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?)
Longer-Than-Usual ICO
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.
Controversy
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.
tZero Features
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.
Roadmap
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.
About: tZero
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/
Product
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
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.
Token Sale
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:
Joseph Cammarata, tZero President
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.
Compliance
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.
tZero: Conclusion
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.
Do you have any further questions on what is tZero? Ask below!
Is the overstock stock price still dropping or has it stabilised?
Do you have a tzero account if so, how well is it doing?
What are erc-20 tokens?
I have gone to the tzero website and it looks highly professional and influential I might stick around and study the site.
Thank-you for the name drop Uriah.
Hey David,
I will be more than happy to answer your queries one by one.
Q1: Is the overstock stock price still dropping or has it stabilized?
Overstock.com Inc. is starting to become another Yahoo, but for the blockchain age. Before Yahoo Inc. sold itself to Verizon Communications Inc. VZ, +0.07% last year for $4.48 billion, it was valued by investors mostly for its hefty stake in Alibaba Group Holdings BABA, -2.15% , the Chinese e-commerce giant. Today, that stake, along with a stake in Yahoo Japan, sits in a holding company called Altaba Inc. AABA, -1.50% AABA, -1.50% as investors wait for a tax-free sale that may never occur, while the core Yahoo that users know is part of Verizon’s Oath, along with AOL.
Overstock.com OSTK, -4.68% would seemingly welcome a similar acquisition of the core business it is known for, as it is now being valued more for its blockchain efforts, which are still in their early stages, as its e-commerce business lags. In a letter to shareholders Thursday, Chief Executive Patrick Byrne said that “an investor lamented to me that Overstock is among the most difficult-to-value stocks on Wall Street.”
But it was clear that investors were looking at Overstock for its investments in blockchain and cryptocurrency. Its shares jumped 20% at times Thursday in after-hours trading on news that GSR Capital, a group of Chinese investors in Hong Kong, will be investing a total of $375 million in both tZero, a blockchain subsidiary 80% owned by Overstock, and Overstock itself. The deal includes a $270 million investment in tZero, which Overstock said gives the startup a pre-money valuation of $1.5 billion. That is more than Overstock’s total current market cap as a public company, which was about $1.1 billion at the close of trading Thursday.
Meanwhile, there was not much positive news in the core e-commerce business. Overstock’s earnings (actually, its net loss) was only found at the bottom of the complex announcement, which focused more on tZero and the investment by GSR. There were no solid updates on the ongoing effort to sell the e-commerce business, other than Byrne’s brief response to a conference-call question that the company has made some progress and spoken to new players about a potential deal.
Q2: What are erc-20 tokens?
ERC20 is a protocol standard that defines certain rules and standards for issuing tokens on Ethereum’s network. In ‘ERC20’, ERC stands for Ethereum Request For Comments and 20 stands for a unique ID number to distinguish this standard from others. Similar to the fact that we have an HTTP protocol for internet, we have a standard protocol for tokens to be issued on Ethereum i.e. ERC20.
To put it in layman terms, if you include certain functions in the token’s smart contract, you are ERC20 compliant. If you don’t include the mandatory functions, you are not ERC20. So, those tokens on Ethereum’s network checks all the necessary boxes i.e. includes the necessary functions in their token implementation which are deemed as ERC20 tokens.
These are crypto-assets or crypto-tokens which can be traded like Bitcoin or Ethereum or Litecoin but unlike these cryptocurrencies, they don’t have their dedicated blockchain.
Benefits of ERC20 Standard
Prior to the ERC20 token standard, different start-ups or DApps used to set their own standards and implementations for launching a token on Ethereum’s network. However, with the launch of the ERC20 standard, things have changed and have become much more streamlined. Also, a standard like ERC20 have a lot of benefits:
• Uniformity of tech and protocol standard.
• Reduced complexity of understanding each type of token implementation.
• Enhanced liquidity of ERC20 tokens.
• Reduced risk of breaking contracts.
Imagine a scenario wherein 100s and 1000s of tokens are launched on Ethereum’s network, each with their own set of standard and rules. This will create a liquidity problem for such tokens and a lot of headache for exchanges that try to implement them. In this scenario, each time a token comes for listing to an exchange, it would require a lot of work from bottom to top to be actually listed.
