Corporate Governance Challenges in Initial Coin Offerings

Abstract

In the past years, Initial Coin Offerings (ICOs) have become an important fundraising method for many individuals and firms. While most regulators, academics and policymakers around the world have focused their attention on whether and, if so, when ICOs are subject to securities laws, they have overlooked many other legal issues involved in an ICO. This article seeks to partially fill this gap by analysing the corporate governance challenges arising in an ICO. Namely, it will explore the exacerbated agency problems existing between the issuers and buyers of tokens, and why traditional corporate governance mechanisms fail to protect tokenholders. Therefore, new strategies must be implemented to protect tokenholders from the opportunism of entrepreneurs launching an ICO. Based on a functional and comparative analysis of ICOs, with particular emphasis on the regulatory responses generally provided in Asia, Europe, the United Kingdom, and the United States, this chapter highlights the corporate governance problems arising in ICOs. It will conclude with various policy recommendations that, by enhancing the level of protection of tokenholders and creating more certainty to entrepreneurs, seek to improve the attractiveness of ICOs as a fundraising method for individuals and firms while reducing the risk of opportunism of promoters vis-à-vis tokenholders.

Keywords: Corporate governance, ICOs, agency problems, opportunism, promoters, tokenholders