Internet retailer Overstock made headlines in the last few months due to a pivot towards cryptocurrency and blockchain technology. CEO Patrick Byrne’s latest project in the space looks to totally disrupt Wall Street. He announced plans to create a new platform that has been heralded as the future of trading. Overstock’s latest endeavor is known as tZERO, which is looking to serve as a trading mechanism that gives prospective investors the option to trade and short future ICOs.
tZERO is primarily looking to shake up the financial industry though its quick trade settlement process. Traditional buying and selling on normal financial markets will not settle until three days after the transaction (T+3 settlement). This incurs a lot of costs behind the scenes because of long trade matching and fund custody processes. The SEC recently adopted T+2 settlement capabilities to keep trading fast-paced in a digitized economy.
tZERO is essentially going to create T+0 settlements, which would be significantly faster than anything currently available. The massive reductions in trade costs and complexity will draw a lot of investors to the platform. They are able to facilitate T+0 settlements because the tZERO platform is built on an alternative trading system that is already approved by the SEC.
The projected transparency and cost savings of the platform is projected to slash transaction costs potentially up to 80-90%. Byrne says a shift from IPOs to ICOs, partially facilitated from tZERO, will serve the financial industry better because certain trading practices are impossible in a blockchain capital market.
One of the other reasons tZERO has attracted so much attention is because it is on track to be the first SEC registered token as preferred equity. The company said in December that token holders would be potentially open to a variety of benefits, including discounts on particular products and services, free membership in Overstock’s rewards program, and any other benefits the tZERO board of directors opens up for token holders. Though the SEC has launched a $250 million probe into tZero, the tZero team worked with legal council in New York to create a legal framework for the platform which would be in full compliance with securities laws in the United States. Users who purchase the tZERO token also will receive revenue in the form of a dividend.
All of these details have made tZERO the talk of the virtual currency world in 2018. Some detractors have expressed worry about the platform’s sustainability because it is not generating any revenue at the moment. However, unlike many other ICO offerings in the virtual currency world, tZERO is up and running. Right now, it is only able to handle trading of Overstock Preferred Stock.
As they plan to expand out from just Overstock Preferred Stock, the team behind tZERO is taking user security very seriously. Part of their onboarding regulations include a series of questions to weed out potentially fraudulent ICOs from being listed, a system analogous to traditional listing rules on a contemporary stock exchange. Byrne wants to encourage ICOs that are well-planned and thought through. He expressed disdain to media outlet Quartz in October 2017 about how many tokens are pretty much destined to become worthless because the underlying ICO business models are not good.
However, shares in Overstock fell on March 1st after the company said tZERO was undergoing review by the SEC. Overstock leadership said they complied with a request from the financial regulator in February to review information about tZERO’s ICO. The SEC is currently looking into numerous offerings in an attempt to try to figure out if any token sales or ICOs are in violation of existing securities law. The Overstock team said on March 1st that they plan to cooperate with the SEC.
Financial authorities in the United States, such as the SEC have been hinting over the past few months that many offerings would be investigated, and this was proven to be true after the most recent SEC issuance of dozens of subpoenas to technology companies and advisors related to ICO’s. Information published by the Wall Street Journal said the SEC is looking to zero in on simple agreements for futures tokens (SAFTs). Overstock is conducting tZERO’s ICO with a SAFT derivative known as a simple agreement for future equity (SAFE).
Despite the news from the SEC, tZERO’s private offering is still going on, having been extended all the way until March 30th back in late January. Overstock’s profile is still growing as well thanks to their continued focus on blockchain technology. Even though they’ve been successful in the e-commerce space, company leadership has always had a soft spot for cryptocurrencies. Byrne started to siphon off money towards investments that were the precursor to tZERO more than three years ago. The company then bought Pro Securities in order to have access to an SEC-approved alternative trading system to lay the foundation for tZERO.
One of Overstock’s biggest investors has been the billionaire George Soros, who took a 15% stake in the company after dumping shares in Facebook.
Soros attracts a lot of criticism for his politics and activism, particularly when his moves are reported to have negative impacts on world economies, but he has a history of making investments that generate him a lot of money. His money can be linked to protest movements such as Occupy Wallstreet, which on its surface would appear to be the antithesis of his actions, and the Arab Spring, which began in Tunisia and carried over into other North African and Middle Eastern countries, often resulting in the rise of religious extremism and a decrease in individual freedom for the residents of those countries. But make no mistake, whenever George Soros makes a bet, he bets big, and he often wins even bigger.
