The life cycle of a crypto share begins, similar to traditional shares, with the establishment of a stock corporation or the issuance of new shares through a capital increase. This requires a notarized articles of association or corresponding resolution by the general meeting (§ 23 Para. 1 AktG, §§ 182 Para. 1, 130 Para. 1 AktG). The articles of association or resolution must specify that shares are issued as electronic shares and physical certification is excluded (§ 10 Para. 6 Sentence 1 AktG). For issuance as crypto shares, the articles must additionally explicitly permit registration in a crypto securities register (§ 10 Para. 6 Sentence 2 AktG). Additionally, vesting regulations and issuance of multiple voting rights shares should be considered and anchored in the articles at this stage.

  • Vesting: Vesting, the time-staggered release of shares, serves to bind founders, employees, and advisors long-term. It can be implemented contractually or through smart contracts. Specific vesting conditions, such as lock-up period duration and release conditions, are defined in the contract or smart contract.

  • Multiple Voting Rights: Multiple voting rights enable certain shareholders, e.g., founders, to exercise more voting rights per share than other shareholders. The articles must explicitly provide for multiple voting rights shares issuance (§ 135a AktG). Restrictions set in ZuFinG, such as maximum voting right multiplication and time limits for listed companies, must be observed.

After this foundation, technical issuance of crypto shares occurs through registration in the crypto securities register, maintained by licensed (grandfathering; final license pending) crypto securities registry manager ecrop (§ 16 eWpG).

Each crypto share receives a unique identification number in the crypto securities register (§§ 13, 17 eWpG). This process is analogous to registering traditional shares in a company’s share register (§ 67 AktG) but replaces physical/electronic certificate transmission with a digital entry in the electronic securities register. Registration is performed by the issuer or a service provider appointed by them.

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Difference from Traditional Shares:

With traditional shares, after notarial certification or resolution, shares are certificated through physical certificates. This step is eliminated for crypto shares. Shares are created directly through registration in the electronic securities register and are certificated by a digital register entry. Crypto share transfer also occurs digitally without physical certificates.

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Placement and Funding: From Seed Funding to Public Offering

After issuance, crypto shares must be placed to raise capital and reach a broad investor base. Various options are available, oriented toward respective issuer needs and regulatory framework:

  • Equity Crowdfunding: Crypto shares can be offered to a broad audience through platforms like ArsenalX. This enables startups, scale-ups, and SMEs to raise capital even without access to traditional investors. Regulatory requirements of VermAnlG, particularly prospectus requirements, information obligations, and investor protection provisions, must be observed.

  • Private Placement: Shares are offered to a limited circle of investors, e.g., institutional investors, family offices, or high-net-worth individuals. This is often the case with larger financing rounds and can represent an alternative to prospectus requirements.

  • Seed Funding: In a startup’s early phase, seed investors are often acquired to provide initial capital. Crypto shares can be used as financing instruments here too. Vesting regulations can be agreed upon to bind seed investors long-term to the company and protect founders’ interests.

  • Difference from Traditional Shares: Traditional shares are often placed through IPOs or capital increases. Equity crowdfunding with crypto shares enables more direct access to a broader investor base.

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Trading and Custody: Decentralized Markets and Secure Wallets

Trading in crypto shares fundamentally differs from trading in traditional shares and electronic central register shares:

  • Unregulated Markets (OTC): Since crypto shares currently don’t meet securities trading requirements, they cannot be readily traded on regulated markets (traditional exchanges). Trading can therefore only take place via OTC, e.g., on bulletin boards.

  • DLT Pilot Regime: The EU’s DLT Pilot Regulation enables trading of crypto shares on regulated DLT exchanges, thus creating a regulated framework for trading DLT-based financial instruments.

Custody of crypto shares occurs digitally in wallets:

  • Self-Custody: Investors manage their private keys themselves. This offers greatest control over shares but also comes with increased security risk.

  • Custody by a Crypto Custodian (ecrop license in application): Specialized service providers like ecrop offer secure and regulated custody of crypto shares’ cryptographic keys. Custody is subject to KWG requirements and protects investors with enhanced security and compliance. Custody by a crypto custodian offers the advantage that complex technical aspects of key management can be outsourced.

  • Difference from Traditional Shares: Traditional shares are typically held by banks or central securities depositories. Trading occurs on regulated markets. Crypto shares offer new possibilities through decentralized wallet custody and trading on DLT markets, but also new challenges.

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Exercise of Shareholder Rights: Digital Participation and Transparency

Crypto shares enable digital exercise of shareholder rights, such as participation in general meetings and voting rights exercise. This simplifies shareholder participation, increases process transparency, and enables more efficient and cost-effective processing.

  • General Meetings: Participation in general meetings and voting can occur digitally through the platform or blockchain. This enables shareholders who cannot be personally present to exercise their rights. Smart contracts can enhance automatic vote counting and voting eligibility verification, improving efficiency and security. However, notarial certification of general meeting resolutions remains required for crypto shares (§ 130 Para. 1 AktG).

  • Dividend Payments: Dividend distribution can occur automatically through the platform (via payment provider) or through smart contracts that automatically pay dividends to shareholders. This accelerates the process and reduces administrative effort.

  • Information Rights: Blockchain transparency enables investors to stay informed about company status, crypto share development, and investment status at any time. Additionally, issuers can provide regular reports and analyses through the platform.

  • Difference from Traditional Shares: With traditional shares and electronic central register shares, shareholder rights are often exercised traditionally, e.g., in writing or through personal attendance at general meetings. Crypto shares offer significant simplification, increased transparency, and more efficient processing through process digitalization, smart contract use, and blockchain.

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Capital Measures: Digital Processing and Flexibility

Capital measures like capital increases, capital reductions, stock splits, or subscription rights offerings are processed digitally and automatically in the crypto securities register for crypto shares. This increases flexibility and efficiency and reduces administrative effort for issuers and investors:

[Continuing with capital measures and concluding sections]

  • Capital Increase: New crypto shares are registered in the crypto securities register and allocated to shareholders according to issuance conditions. The capital increase can also be conducted through equity crowdfunding, with new crypto shares issued via the ecrop platform.

  • Capital Reduction: The number of crypto shares is reduced in the crypto securities register. Shareholders receive corresponding compensation, either in form of money or other assets.

  • Difference from Traditional Shares: With traditional shares and electronic central register shares, processing capital measures is often more complex, time-consuming, and associated with higher costs. Crypto shares offer significant simplification, increased transparency, and efficiency through digital and automated processing via smart contracts.

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Delisting and Buyback: The End of the Life Cycle

Delisting a crypto share, i.e., removal from trading on a DLT trading venue, and buyback of crypto shares by the issuer mark the end of the life cycle. Delisting and buyback processing occurs according to issuance conditions and applicable laws.

  • Delisting: The crypto share’s listing on a DLT trading venue is terminated. However, trading can continue through OTC. Delisting conditions are specified in the issuance terms.

  • Buyback: Issuers can buy back crypto shares from shareholders. Buyback conditions are specified in the issuance terms and must comply with corporate law requirements. Shares are deleted from the crypto securities register.

  • Difference from Traditional Shares: With traditional shares and electronic central register shares, the delisting and buyback process is often more complex and time-consuming. With crypto shares, processing occurs digitally and automatically through the crypto securities register, enabling faster and more efficient execution and reducing administrative effort.