Whereas, if you have a standard and uniformity that ERC20 brings to the table, it becomes very easy for users as well as exchanges to list such tokens quickly given that the tokens follow a standard i.e. ERC20. This is only one practical scenario but there can be many such as tokens being exchanged via smart contracts on decentralized exchanges without any third party because their underlying tech and standards of implementation are same. Whereas, if we go on to implement a decentralized exchange of tokens that follow different rules and standards, it will become very cumbersome to implement such a DEX.
Hi David,
Let me make the things a little easier for you.
Polymath is creating a standard for security tokens analogous to the existing ERC-20 standard. tZero will be a licensed exchange for trading security tokens. So, is tZero going to have their own trading token like how Binance has BNB? If they are then are they going to use Poly as their “gas” and Poly use Ether as their gas?
They’re not exactly the same. The tzero token will be a security representing a share of ownership in the exchange. It won’t have as many utility functions as BNB. It sounds like this will likely include revenue sharing in the form of dividends. The tzero white paper was leaked and you can check it out on scribd. POLY on the other hand will be used in the ways Maritu described. You’ll need to pay in POLY to create an ST20 token. You’ll also need to pay in POLY for KYC and other services.
The Tzero token is to pay for trading fees and located short sells. You can also pay transaction fees in USD but Tzero offers a discount of a few percent if you pay with their token. Poly could potentially end up being classified as a security which would prevent it from being listed on existing crypto exchanges that are not licensed for trading securities. I’m guessing decentralized exchanges will be the best bet for trading POLY until we have more clarity.
POLY would definitely be considered a security but you could definitely argue that all crypto is. The expectations of profit is the only thing they’re getting away with now.
If POLY becomes big and grows in Market Cap, that would also mean ETH would do the same since you would have to get ETH in order to buy POLY, right? ETH would also benefit since it is required for any network operation such as creating an ST20 token. However, ETH is already a relatively large, successful network so the price impact to POLY should be orders of magnitude larger.
Polymath is the platform for securities; ultimately bringing Wall Street to the the blockchain. Investors will exchange POLY tokens for security tokens that are issued off the Polymath platform (like tZero), issuers will use POLY tokens to pay for the creation of securities tokens and investors will use POLY tokens to purchase securities tokens. Polymath has already provided advice to tZERO on the design, economic model, and distribution of tZERO’s security token, which will be issued under Reg D 506c – thus only accepting accredited investors in the US.
Polymath wants to be the industry first security token launch pad becoming the open-source standard for launching securities tokens while tZero is already a trading platform for securities. Their goals are similar—to create a thriving security token industry and allow companies and investors greater access, transparency and efficiency to an emerging token economy. Polymath is excited to work with tZERO to provide ongoing consultation and support to the build out and distribution of the tZERO.
From what I understand, Polymath helps companies create their security tokens and make sure they’re compliant and the tokens will be traded on the tzero exchange since most exchanges don’t list security tokens. TZero will provide liquidity for Polymath tokenized securities. However, one would imagine it will have significant impact. As other platforms offer security tokens, the “tie” with TZero will have less weight.
Polymath and tZERO are working closely together to ensure the success of this future we both envision involving security tokens. That being said, there is no kind of exclusivity arrangement where all tokens created by Polymath MUST be traded on tZERO or where tZERO can ONLY list Polymath powered tokens. Poly is the token platform and currency within the Polymath ecosystem. The STOs issued via Polymath would then be paired with Fiat or BTC/ETH etc
At least that’s my understanding of how it would work on TZero
Poly=create STO TZero=liquidity for STO trading
Keep in kind Poly will have various utilities within the Polymath network giving it value above and beyond issuing STOs.
I must say when cryptos first came out on the market they where and still are intriguing to say the least. They are also very confusing to understand. One thing that has been maintained is the fact that any crypto seems to still be very risky and volatile. I keep waiting till some of the risk goes down but in the meantime the old fashioned buy and trade on stocks seems to be the way to go for the long haul. Do you have any good cryptos to start with that have less risk?
Hi Cathy,
The cryptos are still intriguing. I believe the so-called “crypto-bubble” is unlike anything we’ve ever seen, including the Dot Com Bubble and the Tulip Bubble, and when/if it bursts, it will not behave in a way legacy or crypto investors will expect. I can’t predict the future, but I know that crypto is different. And I’m not alone in that opinion. All that being said, my three picks to survive the “Crypto Crash” are Bitcoin, Decred and Monero. Let’s break these down individually.
