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Liquid Equity Rewards in Corporate America
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Draft Version 8 - September 2025 # **`Liquid Equity Rewards in Corporate America`** ``` Wulf Kaal, Ph.D.1 ``` ## **`Abstract`** In an era of increasing shareholder activism, this essay examines Liquid Equity Rewards (LER), a blockchain-enabled mechanism that provides shareholders with time-weighted, utility-only incentives, as a novel way to improve corporate governance. LER uses a dual architecture—voucher-based for off-chain equities and programmable on-chain units—to encourage shareholder retention in the face of proxy battles, activist challenges, and corporate political complexities. LER is based on NASDAQ's tokenized stock framework, stablecoins, and DeFi liquid staking principles. The analysis compares LER's effectiveness to more conventional defenses like poison pills and assesses how well it complies with Delaware corporation law, US securities rules, and the EU's MiCA framework. LER's contributions include the potential to alleviate stock price volatility, lower activist success rates by 15–30%, and resolve ESG, M&A, and political expenditure issues in a market estimated to be worth $900 billion due to activism, driven by a $10 trillion capital shift to risk assets. Cost-benefit analysis suggests that LER’s governance enhancements and market opportunities outweigh implementation challenges. LER offers a scalable, transparent alternative that fosters stakeholder alignment and reshapes corporate governance for a dynamic financial landscape. **Key Words** : Blockchain, Tokenization, Shareholder Activism, Proxy Fights, Corporate Governance, Fiduciary Duties, Airdrops, Tokenized Stocks, Stablecoins, DeFi **JEL Categories** : G34, K22, O31, O32, L86 > 1 Professor of Law. The author is grateful for excellent research assistance from Mickey Bernardi, research assistant. Draft Version 8 - September 2025 # Table of Contents |**1. Introduction**|**3**| |---|---| |**2. Liquid Equity Rewards**|**5**| |2.1. How LER Works|6| |2.2. Why LER Matters|8| |2.3. Opportunities for LER|9| |**3. LER in the Regulatory Landscape for Corporate Governance and Defenses**|**10**| |3.1. Delaware Corporate Law|10| |3.2. U.S. Securities Regulation|11| |3.3. EU and International Frameworks|14| |**4. LER in Proxy Fights**|**15**| |4.1. LER Shape Proxy Fights|15| |4.2. Strategic Deployment of LER Airdrops|16| |4.3. Legal Boundaries Under Delaware and SEC Rules|18| |**5. LER for Offsetting Stock Price Volatility**|**21**| |5.1. Time-Weighted Rewards Between Annual Meetings|21| |5.2. Economic Incentives for Shareholder Retention|22| |**6. LER in Incumbent-Activist Conflicts**|**23**| |6.1. Incentivizing Alignment with Incumbents|23| |6.2. Co-Opting Activists Through Utility Rewards|24| |**7. Broader Applications of LER in Corporate Politics**|**25**| |7.1. ESG Disputes and Shareholder Proposals|25| |7.2. Merger and Acquisition Contests|26| |7.3. Political Spending and Lobbying Incentives|27| |7.4. Executive Compensation and Alignment|28| |**8. LER Market Opportunity and Empirical Projections**|**29**| |8.1. Sizing the Activism-Driven Market|29| |8.2. LER’s Role in Capital Reallocation|30| |**9. Cost-Benefit Analysis of Implementing LER in Corporate America**|**31**| |9.1. Costs and Risks|31| |9.2. Benefits: Governance Enhancements and Market Opportunities|33| |9.3. Net Evaluation|34| |**10. Conclusion**|**35**| Draft Version 8 - September 2025 # 1. Introduction The incorporation of blockchain technology into corporate governance has sparked the development of novel approaches to deal with the complex relationships between corporate politics and shareholder activism. A blockchain-enabled system called Liquid Equity Rewards (LER) provides verified holders of stocks or tokenized assets with time-weighted, utility-only rewards. It is a game-changing tool for incumbent boards navigating proxy fights, activist investors, and other political issues in Corporate America. Inspired by the rise of stablecoins, liquid staking in decentralized finance (DeFi), and NASDAQ's tokenized stock structure, which was revealed on September 8, 2025.<sup>2</sup> LER employs smart contracts to distribute consumptive utilities, such as merchant vouchers or platform credits, fostering shareholder loyalty without imposing liquidity constraints. In an era where activist campaigns influence over $900 billion in market value annually in the United States,<sup>3</sup> LER suggests a programmable alternative to traditional defenses like poison pills or staggered boards. As such, it enables incumbents to stabilize stock prices, align activists with management, and manage contentious governance disputes. Supported by regulatory advancements, including the 2025 Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act,<sup>4</sup> and the EU’s Markets in Crypto-Assets (MiCA) framework,<sup>5</sup> LER capitalizes on a $10 trillion capital reallocation from fixed income to risk assets.<sup>6</sup> The author > 2 _Nasdaq Stock Market; Notice of Filing of Proposed Rule Change To Amend the Exchange’s Rules To Enable the Trading of Securities on the Exchange in Tokenized Form_ , 90 Fed. Reg. 45426, 45426–27 (Sep. 22, 2025). > 3 Author's calculation based on data from _2024 Review of Shareholder Activism_ , BARCLAYS (Jan. 2025), https://corpgov.law.harvard.edu/wp-content/uploads/2025/01/Barclays-2024-Review-of-Shareholder-Activi sm_vF.pdf. Barclays tracked 115 U.S. activist campaigns in 2024 targeting companies with market capitalizations exceeding $500 million. Using the market cap distribution data reported therein (59% targeting $500M–$5B; 19% targeting $5B–$10B; 14% targeting $10B–$25B; 8% targeting >$25B) and applying midpoint averages to each segment for the approximately 100 distinct U.S. companies targeted, the aggregate market value calculates to: (59 companies × $2B average) + (19 companies × $7B average) + (14 companies × $15B average) + (8 companies × $60B average) ≈ $941 billion. This methodology counts each distinct company once and uses segment midpoints, likely underestimating the mega-cap category where 2024's largest targets included Texas Instruments ($182B), Walt Disney ($168), and Pfizer ($166B). _See id._ at 3–5, 8–10 (providing campaign counts, market cap distributions, and specific target examples). > 4 _The GENIUS Act of 2025 Stablecoin Legislation Adopted in the US_ , LATHAM & WATKINS (July 24, 2025), https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us. 5 Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets, 2023 O.J. (L 150) 40, http://data.europa.eu/eli/reg/2023/1114/oj. > 6 Henri Torbet & Ju-Hon Kwek, _Asset Management 2025: The Great Convergence_ , MCKINSEY & CO. 13–14 (2025) (estimating that structural shifts in asset management could unleash between $6 trillion and $10.5 Draft Version 8 - September 2025 reviews LER’s applications in proxy fights, stock price stabilization, activist co-option, and broader corporate political contexts, evaluating its compliance with fiduciary duties, securities regulations, and alignment with market dynamics. Conventional board defenses can undermine shareholder rights and entrench management, even when they are successful in thwarting activist efforts. Staggered boards and poison pills are examples of defenses that frequently shield boards at the price of value generation and lessen accountability to shareholders.<sup>7</sup> Empirical analyses have shown that firms with fewer defensive mechanisms often have higher market valuations and better operating performance, thus supporting calls for dismantling entrenchment tactics.<sup>8</sup> Delaware courts have reinforced this scrutiny by applying enhanced standards under _Unocal_ and _Revlon_ that ensure defenses are proportional and do not undermine shareholder choice.<sup>9</sup> For example, the Delaware Supreme Court upheld a poison pill in _Airgas, Inc. v. Air Products & Chemicals, Inc._ , but emphasized its tentative nature, thus signaling that limits exist with regard to prolonged entrenchment.<sup>10</sup> This changing environment creates opportunities through cutting-edge instruments like LER, which uses utility-only, blockchain-based rewards to engage shareholders without running the risk of entrenchment like traditional defenses do. In line with Bebchuk's support of shareholder empowerment, LER provides a programmable substitute that encourages loyalty while abiding by legal and fiduciary requirements.<sup>11</sup> Through its utility-only incentive mechanism, LERs challenge and reshape traditional board defenses, including but not limited to advance notice bylaws, poison pills, and negotiated settlements. LERs engage shareholders adequately without entrenchment risks. For example, unlike advance notice bylaws, which can deter activist campaigns by burdening shareholders, LER increases shareholder loyalty through non-speculative rewards vouchers.<sup>12</sup> Unlike poison > trillion of “money in motion” over the next five years as investors reallocate from traditional fixed income into higher-yielding risk assets). > 7 Lucian A. Bebchuk, _The Myth That Insulating Boards Serves Long-Term Value_ , 113 COLUM. L. REV. 1637, 1653 (2013), https://www.jstor.org/stable/23561271. > 8 Lucian A. Bebchuk, Alon Brav, & Wei Jiang, _The Long-Term Effects of Hedge Fund Activism_ , 115 COLUMBIA L. REV. 1085, 1118–20. > 9 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955–57 (Del. 1985); Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 180–82 (Del. 1986). > 10 Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 111–28 (Del. 2010). > 11 Lucian A. Bebchuk, _The Case for Increasing Shareholder Power_ , 118 HARV. L. REV. 833, 837–41 (2005), https://harvardlawreview.org/wp-content/uploads/pdfs/bebchuk.pdf. > 12 _Nasdaq Stock Market_ , _supra_ note 2. Draft Version 8 - September 2025 pills, which may be invalidated by courts for disproportionality,<sup>13</sup> LER’s universal, utility-focused airdrops avoid coercion and align with fiduciary duties under _Unocal_ .<sup>14</sup> Unlike negotiated settlements that, in granting activists board seats, risk incumbent entrenchment,<sup>15</sup> LERs incentivize consensus and alignment through LER’s consumptive utilities, thus, reducing conflict while enhancing shareholder engagement. LER challenges traditional defenses in their reliance on restrictive mechanisms. Instead, LERs offer a scalable, compliance-aligned alternative that mitigates activist pressure while at the same time fostering accountability in a shareholder-centric governance landscape. # 2. Liquid Equity Rewards A dramatic reallocation of capital from underperforming fixed-income assets, like U.S. Treasuries, which yielded an average of 2.5–3% from 2015–2025 with nearly zero or even negative real returns after inflation, to equities with over 200% cumulative returns in the S&P 500 and cryptocurrencies is evident as we navigate the financial landscape in September 2025. In this context, the total value locked (TVL) of decentralized finance (DeFi) has increased significantly from its prior levels to over $250 billion.<sup>16</sup> Stablecoins, meantime, have risen to a value of almost $290 billion, processing trillions of transfers every month and opening the door for programmable, effective payments and cutting-edge loyalty programs. This background highlights how traditional banking and blockchain are increasingly overlapping, where tools like LER can play a pivotal role. By 2025, shareholder activism will affect over $900 billion in market value.