Overstock.com (OSTK), the e-commerce retail giant, joined a host of other traditional companies in late 2017 when it announced plans to launch its own cryptocurrency. As with many other cryptocurrency launches, Overstock introduced the cryptocurrency, called tZERO, via an initial coin offering (ICO). The ICO launched on December 18, 2017 and was immediately met with significant levels of interest. In this article, we’ll explore the unique nature of this ICO as we explore what tZERO is and what Overstock’s stated plans are for the cryptocurrency going forward.
Many ICO’s are used to secure funding that is crucial for the continued development of a project. The tZERO ICO was no different, as it was intended to help fund the ongoing development of the tZERO token, as well as a blockchain-based trading system and platform. One unique element of tZERO is its aim to develop a solution for issues relating to token liquidity while still remaining within the general securities compliance laws.
tZero’s website reveals the platform’s stated aim is to “[integrate] cryptographically secure distributed ledgers with existing market processes to reduce settlement time and costs, incease transparency, efficiency and auditability.” (See also: What is a Distributed Ledger?)
Many ICO’s are quite brief, sometimes lasting just a period of a few days. tZERO’s has been unusual in this regard. The ICO continued for weeks and well into the beginning of 2018. As of January 27, 2018, the tZERO team announced plans to extend the ICO until March 30, 2018. According to a report by Seeking Alpha, $49 million of the $300 million offering amount had been sold as of February 22, 2018.
Overstock has changed the structure of the ICO as time has gone on as well. It originally planned to offer a 100% bonus on the first $10 million purchased during the offering, as well as a 50% bonus on the next $40 million and a 25% bonus of the next $50 million after that. That structure may have changed; it’s also unclear whether Overstock invested in the ICO itself. When Overstock announced the ICO would be extended, some analysts took that to mean that tZERO had not drawn the type of attention (or, perhaps more specifically, the amount of money in investment) that Overstock had hoped it would.
SEC-Compliant Token and Service
One crucial element of tZERO’s stated aim is to be compliant with securities regulations laid down by the U.S. Securities and Exchange Commission (SEC). As ICOs have become more and more popular worldwide, U.S. citizens have found themselves prohibited from participating in a greater number of these offerings. The reason for this is that many of these tokens offered are not in compliance with relevant U.S. state and federal securities laws.
Although tZERO’s whitepaper explains that the tokens themselves will “not be registered under the U.S. Securities Act of 1933,” the company has planned for the ICO launch itself to be in compliance. This is all in line with tZERO’s attempt at creating a token which is a hybrid of traditional securities and cryptocurrencies in that it offers the rights, security, and protections of traditional securities as well as the utility and flexibility of cryptocurrencies and tokens.
tZERO token holders enjoy several benefits to their investment. Specifically, they have been offered the opportunity to buy blockchain-enabled digital locate receipts. tZero President Joseph Cammarate described the process as akin to “an educational store” in which customers could learn about the product and cryptocurrencies more broadly. Overstock CEO Patrick Byrne explained prior to the ICO launch that tZERO, which was created as a subsidiary of Overstock.com and launched in August of 2015, sold warrants for tZERO tokens to major investors, including George Soros.
There have been minor points of controversy regarding tZERO since its ICO launch. First, immediately following the December 2017 launch, Byrne claimed 2,000 accredited investors had pledged about $100 million to the token launch within the span of a day. However, as indicated above, later reports suggested that only $49 million of the $300 million ICO goal had been secured by February 2018.
The extension of the ICO itself has plagued Overstock with problems. OSTK stock fell by 30% from a high of $86.90 per share on January 8, 2018. As of March 3, 2018, the stock was hovering at about $60 per share. Some of this lackadaisical performance may be attributable to the ICO itself, and particularly to the potential for public perception of the ICO extension as reflecting a lack of interest among the broader investment base. While tZERO has set lofty goals for itself, the future of the token and platform remains to be seen.
How Does tZero Work?
tZero has created a modular, adaptable platform. The platform integrates with trade participants to create a real-time, authenticated, immutable ledger. That ledger can host ICOs that are compliant with FINRA and SEC regulations. To bring the platform to life, tZero partnered with RenGen LLC and the Argon Group.
