What Is tZERO?

Cryptocurrencies are digital or virtual currencies. This type of money is intangible, yet takes the form of a token or coin that can be exchanged through transactions that take place on decentralized systems. One of the first, biggest, and most popular names in the cryptocurrency market is Bitcoin, which was established in 2009. Since its launch, other competing currencies were developed, which are commonly referred to as altcoins.

E-commerce giant Overstock.com (OSTK) joined a number of other traditional companies in late 2017 when it announced plans to launch its own cryptocurrency. As with many other cryptocurrency launches, the company introduced its cryptocurrency through an initial coin offering (ICO). Overstock called it called tZERO.

The ICO launched on Dec. 18, 2017, and was immediately met with significant interest. Many ICOs are used to secure crucial funding for the continued development of a project. The tZERO ICO was no different and was intended to help fund the ongoing development of the tZERO token, in addition to a blockchain-based trading system and platform.

tZERO aims to develop a solution for issues relating to token liquidity while remaining within the general framework of securities compliance laws. Want to learn more about this alternative investment? This article provides you with a brief history of tZERO.

Key Takeaways

  • tZERO was proposed by e-retailer Overstock, which wanted to address the problem of regulatory compliance of initial coin offerings.
  • tZERO’s ICO was exceptionally long and was extended because of the failure to reach its funding goal. 
  • The project aimed to create a hybrid combining traditional securities and cryptocurrencies.
  • Some irregularities surrounding the ICO drew criticism, including indications that Overstock’s CEO may have been dishonest in attempts to hype the crowdfund.
  • Although negatively affected since the ICO, Overstock’s stock recovered.

The Road to tZERO's ICO

Most COs last just a few days. But tZERO's continued for weeks at the beginning of 2018. In January 2018, the team announced plans to extend its ICO several times that year and officially closed it in August 2018. Some analysts believed that Overstock wasn't able to draw the kind of attention (of the amount of money) it originally wanted.

Overstock also changed the ICO's structure. It originally planned to offer a 100% bonus on the first $10 million purchased during the offering, a 50% bonus on the next $40 million, and a 25% bonus of the next $50 million after that.

The company intended to raise $250 million from its ICO but fell short, Instead, it raised a total of $134 million. It planned to use the money to complete its blockchain trading system along with making platforms in other countries. Overstock also announced it received a $374.55 million investment from GSR Capital, a private equity firm from China.

Regulatory Compliance

As ICOs gained popularity across the world, Americans generally found themselves prohibited from participating in many of these offerings. That's because many of these tokens are not in compliance with U.S. state and federal securities laws. One crucial element of tZERO's stated aim, therefore, was to comply with securities regulations laid down by the Securities and Exchange Commission (SEC).

Although tZERO's whitepaper explained that the actual tokens themselves will "not be registered under the U.S. Securities Act of 1933," the company planned for the ICO launch itself to be in compliance. This was in line with tZERO's attempt at creating a token that is a hybrid of traditional security and cryptocurrency, as it offers the rights, security, and protections of traditional securities as well as the utility and flexibility of cryptocurrencies and tokens.

Benefits to Token Holders

Token holders enjoy several benefits with their investment. They were offered the opportunity to buy blockchain-enabled digital locate receipts. A DLR allows traders involved in short sales to "identify and borrow shares they want to trade against." President Joseph Cammarata described the process as akin to an educational store in which customers could learn about the product and cryptocurrencies more broadly.

Overstock founder, and former CEO, Patrick Byrne explained prior to the ICO launch of 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.

Patrick Byrne, a longtime Bitcoin advocate, liquidated his position in the company—worth an estimated $90 million at the time—and invested the proceeds into cryptocurrency and precious metals. He stepped down from his position as chief executive officer of Overstock with Overstock in 2019.

tZERO Controversy

There have been minor points of controversy regarding tZERO since its ICO. Immediately following the December 2017 launch, Byrne claimed 2,000 accredited investors 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 brought a slew of problems to Overstock. The company’s stock fell by 88% from a high of $86.90 per share on Jan. 8, 2018. The stock hovered at about $10 per share as of Nov. 2, 2019.

This performance may be attributable to the ICO itself, and particularly to the potential for the 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.

Recent Developments

Overstock's stock price returned to the highs that it saw in January 2018. It closed at $88.54 on June 15, 2021. The company's market capitalization was $3.8 billion with an average volume of 1.0 million shares.

The company's cryptocurrency team was reported to be looking for a buyer to help the trading platform advance to the next level as of June 2021. But a company representative, though, refuted the reports, saying tZERO was looking for strategic alliances with external partners in order to raise capital and break away from Overstock.