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 ICOs 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 ICOs 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. (See also: ICO Security Playbook: 5 Steps to Ensure Best Practice.)
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.