One of his shrewder moves netted about $1 billion dollars though shorting the British pound in September 1992. The windfall came after the government pulled the currency from the European Exchange Rate Mechanism. Even though this move by Soros was condemned, the results were amazing for his bank account. We can expect no less from his investment in tZero.
Overstock is one of the few companies that saw the benefits of blockchain and Bitcoin before it hit the mainstream, and then stuck with both technologies though their highs and lows. Investors are buzzing about their pivot to blockchain because they are creating products (like tZERO) that have immediate real world impact. The number of traditional IPOs has been steadily falling in recent years, and tZERO looks set to give big and small institutions a legitimate way to raise funds through a blockchain-based system. A couple of other companies have tried to emulate what Overstock is doing with tZERO, but the e-commence company is the only one out there that has an actual product and platform that is ready to be used.
Overstock’s value could continue to shoot up virtually overnight if just one larger company launches an ICO through the tZERO platform. This could come sooner than later, as big companies are already teaming up with Overstock to launch on tZERO. One of the most notable is WENN Digital, a partner of fabled photography company Kodak. In an effort to pivot with rapidly changing camera and photo technology, Kodak said in January how they are planning to launch a cryptocurrency known as KODAK Coin. WENN Digital later said in the month that they had teamed up with tZERO to help with the final development of their virtual currency offering. tZERO is expected to advise about the token launch, help offer services like encrypted accounts to users, and make sure that the token is in compliance with security and anti-money laundering laws in the United States.
The team behind KODAK Coin and the associated KODAKOne platform chose to work with tZERO to ensure platform security. Even though KODAK Coin was massively hyped up after announcement, recent news seems a bit more worrisome. Many question the viability of KODAK Coin due issues with Kodak itself- the company’s latest lines of cameras have been unveiled with little marketing efforts, and many of their most valuable intellectual property has been bundled and sold to other giants like Google, Apple, and Samsung in the past few years.
Still, in a volatile and oftentimes wild cryptocurrency market, tZERO’s adherence to strict security policies and SEC compliance will put them closer to the safe zone when dealing with government agencies. As a result, it’s probably safe to say that a fully unveiled and SEC-compliant tZERO platform will command a lot of attention from companies who are looking to launch an ICO and want the security of a thoroughly vetted and approved platform.
Overstock’s already taken several moves to boost their public profile in the eyes of business and companies. They signed an agreement with Siebert Financial Corporation in mid-December 2017 to make discounted trading available for the first few months of 2018. Part of the agreement gives Club O loyalty members the option to execute $1.99 trades. They also partnered with Polymath to receive guidance on tZERO’s design and economic distribution. Polymath is the first security token launch pad and wants to be the “open source standard for launching securities tokens.”
The development and promotion of tZERO seems to be coming at a good time, as some industry giants suggest their adoption of cryptocurrency might not be too far off. Facebook raised a lot of eyebrows in January after announcing how they were going to ban all advertising related to virtual currency and ICOs. The news came at about the same time rumors of a Facebook adoption of Litecoin started to gain steam, bolstered by a massive sell-off by founder Charlie Lee. This development could play a big part in tZERO’s growth prospects if a Facebook token were to be traded on the exchange.
Despite its advantages, tZERO would be making an entrance into a cryptocurrency exchange market that is rapidly innovating. Many exchanges have come under fire for security and trading issues, but some of the bigger ones might pose some competition to tZERO based on developments in the past few months. Poloniex gained popularity due to letting users margin trade, and also trade against Monero. They were then bought by a Goldman Sachs-backed payment company known as Circle in late February. Speculation after the sale was that Poloniex would soon be one of the few exchanges to allow trades against fiat currency. The ability to fiat trade and fiat margin trade would be a massive shakeup to the financial world, and no doubt attract many users to their services.
Bittrex saw a lot of growth after they started to accept fiat US dollar deposits in early January. The vast amount of supported virtual currencies is said to make Bittrex a major competitor to Coinbase/GDAX and Gemini. The adherence to quality by the Bittrex team also makes the platform an attractive one for investors who are looking for an exchange to use. While tZERO’s innovation is unlike anything ever seen before, the growth of other major digital currency exchanges means they will probably have their work cut out for them if they truly want to reach the top.
The pivot by Overstock to blockchain technology has already shown to have been a great decision for the company. Their latest project, tZERO, is one of the more ambitious blockchain projects to have come into existence, but a successful launch of the platform could have immense ramifications on the financial world.
Dennis Consorte has an appetite for news and information about cryptocurrencies, blockchain, IoT, fintech, adtech, martech and other technologies. He also has over 20 years’ experience in digital marketing and content strategy.
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