Blockchain consortium governance

Blockchain consortium governance and structuring

Blockchain consortia can be very effective for helping establish and adopt standards and models, but to be successful, blockchain consortia members must consider—and agree upon—early decisions spanning financial, business, and technical areas.

In the early stages of consortium development, four key considerations are worth examining:

• Decision-making authority
• Funding and revenue sharing
• Legal entity structures and risk
• Identification and ownership of intellectual property

In the third installment in our series on blockchain consortia, we discuss and provide insight into each of these areas.

Decision-making authority for blockchain consortia

The ability to agree, align, and execute on key operating decisions is a fundamental success factor for any consortium. Mechanisms for how decisions are made, how participants vote, and the types of decisions participants are responsible for should be carefully considered and forcefully implemented.

Before the group can outline the rules of the road, two basic questions should be agreed upon: Why are we forming this consortium? And what are the overarching goals and value drivers for each member?

Funding and revenue sharing for consortia

Much of the success or failure of a blockchain consortium is tied to the complexities surrounding initial and ongoing funding and the challenges of determining commitments each participant will be expected to make.

Early on, it’s important to determine how funding of the consortium will be handled across the membership, particularly as members come and go. Aligning on a methodology can be critical during the development stage of the consortium. And beyond alignment, members should test the construct to help ensure it can be applied in a practical manner.

Legal entity structure in blockchain consortium governance

Vetting and implementing the right legal entity structure to support the consortium can be one of the most complex considerations in the design process. These considerations may require input from the business, tax, accounting and legal. 

Because consortia often include members based in various legal jurisdictions—whether in one country or in several countries around the world—it can be critically important to develop an understanding of the key concerns the entity is likely to face and the applicable regulatory frameworks.

While most consortia are legal entities separate and distinct from members, examples exist of consortia formed as contractual agreements between the parties that govern the rights of developed IP, revenue sharing, etc. Participants must decide two key questions: What type of legal entity should be formed, and in which jurisdiction?

Identification and ownership of intellectual property

Intellectual property (IP) ownership is a critical blockchain consortium governance area. Since IP begins to exist in the ideation phase of consortium design, it should be addressed as early in the process as possible.

IP takes the form of technology, processes, or even just an idea. Members should decide the types of IP relevant to the consortium, how and with whom it will be shared, and who will take ownership of the IP. Once the structure of the consortium being created is decided, IP considerations should be addressed early in the development process. Ownership and protections can vary greatly, depending on whether the consortium is designed as a nonprofit or for-profit organization, as well as the jurisdiction.