Overstock's tZERO is seeking regulatory approval to trade blockchain-based securities and traditional stocks on its bitcoin exchange app, tZERO Crypto.
Announced during the online retail giant’s Q1 earnings call Thursday, the plan would grant tZERO Crypto’s users access to cryptocurrency, security token and traditional stock trading on a single platform, a regulatory feat none have accomplished yet. Overstock’s security token trading subsidiary is hoping to become the first to break that ground.
tZERO Crypto is tZERO’s noncustodial exchange app supporting bitcoin, ethereum and ravencoin. It is currently separate from tZERO’s digital securities trading platform the tZERO Alternative Trading System (ATS).
The securities tZERO wants to trade are still recorded on a traditional central ledger, but a blockchain platform is used to act as a backup record.
Connecting tZERO Crypto’s fast-growing but relatively meager use base – the app had 6,404 accounts in Q1, a 40 percent increase over the previous quarter – to the tZERO ATS would potentially increase liquidity in a security token market that acutely lacks intraday trading volume.
On Thursday, tZERO ATS’ two listed security tokens, OSTKO and TZROP, changed hands 73 and 4,835 times, respectively, on tZERO’s broker-dealer partner platform Dinosaur Financial. In comparison, Overstock’s OSTK shares traded 10.5 million times on Nasdaq Thursday.
tZERO Crypto’s cohesive trading platform would run on a yet-to-be-approved subsidiary broker-dealer, tZERO Markets. The firm's CEO, Saum Noursalehi, had previously targeted the first half of 2020 for tZERO Markets’ launch and repeated Thursday that he expected a verdict in Q2 – “but you can never be sure with regulators.”
“Once we receive regulatory approval, our app will trade cryptocurrencies, security tokens (including TZROP and OSTKO), and traditional stocks,” Noursalehi told CoinDesk. “The value of the crypto app users will grow as we add the capability to trade securities on it."
Driving security token growth
Linking tZERO Crypto to tZERO ATS is one of many user acquisition strategies.
Previous growth gambits appear to be working. That includes Overstock’s flashiest: the upcoming digital security shareholder dividend, a plan – designed by former CEO Patrick Byrne – to plug thousands of Overstock shareholders into the tZERO ATS by wooing them onto Dinosaur Financial with a company security token, OSTKO.
Noursalehi told CoinDesk that “Dino has seen a notable increase in investor onboarding” ahead of the May 19 dividend payday, though he declined to state how many had signed up. Dino is the only broker-dealer approved to run tZERO ATS out of the six broker-dealers subscribed.
The digital dividend has prompted new broker-dealers to approach tZERO ATS, Noursalehi said. He said tZERO is in talks with about 100 broker-dealers.
tZERO is betting that it can bring more investors onto its ATS by giving them more digital securities to trade. Only two tokens are currently listed but a third is waiting for regulators’ OK, and some 200 other companies are in “late-stage” discussions to issue digital securities with tZERO ATS.
“We believe that as we get more assets trading, it will attract interest from other investors,” Noursalehi said. “In particular, as existing digital securities move onto our platform, all of the investors that hold those securities will onboard and become our customers."
COVID-19 has slowed tZERO’s march. In the earnings call, Noursalehi said the coronavirus and its ensuing market volatility has made new issuers hesitant to jump in until trading cools down to a more regular clip.
“Issuers have largely sidelined trading existing digital securities until market conditions normalize, so tZERO has seen a slowdown in issuers looking to raise capital. That said, conversations do continue,” said Overstock CEO Jonathan Johnson during the earnings call.