Breakup with Delaware: Musk and Coinbase's desperate escape

Author: Sleepy.txt

On the map, the United States remains a unified federation; however, in the dimension of business logic, we are witnessing the United States tearing into “two countries.”

In early winter of 2025, Coinbase, the largest cryptocurrency exchange in the United States, officially initiated the process of relocating its registered office from Delaware to Texas.

In the long narrative of American business history, it is hard to overlook the resolute pathos behind this resolution—this is not merely a change of administrative address; it feels more like a spiritual “patricide” and “apostasy.”

In the past hundred years, Delaware has been the undisputed “Mecca” of American commercial civilization, the highest totem of the industrial rationality era.

The so-called “Mecca” means that it is not just a geographical coordinate, but also an endpoint of faith. On this narrow peninsula, which covers less than two thousand square miles, more than 66% of the Fortune 500 companies in the U.S. are located.

In the traditional narrative of Wall Street and Silicon Valley, a great company may be born in a garage in California, but its soul (legal entity) must be placed in Delaware.

It is home to the oldest and most specialized Court of Chancery in the United States. For investors and professional managers of that era, Delaware represented an almost religious certainty—where there were the most comprehensive fiduciary duties, the most predictable case law, and a sense of security known as the cornerstone of business.

But now, this rock that carries a century of commercial faith has already shown alarming cracks.

Coinbase's departure is not an isolated case; if you spread out the list of this round of migration, you will find it filled with some of the most restless and wildest names today.

Elon Musk is the primary driver of this escape.

The spark of the incident occurred a year ago. In a ruling that shocked the world, a Delaware judge decisively stripped Elon Musk of the $56 billion compensation package he spent ten years obtaining. Even if he miraculously achieved the performance targets that Wall Street considered to be a pipe dream, pushing Tesla's market value to the trillion-dollar peak, the judge still tore up this results-based contract with a ruling citing “the board's lack of independence.”

This ruling completely infuriated the new elites of Silicon Valley. Subsequently, this “Iron Man” angrily drove his Tesla and SpaceX southward to Texas, decisively like the famous Mayflower. Now, unicorns such as Coinbase and TripAdvisor are also following suit, joining the ranks of the breakout.

The series of receding figures heralds the twilight of an old era.

Once, large companies remained in Delaware to seek protection, as it represented maturity and rationality in the rule of law; now, in order to survive and grow wildly, the leading enterprises believe they must escape Delaware to be safe.

To be free, one must shed blood

In the brutal laws of the business world, freedom has never been free. But for Musk and Coinbase, the price of this freedom has reached an astonishingly high level.

In the public's general perception, a change in a company's registered address seems to be just a simple administrative procedure — filling out a few forms and changing the address. However, this is certainly not a “move” that can be accomplished with just a few thousand dollars in administrative fees; the giants must pay a staggering bill.

First, they must hire top law firms. Firms at the pinnacle, like Wachtell, Sullivan & Cromwell, have partner rates that have long exceeded $2,000 per hour. Just to draft those few hundred pages of Proxy Statement compliant with SEC regulations, the bill could easily surpass $5 million.

Secondly, there is the expensive proxy battle. To convince skeptical institutional shareholders like BlackRock and Vanguard, the company needs to hire a professional proxy solicitation firm. For mega-cap stocks like Tesla, this “vote solicitation fee” alone can reach millions of dollars, and it must be conducted over several months of roadshows and lobbying, similar to running for President of the United States.

The most deadly is the potential risk of default. The legal team needs to review tens of thousands of commercial contracts day and night, because once the registered location changes, the “change of control” clauses in many bond agreements may be triggered instantly.

To obtain a waiver from creditors, companies often have to pay additional fees. According to market practices, this fee typically ranges from 0.25% to 0.5% of the total bond amount. For those giants with a large stock of debt, this means an instant evaporation of tens of millions or even hundreds of millions of dollars in cash flow—funds that could have been used for research and development or buybacks, but have now turned into significant sunk costs.

Since the cost is so heavy, why would they rather “break an arm” to leave?

The answer lies in the shadows beneath the shiny legal facade of Delaware.

For today's tech giants, Delaware is no longer a safe haven but a hunting ground filled with snares. Here, a large, secretive, and greedy group thrives—the Plaintiffs' Bar.

On Wall Street, this is jokingly referred to as a “merger tax.” According to statistics, during the peak period of the past decade, over 90% of merger cases valued at over $100 million have faced lawsuits in Delaware. These lawyers do not care about corporate governance; they are like sharks sensing blood, only needing to hold 1 share of the company to initiate a class action lawsuit as soon as the company makes a significant announcement, citing “insufficient disclosure” as the reason.

This has long evolved into a standardized “ransom pipeline”: suing, obstructing transactions, and forcing companies to settle. The vast majority of companies, in order to avoid delaying the transaction process, have no choice but to pay this “toll”, which can often reach millions or even hundreds of millions of dollars.

Dell, Activision Blizzard, Match Group… flipping through Delaware's case law, countless large companies have been “ransomwared.” Here, businesses are no longer the legally protected clients but rather the legally hunted fat sheep.

Such vampirism reached an absurd peak in the Tesla compensation case.

After a Delaware judge ruled that Musk's compensation plan was invalid, the plaintiff's legal team surprisingly filed a motion with the court requesting 29.4 million shares of Tesla stock as a victory bonus. Based on the stock price at the time, the value of this amount could reach 5.6 billion dollars.

5.6 billion dollars, enough to directly buy the largest department store giant in the United States, Macy's.

