tZero

TZero is a distributed ledger platform and cryptocurrency launched by Overstock. tZero is considered an alternative trading system (ATS), and is regulated by the Securities and Exchange Commission.

The creation of cryptocurrencies, trading platforms, and blockchain technologies has reached a fever pitch in years since bitcoin’s launch in 2009. Cryptocurrencies have brought together technology enthusiasts, libertarians, speculators, and investors, with the pace of innovation far outstripping the speed at which regulators can adapt rules to ensure that consumers are protected.

New financial products (initial coin offerings, or ICOs), and new ways of managing investments (digital wallets) have been adopted, changing the way that people look at money.

In some cases, companies look to not only provide a cryptocurrency token, but also a platform that uses blockchain technology to handle transactions. tZero is such a company, offering both an alternative trading system as well as tokens.

The platform is designed to allow buyers and sellers to trade through a dark pool, meaning that it acts as a matchmaker rather than a broker. (See also: An Introduction to Dark Pools.) Transactions are managed through a distributed ledger. tZero seeks to become the leading platform through which companies offer ICOs. 

tZero grew out of an earlier effort by Overstock.com, an online retailer, to develop a blockchain technology called Medici. Medici was designed to allow Overstock, as well as other businesses that license the technology, to be able to sell cryptocurrencies. This effort began in 2014.

Patrick Byrne, the founder of Overstock, is listed as one of tZero’s principals in its Notice of Exempt Offering of Securities (Form D) filing with the Securities and Exchange Commission (SEC).

The company began selling Simple Agreements for Future Equity (SAFEs), a convertible financial instrument, to accredited investors in December 2017. SAFEs allow companies to raise capital outside of traditional debt and equity markets, and provides investors with some features of convertible notes. It is most commonly used by cryptocurrency companies. According to its initial filing with the SEC, tZero expected to raise $250 million.

For regulators, tZero represents one of the earliest attempts at managing cryptocurrencies and alternative trading systems. It wasn’t until 2017 – 8 years after the launch of bitcoin – that the SEC issued a ruling on tokens. Regulatory uncertainty left crypto holders much less protected than securities investors, which has likely contributed both to price volatility and to the well-publicized hacks of various exchanges. (See also: Coincheck May Have Suffered The Worst Hack In Cryptocurrency History.)

Being regulated puts tZero at a substantial advantage when it comes to financial products based on cryptocurrencies, as it can provide services that other platforms may not be able to provide. Because it is required to comply with regulations, tZero can position itself as a provider of advice, clearing, and verification services to other companies looking to release tokens to raise funds.

While companies looking to raise funds through the sale of tokens could build their own platforms, and thus cut out the middleman, this would require substantial investment and expertise. Using a company like tZero may wind up being more cost-effective, and may result in tZero one day being considered akin to Nasdaq.