<sup>17</sup> The integration of blockchain technology into corporate governance has spurred innovative solutions to the complex problems of shareholder activism. Fundamentally, LER is a blockchain-driven system that gives verified shareholders time-weighted, utility-focused incentives. This gives boards a new approach to handling proxy conflicts, stock volatility, and other governance issues. > 13 Williams Cos. Stockholder Litig., 2021 WL 754593, at *35–37 (Del. Ch. Feb. 26, 2021). > 14 _Unocal Corp._ , 493 A.2d at 955–57. > 15 _See_ Marcel Kahan & Edward B. Rock, _Hedge Funds in Corporate Governance and Corporate Control_ , 155 U. PA. L. REV. 1021, 1031, 1050–56 (2007), https://www.jstor.org/stable/40041292 (describing companies granting activists board seats “in order to avoid a proxy fight” and explaining that regulatory constraints and costs discourage mutual funds from running proxy contests, concluding that mutual funds “have not instigated proxy contests or led the charge in pushing for changes in business strategy and management”). > 16 _See_ DEFILLAMA, https://defillama.com/?liquidstaking=true (last visited Sep. 28, 2025) (reporting billions in total value locked in liquid staking protocols, reflecting its widespread adoption in DeFi). > 17 BARCLAYS, _supra_ note 3. Draft Version 8 - September 2025 Motivated by stablecoin dependability, DeFi liquid staking retention tactics, and NASDAQ's tokenized stock structure, LER promotes enduring shareholder dedication without the disadvantages of traditional defenses like restrictive bylaws or poison pills.<sup>18</sup> # 2.1. How LER Works LER can be viewed as a clever, two-tiered system that uses blockchain technology to provide shareholders with simple, non-speculative benefits across both regular (off-chain) and tokenized (on-chain) stocks. It addresses the drawbacks of traditional loyalty programs, which frequently cause businesses to incur delayed obligations and find it difficult to hold onto assets without engaging in hazardous speculation. LER, on the other hand, presents a useful model to make rewards effective and accessible. A staged strategy is used to encourage adoption. Pilots are conducted using the Independent Model among smaller entities, such as boutique brokerages or pink sheet corporations, and then the Merchant Model is gradually adopted to unleash the value uplift and promote greater network synergies. LER uses a straightforward voucher system for off-chain stocks. Registered shareholders receive digital or physical vouchers that can be used for common benefits like platform credits or discounts at retailers. With a strong focus on utility, it expands upon NASDAQ's tokenized framework on the on-chain side to issue programmable, non-transferable reward units, like soulbound tokens (SBTs), that are anchored to particular wallet addresses.<sup>19</sup> Similar to how DeFi liquid staking leverages yields to encourage retention, these payments increase over time based on holding durations (for example, 30–90 days), encouraging prolonged ownership without locking up liquidity.<sup>20</sup> While using zero-knowledge proofs (ZKPs) for verification that complies with privacy regulations, smart contracts take care of the heavy lifting by automating distributions linked to verified ownership.<sup>21</sup> Programmatic orders, KYB > 18 _Nasdaq_ , _supra_ note 2; Bebchuk et al., _supra_ note 7, at 1645–50. > 19 _Nasdaq_ , _supra_ note 2. > 20 _See What are Soulbound Tokens (SBT)?_ , COINBASE **,** > https://www.coinbase.com/en-gb/learn/crypto-glossary/what-are-soulbound-tokens-sbt (last visited Oct. 8, 2025). > 21 _See_ Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons regarding the processing of personal data, arts. 25, 32, 2016 O.J. (L 119) 1, Draft Version 8 - September 2025 compliance, and ownership checks are made possible without the need for further layers thanks to Dinari's FINRA approval on June 26, 2025, and its Avalanche-based Layer 1 launch on August 14, 2025, which expedites tokenized equity integration through APIs.<sup>22</sup> Supported 1:1 by U.S. stocks, Dinari's dShares increase access, notably through EU collaborations like Gemini, and might accelerate the LER deployment by three to six months. It's a clear method to foster loyalty without getting into speculation, so picture a holder of tokenized Apple shares getting regular retailer coupons or credits through NASDAQ's structure. LER avoids balance-sheet drags and streamlines finances by using marketing budgets at a modest $0.01–0.05 per holder-day and expensed upfront under U.S. GAAP. Drawing inspiration from consumer loyalty programs that that reduce shareholder turnover by 15–30% through interesting, non-cash incentives.<sup>23</sup> LER appeals to institutions with over 20% of S&P 500 voting power<sup>24</sup> and retail investors, who hold roughly 40% of U.S. equities.<sup>25</sup> http://data.europa.eu/eli/reg/2016/679/oj (requiring data protection by design and by default, and mandating security measures such as encryption and pseudonymization). 22 _See Dinari Securities, LLC Receives Broker-Dealer Registration_ , DINARI (JUNE 30, 2025), https://dinari.com/blog/dinari-securities-llc-receives-broker-dealer-registration; _Dinari Launches the Dinari Financial Network, an Omni-Chain Orderbook Powered by Avalanche_ , DINARI (Aug. 14, 2025), https://dinari.com/blog/dinari-launches-the-dinari-financial-network-an-omni-chain-orderbook-powered-byavalanche. 23 Evidence from European loyalty shares points to increased ownership stability and, consistent with that, lower trading intensity. _See_ Maria Lucia Passador, _Game of Votes: Loyalty Shares and the New Battleground for Corporate Control_ , EUR. BUS. ORG. L. REV. (forthcoming 2025) (Manuscript at 26–28), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5223830 (reporting trading volumes inversely related to ownership concentration and a statistically significant stability effect); The 15–30% range is benchmarked against analogous mechanisms: Serdar Aldatmaz, Paige Ouimet & Edward D. Van Wesep, _The Option to Quit: The Effect of Employee Stock Options on Turnover_ , 127 J. FIN. ECON. 136, 149 (2018) (20% turnover reduction in pre-vesting stock options); Growave, _Gamification in Loyalty Programs (2024)_ , https://www.growave.io/blog/gamification-loyalty-programs (reporting 22–30% retention through gamified loyalty programs); _Global Loyalty Programs Market Intelligence and Future Growth Dynamics Report 2025_ , GLOBENEWSWIRE (Sept. 4, 2025), https://www.globenewswire.com/news-release/2025/09/04/3144304/0/en/Global-Loyalty-Programs-Market -Intelligence-and-Future-Growth-Dynamics-Report-2025-Coalition-Expansion-and-Gamified-Rewards-Red efine-Customer-Engagement-Across-Retail-Banking-and-T.html. 24 Lucian A. Bebchuk & Scott Hirst, _The Specter of the Giant Three_ , 99 B.U.L. REV. 721, 724–27, 736, 740–41 (2019). > 25 _See generally 2025 Capital Markets Outlook_ , SIFMA (Jan. 1, 2025), https://www.sifma.org/wp-content/uploads/2025/01/2025-Capital-Markets-Outlook-SIFMA.pdf (providing data on household equity ownership as a share of the U.S. market, illustrating the retail investor base to which LER could appeal); _Financial Accounts of the United States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic Accounts Second Quarter 2025_ , BD. OF GOVERNORS OF THE FED. RSRV. SYS., tbl. L.224, lines 31 & 32 Corporate Equities (Q2 2025), https://www.federalreserve.gov/releases/z1/20250911/z1.pdf (reporting that households and nonprofits directly held $41.79 trillion of the $99.80 trillion in corporate equities outstanding, or about 41.9%). Draft Version 8 - September 2025 # 2.2. Why LER Matters LER transforms corporate governance by offering a cooperative, shareholder-friendly alternative to antiquated defenses that frequently protect management at the expense of value. Consider advance notice bylaws, which, as Bebchuk notes, might suppress activism by imposing needless obstacles, or poison pills, which in turn can weaken activist views but invite judicial challenges for overreach.<sup>26</sup> In contrast, LER encourages shareholder involvement through utility-driven, inclusive incentives that align with important Delaware precedents such as Unocal and Blasius.<sup>27</sup> Because LER does not involve cash yields, LER avoids Howey test pitfalls as an investment contract, staying compliant with SEC safeguards against manipulation.<sup>28</sup> LER’s true comparative advantage lies in its ability to curb shareholder turnover by 15–30%, benchmarked against proven loyalty initiatives, which in turn helps solidify ownership amid activist-fueled swings.<sup>29</sup> In proxy contests, where activists prevail in about 40% of cases,<sup>30</sup> frequently capitalizing on retail sell-offs, LER matters a great deal because LER could trim those wins by 15–30%,<sup>31</sup> thus fortifying boards—especially for retail holders who represent 40% of U.S. equities.<sup>32</sup> BlackRock and other giants in the industry stand to gain from the clarity LER provides. LER's growth potential derives from its ability to participate in the $10 trillion capital pivot and a projected $2 trillion tokenized asset market by 2030.<sup>33</sup> LER could thus participate in the $900 > 26 Lucian A. Bebchuk & Robert J. Jackson, Jr., _The Law and Economics of Blockholder Disclosure_ , 2 HARV. BUS. L. REV. 39, 47–49 (2012) (arguing that tighter Blockholder disclosure rules deter activism and entrench management); Williams Cos. Stockholder Litig., 2021 WL 754593, at *1–2, *25–27 (Del. Ch. Feb. 26, 2021). 27 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955–57 (Del. 1985); Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 661–62 (Del. Ch. 1988). 28 SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946); 17 C.F.R. § 240.10b-5 (2025). > 29 Passador; Aldatmaz, Ouimet & Wesep; Growave, _supra_ note 23. > 30 _Shareholder Activism Annual Review 2025_ , DILIGENT MARKET INTELLIGENCE 9–10 (2025) (reporting U.S. activist success rates of roughly 35–45% depending on method, with dissidents securing board seats or settlements in about 40% of contests). > 31 Yao Gao & Yoshiaki Nose, _Long-term shareholder perks and stock price reaction_ , 19(4) PLOS ONE e0300284, at 1, 13–15 (2024), https://doi.org/10.1371/journal.pone.0300284) (long-term perk announcements expand retail holder base). 32 SIFMA & BD. OF GOVERNORS OF THE FED. RSRV. SYS., _supra_ note 25. 33 Torbet & Kwek, _supra_ note 6; Anutosh Banerjee, Julian Sevillano, & Matt Higginson, _From ripples to waves: The transformational power of tokenizing assets_ , MCKINSEY & CO. (Jun. 20, 2024), https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformat ional-power-of-tokenizing-assets. Draft Version 8 - September 2025 billion creation of activism-influenced value.<sup>34</sup> Unlike activist shareholder settlements that can create boardroom tensions by ceding board seats,<sup>35</sup> LER is intended to promote widespread harmony among shareholders. As we will see further below, LER reimagines corporate defenses as inclusive tools, thus delivering scalable, compliant answers for proxy fights, ESG debates, M&A tussles, and political expenditures.<sup>36</sup> # 2.3. Opportunities for LER Opportunities created for LER are significant. LER can capitalize on the $10 trillion market pivot from fixed income,<sup>37</sup> roughly $500 billion in annual ETF inflows from bond-to-equity shifts,<sup>38</sup> a $4 trillion crypto space,<sup>39</sup> the fusion of DeFi and loyalty ($250 billion in liquid staking TVL),<sup>40</sup> and favorable regulations like the GENIUS Act, alongside EU MiCA exemptions for non-transferable utility tokens. This primes LER to capture the roughly $94 billion global loyalty rewards sector with a low-risk, utility-centric model.<sup>41</sup> Smooth tokenized equity mixing is made possible by Dinari's API, and merchant network connections may increase pilots' velocity gains by five times. Fiat-equivalent revenue from redemptions eases sell-offs; for large issuers like American Airlines, this may result in an annual savings of $440 million in debt refinances.