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

Abstract

... This interdisciplinary article discusses the potential consequences due to distributed ledger technology (DLT), tokenization as well as the emergence of new kinds of firm stakeholders, ie 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 issuing assets and 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 article the terminology initial crypto-asset offerings (ICO), as it describes more effectively than ‘initial coin offerings’ the vast diversity of assets (utility tokens, security tokens, crypto-currencies) that could be created and which goes far beyond the sole payment instrument issue. An ICO can be summarized as follows: a new method to issue assets, frequently to raise funds, through the offer and sale by a group of developers or a company to a crowd (ie investors or contributors) of ad hoc crypto-assets (also coined as ‘tokens’) specifically created and issued on a distributed ledger, sometimes preceded by an early sale of the crypto-assets called ‘pre-sale’, for the purpose of launching a business or of developing ad hoc asset functions/features and/or governance of projects based, in several cases, on the distributed ledger technology, typically in exchange for pre-existing ‘mainstream’ crypto-assets, such as Bitcoin and Ether among others, or fiat currencies. Perceived by several entrepreneurs as a less burdensome way of fundraising, at least 25 billion dollars have been raised between March 2016 and August 2018 through ICOs only.1