
Employee Stock Options on Ethereum (2017) - bouwerp
https://blog.neufund.org/tokenizing-startup-equity-part-1-employee-incentive-options-plan-esop-on-ethereum-blockchain-dce2416f4505
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thisisit
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:

[https://www.bloomberg.com/opinion/articles/2017-11-16/softba...](https://www.bloomberg.com/opinion/articles/2017-11-16/softbank-
thinks-some-uber-shares-are-worth-more-than-others)

This information might not be public all the time.

~~~
netcan
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."

~~~
thisisit
I think you have misunderstood what is happening now.

Companies are staying private lot longer not because there is some obscurity
or different interests etc. They are staying private for the same reason
public companies are buying back more and more shares.

And giving them another market is not going to help, naivety or not. What is
going to help is tightening interest rates and rising yields. It should change
the flow. But that's not going to happen in short term. And certainly not with
naive blockchain options.

That said, a quick google search throws up tons of places to sell your private
stakes. Example - EB Exchange (source: [https://www.cnbc.com/2017/06/12/uber-
insiders-are-eager-to-s...](https://www.cnbc.com/2017/06/12/uber-insiders-are-
eager-to-sell-shares-but-they-cant-find-a-market.html))

~~~
netcan
I think we might be misunderstanding eachother. :)

I have no opinion on _why_ companies are staying private. But, since they
are.. there are big, private ESOP schemes that exist. These lack liquidity.

Google will return all sorts of brokers who "arrange liquidity discreetly."
But, this is pretty limited, difficult to access, and comes with massive
transaction costs.

There's a big difference between a sanctioned and efficient way to buy and
sell equity & brokers who can make a market for anything.

------
flixic
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?

~~~
jerguismi
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.

~~~
charlesdm
Really liquid stock options are likely the only reason why one should value
said options above $0 and (potentially) take a lower salary. It seems to be
beneficial to be able to sell your options to an established investor.

~~~
jerguismi
If the stock/option is liquid, then why not just take hard cash instead? Also
shouldn't be a problem for the company, they could just sell directly to the
investor and compensate the employees with cash.

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stock_toaster
If something like this was ever part of a hire offer, it would be an instant
"nope" right there for me.

~~~
hobofan
You could just do the same as with normal equity benefits and value them at 0
(which for most startups is true).

~~~
jerguismi
Also makes me wonder if many stock option schemes make sense at all, if
employees think they are worth zero.

~~~
ForHackernews
They usually _are_ worth zero, but they also cost the company zero, right?

~~~
jerguismi
How is the cost for the company zero? If you issue employee options/stocks,
you devalue existing shares. Often investors have invested to the company and
have paid cash for the shares.

From company shareholders perspective the cost of issuing shares to employees
is definitely not zero.

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nilanp
Hey think this is very smart low friction way in creating a secondary market
in options

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...](https://www.personneltoday.com/hr/how-to-get-the-most-out-of-good-
leaverbad-leaver-provisions/)

~~~
hlfkasjd
In the case of a bad leaver event it is up to the employer to decide. So in
most cases the bad leaver wouldn't receive anything.

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CJefferson
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.

~~~
hlfkasjd
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.

~~~
CJefferson
In which case, what value is the digital tokens providing, when they can just
be overruled anyway?

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joosters
And when the blockchain forks, you get double the stock options!

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asynchrony
I actually thought this was talking about the Ethereum Foundation paying its
employees in ETH at first.

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tessi3r
I'd rather not...