1. Bitcoin — the “store of value”
Bitcoin has been around for nine years — an eternity in crypto-time. It’s been through hell and back several times, including a few forks in the not-so-recent past. A lot of the problems surrounding Bitcoin come from members of the community wanting to meet scaling demands by forcing Bitcoin to remain a currency. Without getting technical, it seems best to me if we just let Bitcoin remain what it has become: a long-term store of value.
Many big names in the space disagree here, but in my mind, Bitcoin will come to replace things like a 401k, or an traditional investment account . It will be something that you gradually put money into and expect a decent return from years down the road. If this is actually the case, I believe we should stop trying to force Bitcoin to be a currency. That may be Satoshi’s original vision, but it may also be that Satoshi didn’t foresee such scalability problems nine years down the road (and if you’re reading this, Satoshi…please forgive my blasphemy).
Letting Bitcoin be the store of value most people are using it for today opens the door for another survivor after the “Crypto Crash.” This type of currency would need to have low fees and be lightning fast, which brings us to my next pick.
2. Decred — “savings and checking”
Fully decentralized, Decred makes changes to the system by the vote of the entire community. There is no centralized miner coalition that can fork the chain whenever they feel like it. The community truly makes the decisions, and this makes Decred stand out. Further, Decred is implementing the Lightning Network, making it extremely fast, and it has low fees. In short, this survivor slot is the “I’d buy a cup of coffee with this token” slot.
I do acknowledge that there are several alternatives for this survivor slot, most notably, in my opinion, Litecoin. However, being a fork of Bitcoin, I believe most people will opt for a day-to-day currency that is different enough from Bitcoin to be distinguishable. And Decred isn’t just a checking account with which to purchase coffee and groceries — it comes with a “savings account” too, through their Proof-of-Stake system.
By saving up your Decred and staking, you earn a fixed amount of “interest” much like you would in a traditional savings account. Except with Decred, you’re making significantly more than you would with a bank. So far, I’ve said Bitcoin will survive the “Crypto Crash” because people will need it for long-term investments, and a token like Decred will survive for practical everyday use. That leads us to my last survivor pick.
3. Monero — “safe, secure, and anonymous”
The third aspect of financial life, in my opinion, is security. There are transactions that necessitate anonymity for a variety of reasons that aren’t illicit. Perhaps one government wishes to transact with another without the entire world knowing, or perhaps one business wishes to make a purchase from another business that isn’t public yet. Or perhaps further security is needed between parties due to legal concerns.
Whatever the reason, I believe at least one token will survive the “Crypto Crash” that focuses specifically on anonymity. Most likely, it will be used primarily for transactions and not to store value or make everyday purchases. It’s worth noting that Ethereum isn’t on this list. None of this is to say that Ethereum can’t or won’t survive a crypto bubble burst. However, I wanted to boil this list down to only three essential tokens, and ETH didn’t quite make the cut.
I love (and currently hodl) Ethereum, and I think it will be huge in the long term. But if a crash happens, I expect it and all ERC20 tokens to take a huge hit as many of these tokens represent underdeveloped (or nonexistent) tech.
Don’t let the possibility of the “Crypto Crash” keep you out of crypto. Is cryptocurrency in a bubble today? Will it come crashing down and ruin the economy? Maybe. Is anyone in the financial world actually able to see the future in order to know when or if the crash will occur? Absolutely not. There is too much to be learned and too much profit to made from the incredible innovation that is cryptocurrency for you to be sitting on the sidelines.
Put some skin into the game! Do your own research and invest in a token that helps you reach your goals in life. The further involved you become with this community, the more you’ll understand how different it is from anything the financial world has ever seen. Also have a look at the best crypto companies here:
http://bestiraoptions.com/best-cryptocurrency-ira-options
Great post and good info.
I’m doing stocks and shares for a while, but for options I use another platform. Anyway, I never heard about T Zero, perhaps it is about something I’m not really interested in.
However, I’m going to take a look at it, maybe there are good chances to make some money there!
Thanks for sharing it with us.
Hi Emmanuel,
It’s great to have people like you as readers here. I will take you through a little more about t-zero.
Hedge fund legend George Soros is bargain hunting in Wall Street’s retail junk heap again. This time he is buying into Overstock.com (NASDAQ: OTSK) a discounter that functions as an online bargain basement. Soros and his Quantum Fund have sunk $100 million into Overstock because he thinks it can generate extra revenue by accepting Bitcoin (BTC) and other cryptocurrency payments, Valuewalk reported. Not coincidently, Soros Fund Management reportedly has plans to start cryptocurrency trading.
