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Props Announces First SEC-Approved Consumer-Facing Blockchain Token

Props announces that its token has been approved by the SEC, claiming it is the first consumer-facing token to receive the U.S. watchdog’s blessing.

Delaware-based blockchain organization Props PBC has released a token approved by the U.S. Securities and Exchange Commission under Regulation A+, according to a press release on June 11.

According to the company, this is “the first consumer facing crypto token qualified by the SEC” via Reg A+. As previously reported, Reg A+ is an alternative to conducting an IPO that is intended to accommodate startup businesses seeking initial funding.

This token has been issued on the Ethereum blockchain. According to the announcement, the Props platform is capable of abstracting a blockchain infrastructure for applications, providing a plug-and-play solution for apps to integrate Props tokens.

Props is reportedly is a rewards token that can be used within apps to bolster user engagement, such as within the streaming platforms YouNow and XSplit — a gaming-focused streaming service.

As previously reported by Cointelegraph, Ubisoft’s Entrepreneurs Lab has also been researching the use of blockchain-based incentive tokens and activities to boost user engagement. The company has been researching Smart Challenge, Azure’s gaming rewards platform, and has tentatively found — via pilot tests — that it boosts streamer viewership and gameplay numbers for the game being streamed.

The Props token is also supposed to provide a new financial vehicle for content creators to secure a steady stream of income. Prominent YouTube content creator and Props investor Casey Neistat said:

“Online video content made by independent creators has become massively popular, but still lacks diverse ways for creators to turn their content to a meaningful source of ongoing income.”

On July 10 Blockstack announced that it was the first organization to receive the SEC’s blessing to run a public token offering via Regulation A+.  Blockstack founders Muneeb Ali and Ryan Shea said it took $2 million and 10 months in order for them to secure the SEC’s go-ahead.

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Why ICOs Could Eat Delaware's Lunch

Andrea Tinianow, Esq. is chief innovation officer at Global Kompass Strategies and was, until January, head of the Delaware Blockchain Initiative. David Adlerstein is a corporate attorney at Wachtell, Lipton, Rosen & Katz.  

The views expressed in this article are solely those of the authors.


Over many decades, the State of Delaware has established a preeminent position as the jurisdiction of choice for businesses to organize, ranging from S&P 500 companies (a majority of which are incorporated in Delaware) to countless startups and LLCs.  

This is not by accident; the state’s flexible corporate statutes, very well-developed business case law, highly sophisticated and experienced judiciary (including the renowned Court of Chancery), receptiveness to innovations such as the “poison pill,” and generally friendly commercial orientation offer efficiency and predictability to businesses and their equity holders and counterparties. From the standpoint of this small state with a population under 1 million, corporate franchise taxes are a vital source of revenue.

In recent years, other states have heightened their efforts to attract out-of-state businesses and to erode Delaware’s franchise, and while recently enacted tax reform should essentially halt so-called corporate inversion to lower tax jurisdictions outside the U.S., Delaware has lost untold millions in franchise taxes as a result of this practice.

Another transformative change is underway that could in the not-too-distant future negatively impact Delaware’s popularity as a jurisdiction of choice.  This change is not related to lower taxes, but to the popularity of blockchain companies that raise capital through the issuance of tokens or coins, often referred to as initial coin offerings (ICOs), and, relatedly, to so-called “smart securities” or blockchain-based securities with smart contract functionality issued by non-blockchain companies.  

Blockchain issuers raised an estimated $5 billion in 2017 through ICOs and, while these transactions varied widely in their quality (and compliance with securities laws), 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.

As evidenced by Telegram’s $850 million follow-on offering of purchase agreements for cryptocurrency earlier this month, the market appetite for tokens remains voracious, at least episodically. 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.

Unlike shares of stock, tokens or coins generally do not confer ownership in any company and may not include security-like features at all.  Token holders are not owed fiduciary duties by the board of directors (or anyone else). 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 example, the FileCoin ICO, one of the largest on record, confers a future right to digital storage.

New competition

Why should Delaware care about ICOs and tokens?  

As the space matures and grows in legitimacy, we expect that more and more innovative companies (both start-ups and well-established) will choose to issue tokens or smart securities. 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 (token-friendly) jurisdictions that can provide clear regulatory guidance on the issuance of tokens and the rights of token holders.

As time goes by, these companies and their corporate boards are likely to be attracted to jurisdictions that have built up a body of case law that specializes in blockchain, tokens and related issues, in much the same way that Delaware developed jurisprudence in issues related to fiduciary duties and corporate governance, with the potential end result of Delaware being left behind in this rapidly growing sector.   

This is not to say that the blockchain boom poses an existential threat to Delaware’s formidable corporate franchise. But Delaware’s primacy should not be taken for granted.  

It is perhaps instructive that up until the early part of the twentieth century, New Jersey dominated corporate formations. But then-Governor Woodrow Wilson of New Jersey waged a campaign to curry favor with the populist faction in his bid for president. This campaign included anti-corporation rhetoric and the passage of antitrust legislation, leading to a mass exodus of New Jersey corporations.  The exodus was a boon for Delaware, one which Delaware has nurtured over the last 100 years.

To the credit of its leadership, in August 2017, the State of Delaware was the first in the nation (and in the world) to enact legislation expressly authorizing corporations to maintain their corporate shares in a stock ledger on a blockchain. Since that time, several other states have introduced blockchain legislation relating to incorporations, tokens, transacting business, and much more.  

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 on how blockchain companies that issue tokens can do business in the State compliantly.

Next steps

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.  

These are important initial steps, and certainly the State should proceed with care. But in order to maintain a leadership position in the blockchain space, more will be needed in the not-too-distant future.  

