

Client Alert

Author: Joseph C. Guagliardo

Your Next IPO Could Be on the Blockchain

Delaware’s corporate law blockchain initiative includes a new class of “distributed ledger shares” and promises to lower transactional costs, speed up and automate manual processes, and reduce fraud.

The public and private sectors are embracing blockchain technology (aka distributed ledger technology), the peer-to-peer technology underlying the cryptocurrency Bitcoin. The technology has broad utility across many different use cases beyond cryptocurrencies as it offers a more efficient, secure and transparent mechanism for storing, tracking, trading and verifying assets and information. Generally speaking, a blockchain is a distributed database of digital transactions that are verified by participants in the blockchain network and recorded in chronological and linear order. Soon, you may even find that your next private equity transaction or initial public offering involves equity interests traded on the blockchain.

At the end of last year, NASDAQ issued private shares of Chain (chain.com) on its blockchain-based Linq trading platform, and Overstock.com recently announced it will issue new publicly traded common shares on its t0.com blockchain platform. Now, the state of Delaware has announced steps to embrace blockchain technology in corporate law and transactions.

On May 2, Delaware Governor Jack Markell launched the state’s blockchain initiative. This initiative promises to lower transactional costs, speed up and automate manual processes, and reduce fraud — the oft-cited value propositions for blockchain implementations across many industries. One of the four facets of the Delaware initiative is to enable the authorization of "distributed ledger shares" by Delaware corporations — essentially public shares to be issued and traded entirely on the blockchain. In the near future, distributed ledger share IPOs could be a reality in Delaware, which is already the home of 85 percent of U.S. initial public offerings.

The four facets of the Delaware blockchain initiative include the following:

  • observing and working with the industry (rather than immediately regulating) to ensure that Delaware's regulatory environment is welcoming and enabling for blockchain companies and technologies

  • working with the corporate legal community to assess the need for potential clarifications to Delaware corporate law to enable the authorization of distributed ledger shares

  • naming an ombudsperson to welcome companies in the industry to Delaware

  • committing to the use of blockchain technology to store state archival records on a distributed ledger, through a partnership with distributed ledger and smart securities startup Symbiont (http://symbiont.io/).

Delaware’s progressive blockchain initiative is not surprising given that the state is the corporate home for many startup and venture capital-backed businesses as well as 66 percent of Fortune 500 companies. Although other states are considering similar blockchain initiatives, Delaware appears to be the early adopter and is preparing a regulatory and legal environment to foster blockchain technology innovation and encourage blockchain companies to locate in the state. The legal community should follow these developments, because the next IPO could be on the blockchain.

For a background on blockchain technology and its potential implications, read our previous alert.

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