Are Token Holders Owed a Fiduciary Duty?

Hello Everyone. I revamped the newsletter style today. The format has some noticeable changes. Please let me know your thoughts. 


From Grasshopper Capital


Are Token Holders Owed a Fiduciary Duty?

As I've seen more and more companies exploring ICOs, I sigh. I think tokens are great technological innovation, but executives are using them as a money grab rather than maximizing the utility of a token. I see many existing companies that have launched tokens recently such as Kik (KIN) and Telegram (TON) where the incentives aren't aligned. When you buy equity in a company, executives and board holders are legally required to execute a fiduciary duty. Fiduciary duty requires three elements (under Delaware Law):

  1. Duty of Care: the responsibility one person or business has to be reasonably careful (or to use “reasonable care”) when dealing with others.

  2. Duty of Loyalty: to act in good faith and a manner, it reasonably believes to be in the best interests of the corporation and its stockholders and to avoid engaging in acts of self-dealing.

  3. Duty of Good Faith: requires control persons to exercise care and prudence in making business decisions

If you purchase a token, these governance laws aren't in effect. It's entirely legal for Kik to stop working on Kin, but to take the token investor's money. This situation is problematic because regulations don't protect investors and companies can take advantage of poorly educated investors.


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What Happened Today?


FBI Investigating CryptocurrencyThe FBI has 130 cases tied to cryptocurrency that they are investigating. Cases range from kidnapping to human trafficking. The FBI has noticed an increase in illegal activity related to digital currency. 

Why This Matters? Many people think that cryptocurrencies are used for illicit activity only. While the FBI is sharing light on cryptocurrency crimes, it shows that only a small portion of their caseload is related to digital currency activities. Maybe this will allow people to realize that cryptocurrency can be used for things other than buying drugs.


Top 10 Blockchain InfluencerThe NY Times published a list of the top 10 most influential people in the blockchain industry. The list includes familiar names like Vitalik Buterin and Dan Larimer, but surprising names such as Amber Baldet. The list has attracted controversy on Twitter for both who is included and who is omitted. 

Why This Matters? These lists are created purely for clickbait. It's impossible to measure who is most influential in the space. One can argue that Twitter account such as WhalePanda or Youtube account like Ian Balina "influence" people more than some of the people listed. The worst part is "influence" doesn't need to be positive. Dan Larimer is terrible for the industry. He is on his third project which will probably end up losing $4B worth of investor's money. People like that shouldn't be celebrated, plain and simple!


Line is Opening a Cryptocurrency Exchange: The exchange, BitBox, is opening in Singapore in July and will handle more than 30 tokens. Service will be available everywhere, but the US and Japan. Line believes blockchain is a critical part of their future offerings. Line is considering issuing a token for its exchange and is also looking at opening an exchange in Japan.

Why This Matters? Another big corporate player is looking to enter the cryptocurrency space. The more money invested in the space, the better for everyone. I am still skeptical of many of these corporate efforts. Many are using blockchain to impress shareholders and boost stock prices. Line might be serious about their blockchain efforts, but only time will tell if it has any impact.


Commentary


Block.One Controversy: I've been writing about EOS's launch over the past few days. It's been a complete disaster. Dan Larimer, head of Block.one, wants EOS to start over and completely rewrite their constitution. If I invested in this project, I'd be annoyed. It's a pure bait and switch. Everything they were promised has been thrown out the window. It baffles me how someone can preach decentralization when one person can change the system.


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