<sup>42</sup> Everyone benefits: merchants gain from faster spending at reduced acquisition costs, brokers experience an increase in trade volumes through rebates, and holders enjoy more liquidity and benefits. LER's adaptable, user-friendly design > 34 BARCLAYS, _supra_ note 3. > 35 Kahan & Rock, _supra_ note 15, at 1077–82. > 36 Bebchuk, _supra_ note 11, at 838–42, 856–62, 896–902. > 37 Torbet & Kwek, _supra_ note 6. > 38 Aniket Ullal, _Retail Investors Power US ETF Flows Past $500B in 2025 Despite Macro Risks_ , WEALTHMANAGMENT (June 24, 2025), > https://www.wealthmanagement.com/etfs/retail-investors-power-u-s-etf-flows-past-500b-in-2025-despitemacro-risks. > 39 _Market Statistics_ , COINBASE, https://www.coinbase.com/market-stats (last visited Oct. 8, 2025). > 40 DEFILLAMA, _supra_ note 16. > 41 _Global Loyalty Programs Report_ , _supra_ note 23. > 42 This figure is based on the merchant network revenue model where voucher redemptions generate fiat-equivalent revenue for issuers. Large firms like American Airlines, with substantial loyalty programs and debt loads of $25–40 billion, could direct these cash flows toward systematic debt reduction. Companies achieving credit rating improvements of 1–2 notches could refinance maturing debt at 150–200 basis points lower rates, potentially producing $440 million in annual interest savings. The favorable accounting treatment enhances this pathway by eliminating the balance sheet drag of deferred revenue liabilities, improving financial ratios that credit rating agencies evaluate. _See_ Delta Air Lines December Quarter and Full Year 2024 Financial Results (Jan. 2025); American Airlines Fourth-Quarter and Full-Year 2024 Financial Results (Jan. 2025). Draft Version 8 - September 2025 sets it apart from activity-tied Qiibee and crypto-focused Lido (with $39 billion TVL). Airdrop-style payouts are made possible via NASDAQ's filing and Dinari's API. With a positive perspective, anticipate a 10x velocity expansion by 2030, capturing 5–10% of yield streams and generating 20–50% retention lifts, which will open up capital for Millennials and Gen Z. # 3. LER in the Regulatory Landscape for Corporate Governance and Defenses Corporate defenses against shareholder activism are governed by a complex regulatory framework that includes Delaware corporation law, federal securities laws in the United States, and international frameworks. Each of these frameworks imposes unique requirements to strike a balance between the rights of shareholders and the power of the incumbent board. The investigation of novel tools like LER is prompted by the increased scrutiny of traditional defenses like advance notice bylaws and poison pills for possible entrenchment.<sup>43</sup> By encouraging participation without using coercive methods, LER complies with regulatory standards and provides a fresh way to handle activist concerns.<sup>44</sup> ## 3.1. Delaware Corporate Law The main framework for assessing board defenses against shareholder activism is Delaware, the legal home of more than 60% of publicly traded firms in the United States. It applies more scrutiny to make sure that actions are reasonable and non-preclusive. According to the _Unocal_ standard, defensive measures like advance notice ordinances or poison pills must be a reasonable reaction to a real threat and must not unnecessarily restrict shareholder rights.<sup>45</sup> Under the _Unocal_ standard as established by courts, boards of directors must establish a good faith belief in a threat to corporate policy and in the corresponding proportionality of director responses, thus balancing defensive needs against shareholder voting rights.<sup>46</sup> The _Revlon_ doctrine mandates in change-of-control scenarios that boards prioritize shareholder value maximization, thus precluding defenses that entrench management at the expense of a higher > Bebchuk, _supra_ note 7, at 1645–50. > Bebchuk, _supra_ note 11, at 837–40. > 45 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955–57 (Del. 1985). > 46 _Id._ at 955. Draft Version 8 - September 2025 bidder.<sup>47</sup> The Delaware Chancery Court’s _Blasius_ standard imposes even stricter scrutiny on actions that directly undermine shareholder voting rights, requiring a “compelling justification” to avoid invalidation.<sup>48</sup> For example, in _Chesapeake Corp. v. Shore_ , the Delaware Chancery Court critiqued and struck down overly restrictive advance notice bylaws that effectively precluded shareholder nominations, thus reinforcing the limits on entrenchment.<sup>49</sup> Boards are frequently insulated by these defenses. Furthermore, mechanisms like staggered boards or restrictive bylaws can significantly reduce accountability and undermine value-enhancing activist interventions.<sup>50</sup> Case in point, firms with fewer defensive barriers exhibit higher market valuations and operational performance, thus, supporting calls for dismantling entrenchment tactics.<sup>51</sup> LER responds to these critiques by enhancing shareholder loyalty without impairing voting rights. Unlike poison pills, which risk invalidation for disproportionality,<sup>52</sup> LER’s comprehensive distribution design is aligned with _Unocal_ ’s proportionality requirement, because LERs incentivize retention without precluding activist nominations.<sup>53</sup> LER also satisfies _Blasius_ standards by avoiding discriminatory treatment, offering a governance tool that aligns with Bebchuk’s advocacy for shareholder empowerment.<sup>54</sup> # 3.2. U.S. Securities Regulation U.S. federal securities regulations provide standards to ensure fair and transparent shareholder engagement, particularly in proxy contests and defensive actions. SEC Rule 14a-9 prohibits false or misleading statements in proxy solicitations, mandating boards to disclose material information about defensive measures to avoid misleading shareholders.<sup>55</sup> The Williams Act in particular regulates tender offers and shareholder disclosures, requiring timely reporting of significant ownership stakes, that is, 5% or more, to prevent covert stock ownership accumulations by activists.<sup>56</sup> The core antifraud rule, Rule 10b-5, prohibits actions that artificially > 47 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 180–82 (Del. 1986). 48 Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 661–62 (Del. Ch. 1988). > 49 Chesapeake Corp. v. Shore, 771 A.2d 293, 328–30 (Del. Ch. 2000). > 50 Bebchuk, _supra_ note 7, at 1655–57. > 51 Bebchuk, Brav, & Jiang, _supra_ note 8. > 52 Williams Cos. Stockholder Litig., 2021 WL 754593, at *25–27 (Del. Ch. Feb. 26, 2021). > 53 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955–57 (Del. 1985). > 54 Bebchuk, _supra_ note 11, at 837–40. > 55 17 C.F.R. § 240.14a-9 (2025). > 56 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (2025); Bebchuk & Jackson, Jr., _supra_ note 26, at 45–47. Draft Version 8 - September 2025 influence stock prices, such as coordinated buybacks or selective disclosures, ensuring market integrity.<sup>57</sup> LER’s utility-only design, delivering non-transferable voucher rewards, comparable to merchant credit vouchers, aligns with US federal securities regulations. In particular, LER as vouchers are designed to incentivize stock ownership through a rewards system and do not qualify as securities under the Howey test, as outlined by the US Supreme Court in _SEC v. W.J. Howey Co_ .<sup>58</sup> Under the Howey test an investment contract requires: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) derived from the entrepreneurial or managerial efforts of others.<sup>59</sup> While LERs may satisfy the first two prongs, they fail to meet the critical third and fourth prongs, thus ensuring they are not securities under U.S. federal securities law: 1. **Investment of Money** : Holding an issuer’s stock for a certain time period may trigger LER minting. LER are vouchers that have no direct monetary value. Thus, they would not be classified as money. But, courts have interpreted “money” broadly to include tangible or intangible value.<sup>60</sup> 2. **Common Enterprise** : A common enterprise may exist under the Howey test through either the horizontal or vertical commonality tests. Horizontal commonality could apply if the issuer pools funds to distribute LER. However, issuer discretion in LER reward allocation may weaken this element.<sup>61</sup> Vertical commonality may be present, as the LER ecosystem and merchant network align the interests of holders of LERs and issuers of stock to accomplish its mission.<sup>62</sup> Courts may find a common enterprise exists in LERs under one of the tests. However, there is some uncertainty on qualifying LER as a common enterprise given the inconsistent treatment and precedent in different district courts.<sup>63</sup> 3. **Expectation of Profits** : LER as vouchers are non-transferable, have no inherent value, are not listed as fungible assets, and cannot be traded. As such, LER issuance precludes any expectation of profit through capital appreciation.<sup>64</sup> LERs are minted as > 57 17 C.F.R. § 240.10b-5 (2025); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 860–62 (2d Cir. 1968). 58 SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946). > 59 _Id._ > 60 _Id._ at 301; SEC v. Ripple Labs, Inc., 682 F.Supp.3d 308, 323 (S.D.N.Y. 2023). > 61 _Ripple Labs_ , 682 F. Supp.3d at 325–26. > 62 SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 368–69 (S.D.N.Y. 2020). > 63 _Id._ > 64 United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852–53 (1975). Draft Version 8 - September 2025 consumptive utilities, function as vouchers granting discounts or cashback, spendable at merchants. As such, LERs are compensatory, tied to holders’ own actions, e.g., whether to hold or sell stock. There is no speculative gain associated with LERs. The LER voucher rewards’ value derives from merchant redemption, e.g., acceptance of LER issued by other merchants, not issuer performance. These key LER features align with the proposed 2025 safe harbors for non-investment tools and distinguish LER from profit-driven instruments.<sup>65</sup> 4. **Derived from Efforts of Others** : LER voucher rewards are driven by stockholders’ efforts in maintaining stock ownership for a certain time period. LER accrual is automated via smart contracts and does not rely on LER’s ecosystem, merchants, or issuers’ managerial efforts.<sup>66</sup> LER’s role is ministerial, facilitating the platform and reward distribution without discretionary control over the ecosystem’s success or reward amounts. This distinguishes LER from cases like _SEC v. LBRY, Inc._ , where the court held that promotional efforts created profit expectations.<sup>67</sup> The non-transferability of LER further rules out any reliance on a secondary market, unlike _Dapper Labs, Inc._ , where the court held that a private blockchain tied NFT value to managerial efforts.<sup>68</sup> SEC Guidance further suggests that LERs are likely to stay clear of any US Federal securities law violations. For example, the SEC’s _IMVU No-Action Letter_ supports LER as non-securities, as VCOIN was deemed non-securitized because of its fixed-price, non-speculative nature, and lack of reliance on platform upgrades for value.<sup>69</sup> Similarly, LERs are not marketed as speculative, and their value stems from stockholder actions—for example, how long to maintain stock ownership— rather than from LER’s managerial efforts. The SEC’s 2019 Framework further emphasizes that digital assets driven by user actions, not promoter efforts, are less likely to be securities.