Overstock’s (OSTK) subsidiary tZERO is in the process of facilitating the largest Security Token Offering (STO) ever at $250 million. The tZERO token offering launched on Monday, 12/18, with a pre-sale to “strategic purchasers” who were fortunate enough to have access during this initial period. Overstock had allotted 30 days for the pre-sale phase of the token offering, but it only needed 12 hours to reach the initial $100 million allocation. As a result, Patrick Byrne, CEO of Overstock, said he may “compress” the overall token sale window. This would allow Overstock to get an early start on the next phase of the sale in which they are targeting an additional $150 million.
Byrne indicated that the offers submitted during the pre-sale were as “high as $5 million or more” for single token allocations. Although the number of investors who participated in the pre-sale is not yet known, Byrne noted that 2,000 accredited investors have signed up for the public token sale via SAFTLaunch.com (the pre-sale and the public sale are limited to U.S. accredited investors and non-U.S. persons.) Assuming that most of the sign-ups are verified, tZERO should have no problem reaching their goal of $250 million.
The subsequent sale period for the tZERO token offering went live on 12/20. Sources have confirmed that the coin is being offered at a fixed price of $10 with no minimum or maximum investment. The sale is expected to run until February 16, 2018.
What is tZERO? Why is it important?
tZERO is a technology company focused on the development of commercial applications of blockchain and financial technologies. It is developing a trading platform (the “tZERO Platform”), which is the first SEC-regulated alternative trading system (ATS). Please note that an ATS is a trading system that is not regulated as an exchange, but is a licensed venue for matching buy and sell orders. The company also owns two registered broker-dealers:
- SpeedRoute — An electronic, agency-only FINRA-registered broker-dealer that provides connectivity for customers to U.S. equity exchanges
- PRO Securities — A FINRA-registered broker-dealer that owns and operates the “PRO Securities ATS,” which is a closed system designed only for professional broker-dealers to trade “blockchain instruments”.
The tZERO token is the first ever public issuance of a Digital Security. When it launches in 2018, the tZERO platform would initially trade the tZERO token, but plans to expand to host future token offerings, trading, and short-selling. This includes SEC-compliant trading of security tokens, which are not supported on (domestic) digital currency exchanges (i.e. Coinbase). The number of security token offerings is expected to expand, and the associated SEC regulation should help eliminate fraud and insider trading. Byrne goes even further by saying that he sees tokens as the “future of securities, with ICOs replacing IPOs.”
As part of its STO, tZERO is adding several new business verticals, including a retail brokerage piece. In theory, the tZERO platform would allow investors to trade digital currency assets and equities within a single unified interface. The advantage of this hybrid model over traditional exchanges, Byrne says, is “lower cost, transparency from a distributed ledger, and less shady business.” Based on the information available, the trading platform could end up being a hybrid product — think “Coinbase meets E-trade.” The tZERO tokens are designed to be used for the trading mechanism. Owners of these tokens will get a dividend-like revenue share from tZERO as well as the ability to use the token in the exchange to facilitate trading and shorting.
In the lead-up to the token sale, Overstock made several strategic moves that bolstered their commitment to a hybrid future for the tZERO platform (digital currencies and equities):
- They added one of the co-founders of Ethereum, Steven Nerayoff, to the tZERO advisor board.
- They signed a letter of intent to enter into a partnership with Siebert Financial Corp. (NASDAQ:SIEB) to offer deeply discounted online trading starting in Q1, 2018. This will allow investors to access the Muriel Siebert & Co. Inc. portal at Overstock and conduct online trading of US equities for $2.99 per trade through the platform. tZERO has also taken a stake in Siebert Financial’s parent company, Kennedy Cabot.
Disclosure: I own OSTK stock. I have no business relationship with any company whose stock is mentioned in this article.