“Now, by combining our expertise with Argon’s advisory services and RenGen’s electronic trading, deep liquidity and market making capabilities, we are in a position to launch the only U.S. SEC compliant token trading venue,”Dr. Patrick M. Byrne, Overstock CEO
“tZERO has been at the forefront of the blockchain revolution for years, working closely with regulators since 2015 – launching the world’s first SEC compliant ATS for blockchain assets, the first private blockchain bond offering, and the first ever public issuance of a blockchain security.”
tZero (also called t0) first made headlines in December 2016 for launching the first day of stock trading on a blockchain-based, distributed ledger. The t0-blockchain platform operated for 6.5 hours, although there wasn’t much activity on the platform. Nevertheless, it was the first-ever day of stock trading on a blockchain-based, shared ledger. The goal for tZero now is to get additional firms to list themselves on the platform – say, if other firms want to launch IPOs or stock trading on the t0 platform, they can reach out to tZero to do that.
T Zero advertises all of the following features:
- Pre-Trade: Encrypted accounts for all users.
- Trading: T Zero offers a trading platform with Enhanced FIX.
- Post-Trade & Servicing: Clearing and reconciliation.
- Performing Ledger: Distributed register.
Use of Blockchain
There isn’t much information available online as to what exactly is done with blockchain technology in regards to tZERO’s products. The only information available is that the tokens are ERC-20 tokens, but nothing more than that. The whitepaper does go into detail about the software, but to this reviewer’s technical understanding, nothing in the documentation or online discloses any relevant information.
Unfortunately, there is no roadmap to be found. The only indications about future plans are what is mentioned under the Token Sale section of this review, with regards to token allocation and use of proceeds, and the other indications are under the Product section, detailing upcoming projects tZERO is aiming to launch sometime this year.
tZero is a blockchain technology company that’s been active since 2015. The company has offices in the Financial District of Manhattan, New York as well as Salt Lake City, Utah. Key members of the company include Dr. Patrick Byrne (Founder), Joseph Cammarata (President), John Gilchrist (Chief Information Officer), Max Melmed (Chief Strategy Officer), and Alex Vlastakis (Chief Administrative Officer).
In December 2016, Overstock announced that it had raised $10.9 million through an unusual offering comprised of $1.9 million worth of stock traded via digital assets on the t0 platform. During this offering, 55 investors purchased a total of 126,565 shares for $15.68.
The tZero ICO
tZero may be holding an ICO in the near future. The company is currently exploring several business models, including issuing its own ICO token. However, no formal plans or announcements have been made regarding that ICO. You can stay up-to-date on the latest news from the company and its ICO here: tzero.com/ico/
Digital Location Receipt
At the moment, a great deal of stock loan transactions are performed world wise using non-automated systems. This practice has some inherent issues – manpower, inefficiency and also the potential for the lending of a stock that is not actually owned by, or accessible to, the lender. In this context, it is possible that some entities will over-lend stock, causing naked short selling to occur.
tZERO’s DLR suite allows broker-dealer licensees with stock inventory to both load and manage their inventory via a front end system; they can provide locates to their clients who wish to short-sell stock or loan the stock to their clients who wish to borrow the stock. The suite also allows for the storage of information immutably to a proprietary or other blockchain.
SpeedRoute Execution Services
SpeedRoute, an electronic agency brokerage firm that executes U.S equities for broker-dealer clients, offers low latency, smart order routing solutions to access liquidity at every U.S. equity exchange and dozens of additional market centers.
Blue Ocean is an overnight trading platform for U.S. equities. U.S. equities markets are non-operation between certain hours (Usually 8:00PM EST to 4:00 AM EST) and thus tZERO is looking to address this market ‘inefficiceny’ as they call it by operating its ATS between these hours. This will allow customers and traders to maange overnight risk, and seek profitable trading opportunites that were not available to them prior.
tZERO is also planning to launch additional services. Robo Advising is expected to launch sometime during 2018 and is supposed to offer automated protfolio management compiled by a team of experts. tZERO also has signed a letter of intent with Siebert Financial Corp. to offer discounted online trading of U.S. equities to customers through Muriel Siebert & Co. and Overstock relationship.
tZERO launched their ICO on December 18th of 2017, attracting over 10,000 registrations for accreditation verification, a requirement to subscribe to participate in the ICO. The token sale raised over $100 million USD in a mere 12 hours. It has raised close to $250 million USD since then.
