The developer seems to be confused about information asymmetry.
For one, cap tables are convoluted and not always available for inspection so it is impossible to translate given amount of options into percentage of equity owned. This cannot be solved using a smart contract. A convoluted, complex cap table doesn't automatically become easier to read because "smart contract". As even a junior developer will tell you, there are tons of ways to write a program which looks like one thing but does something else.
While making it public sounds like a good thing, smart contracts and Ethereum EVM is new tech. So, not every employee especially from a non-tech background will be able to read it. So, this basically takes one complex thing and replaces it with other.
Secondly, pricing is not only dependent on cap tables. There are tons of things going on. How profitable is the company? Are they booking revenue front up to make things rosy? etc. and even publicly available information doesn't tell you what price should an ESOP be. Take an example of Uber and Softbank. Some of the stocks were thought to be worth more than others:
I think you're right about the naivety. Taking the existing complexity and opaqueness and implementing it in Ethereum isn't really doable.
OTOH... I do think that private company equity/ESOP is due some changes. Companies are staying private a lot longer and there are some (like Uber) that now have >$bn ESOP schemes which could be managed in a better way.
It's hard. There are a lot of different interests at play, some competing. Purposeful obscurity and such.
You'd need to convince these companies to do things differently. In effect, any idea that "does ESOP on Ethereum" is an idea for a stock market of some sort.
Not a bad idea, but a big scary one with lots of hard problems (not technically hard) and risk. Naivety might raise your chances. The existence of blockchain is a tool for solving some of them, but Im not sure that it's a pivotal piece. Running centralised would be fine too. Ultimately, a single company originates all the contracts anyway.
If I were scheming such a scheme, I'd probably focus on things that aid fundraising.. that's really the purpose of a stock market, which is what a liquid ESOP system is.
TLDR: The problem isn't "ESOP needs to be Ethereum." The problem is "companies aren't using the regular stock market, find an alternative."
Smart contract is exactly how you solve convoluted captables. Currently shareholding is such a mess that for any bigger company you do not even know how many shares are there - rarely they sum to 100%. at least when shares are represented as the tokens you know how many are there and who owns them - at all time. that's already a huge step forward
pricing of privately held companies is set by last funding round so you can say it's taken out of the thin air ;> you can also have market valuation if you try to tokenize shares and trade them. does not seem wise for early stage company though
also smart contracts do not solve malicious intentions of programmers and business owners, they are just tools and you can write fair self executing options plan or perfect decentralized scam
also Ethereum VM is much simpler to learn than commercial law which you (probably) also do not know
The majority of the article is about how illiquid the stock options are. But that’s the deal. If people wanted to provide liquidity, employees would be given non-vesting shares.
The article also doesn’t address very common clauses in stock option contracts. What about tag-along and drag-along rights?
Really liquid stocks/options/etc can really destroy an early-stage startup. The focus of the stakeholders goes too easily from building the business towards speculating with the stock.
Also see: ICO-tokens (shittokens), where there are countless of cool business ideas, lots of trading and speculation but no actual businesses built.
How did this deal with theft? Usually you came still someone's stock options by stealing a key / password, and a judge can order certain people do, or do not, have options.
the stock options are secured by a key and additionally by a contractual agreement. so even if somebody would steal them they wouldn't be able legally enforceable.
[+] [-] thisisit|7 years ago|reply
For one, cap tables are convoluted and not always available for inspection so it is impossible to translate given amount of options into percentage of equity owned. This cannot be solved using a smart contract. A convoluted, complex cap table doesn't automatically become easier to read because "smart contract". As even a junior developer will tell you, there are tons of ways to write a program which looks like one thing but does something else.
While making it public sounds like a good thing, smart contracts and Ethereum EVM is new tech. So, not every employee especially from a non-tech background will be able to read it. So, this basically takes one complex thing and replaces it with other.
Secondly, pricing is not only dependent on cap tables. There are tons of things going on. How profitable is the company? Are they booking revenue front up to make things rosy? etc. and even publicly available information doesn't tell you what price should an ESOP be. Take an example of Uber and Softbank. Some of the stocks were thought to be worth more than others:
https://www.bloomberg.com/opinion/articles/2017-11-16/softba...
This information might not be public all the time.
[+] [-] netcan|7 years ago|reply
OTOH... I do think that private company equity/ESOP is due some changes. Companies are staying private a lot longer and there are some (like Uber) that now have >$bn ESOP schemes which could be managed in a better way.
It's hard. There are a lot of different interests at play, some competing. Purposeful obscurity and such.
You'd need to convince these companies to do things differently. In effect, any idea that "does ESOP on Ethereum" is an idea for a stock market of some sort.
Not a bad idea, but a big scary one with lots of hard problems (not technically hard) and risk. Naivety might raise your chances. The existence of blockchain is a tool for solving some of them, but Im not sure that it's a pivotal piece. Running centralised would be fine too. Ultimately, a single company originates all the contracts anyway.
If I were scheming such a scheme, I'd probably focus on things that aid fundraising.. that's really the purpose of a stock market, which is what a liquid ESOP system is.
TLDR: The problem isn't "ESOP needs to be Ethereum." The problem is "companies aren't using the regular stock market, find an alternative."
[+] [-] rudolfix|7 years ago|reply
pricing of privately held companies is set by last funding round so you can say it's taken out of the thin air ;> you can also have market valuation if you try to tokenize shares and trade them. does not seem wise for early stage company though
also smart contracts do not solve malicious intentions of programmers and business owners, they are just tools and you can write fair self executing options plan or perfect decentralized scam
also Ethereum VM is much simpler to learn than commercial law which you (probably) also do not know
[+] [-] flixic|7 years ago|reply
The article also doesn’t address very common clauses in stock option contracts. What about tag-along and drag-along rights?
[+] [-] jerguismi|7 years ago|reply
Also see: ICO-tokens (shittokens), where there are countless of cool business ideas, lots of trading and speculation but no actual businesses built.
[+] [-] arisAlexis|7 years ago|reply
[+] [-] stock_toaster|7 years ago|reply
[+] [-] hobofan|7 years ago|reply
[+] [-] rudolfix|7 years ago|reply
[+] [-] nilanp|7 years ago|reply
One question - how does this handle "bad leaver" clauses which are typical too - where the company revokes the grant ?
https://www.personneltoday.com/hr/how-to-get-the-most-out-of...
[+] [-] hlfkasjd|7 years ago|reply
[+] [-] CJefferson|7 years ago|reply
[+] [-] hlfkasjd|7 years ago|reply
[+] [-] joosters|7 years ago|reply
[+] [-] asynchrony|7 years ago|reply
[+] [-] unknown|7 years ago|reply
[deleted]
[+] [-] tessi3r|7 years ago|reply