In particular, Delaware could benefit by, and should seriously consider, providing additional guidance around the issuance of tokens and cryptocurrency (including by being receptive to new legislation, if appropriate), 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.

Delaware can help with that.

Sandwich image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Delaware State's Blockchain Lead is Leaving

The founding director of the Delaware Blockchain Initiative has left the project.

Andrea Tinianow announced the move in a Jan. 2 post on LinkedIn, and confirmed to CoinDesk that she had left the government-backed initiative on Dec. 31. Tinianow added that she has already started in her new role as the chief innovation officer for Global Kompass, a Delaware-based management consultancy firm.

Tinianow indicated her new role will see her consulting for organizations in both the public and private sectors, including on issues related to blockchain tech – particularly in the areas of legal, government and international affairs.

Her departure is notable given Tinianow’s previous involvement in launching the Delaware Blockchain Initiative. That work led to the passage of a new law in Delaware clearing the way for corporations in the state to issue and store shares by way of a distributed ledger.

The legislation was signed into law by Delaware lawmakers last July, a move that came more than a year after former Delaware Governor Jack Markell announced an ambitious blockchain roadmap for the state in May 2016.

Delaware map image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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Delaware Judge Rules in Favor of Ripple Regarding Their Recent Lawsuit

Half a month back, the beloved crypto community discovered that the R3 consortium was suing Ripple over a business bargain gone amiss. In spite of the fact that many individuals weren’t excessively bothered by this development, it turns out a Delaware judge ruled in their favor regarding the lawsuit.

The news broke via Ripple’s Twitter account:

R3, a New York-based software developer, filed a complaint last month alleging that the chief executive of its California-based rival Ripple had tried to terminate the options granted to R3 last year after they surged in value because of a rise in Ripple’s XRP cryptocurrency.

Ripple responded by filing a counter-suit and had evidence to prove R3 failed to deliver on their partnership and violated the agreement created between both entities about a year prior. It is evident this falling out between both companies has caused a lot of unnecessary friction in the process.

The case, according to others, will continue in California and New York. R3 is suing Ripple for specific performance of an option agreement in which Ripple agreed to sell up to five bln XRPs for a price of $.0085. Ripple has counter-sued, claiming that R3 reneged on a number of contractual promises, and is simply acting in a spirit of opportunism, after the cryptocurrency soared more than 30 times over.

The dispute underlines how quickly the rising value of digital currencies, such as Bitcoin, Ethereum and much more, has upped the ante in the race to end up the leading player in the blockchain industry.

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Delaware Approves Tracking of Stock Ownership on Blockchain, Major Effects

When the Delaware Chancery Court ordered David Murdoch to pay the shareholders of Dole Food Co. an extra $2.74 per share after taking the company private, it seemed easy enough. The lawyers for the shareholders posted a claim form, and shareholders submitted claims for over 49 million shares. The only problem? The company only ever issued 36.7 million shares.

The insanity of DTC

The root of this problem is a 1960s system for determining who owns a share of stock. According to Investopedia, the Depository Trust Company (DTC) was created because the New York Stock Exchange couldn’t keep track of who owned what anymore. Trading volume was simply too high. Indeed, in 2012, the DTC settled over 299 million shares with a value of $110 tln.

When you buy a share of stock from your broker, your broker informs the DTC that it represents somebody who owns a share of that stock. When a company wants to find out who owns their stock, they have to ask the DTC to consult its list of brokers, and then the brokers have to be asked who they actual owner is of the shares in the broker’s account.

As Bloomberg puts it:

“So if you own stock, what you really have is an entry in your broker’s database, and your broker in turn has an entry in DTC’s database, and DTC has an entry in the company’s database of shareholders of record.”

Shares, shares, everywhere

If this all sounds unnecessarily complicated, that’s because it is. In Dole’s case, they had to ask the DTC to figure out who owned shares of the company at the time the company was purchased. DTC then consulted the brokers, and they eventually got it sorted. The reason for the extra shares of stock? Short sellers had borrowed shares from their actual owners, causing those shares to be counted twice.

You can imagine that it took some time for the DTC and countless brokers to sort through the mess and figure out who really owned what.

Delaware’s Vice Chancellor Laster commented on the dilemma:

“This problem is an unintended consequence of the top-down federal solution to the paperwork crisis that threatened Wall Street in the 1970s. Through the policy of share immobilization, Congress and the Securities and Exchange Commission addressed the crisis using the 1970s-era technologies of depository institutions, jumbo paper certificates, and a centralized ledger. Distributed ledger technology offers a potential technological solution by maintaining multiple, current copies of a single and comprehensive stock ownership ledger.”

Delaware approves Blockchain

Delaware took note of this problem, and in early August, the state made it legal for corporations to maintain shareholder lists using Blockchain technology rather than the old centralized and inefficient system.

Using a Blockchain to record stock ownership would allow the corporation to quickly and easily figure out all its current shareholders, as well as who owned shares at any point in the company’s history. This can be quite useful when it comes to determining who is owed dividend payments, for instance.

This is particularly noteworthy, because even though Delaware is a small state, the majority of all corporations in the US are based in Delaware. This is because, by strange historical fluke, the state developed a robust and expert court system called the “Court of Chancery” to handle business disputes. Delaware’s judges are some of the nation’s foremost experts in business law, and such cases are tried before them rather than juries. Delaware also has favorable tax laws, easy and quick incorporation paperwork, and other advantages.

Because of this, when Delaware legalized use of the Blockchain to record stock ownership, over a million businesses, including 50% of all publicly traded companies, were immediately allowed to begin tracking stock ownership through a Blockchain.