Although initial coin offerings (ICOs) dominated 2017 and early 2018, it now appears that boom is over. Instead, we are seeing a rush of security token offerings or STOs. Due to the greater regulatory nature of an STO, traditional companies appear more willing to get involved – including retail giant Overstock.com. Although their blockchain project – tZERO – began in 2015, the tokens only came up for sale in mid-2018. Their STO attracted considerable interest, ultimately raising $134 million USD. The STO and subsequent release of the associated OSTKP security token brought greater attention to the entire security token market.
However, interest waned in the three weeks since tZERO went live. Volume remains low, and pressure is overwhelmingly in a downward trend. Following the ICO trend, the price dropped out of the gate – as early investors looked to immediately capitalized on their investment. In part, this may be caused by the intentional separation of tZERO from the cryptocurrency economy. Where the US restricted ICOs to accredited investors – much like traditional IPOs – these restrictions did not apply globally. tZERO opened only to properly regulated buyers in the United States. In fact, they’ve appropriately named the ecosystem ‘the Alternative Trading System’
The Alternative Trading System
Overstock.com’s tZERO ecosystem hopes to create the first security token trading platform. Of course, Polymath already did this. However, since Polymath exists within the cryptocurrency space, it seems not to count for Overstock’s purposes. The entire ‘Alternative Trading System’ or ATS appears to be a deliberate attempt to distance tZERO from traditional cryptocurrency markets. This isn’t overly surprising, given the relatively low public perception of cryptocurrency. However, it may also be the cause of their decreased volume. If the vast majority of crypto-investors cannot buy or trade security tokens on the ATS, it calls into question the target audience of the STO.
The $134 million USD raised by Overstock’s STO is considerable amount, but by no means record breaking for the cryptocurrency space. Restricting access makes regulatory sense, but it may ultimately prevent adoption of the trading system at all. Without a dedicated base of investors and interested users, ATS is more of a novelty than a thriving ecosystem. It doesn’t help that users are suffering delays that make the system little better than traditional stock exchanges.
Reinventing the Wheel
In fact, many aspects of tZERO and OSTKP seem to recreate systems that already exist in the cryptocurrency market. Despite their insistence that they invented the security token market, the concept is well established in cryptocurrency – and growing larger all the time. These other security token are readily available in the cryptocurrency ecosystem and do not require an alternative trading system.
Second, tZERO’s design aids in issuing dividends. Overstock insists that they are the first token to issue dividends in this way, despite the idea being firmly rooted in many blockchain systems. Several established coins, including VeChain and NEO, already distribute a secondary token for exactly this purpose. The entire tZERO system is cryptocurrency for people that don’t want to get involved with cryptocurrency – which may be a smaller market than Overstock anticipated.
Article By: Adam Stone