<sup>70</sup> Accordingly, LERs do not meet the requirements of the Howey test’s third and fourth prongs. LER lacks an expectation of speculative profits and does not rely on the entrepreneurial efforts > 65 _Id._ at 852–54; _Framework for “Investment Contract” Analysis of Digital Assets_ , SEC (July 5, 2024), https://www.sec.gov/about/divisions-offices/division-corporation-finance/framework-investment-contract-a nalysis-digital-assets. > 66 _Howey_ , 328 U.S. at 298–99. > 67 SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 221–22 (D.N.H. 2022). > 68 Friel v. Dapper Labs, Inc., 657 F. Supp. 3d 422, 449 (S.D.N.Y. 2023). > 69 IMVU, Inc., SEC No- Action Letter (Nov. 19, 2020), > https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance -no-action/imvu-111920-2a1. > 70 _Framework for “Investment Contract_ , _” supra_ note 65. Draft Version 8 - September 2025 of others. The LER design, as non-transferable compensatory electronic voucher rewards within a closed-loop ecosystem, ensures that LERs function as utilities, not securities, under U.S. federal securities law. # 3.3. EU and International Frameworks In the European Union, the Transparency Directive and the Markets in Crypto-Assets (MiCA) Regulation provide the relevant frameworks for ownership disclosure and crypto-asset classification. The Transparency Directive requires shareholders to promptly notify issuers when their holdings cross specified thresholds, and issuers must then disclose those notifications publicly to maintain market transparency—an obligation especially relevant in activist contexts. 71 MiCA exempts non-transferable utility tokens, such as LER’s voucher rewards, from white paper and issuer authorization requirements, as long as they lack investment characteristics and are confined to closed-loop ecosystems.<sup>72</sup> The MiCA exemption aligns with LER’s design, which delivers non-transferable, consumptive token rewards utilities, thus avoiding classification as electronic money tokens (EMTs) or financial instruments.<sup>73</sup> The UK’s Financial Conduct Authority (FCA) may also support LER’s viability by allowing non-transferable voucher rewards as loyalty perks under limited-network exemptions, as long as such voucher rewards avoid investment-like marketing.<sup>74</sup> By leveraging blockchain’s transparency and MiCA’s exemptions, LER may ensure equitable token reward distribution without precluding shareholder rights.<sup>75</sup> Furthermore, the use of ZKPs for ownership verification > 71 Directive 2004/109, of the European Parliament and of the Council of 15 Dec. 2004 on the Harmonisation of Transparency Requirements and Amending Directive 2001/34/EC, arts. 9, 12, 2004 O.J. (L 390) 38 (EC), amended by Directive 2013/50, 2013 O.J. (L 294) 13 (EU). > 72 Regulation (EU) 2023/1114, _supra_ note 5, at recital 10, art. 4(2). > 73 FINANCIAL ACTION TASK FORCE, UPDATED GUIDANCE FOR A RISK-BASED APPROACH TO VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS 84, at 33 (Oct. 2021), > https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-assets-2021.html. 74 FINANCIAL CONDUCT AUTHORITY, POLICY STATEMENT PS23/6: FINANCIAL PROMOTIONS FOR CRYPTOASSETS (June 2023), > https://www.fca.org.uk/publications/policy-statements/ps23-6-financial-promotion-rules-cryptoassets (noting that only cryptoassets that are transferable and fungible fall within the financial promotions regime, thereby excluding non-transferable, closed-loop voucher rewards such as loyalty perks); BaFin, _Crypto Tokens_ , https://www.bafin.de/ref/19578950 (last visited Sep. 29, 2025) (Germany’s BaFin adopts a substance-over-form approach, classifying transferable or profit-oriented tokens as financial instruments, but LER’s utility-only design mitigates such risks). > 75 Regulation (EU) 2023/1114, supra note 5, at recital 10, art. 4(2). Draft Version 8 - September 2025 also likely complies with GDPR and CCPA/CPRA privacy requirements, thus addressing data protection concerns absent in traditional defenses.<sup>76</sup> # 4. LER in Proxy Fights ## 4.1. LER Shape Proxy Fights LER introduces a new approach to corporate governance, especially when activist campaigns threaten board stability. Much like analogous loyalty programs that boost shareholder retention by 15–30%,<sup>77</sup> LER encourages long-term shareholding with practical voucher rewards instead of speculative financial gains. By appealing to retail investors, who control roughly 40% of U.S. equities and form a powerful voting bloc,<sup>78</sup> LER strengthens support for incumbent boards in contested proxy battles. In the world of corporate governance, LER uses smart contracts to deliver merchant voucher rewards to shareholders who hold their stock for set periods. These incentives encourage shareholders to hold on to their stock and vote in favor of the current board during proxy contests. Research on consumer behavior shows that well-designed rewards create emotional and economic ties, reducing churn. LER taps into this by offering tangible benefits that resonate with shareholders, much like earning points for frequent flyer miles or coffee shop visits. By tying rewards to holding periods, LER fosters a sense of commitment, gamifying engagement in a way that aligns shareholders with the company’s long-term vision. ### **The Power of Retail and Institutional Investors** Retail investors, holding about 40% of U.S. equities,<sup>79</sup> have become a force in proxy contests, especially with the rise of platforms like Robinhood and blockchain-based voting systems. The 2021 case of GameStop shareholder activism showed how retail investors can rally through digital channels in efforts to amplify their influence in corporate battles. Innovations like NASDAQ’s tokenized stock framework make voting more transparent and accessible, further empowering this group. LER leverages these trends by targeting retail investors with > 76 Regulation (EU) 2016/67, _supra_ note 21. > 77 Passador; Aldatmaz, Ouimet & Wesep; Growave, _supra_ note 23. > 78 SIFMA & BD. OF GOVERNORS OF THE FED. RSRV. SYS., _supra_ note 25. > 79 SIFMA & BD. OF GOVERNORS OF THE FED. RSRV. SYS., _supra_ note 25. Draft Version 8 - September 2025 utility-focused rewards that encourage loyalty to the incumbent board without crossing into speculative financial territory that might invite regulatory scrutiny. Institutional investors, meanwhile, demand clarity and fairness in governance. LER’s blockchain-based system meets this need by ensuring transparent reward distribution, which can appeal to institutions wary of activist-driven upheaval. Unlike traditional proxy settlements that might hand activists board seats at the cost of long-term stability, LER aligns both retail and institutional shareholders with the board’s vision. By rewarding tenure rather than offering cash payouts, LER avoids securities classification issues while reducing the likelihood of activist victories—without resorting to entrenchment tactics that could violate fiduciary duties. # 4.2. Strategic Deployment of LER Airdrops Proxy fights form a critical battleground in corporate governance. In proxy fights, dissident shareholders challenge incumbent boards by soliciting proxies from stockholders to nominate and elect alternative director rosters, often citing underperformance or governance failures. This is often done in an effort to redirect corporate strategy or remove underperforming management.<sup>80</sup> Unlike traditional defenses such as poison pills or advance notice bylaws, LER enables alignment in proxy fights through non-speculative consumptive utilities inherent in voucher rewards. On the other hand, in proxy contests, where activists nominate alternative board slates to challenge incumbents, LER enables boards to strategically airdrop utility token rewards to verified long-term shareholders, thus incentivizing votes against dissident proposals and bolstering incumbent support. Dodd and Warner's foundational study of 96 proxy contests from 1962 to 1978 showed that such proxy fights typically arise in firms with declining stock performance, because activists seek to replace incumbent directors in an effort to implement value-enhancing changes, thus resulting in positive abnormal returns for shareholders upon contest announcements.<sup>81</sup> LERs counter this effect discussed in the Dodd and Warner study by automating reward distributions via smart contracts, without requiring lock-ups that could deter liquidity. Unlike traditional cash > 80 Peter Dodd & Jerold B. Warner, _On Corporate Governance: A Study of Proxy Contests_ , 11 J. Fin. Econ. 401, 405–07 (1983), https://doi.org/10.1016/0304-405X(83)90018-1. > 81 _Id._ at 420–22. Draft Version 8 - September 2025 dividends, which may trigger securities classification under the Howey test by creating an expectation of profits derived from managerial efforts,<sup>82</sup> LER’s non-speculative vouchers position them as voucher loyalty perks, thus evading investment contract status and aligning with regulatory exemptions for non-transferable tokens. Even during the pre-proxy season, boards can strategically time LER airdrops. This allows issuers to capitalize on the period when activists build their cases through public letters or media campaigns.<sup>83</sup> By targeting verified stockholders via NASDAQ’s on-chain infrastructure, LERs have particular reach among passive institutional and retail voters. This is decisive in proxy contests because passive institutional and retail investors often hold decisive sway in close contests.<sup>84</sup> While activist stockholders succeed in 40% of proxy contests,<sup>85</sup> often securing board seats or settlements; LER could reduce this rate potentially by 15–30%.<sup>86</sup> LER may be able to accomplish this lowering of the activity success rate in proxy fights by rallying passive voters for their cause through incentive alignment. For example, in a hypothetical contest mirroring the 2013 proxy fight at Hess Corporation, where Elliott Management at the time wanted to force board changes because of underperformance, LER airdrops could have incentivized long-term holders to support incumbents, thus potentially diluting activist momentum and changing the outcome of the proxy fight.<sup>87</sup> This strategic deployment of LER airdrops builds on prior discussions of activist tactics, such as public campaigns and "vote no" initiatives, which aim to sway institutional voters like BlackRock.<sup>88</sup> LER changes outcomes by increasing proactive shareholder engagement, thus aligning with Bebchuk's advocacy for increasing shareholder power while at the same time providing boards a non-coercive tool to maintain stability.<sup>89</sup> Furthermore, unlike highly effective poison pills, which may be potentially entrenching,<sup>90</sup> LER's universal application avoids discriminatory treatment under _Blasius_ , thus ensuring compliance with Delaware's requirements > 82 SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946). > 83 Kahan & Rock, _supra_ note 15, at 1030–32. > 84 Bebchuk & Hirst, _supra_ note 24, at 730–35. > 85 DILIGENT, _supra_ note 30. > 86 Gao & Nose, _supra_ note 31. > 87 Bebchuk, Brav, & Jiang, _supra_ note 8, at 1112–15. > 88 BLACKROCK, INVESTMENT STEWARDSHIP ANNUAL REPORT 2024, > https://www.blackrock.com/corporate/literature/publication/annual-stewardship-report-2024.pdf > 89 Bebchuk, _supra_ note 11, at 837–40. > 90 John C. Coffee Jr. & Darius Palia, _The Wolf at the Door: The Impact of Hedge Fund Activism on Corporate Governance_ , 41 J. CORP. L. 545, 570–72 (2016), > https://scholarship.law.columbia.edu/faculty_scholarship/1928. Draft Version 8 - September 2025 of enhanced scrutiny.<sup>91</sup> LER is not subject to SEC proxy solicitation rules because LER does not constitute an inducement to vote.<sup>92</sup> Thus, positioning LER as a scalable alternative that democratizes defense strategies in an era of tokenized tradeable equities. # 4.3. Legal Boundaries Under Delaware and SEC Rules Delaware corporate law imposes significant fiduciary duties on boards of directors in Delaware. Those fiduciary duties apply in particular if board directors deploy defensive measures in proxy contests, thus ensuring that director actions align with shareholder interests and avoid entrenchment. The _Unocal_ standard, as defined by Delaware courts, requires that defensive measures constitute a reasonable response to a legitimate threat and remain proportionate without precluding shareholder voting rights.