The e-commerce giant Overstock.com (OSTK) 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 its cryptocurrency, called tZERO, via an initial coin offering (ICO).

The ICO launched on Dec. 18, 2017, and was immediately met with significant levels of 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, as well as a blockchain-based trading system and platform.

One unique element of tZERO is that it aims to develop a solution for issues relating to token liquidity while still remaining within the general framework of securities compliance laws. tZero's website states the platform's aim is “to [integrate] cryptographically secure distributed ledgers with existing market processes to reduce settlement time and costs, and increase transparency, efficiency and auditability.”

Key Takeaways

  • tZero is a project proposed by internet retailer Overstock seeking to address the problem of regulatory compliance of ICOs.
  • tZero’s ICO was exceptionally long and was extended at one point due to failure to reach the funding goal. 
  • The project intends to create a hybrid combining the best of traditional securities and cryptocurrencies.
  • Some irregularities surrounding the ICO have drawn criticism, including indications that Overstock’s CEO may have been dishonest in attempts to hype the crowdfund.
  • Overstock’s stock has been negatively affected since the sale. 

Longer-Than-Usual ICO

Many ICOs are quite short, sometimes lasting just a few days. tZERO was unusual in this regard. The ICO continued for weeks into the beginning of 2018. As of Jan. 27, 2018, the tZERO team announced plans to extend the ICO until March 30, 2018. 

Overstock also changed the structure of the ICO as time has gone on. 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. This arrangement may have changed, and 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 the amount of money) 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 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 majority of these offerings. The reason for this is that many of these tokens 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 security and cryptocurrency 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 with their investment. Specifically, they have been offered the opportunity to buy blockchain-enabled digital locate receipts. tZERO 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, recently liquidated his position in the company—worth an estimated $90 million at the time—and invested the proceeds into cryptocurrency and precious metals.

Controversy

There have been minor points of controversy regarding tZERO since its ICO launch. 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 brought a slew of problems on Overstock. The company’s stock has fallen by 88% from a high of $86.90 per share on Jan. 8, 2018. As of Nov. 2, 2019, the stock was hovering at about $10 per share. Some of this lackadaisical 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.