At this moment, the truth comes to light.

This is no longer a manifestation of legal justice; it is a blatant plunder of wealth creators. It was this heavy blow that completely disheartened Musk and made Coinbase, which was watching from the sidelines, feel a chill down its spine.

The management of Coinbase is very aware that, even though the knife has not yet fallen on them, staying in this old world filled with “professional plaintiffs” and “sky-high legal fees” is just a matter of time before they get harvested.

The giants have done the math; the current legal fees, administrative costs, and public relations expenses, although easily reaching tens of millions or even over a hundred million, are just a short-term pain. If they continue to stay in Delaware, within such a legal ecosystem, losing control of their company and being forced to accept endless litigation extortion would be an incurable “cancer.”

For freedom, blood must be shed.

The ruler of the old world cannot measure the ambitions of the new world

If the sky-high “ransom fee” only causes pain for people like Musk, then the underlying conflict of Delaware's legal logic is the fundamental reason that leaves them feeling suffocated.

This is not just a debate over legal terms; it is the ultimate clash of two commercial civilizations.

In the past hundred years, Delaware has been able to firmly establish itself as the commercial kingpin because it has formed a tacit golden contract with the American business community - the Business Judgment Rule.

Its implication is that as long as the board does not engage in corruption or illegal activities, judges will never interfere in how you do business. This is an ultimate respect for entrepreneurship and the cornerstone of American commercial prosperity.

But in recent years, this measuring stick has deformed under the erosion of time. With the infinite expansion of institutional investor weight, Delaware's gavel has increasingly begun to slide toward another extreme - the Entire Fairness Standard.

This is a term that makes all Silicon Valley founders feel uneasy. Its subtext is: “I don’t care if you’ve created a business miracle, if the process doesn’t meet my requirements, your success is meaningless.”

Elon Musk's $56 billion compensation, which was wiped out in one fell swoop, is a victim of this microscope-like scrutiny.

In that lawsuit, despite Tesla achieving the most insane performance growth in human commercial history and shareholders making a fortune, the Delaware judge still coldly ruled that Musk's compensation was invalid. The reason was simply that the board members had too close a relationship with Musk, and the process was not “perfectly independent.”

This kind of “emphasis on process, light on results” arrogance may serve as a safety barrier for traditional companies like Coca-Cola that are managed by professional managers; however, for new species like Coinbase and Tesla that rely on their founders to drive exponential growth, it becomes a fatal shackle.

The rulers of the old world can no longer measure the ambitions of the new world.

Judges in Delaware can understand reports on steel, oil, and railroads, but they have a hard time grasping why Musk's personal IP is valued at $50 billion.

While Delaware indulges in moral scrutiny, Texas pragmatically throws out an ambitious “Partnership Agreement.”

This is not just a hollow “Welcome to Texas.” In September 2024, the Texas Business Court will officially open. This is not only a new institution but also a precise strike by Texas addressing the pain points of Delaware.

It is only responsible for handling cases involving large amounts. According to the law, this court has exclusive jurisdiction over commercial disputes with an amount in controversy exceeding 5 million dollars; for publicly listed companies, only cases involving amounts exceeding 10 million dollars are eligible to enter. This means that harassment lawsuits from small shareholders are directly kept out.

Even more disruptive is the appointment process for judges. Unlike the justices in Delaware who serve long terms of 12 years and come from legal families, the judges of the Texas Commercial Court are directly appointed by Governor Greg Abbott and serve only a 2-year term.

This means that the judicial power and the executive power have reached an unprecedented understanding on the goal of “doing the economy.” If the judge's ruling is detrimental to the business environment, he might lose his job in two years. The message conveyed by Texas is very explicit: “Here, we do not teach you how to behave, there is no paternalism. We only protect contracts. As long as you can bring jobs and growth, we will protect you.”

Coinbase and the “founder model” represented by Musk are no longer willing to bow to the “manager model” represented by Delaware. They are fed up with being treated as beasts that must be guarded against. Thus, they choose to pack their bags and leave the exquisite yet suffocating greenhouse, heading towards the rough but allowing for wild growth wilderness.

American Drift

This may not mean the end of Delaware. For a long time to come, it will still be home to Coca-Cola, Walmart, and General Electric.

For these “old aristocrats” who pursue stable dividends, value ESG ratings, and are accustomed to professional managerial governance, the intricate and cumbersome rules of Delaware still serve as the best safety belt.

But for another group of people, the air there has become so thin that it is impossible to breathe.

We are witnessing America tear into “two countries.”

A representation by Delaware and New York. Here, there is an emphasis on distribution, checks and balances, and political correctness. It resembles an exquisite museum, orderly yet exuding a sense of stale decay.

A representation from Texas and New Frontier. This place emphasizes growth, values efficiency, and even possesses a kind of primal vitality, dangerous yet full of possibilities.

The departure of Coinbase and Musk is just the beginning. They are like canaries in a coal mine, sensing the vibrations deep in the earth with the most sensitive instincts, ahead of everyone else.

Of course, this migration is not without risks.

The newly established commercial court in Texas has not yet undergone the stress test of a major economic crisis, and the power grid there remains fragile in the snowstorm. No one dares to guarantee that this place will definitely give birth to the next century's business legend.

But this is precisely the most fascinating and also the most brutal aspect of business - it never promises certainty; it only rewards those who dare to bet in uncertainty.

In this gamble about the future, capital has cast the most honest vote with its feet. It tells us that when the order of the old world begins to solidify into constraints, the instinct for innovation always races towards the wild fields, even if barren, that allow for unrestrained running.