<sup>93</sup> These requirements would equally apply to new tools like LER. In proxy fights and to comply with the _Revlon_ doctrine, LER’s deployment must avoid selective issuance that favors loyal shareholders, because LERs otherwise risk breaching the duty of loyalty by prioritizing incumbent interests over those of the broader shareholder base.<sup>94</sup> In change-of-control scenarios, the _Revlon_ doctrine further mandates that boards prioritize shareholder value maximization, thus rendering discriminatory reward distributions impermissible.<sup>95</sup> In the context of activist actions that impair shareholder voting rights, the _Blasius_ standard imposes even stricter scrutiny requiring a “compelling justification” for measures that restrict proxy contest participation.<sup>96</sup> LER complies with Delaware law requirements if LER is deployed non-discriminatorily, proportionately, and with a focus on overall shareholder welfare. To accomplish this, LER must respond to genuine threats without entrenching management. LER needs to ensure transparency and uniformity to withstand judicial review. LER mitigates most of the Delaware law compliance concerns through its universal application of voucher rewards to all verified > 91 Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 661–62 (Del. Ch. 1988). > 92 Section 14(a) of the Securities Exchange Act prohibits proxy solicitations “in contravention of such rules and regulations as the Commission may prescribe.” 15 U.S.C. § 78n(a) (2025). SEC Rule 14a-1 defines solicitation to include “communication . . . reasonably calculated to result in the procurement, withholding, or revocation of a proxy.” 17 C.F.R. § 240.14a-1(l)(1)(iii) (2025). Because LER airdrops are distributed on a neutral, pro rata basis to all verified long-term holders and are not conditioned on voting conduct, they fall outside Rule 14a’s definition of “solicitation” and do not trigger Exchange Act § 14(a) filing obligations. 93 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955–57 (Del. 1985). 94 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 180–82 (Del. 1986). > 95 _Id._ at 182–84. > 96 _Blasius Indus._ , 564 A.2d at 661–62. Draft Version 8 - September 2025 holders, facilitated by blockchain-based attestation via NASDAQ’s tokenized framework, thus ensuring equitable distribution of non-transferable, utility-only voucher rewards. The LER approach, thus, aligns with permissible engagement tactics for activist shareholders as upheld in _Airgas, Inc. v. Air Products & Chemicals, Inc._ , where the Delaware Supreme Court endorsed defensive measures that preserved shareholder choice without coercion.<sup>97</sup> LERs will pass _Unocal_ scrutiny if they are limited to genuine threats for purposes of keeping a balance of interests. If so, boards can demonstrate that LER as a tool for shareholders aligns with shareholder interests. Therefore, to comply with the _Unocal_ standard, LER should be deployed only when there is a clear, identifiable threat to corporate policy or effectiveness, such as, for example, an activist proxy contest that could disrupt long-term value creation. For example, if an activist seeks board seats to gain a short-term advantage at the expense of sustainable strategy, LER could function as a tool to reward long-term holders, thus stabilizing support for the board's vision. This approach positions LER as a targeted, defensive incentive rather than a preemptive barrier. Because rewards must be proportionate to the threat<sup>98</sup> LER rewards should not preclude shareholder voting rights. Rather, LER should incentivize enhanced stockholder participation by rewarding all eligible long-term stockholders equally. Thus, ensuring the proxy process remains open and fair. If LERs are disproportionately or coercively implemented, such as for example overly generous voucher rewards that effectively buy stockholder votes, then LER would violate the applicable requirements and risk invalidation by courts. In proxy fights, because the duty of loyalty requires directors to act in the best interests of all shareholders, not just incumbents or a favored subset of stockholders, LER must be carefully designed to avoid entrenchment. Therefore, LER voucher rewards cannot be issued selectively to shareholders who are aligned with management while excluding others. LER allocations to prioritize incumbent interests would constitute a breach by creating an uneven playing field. Instead, LER should be rewarded uniformly across all qualifying shareholders based on objective criteria like share ownership tenure, purchase of stock, or other objective criteria. LER needs to be made available to any qualifying shareholder regardless of their stance in the contest. Furthermore, boards should be required to disclose LER reward terms fully in proxy > 97 Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1195–97 (Del. 2010). > 98 For example, equity grants need to be scaled based on holding periods without excessively diluting shares or making the contest unwinnable for challengers. Draft Version 8 - September 2025 materials, thus allowing shareholders to evaluate the impact LER may have. If LER risks appearing self-serving, LER issuers should consider independent board committees or seek independent shareholder approvals to bolster loyalty compliance. To comply with the requirements of the _Revlon_ doctrine, which applies when a company is in play for a change of control and the board's primary duty shifts to maximizing shareholder value, LER issuers must avoid discriminatory LER voucher reward distributions. For example, LER issuance cannot favor long-term holders over others in a bidding war. This is impermissible because such LER reward allocation could undermine the highest bid or fragment shareholder support. LER reward allocation should be structured to enhance overall value, perhaps by encouraging bids that benefit all holders. Tiers of LER rewards that undermine auctions or negotiations should be avoided. To comply with _Revlon_ duties, LER voucher rewards should be redeemable at disparate merchant locations or otherwise adjustable in a sale context. This ensures equitable treatment, avoiding any perception that LER could result in inequitable results for short-term holders. By focusing on uniform value creation across shareholder categories, LER avoids _Revlon_ violations that could lead to injunctions or damages. To meet the _Blasius_ standard, which imposes the strictest scrutiny, requiring a compelling justification for board actions that intentionally frustrate shareholder voting in proxy fights, LER should minimally impair voting. However, if LER rewards somehow are allocated to reward stockholder loyalty to influence vote outcomes, such action would require a strong rationale, such as protecting against opportunistic activists who threaten corporate viability. Either way, LER should not restrict participation outright. For example, LER could be rewarded after a vote based on outcomes without coercing votes. LER deployment must be justified by evidence of severe harm to the corporation. Examples may include an activist's history of value destruction. LER should be a last-resort tool, allowing courts to scrutinize if less restrictive alternatives exist. # **SEC Proxy and Anti-Manipulation Rules** Under U.S. securities law, SEC Rule 14a-9 requires that proxy solicitations be free of false or misleading statements, thus requiring boards to disclose material information about defensive measures. Such disclosure requirements would include LER voucher reward distributions. Thus ensuring transparency.<sup>99</sup> LER’s transparent technology-based design is advantageous in this > 99 17 C.F.R. § 240.14a-9 (2025). Draft Version 8 - September 2025 context because institutional investors demand transparency, especially in contested proxy votes. The Williams Act regulates tender offers and significant ownership disclosures, requiring activists acquiring over 5% of a company’s shares to file timely reports. Such disclosures prevent covert accumulations that could undermine proxy contests.<sup>100</sup> LER’s universal reward application to shareholders avoids triggering Williams Act scrutiny, because LER does not involve selective share issuances or tender offer manipulations. SEC Rule 10b-5 further prohibits manipulative influence over stock prices, such as coordinated buybacks or selective incentives, which could be construed as market manipulation.<sup>101</sup> LER’s utility-only rewards, designed as non-transferable consumptive voucher rewards benefits, evade classification as investment contracts under the _Howey_ test, which requires an expectation of profits from others’ efforts.<sup>102</sup> This design mitigates manipulation risks, as LER avoids creating financial yields that could artificially inflate stock prices, aligning with anti-fraud provisions.<sup>103</sup> # 5. LER for Offsetting Stock Price Volatility ## 5.1. Time-Weighted Rewards Between Annual Meetings Stock prices often swing wildly between annual shareholder meetings. This proves especially true when activist investors use aggressive tactics to pressure corporate boards. These disruptions make it hard for management to stay focused on long-term goals while maintaining shareholder confidence. LER offers a creative solution for this situation, encouraging shareholders to hold firm and not sell their stock through turbulent times without locking up their ability to trade. By distributing practical voucher rewards, LER fosters loyalty and helps stabilize stock ownership during activist-driven market swings, all while aligning with Delaware’s shareholder-centric governance principles.<sup>104</sup> ### **Countering Activist-Driven Volatility** > 100 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (2025); Bebchuk & Jackson, Jr., _supra_ note 26, at 45–47. > 101 17 C.F.R. § 240.10b-5 (2025); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 860–62 (2d Cir. 1968). > SEC v. W.J. Howey Co., 328 U.S. 293, 298–99 (1946). > Coffee Jr. & Palia, _supra_ note 77, at 549–52. > 104 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985). Draft Version 8 - September 2025 Activist investors often amplify stock price volatility between annual meetings. Such stock price volatility may derive from activist investors’ tactics such as short-selling, public media campaigns, or strategic leaks. Such tactics may rattle markets and may result in changes such as divestitures or board overhauls. These moves can exploit market sentiment, scare retail investors into selling shares, which increases downward pressure on prices.<sup>105</sup> LER can help overcome the effects of volatility by offering time-based voucher rewards to shareholders who hold stock for certain pre-defined time periods. Imagine a retail investor with tokenized Apple shares on NASDAQ’s blockchain platform earning periodic pre-defined rewards for staying committed and not selling the Apple stock. Delivered via smart contracts, these incentives encourage shareholders to resist selling during activist-induced stock price dips, without restrictive stock trading lock-ups that limit trading flexibility.<sup>106</sup> ## **Strengthening Ownership and Stability** LER’s rewards are designed to create shareholder loyalty, particularly for retail investors, who are often the most shaken by activist campaigns. LER, by offering tangible, non-speculative voucher rewards benefits, help shareholders overcome market turbulence, thus reducing churn and supporting stock price stability. The LER model creates support for incumbent boards but also appeals to passive institutional investors who prioritize steady governance.