Soros’ track record in retail is dismal, back in 2013 and 2014 he bought around 19.98 million shares of zombie department store JC Penney (NYSE: JCP), Reuters reported. The billionaire sold all of his JCP shares less than a year later after taking a bath. JC Penney shares were trading at $3.47 on 11 April 2019.
Overstock ICO under Review by SEC
Soros is not buying into Overstock’s tZERO Security Token instead he is buying the company’s stock. Overstock itself is investing around $30 million in tZERO initial cryptocurrency offering (ICO), Valuewalk reported. tZERO is being sold through private placement through 14 May 2018. The company is trying to sell $250 million worth of tZERO tokens.
tZERO is described as an effort to build a “front-end trading system” designed to reduce settlement costs and make auditing easier. The company is trying to build a distributed-ledger platform marketplace for accounts receivable; which would be lucrative if it works. There are many drawbacks to that plan including legality, scalability, and liquidity. Legality is the greatest roadblock because the tTZERO ICO is already under review by the Securities and Exchange Commission (SEC), Coindesk reported. The Commission’s regulators think Overstock is trying to do an end run around investment regulations via the ICO.
“The SEC is trying to determine whether there have been any violations of the federal securities laws, the investigation does not mean that the SEC has concluded that anyone has violated the law,” an SEC press release about Overstock reads.
Will Overstock’s tZERO Platform Work?
There are serious questions about whether the tZERO platform would work. Overstock already switched platforms from SaftLaunch to StartEngine; because of concerns about anti-money laundering (AML) and know your customer (KYC) law compliance, Coindesk noted. A greater problem would be scalability present-day blockchain technologies might not be capable of handling enough transactions to make something like tZERO profitable. The Ethereum blockchain reportedly can only process less than 20 transactions a second and Bitcoin-based solutions can only handle less than 10.
Unless tZERO can scale up to process at least 200 to 300 transactions it would not be profitable. Technically the only way to do that with present technology would be to move off the blockchain and onto a sidechain like the Lightning Network. The blockchain simply lacks the capacity for high volume processing; a sidechain is a larger chain that operates outside the blockchain network.
Another concern is liquidity the ability to get cash quickly from transactions. Many altcoins lack liquidity because they cannot be quickly converted or sold. tZERO would have to solve the liquidity problem if wanted to create a token that can be sold on the capital markets.
Will tZERO be a Good Investment?
Smart tokens like Bancor (BNT) offer a potential solution to the liquidity problem by creating tokens that can be converted fast with the Bancor Protocol. This might help tZERO which seems to be an effort to borrow money against invoices, in other words factoring. In factoring unpaid invoices are used as collateral usually for high-interest loans.
tZERO will need something like the Bancor Protocol to work because it appears to be an effort for Overstock to raise money from the capital markets. This might be why the SEC is concerned; tZERO is trying to issue the blockchain equivalent of junk bonds to finance Overstock’s questionable business.
That will make tZERO an incredibly risky investment because it will try to make money by issuing high-interest collateral loans to shaky businesses via the blockchain. Nobody knows if that business model is viable or if it will even work. As I noted above the technology to do it might not exist.
Is Overstock Making Money?
The whole tZERO proposition might make sense if Overstock.com were actually making money. Stockrow.com data indicates the company is losing money right now. Overstock.com reported a loss of -$95.69 million instead of a net income and an operating loss of -$22.17 for 4th Quarter 2017. Those losses were compounded by a -13.28% drop in year to year revenue growth during a period that covered the Christmas shopping season.
Overstock’s revenues dropped from $526.18 million in 4th Quarter 2016 to $456.29 million in 4th Quarter 2017. That indicates Ovestock.com simply cannot compete with better-capitalized competitors like Walmart (NYSE: COM) and Amazon (NASDAQ: AMZN).
Overstock did end up with a little cash in the form of $24.26 million in free cash flow and $27.33 million in operating cash flow at the end of 4th Quarter 2017. That gave the company $203.67 million in cash and short-term investments and $433.82 million in assets at the end of the 4th Quarter.
It looks as if Overstock is simply not making enough money to keep up with Amazon. It is no longer a profitable niche retailer, so management is looking for a new business to generate extra cash. They’re hoping to trick investors into financing their scheme.