However, the company has released a confirmation that the sale has been under review by the SEC since February. The Wall Street Journal released a report, 25 pages long, that confirmed the SEC is conducting a sweeping probe of companies and firms that have sought to raise money via ICOs, and Overstock.com was in their crosshairs.
The president of tZERO, Cammarata, responded that the team is glad the SEC is ‘scrutinizing the space’ as he told CoinDesk at the beginning of March. After raising $100 million USD in the pre-sale alone, Cammarata also commented on switching from SaftLaunch, a platform for managing crypto token sales, to StartEngine, a platform first developed for equity crowdfunding management.
According to Cammarata, tZero’s decision to switch platforms was not due to regulatory issues, but stems from SaftLaunch’s complicated and time-consuming anti-money laundering (AML) and knows your customer (KYC) process, which resulted in a bottleneck as the ICO attracted huge interest. As such, the presale of tZero’s tokens was extended.
There is also some criticism as to whether the numbers are inflated or not; SeekingAlpha released a report stating that The latest filings indicate that only $49 million out of the $250 million offering amount has been sold. Moreover, they have raised concerns Overstock might be purchasing ICO tokens itself. Cammarata discounted those suggestions, however, telling CoinDesk that:
There are still heated debates till this day, and the company hasn’t provided any proofs on their end except for $38 million USD accounted for, raised in cash.
The tZERO token will pay 10% of adjusted gross revenue to token holders on a quarterly basis, subject to board approval and the conditions precedent (or substitute requirements) outlined in the offering memorandum. Only token holders who lock up their tokens are eligible for dividends, which promote price stability. 23% of the tokens will go to the company and 77% were/are sold to investors. The proceeds, according to the company, will go towards:
- The future development of the token and the token trading system
- Strategic acquisition and investments
- Development of functional utility features for token holders
- Legal expenses
- Augmenting techonlogy, infrastructure and personnel
- Lobbying lawmakers and regulatory authorities related to blockchain technology and regulation
- Global expansions of products and services.
As one can see, the allocation of token sale proceeds is not specified, rather a framework for general uses is provided. The total cap for the ICO is $250 million USD.
The tZERO token is the first preferred stock security token, and tZERO is being issued in accordance with U.S. federal and state securities laws. This token will be offered as a security to qualified investors will pay 10% of the adjusted gross revenues to token holders on a quarterly basis. Right now, the tZERO token doesn’t have any utility and exists solely as a security token, but tZERO has admitted to consider the option of providing certain additional benefits to holders of the token in the future, although there hasn’t been any discussion as to what those benefits might be.
The goal of the tZERO security token offering is to raise capital to support tZERO’s business, which includes the future development of the tZERO security token and a security token trading system, the development of certain functional utility benefits that, while not a part of the tZERO security token, may be offered to holders of tZERO tokens, lobbying for important legal and regulatory changes, and general coporate purposes.
The token offering seeks to improve upon the traditional utility token ICO by addressing some of the shortcomings and regulatory issues surround such ICOs. Mainly, the tZERO token is intended to afford token holders the benefits of a traditional security, while maintaining the flexibility to provide discretionary practical benefits to holders of tZERO tokens.
T Zero, also known as T Zero or “t0”, is a block chain technology that seeks to combine the value of conventional stock markets with the world of block chain technology. It’s a subsidiary of Overstock. In December 2016, the company made headlines for running the first-ever day of stock trading on a block chain-based, shared ledger. Today, the company appears to be seeking out partners for its distributed ledger platform, including companies that wish to sell stocks or securities over the platform. T Zero may schedule an ICO for the future. However, ICOs are just one of several funding options currently being explored by the company.
Investing in crypto currencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions.
For those who do wish to invest in cryptocurrency, we highly recommend you go with either Bitcoin or Ethereum, as highlighted in our page, Best Cryptocurrency IRA Options, and review your options for working with the best cryptocurrency IRA company before you proceed. It is best to invest in cryptocurrency for the long-haul and even then it’s best to have an SDIRA (self-directed individual retirement account) in physical gold and precious metals, rather than in a risky venture such as cryptocurrency.
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