Patrick Byrne, the founder of Overstock, has launched an initial coin offering (ICO) for tokens for a new alternative trading system (ATS) called tZero.
Byrne said that the ICO would be capped at $250 million, with an option to short-sell an additional $50 million at the underwriting price to get to $300 million, if the demand is as high as expected.
Unlike an IPO which issues shares, an ICO issues digital coins.
The Overstock CEO wants to redraw an essential way Wall Street operates using bitcoin technology and is confident it will be the future of trading.
Byrne is so convinced that he is selling the Overstock retail business and will focus primarily on tZero.
At its core, TZero is an SEC-regulated alternative trading system that matches buyers and sellers in a dark pool similar to money sender Transferwise instead of depending on broker-dealers to buy and sell securities.
The ultimate goal is to create an alternative to the NASDAQ with a ledger that is open, transparent, and immutable.
A potential Disruptor
TZero is the first SEC regulated crypto alternative trading system to see the light of day. The company plans to offer public sales but initial tokens will only be sold to accredited investors or offshore buyers.
There is already high demand which could lead to significant disruption essentially turning aspects of Wall Street on its head.
The coins offered in the ICO are designed to serve as tokens to use in the tZero trading mechanism, which will host future ICOs, trading, and short-selling, not the next bitcoin.
It is a potential alternative to the NYSE (New York Stock Exchange) as it aims to operate as a “blockchain-ified” Wall Street exchange.
A dividend-like revenue share from tZero as well as the ability to use tokens in the exchange to facilitate trading and shorting will be offered to owners of these tokens.
According to Byrne the advantages of this hybrid-model over traditional exchanges are lower cost, transparency from a distributed ledger, and less shady business.
TZero could even drop transaction costs 80% to 90% and completely disrupt securities lending, a significant revenue source for brokers that powers short-selling
Byrne sees ICOs replacing IPOs with tokens as the future of securities.
ICOs have been rife with fraud and are a fairly complicated system for people who are unfamiliar. Byrne, who is not a big fan of the SEC, is in agreement with the recent crackdowns as some level of paternalism is necessary to make sure things are above-board.
Byrne says tZero, once up and running, will be a much safer option than the current system of IPOs and traditional exchanges.
“ICOs will ultimately be better. I believe the market as it exists has a great deal of manipulation. We just showed up on the Reg SHO [a list of failed market settlements] list on Friday which means we’re being naked shorted again,” said Byrne in an interview with Yahoo.
Byrne is completely against naked shorts, which is when someone sells a stock short without borrowing which is not supposed to happen.
Byrne, who has been accepting Bitcoin since 2014, says this behaviour isn’t possible with tZero because the system requires the purchase of a “digital locate receipt,” which proves there’s something available to be sold if there’s a plan to short.
In a blockchain capital market, the mischief that occurs on Wall Street won’t happen because it is not regulated.
The CEO also revealed he is launching a token sale to help seed the platform. Like poker chips, those tokens will be used to buy and sell on the platform. Byrne claims the pre-sale is already vastly oversubscribed.
Not many mainstream business leaders have endorsed the blockchain quite like Byrne. Disrupting the payments world with transparent, low-cost, and sane blockchain-based systems has been an ambition of his for a while.
He is confident that tZero is the beginning of a new type of capital market, a significant step towards full blockchain adoption.