Abstract
In this chapter, we present tokenization of equity crowdfunding on a Blockchain as a possible approach to ease access to capital for startups. We propose a categorization of token standards into UTXO-based, layer-based and smart contract-based tokens. In a second step, we analyze the advantages that tokenization can bring, such as cryptographically secured ownership, programmability of assets, access to the Blockchain-ecosystem, enhanced divisibility of shares as well as the formation of a well-functioning secondary market. Tokenization allows to decouple the ledger of assets from the crowdfunding platform, thus lowering the cost of secondary market trading and the intermediary’s power. We conclude by mentioning several drawbacks including information asymmetries between investors and campaign creators, regulatory issues and high energy intensity of Proof-of-Work-secured Blockchains.
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Notes
- 1.
For a definition of the term see Belleflamme et al. (2015).
- 2.
Messeni Petruzzelli et al. (2019) provide a comprehensive and detailed summary of the current research front and its implications for sustainable crowdfunding projects.
- 3.
Agrawal et al. (2013) have given a great overview about the incentives and disincentives to engage in crowdfunding for these three actors.
- 4.
I.e. all outstanding shares are bought by a third party which acquired the startup.
- 5.
- 6.
- 7.
E.g. Proof-of-Work (PoW) or Proof-of-Stake (PoS).
- 8.
In our analogy: If either the newspaper or the consensus system for the external transaction graph are compromised, the system will fail.
- 9.
- 10.
- 11.
- 12.
- 13.
- 14.
- 15.
- 16.
- 17.
- 18.
Alternatively, a variety of additional requirements can be added, such as the need for additional signatures or timelocks.
- 19.
See for example https://solidity.readthedocs.io/en/v0.4.24/solidity-by-example.html.
- 20.
- 21.
See for example the U.S. JOBS Act (https://sec.gov/spotlight/jobs-act.shtml).
- 22.
Legal obstacles might still prevent secondary markets from developing.
- 23.
See for example https://uniswap.io/.
- 24.
Note that in order to acquire coins, one must often resort to exchanges where the investor is charged a fee to buy coins or tokens.
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Acknowledgements
The authors would like to thank Karen Wendt, the editor of this book, as well as the two anonymous reviewers for their valuable inputs. Furthermore, we thank Florian Bitterli, Raphael Knechtli, Emma Littlejohn and Tobias Wagner for their valuable support during the process of writing.
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Roth, J., Schär, F., Schöpfer, A. (2021). The Tokenization of Assets: Using Blockchains for Equity Crowdfunding. In: Wendt, K. (eds) Theories of Change. Sustainable Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-52275-9_19
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