Crypto Player to Watch: Overstock

4Rev

On September 27, 2017, Medici Ventures Inc., a blockchain-focused subsidiary company of Overstock.com Inc., announced the launch of its capital markets arm, tZERO. This project, a joint venture between RenGen LLC (a fintech firm focused mainly on blockchain technology) and The Argon Group (a digital finance investment bank), is intended to be the first SEC and Financial Industry Regulatory Authority (FINRA) regulated alternative trading system (ATS).

Patrick Byrne, Founder and CEO of Overstock.com, has been a longtime proponent for the use of cryptocurrencies, allowing Bitcoin to be accepted as a method of payment on Overstock since 2014.

“I think it’s a historic event. We’re opening a new type of capital market,” Said Byrne. Chief Operating Officer of tZERO, Ralph A. Daiuto Jr. is also quoted as saying “tZERO enabled Overstock.com to make history with the first ever public issuance of a digital security. We have been at the forefront of blockchain technology and are going to be a leader in the trading of digital tokens”.

On Dec18, 2017, tZERO launched its initial coin offering (ICO) which has since gone on to raise more than US $250 million. Byrne also expressed his confidence and commitment to the project by recently stating that he is willing to sell the retail arm of Overstock.com to direct his energies to tZero and other blockchain related projects.

What is tZERO?

ICOs are quickly becoming a lucrative venture, with a total of over US $6.5 billion dollars being raised in 2017 alone. This has caused the SEC to enforce regulations on all ICOs and digital exchanges. Unless companies can prove that their token offering does not fall under the SEC’s definition of a security, they will be governed by the same laws as traditional security exchanges.

Currently, there are no legal/regulator-approved platforms for U.S. investors to trade security tokens. tZero seeks to remedy this situation by becoming the first regulatory compliant securities exchange.

The tZero platform, also called an alternative trading system (ATS) will allow securities, real estate, commodities etc., to be tokenized and hosted on the exchange for distribution and trade while being compliant with SEC and FINRA regulations. As such, the platform is being widely viewed as a step forward in the right direction. Should it be successfully implemented, it will provide U.S. investors with a legally approved alternative to current securities exchanges such as the New York Stock Exchange and NASDAQ.

In addition to enhancing the liquidity of security token offerings, Byrne has also stated that the tZero platform will appeal to investors by reducing transaction fees by 80-90 percent when compared to the current traditional exchanges.

Furthermore, Byrne has expressed that by leveraging blockchain technology and smart contracts, transactions and trades can be done instantaneously as opposed to the current three-day settlement cycle on current stock exchanges.

“We have long been advocating that issuing digital tokens as securities gives issuers and purchasers the greatest certainty about the legal regime that applies to the sale and the widest range of options to provide an attractive return for investors,” said Emma Channing, Former Executive Vice President of The Argon Group.

The development of the tZero platform seems to be well timed as the SEC has made it clear that all digital tokens with an income stream will be classified as securities and that they may only be traded on an ATS or a National Securities Exchange.

Furthermore, top officials at the SEC have confirmed numerous investigations into initial coin offerings. On March 15, Co-Director of the SEC’s Enforcement Division, Stephanie Avakian, stated that “dozens” of investigations related to cryptocurrencies and ICOs are currently ongoing, as reported by Bloomberg, during an Investment Adviser Association conference in Washington, D.C.

The Roadmap

Byrne along with partner Peruvian economist and author Hernando De Soto, plan to start by creating a foundation to facilitate tradable property titles in regions where this service is unavailable. In April, the company will begin locating and migrating property titles to the blockchain. The aim of this facility is to allow persons to collaborate with financial institutions to secure loans using their property as collateral, which can then be used to help them grow their wealth. Byrne has predicted that this will overcome “dead capital”, which is estimated to be valued at over US $14 trillion, with the aim of distribution a large amount of capital to developing countries. The plan will be rolled out in phases starting with a single country to test the system’s functionality.

Other Noteworthy Investments

tZERO represents Medici Venture’s most notable majority-owned fintech company, however, Medici also boasts a healthy portfolio of companies with the prime objective of “leveraging blockchain to solve real-world problems”. Other companies in Medici’s growing portfolio include Peernova, SettleMint, Factom, IdentityMind Global, Spera and Symbiont.

One of the Medici’s most recent investments comes in the form of a Barbadian startup company, Bitt. On March 08, Medici Ventures invested an additional US $3 million in the Caribbean based blockchain company to increase its ownership by another 8.6%. This will further add to the company’s stake in Bitt, having already invested US $4 million in 2016.

John Johnson, President of Medici Ventures said in a press release that, “Bitt has created a blockchain-based payments ecosystem that is useful for everyday transactions. It has positioned itself as a clear leader in applying blockchain technology to solve real-world problems.”

Bitt is a mobile payment platform developed specifically for use in the Caribbean, starting with Barbados. The company has since been integrating their digital commerce systems with blockchain technology. Bitt has already launched a digital version of the Barbadian Dollar on the Bitcoin blockchain, and in February 2018, they announced a partnership with the government of Montserrat to develop a digital payment system for the region.

Medici’s investment in Bitt seems to fit into tZero’s vision of bringing an accessible blockchain based digital economy to regions that struggle with financial institutions and liquidity. In an official company press release, Bitt CEO, Rawdon Adams, reaffirms this by stating that “Bitt is in a unique position to provide the solutions to boost both financial inclusion and overall economic performance through its blockchain-based software,” further adding that “This is already being recognized by regional governments overseeing economies characterized by large informal sectors, persistently high rates of poverty and expensive traditional financial services. I thank Medici Ventures for their support of our mission.”

Overstock, through Medici Ventures, has secured a sizable portfolio of subsidiary companies that seems poised to make an impact on the way we trade securities and alleviate the liquidity issues of developing nations. This aligns with their vision for the mass adoption of distributed ledger technology and increased efficiency, security and transparency in the fintech industry.

We will be keeping a close eye on Medici Ventures and the industries they plan to disrupt as the company is still in relatively early stages.

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