tZERO security token exchange, a subsidiary of Overstock (OSTK), is focusing on developing a Blockchain-based SEC compliant alternative trading system (ATS). The platform is specifically focused on tokenized securities. The main aim of tZERO is to revolutionize the trading of security tokens issued in ICOs. It wants to create ICOs that are SEC and FINRA regulations compliant. TZero first announced itself to the masses with a press release on October 4, 2017. However, they have been active in the blockchain space since 2015.
The target market for the tZERO are the companies that are looking to launch security tokens to provide liquidity and smart trading through means of a regulated exchange.
Over the years the U.S. citizens have been prohibited from participating in these offerings. Majority of these tokens sold are not complaint with U.S. state and federal securities law.
In recent times SEC has shown some strict measures towards token offerings. From a long time, companies have been using SAFT agreements to conduct their offerings. Under a SAFT, or Simple Agreement for Future Tokens, developers can raise capital from accredited investors pursuant to a Regulation D offering. The SAFT White Paper states that the tokens purchased by exercising this right are non-security. The problem with these is that SEC can say any time that many of these SAFT agreements are invalid. It can add that they don’t go by the securities law.
tZERO sold its tokens exclusively to accredited investors using a SAFE agreement. It is slightly less vulnerable to a drastic determination by the SEC. TZero has explained in the whitepaper that the tokens themselves will not be registered under the U.S. Securities ACT 1993, as the firm has planned for the ICO launch to be compliance with the regulations.
The tZERO token (TZRO) is an ERC-20 compliant token or equivalent. It is offered as a security to qualified investors in accordance with US and other laws. tZERO will pay 10% of its gross revenue to its token holders on quarterly basis. The value of such dividends will directly depend on the revenue generated by the tZERO platform. Giving dividends will also increase price stability in return as many investors might temporary lock up their tokens to receive high dividends.
Interesting point to note is that the tZERO token is not the core part of its trading platform. The token sale’s only reason was to raise funds for the generation of the ICO. The ICO of tZERO raised $134 million that began in December 2017 and ended in August 2018. The firm has also got $270 million in investment from a Chinese private equity firm GSR. The token price was $10.00.
- tZERO owns two SEC registered and FINRA Member broker-dealers, SpeedRoute LLC, a premier routing and execution firm, and PRO Securities LLC, an Alternative Trading System (ATS), which is the first SEC and FINRA regulated ATS to enable and support secondary trading of a crypto security.
- The infrastructure processes 15-18 million traditional orders per day.
- Equipped to handle over 100 million users per day.
- The platform is available for 24-hour trading of traditional equity securities.
- tZERO makes trading security tokens easy, compliant and user-friendly. To enhance the security, they have integrated the existing 15c3-5 risk management software, order management system, matching engine, and a plethora of proprietary technology to support the eventual trading of security tokens.
- tZERO has acquired a majority stake in a robo-advisory firm which makes it capable of running advanced financial models and creating dynamic portfolios.
- Their Digital Locate Receipt Software will provide market participants with a more transparent, efficient and compliant solution for lending and borrowing securities.
tZERO trading platform has the potential to fundamentally disrupt existing Capital Markets. It will allow any public or private company to trade their own tokenized security. Tokenized securities seem to have a bright future. If tZERO can place itself reputably in the industry it can become the leader of this area as there is no other platform which is advancing at with capabilities. However, we also have to note that the current market is quite is very immature about tokenizing securities from technological and regulatory standpoint.