How secure are Tokenized Securities from Delaware Blockchain Amendments?

By Ravindra Chagetha

Last year saw a lot of blockchain entrepreneurs trying to influence some public blockchains like Ethereum to make registries. These registries would allow the recording and transfer of assets, such as diamonds, real estate, and securities through a particular system that would allow all these assets to be represented by a specific computer code called the token.  

This process would help create efficiency in the market since the tokenized securities will help eliminate any kind of friction. The tokenized securities would include shares of stock and bonds. Despite all these declarations, the Delaware Blockchain Amendments (which reconsidered Delaware General Corporation Law to permit the use of distributed Ledger Technology for the issue and transfer of shares) does not provide complete authorization for shares of stock of Delaware Corporation to be tokenized.  

The tokenized system is not without its flaws. The system does not remove many types of errors and mistakes that generally happen in a system. It actually relies on third-party mediators to manage the shareholder database. This is a cause of serious concern since the purchasers are under the impression that they are protected and insulated against all kinds of risk and faults that happen in the authorization, issuance or transfer of shares. 

The Delaware Amendments removed the need for a central authority to maintain the stock ledger along with any human error that can happen in issuance and transfer of shares.  This particular understanding is in sharp contrast to what has been suggested by Delaware Blockchain Amendments. 

Even though the Delaware Blockchain Amendments go by their terms and apply to all Delaware Corporations, not all corporations will be able to take advantage of the amendment, especially the corporations that have their shares in the form of certificates. To come to a final verdict, one actually cannot be sure of certain tokenized shares that are authorized by Delaware Blockchain Amendments.