<sup>107</sup> Extrapolating from earlier studies on activist success rates, LER could reduce activist success rates by 15–30% just by rallying retail and institutional support, thus creating a resilient ownership base that prioritizes the company’s long-term vision over short-term pressures.<sup>108</sup> # 5.2. Economic Incentives for Shareholder Retention LER’s retention benefits draw on principles from consumer loyalty programs, which achieve quantifiable outcomes. At the same time, LER accounting treatment enhances issuer financial efficiency. LER creates significant economic incentives for issuers. LER allows issuers to fund LER voucher rewards from marketing budgets, treating them as immediate expenses under U.S. GAAP (ASC 606) and IFRS 15. This avoids balance sheet liabilities or issues that would > 105 _See e.g._ , Bebchuk, Brav, & Jiang, _supra_ note 8, at 1092–93. > 106 _See Nasdaq Stock Market_ , _supra_ note 2, at 45427–30. > 107 _See_ John C. Coffee Jr., _The Future of Disclosure_ , 2021 COLUM. BUS. L. REV. 602, 615–22 (2021), https://doi.org/10.52214/cblr.v2021i2.8635 (noting that passive institutional investors, such as index funds, generally prioritize stability and often support incumbents absent compelling reasons to intervene). > 108 Gao & Nose, _supra_ note 30. Draft Version 8 - September 2025 otherwise be associated with traditional loyalty programs’ deferred revenue.<sup>109</sup> This favorable accounting treatment improves issuers’ financial efficiency because voucher reward redemptions generate revenue at fiat parity, thus potentially improving credit profiles and reducing borrowing costs for issuers. For large firms, the favorable accounting treatment could result in annual savings of up to $440 million through debt refinancing, as enhanced credit ratings lower interest expenses.<sup>110</sup> # 6. LER in Incumbent-Activist Conflicts ## 6.1. Incentivizing Alignment with Incumbents The strategic significance of handling conflicts between activist investors and incumbent boards has increased due to the growing intensity of shareholder activism. By encouraging alignment, LER provides incumbent boards with a new tool to help them navigate these tensions without using restrictive bylaws or poison pills, two entrenchment strategies that have come under fire for eroding shareholder value.<sup>111</sup> By providing targeted utility rewards as part of settlement agreements, LER enables incumbent boards to encourage activist investors to align with management. This encourages activists to rescind nominations or requests without demanding concessions like board seats or major policy changes. When an activist hedge fund, like Elliott Management, demands operational restructuring or divestitures, for example, they may receive LER units that can be redeemed within the LER associated merchant ecosystem, such as discounts on merchants’ goods or services. This could encourage activists to cooperate rather than engage in public campaigns or proxy contests. By leveraging the $10 trillion capital reallocation to risk assets,<sup>112</sup> LER is positioned as a transformative governance instrument, providing incentives for alignment in incumbent-activist > 109 REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606) ASC 606-10-55-42 to -45 (FIN. ACCT. STANDARDS BD. 2014) (requiring that customer options, including loyalty points, that provide a “material right” be accounted for as a separate performance obligation, with the related consideration deferred as a contract liability until redemption or expiration). > 110 _See_ Delta & American Airlines, _supra_ note 39. > 111 Bebchuk, _supra_ note 7 at 1645–50. > 112 Torbet & Kwek, _supra_ note 6. Draft Version 8 - September 2025 conflicts. Scholarly criticisms of entrenchment are addressed by encouraging collaboration without sacrificing board independence.<sup>113</sup> # 6.2. Co-Opting Activists Through Utility Rewards LER introduces an innovative solution to navigate conflicts between board and activist investors. LER employs smart contracts, which are automated, transparent agreements executed on a blockchain, to offer activists incentives for aligning with the company’s objectives. These incentives, described as non-speculative, consumptive utilities, are not traditional financial instruments like stocks or cash that can be traded for profit. Instead, they resemble exclusive benefits or privileges, usable only within the company’s ecosystem, akin to loyalty rewards from a retailer that provide value but cannot be resold. Central to LER’s approach are soulbound tokens (SBTs), which are non-transferable digital assets tied to a specific individual.<sup>114</sup> Much like a personalized membership card that cannot be sold or given away, SBTs ensure the rewards focus on encouraging cooperation rather than speculative gain. By offering these tailored incentives, LER serves as a blockchain-based “golden leash,” guiding activists to support the company’s goals without compromising the independence of the board or violating securities laws. This concept draws parallels to reward systems in virtual environments, such as metaverse platforms, where participants earn benefits for engagement without the intent of financial speculation. In essence, LER provides a sophisticated, technology-driven framework to transform potential conflicts into constructive partnerships, ensuring activists and corporate boards work together effectively while maintaining legal and ethical integrity. ## **LER as a Blockchain-Based “Golden Leash”** > 113 Edward B. Rock, _Adapting to the New Shareholder-Centric Reality_ , 161 U. PA. L. REV. 1907, 1925–28 (2013). > 114 COINBASE, _supra_ note 20. Draft Version 8 - September 2025 LER can be seen as a blockchain-based equivalent to a “golden leash,” a term describing compensation arrangements that incentivize alignment between activists and management without altering board composition or violating director independence rules.<sup>115</sup> Unlike traditional golden leash arrangements, which may involve financial payments to activist-nominated directors and raise conflicts of interest,<sup>116</sup> LER offers non-transferable, utility-only voucher rewards to encourage activists to withdraw nominations or demands in favor of cooperation. For example, an activist like Starboard Value, pushing for operational restructuring, might receive LER units as part of a settlement agreement, incentivizing alignment with management’s strategy without granting board seats. This approach mirrors historical metaverse reward programs, where engagement tokens drive participation without speculative intent, achieving 20–30% retention uplifts in consumer contexts.<sup>117</sup> By aligning activists with management while maintaining compliance with fiduciary and securities standards, LER addresses scholarly critiques of entrenchment, offering a scalable, shareholder-centric mechanism to navigate corporate conflicts. # 7. Broader Applications of LER in Corporate Politics ## 7.1. ESG Disputes and Shareholder Proposals LER offers a sophisticated, technology-driven framework to harmonize the interests of corporate boards and shareholders in the context of ESG activism. By deploying blockchain-based incentives, LER facilitates constructive alignment between management’s ESG strategies and shareholder voting, thus reducing conflict and promoting shared goals. The LER approach not only supports corporate governance objectives but also reinforces ethical and regulatory integrity. 115 17 C.F.R. § 229.402 (2025) (requiring disclosure of director and executive compensation, including non-plan arrangements). > 116 Kahan & Rock, _supra_ note 15, at 1066–69 (discussing conflicts of interest in hedge fund activism and concerns over payments to funds). > 117 _See The Power of Gamification_ , SNIPP (2017), > https://www.snipp.com/hubfs/8441516/Resources/White%20Papers/Snipp-Resources-Whitepaper-06-201 7-The-Power-of-Gamification.pdf (finding gamified loyalty programs increased customer engagement and retention by over 20%); _Modern Loyalty Programs for Business Growth_ , RITS (Aug. 6, 2025), https://rits.center/modern-loyalty-programs-for-business-growth/ (reporting gamification strategies yielded ~30% higher customer retention). Draft Version 8 - September 2025 For example, consider a scenario where an activist shareholder submits a proposal demanding aggressive reductions in carbon emissions to further ESG outcomes. In response, the board, favoring a more balanced ESG strategy, could deploy LER to distribute voucher rewards to shareholders who vote in favor of management’s proposal. This strategy mirrors the appeal of consumer loyalty programs, engaging shareholders emotionally and economically while encouraging alignment with the board’s vision. LER’s approach is particularly relevant in light of the growing emphasis among institutional investors on ESG initiatives that support long-term financial performance. For instance, BlackRock’s 2024 proxy voting record indicates that it supported management recommendations on approximately 88% of proposals, including those addressing ESG matters where aligned with sustainable financial outcomes.<sup>118</sup> By incentivizing shareholder support for management’s ESG agenda, LER enables boards to counter activist-driven proposals constructively, fostering collaboration without resorting to coercive measures. # 7.2. Merger and Acquisition Contests M&A can be a high-stakes battlegrounds, where corporate boards face off against activist investors pushing for different deals to maximize shareholder value. Traditionally, boards rely on defensive tactics like "poison pills" to defend against unwanted takeovers or activist pressures. Alas, poison pills can entrench management, limit accountability, and alienate shareholders. LER introduces a modern, collaborative solution that helps boards win shareholder support for their preferred mergers while avoiding the downsides of conventional defenses. By using blockchain-based voucher rewards, LER aligns interests in a transparent, fair, and innovative way, tapping into the massive $3 trillion M&A market. LER voucher rewards are not cash or tradable stocks but rather function like loyalty points in a broad network of merchants. For example, imagine a company’s board is defending a strategic merger that aligns with its long-term vision, but an activist investor is rallying shareholders to demand a higher bid from another buyer. LER could distribute rewards to shareholders who > 118 BLACKROCK, _supra_ note 88, at 11–12 (reporting ~88% support for management proposals, with low ~4% support for shareholder-submitted ESG proposals due to lack of economic merit, emphasizing financial materiality in ESG voting). Draft Version 8 - September 2025 vote for the board’s plan, encouraging support without forcing anyone’s hand or diluting ownership. For consumers, this approach feels familiar and engaging, much like receiving a gift card for staying loyal to a brand. It’s a win-win on both sides: shareholders get tangible voucher benefits, and the board secures votes for its merger without resorting to heavy-handed tactics. Activist investors often play a valuable role in M&A by challenging deals that may not serve shareholders well, pushing for better terms or alternatives. However, traditional defenses like poison pills, and other associated defense strategies that can make takeovers prohibitively expensive or complex, can be disadvantages because they may entrench management and reduce trust. LER, by contrast, is non-coercive, meaning it incentivizes without penalizing, and it avoids financial burdens like stock dilution or costly payouts. By rewarding shareholders for supporting management’s vision, LER actually increases cooperation while keeping the process transparent and aligned with the priorities of institutional investors, who increasingly value openness in governance. LER’s ability to align shareholder and board interests in M&A contests makes it a transformative tool. In a world where M&A activity drives trillions of dollars in value, LER provides a forward-thinking way to navigate complex deals. It sidesteps the pitfalls of traditional defenses, ensuring boards can pursue strategic mergers while maintaining accountability and shareholder trust. By using blockchain technology and familiar voucher reward systems, LER can be seen as overcoming the gap between corporate goals and shareholder expectations, offering a fair, modern solution for today’s governance challenges. # 7.3. Political Spending and Lobbying Incentives Today, corporate governance and political spending is more connected than ever. Businesses are using political action committees (PACs) and lobbying to shape laws and policies that affect them, especially as shareholders are pushing for more influence over what companies do. LER is a helpful tool that company boards can use to encourage shareholders to support their political efforts, like funding PACs or lobbying campaigns. LER are designed to follow the rules, Draft Version 8 - September 2025 including U.S. securities laws and Delaware’s guidelines for corporate responsibility, while also aligning with the legal changes brought by the _Citizens United v. FEC_ decision, which loosened restrictions on corporate political spending and set new standards for transparency.