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Thanks Uriah, we have heard a lot about crypto currencies. I have been involved with and invested in Bitcoin and Onecoin. Now there’s tzero. So much is being said but very little understood. How far am I sure this one won’t end up like the other two? Does tzero operate only in the USA?
Hi Juliet,
Here are the answers to your questions.
tZERO offers a number of blockchain-enabled solutions including a distributed ledger technology enabled an alternative trading system (ATS) through. tZERO’s wholly-owned broker-dealer, PRO Securities or tZERO’s JV partnership with BOX Digital Markets, which is creating the first national securities exchange for the trading of security tokens.
tZERO’s developers hope to create an alternative to the existing stock market. The company’s aim is to revolutionize Wall Street through the integration of new market structures.
tZERO isn’t just some startup trying to find its way in the market; the company is a subsidiary of Overstock.com (NASDAQ:OSTK). tZERO, through its BOX JV, is also on its way to becoming the first SEC regulated Security Token issuance and trading exchanges in the US. The company filed an SEC form D at the beginning of the year. Form D filings permit companies to sell securities. In August, the company updated the Reg D filing to include security token protocols.
tZERO integrates regulations directly in the token creation protocol. They offer enterprise-level blockchain solutions including token issuance, management, and trading. This strategy saves businesses seeking to integrate blockchain technology huge amounts on research, development, and regulatory costs.
Speaking on the concept, Overstock’s founder, Patrick Byrne called security tokens an “innovation of historic proportions.” Byrne isn’t the only executive excited about this platform. The company already announced a $270 million letter of intent from Hong Kong-based GSR Capital this year. What made the deal even more lucrative for the firm was the intention by GSR Capital to spend an additional $104.55 million for around 3.1 million shares in Overstock, plus, another $30 million on tZERO’s STO. In total, tZERO STO raised $134 million.
How Does tZERO Work?
The tZERO platform utilizes cryptographically secure distributed ledgers to streamline existing market systems. The integration of blockchain technology creates increased auditability, transparency, and efficiency in traditional market processes. Additionally, blockchain integration reduces costs and transaction times. Once tZERO’s platform is live, businesses can issue security tokens for fundraising purposes through the exchange.
In connection with Overstock’s 2016 SEC-registered offering of Blockchain Voting Series A Preferred Stock (the “Overstock Digital Securities”), the Company developed a suite of software and technologies referred to as the tZERO Issuance and Trading Platform (the “Existing tZERO Software Platform”). The Overstock Digital Securities trade exclusively on the PRO Securities ATS, which utilizes the Existing tZERO Software Platform. While the offering of the Overstock Digital Securities served as a milestone for the issuance and trading of digital securities in a manner that utilized blockchain technology, the application of the Existing tZERO Software Platform to trading of Overstock Digital Securities is subject to limitations—for example, (i) only U.S. investors are permitted to transact on the PRO Securities ATS and (ii) all holders of Overstock Digital Securities are required to open an account with, and access the PRO Securities ATS through, a single U.S. broker-dealer.
tZERO anticipates that its first commercially available blockchain-based product will be “digital locate receipt” software (the “DLR Software”). The DLR Software is currently in customer production testing, which is being conducted by StockCross (as defined below, under “Siebert Financial Transactions”), and tZERO has not yet entered into any commercial licenses with any licensees. The DLR Software is intended to help broker-dealer licensees with stock inventory to both load and manage their inventory in order to assist short sellers of public securities in establishing that they have located available shares in the U.S. public securities market prior to effecting short sales. The DLR Software is intended to enable licensees to create a blockchain-based record of the shares that the licensee has made available for “locates” using customizable DLR Software functionality and of the daily purchases of the right to “locate” specifically identified shares for purposes of compliance with regulatory requirements. The Company may not successfully develop, launch, market or sell its DLR Software. See “Risk Factors—The Company may not successfully develop, launch, market or sell its digital locate receipt software.”
To date, tZERO has focused on developing its non-blockchain and blockchain businesses and exploring opportunities for novel applications of blockchain technology. As a result of its early stage of development, tZERO has not yet generated revenue from any commercially available blockchain-based applications.
Thank you for this amazing post, I took time reading it to the end and I gained something so crucial, I check the tzero website and it justifies everything you said about it, how easy is it to create an account? What about the issue of price dropping? Hope it doesn’t have negative effect on this ICO?