This month, the state
passed a series of legislative amendments that, when signed into law, will
allow corporations registered in the state to issue and trade shares on a
blockchain platform. When fully codified, businesses will have the go-ahead to
trial new processes with the understanding that they now have the protection of
Delaware’s highly touted corporate entity laws.
Welcome to Delaware
So, what’s the significance
of this? The biggest impact is that businesses and enterprises around the world
will have the option of issuing, executing and settling shares via a
blockchain. It is also likely to fuel other related activities on blockchains
tied to custodianship, trading, shareholder communication and redemption. This
could lead to a fundamental reshaping of the prevailing global securities
model, a key element in fostering global free enterprise and business
The prevailing business
equity model used in most markets today has a long history, dating back to the
17th century. Systems over time have grown complex, with multiple hoops to jump
through, with fees at every level.
Centralized clearing creates systemic risk by presenting a single
point of failure. Therefore, since in most jurisdictions legal ownership rests
with the transfer agents, true ownership can become confusing and difficult to
understand, thereby violating shareholder limit protocols. Moreover, paper-based
systems, even if digitized, are subject to fraud and, in the case of
e-transactions, security breaches.
By utilizing a decentralized model, blockchains will allow both
investors and issuers to interact directly with each other, eliminating the need
for third-party intermediaries like brokers, custodians and clearinghouses,
thereby reducing transaction costs. Settlement can occur within a few short
moments, as opposed to days, with funds being released and fees being reduced.
Legal ownership and control would be given back to investors and
companies, and the system would allow for proxy voting to become more
transparent and accurate. Dividends and stock splits can be easily facilitated,
virtually mitigating costs and errors. Further, concerns around the single-point-of-failure
risk with the prevailing system would be eliminated.
As far as the disadvantages, transparency might be an issue for
some investors who would rather their financial positions not be visible to
anyone. Fixing errors is another, as transactions on blockchain ledgers, once
recorded, are immutable.
Charting the Next Steps
This recent amendment ensues from larger efforts designed to streamline
corporate and governmental processes in Delaware. The Delaware Blockchain Initiative, which launched over a year ago, coordinates the state
government’s efforts around incorporating blockchain technology for systems
involving everything from land titles to birth and death certificates to
professional licenses to collateral claims and company filings.
A key player in attracting
businesses worldwide to fuel future blockchain initiatives is Global
Delaware, a project of the Delaware
Department of State, Division of Corporate and International Development. It
was created to achieve three primary goals: 1) help Delaware’s companies
develop markets overseas, 2) attract foreign companies to establish operations
in Delaware and 3) strengthen and expand Delaware’s role as a leader in
Global Delaware is
collaborating with New York–based Spitzberg
Partners LLC, a corporate advisory and
investment firm that provides strategic counsel on international political,
economic, technology and security matters. Together, they will focus on
attracting global enterprises from the fintech and blockchain sectors to
The broader objective here
is to promote the many advantages for companies doing business and investing in
Delaware, furthering the state’s stellar reputation for helping businesses get
launched and operational quickly for business growth and success in the U.S.
Lower costs, a favorable regulatory climate, ease in accessing government
officials and close proximity to universities and research institutions are
among the many advantages businesses find by setting up corporate entities in
The initiative has a
particular focus in attracting entities from Europe.
“Delaware is a gem for
companies looking to set up shop, but up until now, it has been largely a
hidden gem,” said Andrea Tinianow, director of Global Delaware. “We hope
the partnership will help us shine the light on all of the great things
Delaware has to offer European companies looking to find success in the U.S.”
Tinianow believes that her work will
make Delaware, and its favorability toward blockchain technology, a perfect
portal for those looking to establish themselves stateside.
“This is a fantastic opportunity for European companies that are
looking for a soft landing in the U.S.,” she said. “Delaware knows how to help
businesses get up and running quickly, and we are delighted to join forces with
Spitzberg to make the process easy and seamless for businesses seeking growth
and success in the U.S.”