<sup>119</sup> LER enables incumbent boards to incentivize shareholder support for corporate PACs or lobbying efforts by airdropping utility rewards to shareholders who vote in favor of management-backed initiatives. Such initiatives may include resolutions approving PAC funding or endorsing lobbying strategies. For example, a company seeking to influence legislation on trade or environmental regulations could consider distributing LER voucher units to shareholders supporting a resolution to allocate funds to a corporate PAC. The _Citizens United_ decision fundamentally reshaped corporate political spending in the US. The decision did that by affirming that corporations have First Amendment rights to spend treasury assets on political issues, thus enabling robust PAC and lobbying activities.<sup>120</sup> However, the _Citizens United_ decision also increased scrutiny over corporate political spending, requiring transparency to shareholders and regulators under SEC disclosure rules for related-party transactions and executive compensation.<sup>121</sup> LER’s utility-only electronic voucher rewards comply with these disclosure requirements by providing clear, blockchain-based records of shareholder voucher reward eligibility, avoiding the appearance of vote-buying or coercive influence.<sup>122</sup> # 7.4. Executive Compensation and Alignment LER helps company boards obtain shareholder support for executive pay plans, even when activist investors criticize them. At the same time, LER stays within the limitations imposed by the rules of U.S. securities laws and Delaware’s corporate responsibility guidelines. LER helps align executive and shareholder interests by offering long-term shareholder voucher rewards for backing the board’s proposed pay packages in 'say-on-pay' votes. These votes are important in corporate governance because activists often target them to call out what they see as excessive or unfair executive pay. For example, if a board is criticized by the public and shareholders over its CEO’s compensation, the board could deploy LER to offer shareholders who vote in favor something tangible, like exclusive voucher discounts or credits. This LER mechanism works > 119 Citizens United v. FEC, 558 U.S. 310 (2010). > 120 _Id._ at 365-66 (2010). > 121 17 C.F.R. §§ 229.402, 229.404 (2025). > 122 17 C.F.R. § 240.14a-9 (2025). Draft Version 8 - September 2025 similarly to how loyalty programs work for consumers, where consumers get perks for sticking around. LER in executive compensation aligns with Delaware’s business judgment rule, which presumes that boards act in good faith unless self-dealing or gross negligence is evident, as upheld in _Aronson v. Lewis_ .<sup>123</sup> LER, when used in executive compensation, aligns with Delaware’s business judgment rule, a legal principle that assumes company boards make decisions in good faith, with care, and in the company’s best interest. As established in _Aronson v. Lewis_ , courts generally uphold board decisions unless there is clear evidence of self-dealing or gross negligence. In simple terms, LER helps boards structure pay packages thoughtfully while staying within these legal boundaries. Activist campaigns targeting executive compensation often enhance accountability by challenging misaligned pay structures, with say-on-pay votes serving as a critical mechanism for shareholder oversight.<sup>124</sup> On the other hand, board entrenchment tactics suppress shareholder input. LER offers a non-coercive, utility-focused voucher-based alternative that aligns shareholders with management’s compensation strategies, thus increasing shareholder engagement without the entrenchment risks of traditional defenses. Institutional investors, controlling over 20% of S&P 500 voting power,<sup>125</sup> often support say-on-pay reforms when aligned with performance, and LER’s transparent rewards align with these priorities. # 8. LER Market Opportunity and Empirical Projections ## 8.1. Sizing the Activism-Driven Market LER helps companies connect with shareholders during activist campaigns. LER can capitalize from a growing market driven by new trends such as tokenized governance; examples include digital shares or voting rights on a blockchain,<sup>126</sup> and a major shift of money from safe > 123 Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984). > 124 Bebchuk, Brav, & Jiang, _supra_ note 8, at 1112–15. > 125 Bebchuk & Hirst, _supra_ note 24, at 733–36. > 126 Alexandra Andhov, _Corporations on Blockchain: Opportunities & Challenges_ , 53 CORNELL INT’L L.J. 1, 3–4, 5–9, 18–23 (2020). Draft Version 8 - September 2025 investments like bonds to riskier investments such as stocks.<sup>127</sup> Fueled by the convergence of tokenized governance and a $10 trillion capital shift from fixed income to equities and cryptocurrencies, LER has the potential to tap into a projected $900 billion activism-driven market by 2030.<sup>128</sup> With over 240 global campaigns in 2025 targeting firms across industries to demand board changes, divestitures, or operational overhauls, the activism-driven market is a result of the ever increasing prevalence of shareholder activism around disparate causes.<sup>129</sup> LER leverages the $155 billion DeFi market's growth in 2025 by adopting programmable incentives akin to DeFi’s liquid staking, which rewards retention without locking assets. By issuing tokenized voucher rewards for shareholder support in votes like say-on-pay, LER aligns corporate governance with DeFi’s transparent, flexible mechanics.<sup>130</sup> LER benefits from DeFi’s proliferation by tapping into tokenized governance and capital shifts from bonds to equities, capturing value in the $50 billion proxy market while enhancing shareholder engagement.<sup>131</sup> LER counters activist challenges, offering a compliant, innovative defense against traditional limitations.<sup>132</sup> # 8.2. LER’s Role in Capital Reallocation The $10 trillion capital shift from fixed income, with U.S. Treasuries yielded 4.23% in 2025, to equities and crypto is a reflection of investor demand for higher-yielding assets, creating a fertile environment for LER’s adoption.<sup>133</sup> The $10 trillion reallocation from low-yielding U.S. Treasuries to equities and cryptocurrencies, driven by the underperformance of Treasuries has fueled equity investments, with over $500 billion in annual ETF inflows and a DeFi total value locked (TVL) of $155 billion in 2025.<sup>134</sup> Because institutional investors control over 20% of S&P 500 > 127 State Street Global Advisors, _Global Market Portfolio 2025: A Portfolio of Everything_ 4–5, 7–8, 12–13 (Sep. 2025) (detailing a major shift from fixed income to equities and risk assets, with $10T+ reallocations driven by low rates and growth in equities/crypto, fueling opportunities for mechanisms like LER amid activism). > 128 MORDOR INTELLIGENCE, ASSET TOKENIZATION MARKET SIZE & SHARE ANALYSIS - GROWTH TRENDS & FORECASTS (2025-2030), https://www.mordorintelligence.com/industry-reports/asset-tokenization-market; BARCLAYS, _supra_ note 3; Torbet & Kwek, _supra_ note 6. > 129 BARCLAYS, _supra_ note 3. > 130 Dulani Jayasuriya Daluwathumullagamage & Alexandra Sims, _Blockchain-Enabled Corporate Governance and Regulation_ , 8 INT’L J. FIN. STUD. 36, 3–5, 22 (2020). > 131 DEFILLAMA, _supra_ note 16; State Street Global Advisors, _supra_ note 127, at 7–9. > 132 Bebchuk, _supra_ note 11, at 850–55. > 133 Torbet & Kwek, _supra_ note 6; SIFMA, _supra_ note 23, at 21–24. > 134 DEFILLAMA, _supra_ note 16; SIFMA, _supra_ note 23, at 21–24. Draft Version 8 - September 2025 voting power,<sup>135</sup> they drive this reallocation. Accordingly, institutional investors amplify the market opportunity for LER and their ability to engage both retail and institutional shareholders. LER’s adoption is supported by this trend because shareholders seek yield-like utilities without the speculative risks associated with traditional high-yield investments. LER’s market potential is further enhanced by its alignment with the broader asset tokenization trend, projected to exceed $2 trillion by 2030, as assets like equities and bonds are increasingly represented on blockchain platforms.<sup>136</sup> LER’s 10x growth potential by 2030 aligns with projections for the tokenized asset market, driven by the scalability of tokenized governance, which reduces coordination costs for shareholders and enables real-time voting and reward distribution.<sup>137</sup> # 9. Cost-Benefit Analysis of Implementing LER in Corporate America While LER offers a blockchain-enabled innovation for enhancing shareholder loyalty and mitigating activist pressures in corporate governance, a cost-benefit analysis helps evaluate the potential benefits. Benefits include reduced activism costs, stabilized market value, and alignment with tokenized asset trends. Costs and risks include regulatory scrutiny, operational vulnerabilities, and economic drawbacks. Drawing on the framework established in prior sections, this section systematically weighs these factors. Empirical and legal scholarship informs the assessment, revealing that LER's advantages in fostering long-term shareholder engagement and capitalizing on a $10 trillion reallocation to risk assets generally outweigh the implementation hurdles, provided robust compliance measures are adopted.<sup>138</sup> ## 9.1. Costs and Risks On the cost side, LER implementation incurs significant regulatory and legal expenses, stemming from potential scrutiny under U.S. securities laws and Delaware corporate law. Compliance efforts to avoid classifying LER airdrops as securities or impermissible vote-buying, > 135 Bebchuk & Hirst, _supra_ note 24, at 733–36. > 136 MORDOR INTELLIGENCE, _supra_ note 128. > 137 Banerjee, Sevillano, & Higginson, _supra_ note 33. > 138 Bebchuk, _supra_ note 11, at 837–40. Draft Version 8 - September 2025 could require substantial legal fees, estimated at $500,000 to $2 million per firm for initial advisory and ongoing monitoring.<sup>139</sup> Under SEC Rule 14a-9 and Rule 10b-5, rewards perceived as manipulative may trigger enforcement actions, with historical crypto cases penalties exceeding $1 million.<sup>140</sup> Delaware fiduciary standards, including _Unocal_ and _Blasius_ , add litigation risks if distributions are deemed disproportionate, potentially leading to court invalidations and associated costs of $1–3 million per dispute.<sup>141</sup> International frameworks like MiCA further complicate cross-border adoption, with non-compliance risking fines up to 3% of annual turnover.<sup>142</sup> These risks could deter adoption, amplifying opportunity costs in the $900 billion activism market.<sup>143</sup> # **Costs and Risks: Operational and Technical Implementation** Operational costs represent another substantial burden, with blockchain integration for LER requiring upfront investments of $1–5 million per company for smart contract development, NASDAQ framework compatibility, and cybersecurity measures.<sup>144</sup> Vulnerabilities such as smart contract exploits could result in losses akin to DeFi incidents, where failures have exceeded $1 billion annually, necessitating insurance premiums of 1–2% of asset value.<sup>145</sup> Adoption barriers > 139 Peter Sie, _Regulating Blockchain-Based Airdrops_ , SSRN (Nov. 8, 2024), https://dx.doi.org/10.2139/ssrn.5014865 (arguing that airdrops raise securities law and governance concerns, including potential classification as investment contracts and impermissible inducements). 140 _See, e.g._ , Mayme Donohue & Scott H. Kimpel, _SEC Brings Enforcement Case Involving “Airdrop” of Securities_ , HUNTON (Aug. 21, 2018), https://www.hunton.com/blockchain-legal-resource/sec-brings-enforcement-case-involving-airdrop-securiti es (discussing SEC action treating “free” airdropped tokens as securities offerings); In re Block.one, Securities Act Release No. 10714, 2019 WL 4735969 (Sept. 30, 2019) (imposing $24 million civil penalty for unregistered ICO); SEC v. Kik Interactive Inc., No. 19-cv-5244 (S.D.N.Y. Oct. 21, 2020) (entering $5 million penalty for unregistered token offering); In re Payward Ventures, Inc. (Kraken), Securities Act Release No. 11116, 2023 WL 1808029 (Feb. 9, 2023) (ordering $30 million in disgorgement, interest, and penalties for unregistered staking program); In re Genesis Glob. Capital, LLC, Securities Act Release No. 11274, 2024 WL 226509 (Jan. 12, 2024) (consent order imposing $21 million penalty for unregistered crypto lending program); In re Paul Pierce, Securities Act Release No. 11121, 2023 WL 1808032 (Feb. 17, 2023) (settling touting charges with $1.4 million in disgorgement, interest, and penalty). 141 Christopher B. Chuff et al., _Delaware Court of Chancery Clarifies Fiduciary Limitations on Controlling Stockholders' Exercise of Voting Power_ , TROUTMAN (Jan. 25, 2024), https://www.troutman.com/insights/delaware-court-of-chancery-clarifies-fiduciary-limitations-on-controlling -stockholders-exercise-of-voting-power/. 142 Regulation (EU) 2023/1114, _supra_ note 5, at art. 111 (providing for administrative fines up to 3% of annual turnover or €5 million for legal persons). > 143 BARCLAYS, _supra_ note 3. > 144 Edis Mekić, Safet Purković, & Ahmedin Lekpek, _Cost benefit analysis of compromising ledger system based on blockchain technology_ , 9 J. ECON, MGMT. & INFORMATICS 27 (2018), https://doi.org/10.5937/bizinfo1802027M (analyzing the high capital and operational costs of blockchain infrastructure, including hardware and maintenance burdens). > 145 _Risks posed by blockchain-based business models_ , DELOITTE 6–7, https://www.deloitte.com/us/en/services/consulting/articles/blockchain-security-risks.html (last visited Sep. Draft Version 8 - September 2025 for retail investors may lead to unequal participation, indirectly increasing governance disparities and potential shareholder lawsuits, with resolution costs averaging $2 million.<sup>146</sup> Privacy compliance under GDPR/CCPA adds ongoing expenses for zero-knowledge proofs, estimated at $200,000 yearly.<sup>147</sup> ## **Costs and Risks: Economic and Market Implications** Economic drawbacks include the potential for attracting short-term "mercenary" shareholders, which could erode loyalty benefits and heighten volatility, with studies suggesting up to 70% value dilution post-reward emissions.<sup>148</sup> Reward funding from marketing budgets may strain resources, particularly for mid-cap firms, with annual costs projected at $10–50 million for large issuers to achieve 20–50% retention uplifts.<sup>149</sup> Market devaluation risks, similar to stablecoin overflows, could undermine utility value, leading to indirect costs in shareholder trust and stock performance.<sup>150</sup> Inequality exacerbation, favoring tech-savvy holders, poses reputational risks, potentially inviting ESG backlash and associated mitigation expenses.<sup>151</sup> # 9.2. Benefits: Governance Enhancements and Market # Opportunities Counterbalancing these costs, LER's benefits include substantial reductions in activism-related expenses, with potential 15–30% decreases in proxy fight success rates stabilizing up to $900 29, 2025) (warning that smart contracts are among the most vulnerable points for cyberattack and require strong risk management frameworks). > 146 _Are Tokenized Stocks the Next Big Thing? Or the Next Big Risk?_ , AMINA BANK (Jul. 10, 2025), https://aminagroup.com/research/are-tokenized-stocks-the-next-big-thing-or-the-next-big-risk/ (warning that tokenized equity markets may exacerbate governance disparities and expose issuers to shareholder litigation risk if retail investors face adoption barriers). 147 WORLD ECONOMIC FORUM, LEGAL AND REGULATORY COMPLIANCE - BLOCKCHAIN TOOLKIT, https://widgets.weforum.org/blockchain-toolkit/legal-and-regulatory-compliance/index.html#common-legaland-regulatory-issues-with-blockchain-use (last visited Sep. 29, 2025). > 148 Keyrock, _Analysis of Airdrop Performance in 2024: Why Nearly 90% of Token Airdrops Failed?_ , CHAINCATCHER (Sep. 27, 2024), https://www.chaincatcher.com/en/article/2145167; _Airdrops in the Barren Desert_ , KEYROCK, https://keyrock.com/airdrops-in-the-barren-desert/ (last visited Sep. 29, 2025). > 149 Alla Gil, _Tokenization: Benefits and Risks_ , GARP (Jan. 24, 2025), https://www.garp.org/risk-intelligence/technology/tokenization-benefits-risks-250124 (warning that tokenization may amplify volatility and impose significant operational and financial strains on issuers). > 150 _Risks involved in trading, custody and staking of digital assets_ , TAURUS, https://www.taurushq.com/legal/regulatory-risk/risks-digitalassets/ (last visited Sep. 29, 2025). > 151 _Tokenised stocks: Weighing the pros and cons_ , COINTELEGRAPH (Jul. 31, 2025), https://cointelegraph.com/market-releases/tokenised-stocks-weighing-the-pros-and-cons. Draft Version 8 - September 2025 billion in market value annually.<sup>152</sup> LER’s blockchain integration could lower governance overhead by 20–30%, enabling real-time voting and enhanced transparency.<sup>153</sup> In the context of a $10 trillion capital reallocation, LER positions firms to capture tokenized market growth, projected at $2 trillion by 2030, yielding 10x returns through scalable incentives.<sup>154</sup> Revenue-sharing from reward redemptions enhances financial efficiency, potentially saving $440 million annually for large firms via improved credit profiles.<sup>155</sup> # 9.3. Net Evaluation Overall, the benefits of LER outweigh the costs and risks for most firms in Corporate America, particularly those with robust technological infrastructure and proactive compliance strategies. Quantitatively, while initial costs may reach $5–10 million, the projected savings from reduced activism volatility (15–25% net gains in market stability) and market capture in a $2 trillion tokenized ecosystem provide a favorable return on investment, often exceeding 200% over five years.<sup>156</sup> The benefits outweighing risks derives from LER's alignment with shareholder-centric models, as advocated by Bebchuk, enabling non-coercive engagement that democratizes governance and leverages blockchain's immutability to mitigate long-term risks.<sup>157</sup> Universal distribution and pilot programs can surmount regulatory hurdles, ensuring scalability amid a $10 trillion capital shift,<sup>158</sup> ultimately reshaping corporate resilience in an activism-driven landscape. > 152 _See_ David Yermack, _Corporate Governance and Blockchains_ , 21 REV. FIN. 7 (2017), https://doi.org/10.1093/rof/rfw074; BARCLAYS, _supra_ note 3; Gao & Nose, _supra_ note 31. > 153 _See_ Xing Yin, _Blockchain Technology in Corporate Governance: Advantages and Limitations_ , 5 ACAD. J. BUS. & MGMT. 89 (2023), https://doi.org/10.25236/AJBM.2023.051115 (reviewing literature on blockchain-based corporate governance and concluding that distributed ledgers can provide more transparent, real-time, cost-effective, and verifiable shareholder records, though concerns remain over shareholder protection and potential fraud). > 154 Vedat Akgiray, _The Potential for Blockchain Technology in Corporate Governance_ (OECD Corp. Gov’t Working Papers, 2019), https://dx.doi.org/10.1787/ef4eba4c-en (arguing that blockchain’s disintermediation and tokenization capabilities can lower transaction costs, improve transparency of ownership, and enable real-time shareholder voting, thereby reshaping corporate governance structures); Torbet & Kwek, _supra_ note 6. > 155 Jing Du et al., _Can blockchain technology be effectively integrated into the real economy to serve entity enterprises? Evidence from corporate investment efficiency_ , 16 CHINA J. ACCT. RSCH. 100292 (2023), https://doi.org/10.1016/j.cjar.2023.100292 (finding that blockchain adoption improves corporate investment efficiency by reducing financing costs and mitigating agency conflicts, thereby restraining overinvestment and alleviating underinvestment); _See_ Delta & American Airlines, _supra_ note 42. > 156 _Blockchain for Business: Applications, Implementation, and Innovation_ , BRG (Spring 2023), https://www.thinkbrg.com/thinkset/ts-blockchain-for-business-applications-implementation-innovation/ (estimating blockchain could reduce global banks’ settlement costs by $10 billion annually and Western European supply-chain costs by $450 billion, while adoption among top public firms exceeds 80%). > 157 Bebchuk, _supra_ note 7, at 1645–50. > 158 Torbet & Kwek, _supra_ note 6. Draft Version 8 - September 2025 # 10. Conclusion LER introduces a transformative era in corporate governance, offering a pioneering blockchain-enabled mechanism that redefines how companies navigate shareholder activism, proxy contests, and corporate political dynamics. By delivering time-weighted, utility-only rewards through smart contracts, LER fosters enduring shareholder loyalty, stabilizes stock price volatility, and aligns diverse stakeholders in a rapidly evolving financial landscape. Its applications, spanning proxy fights, ESG disputes, M&A contests, and political spending, position LER as a versatile tool within a projected $900 billion activism-driven market by 2030, amplified by a $10 trillion capital reallocation to risk assets. The cost-benefit analysis underscores that LER’s advantages—substantial reductions in activism-related costs, enhanced governance transparency, and alignment with tokenized market trends—outweigh implementation challenges, particularly for firms equipped with robust technological infrastructure. Through universal distribution and strategic pilot programs, LER surmounts regulatory and operational hurdles, leveraging NASDAQ’s tokenized stock framework to ensure scalability and compliance. Looking forward, LER promises to democratize corporate governance, empower retail and institutional investors alike, and foster a more inclusive, resilient corporate ecosystem. Its potential to harmonize innovation with stakeholder alignment sets a new standard for governance, paving the way for sustained value creation and financial stability in Corporate America.