tZerois a security token trading platform, an alternative trading system regulated by the U.S. Securities and Exchange Commission (SEC). The company is a subsidiary of Medici Ventures, itself a subsidiary of Overstock.com.
The blockchain-based platform connects buyers and sellers through a “dark pool,” meaning it acts as a matchmaker rather than a broker. It also includes a secondary market for tZero’s own security token, TZROP.
tZero started in 2015, when Overstock announced it planned to offer a “digital corporate bond,” or cryptocurrency-based security on what it then called its TØ.com technology. Overstock CEO Patrick Byrne purchased the first bond for $500,000.
In October 2017, tZero announced it would begin an initial coin offering (ICO) the following month for its TZROP token. The sale utilized the Simple Agreement for Future Tokens framework, and commenced with a private pre-sale. The company sought to raise $250 million through the ICO. The token was intended to provide investors with an equity stake in tZero and a way to pay for fees and/or services within the tZero ecosystem.
In February 2018, an Overstock filing with the SEC revealed the regulator was reviewing the tZero ICO. The filing also noted Overstock had wrapped up the pre-sale portion of the ICO and had raised $100 million. The ICO concluded in August 2018 but the company fell short of its $250 million goal, raising a total of $134 million. At the same time Overstock announced that Chinese private equity firm GSR Capital would lead a $374.55 million investment in tZero.
The investment was intended to conclude in December 2018, but was delayed until February 2019 and then until April 2019. In March, it was announced the investment would be reduced to $100 million. In April, Overstock announced it had again failed to close the investment, but noted GSR was obligated to buy $30 million worth of TZROP tokens due to a binding agreement signed in 2018. GSR also brought in Makara Capital to co-lead the investment when it was delayed for the second time.
In May, Overstock announced it had closed the investment but had let GSR out of its previous obligation to buy $30 million worth of tokens. Instead, GSR invested $5 million in traditional tZero equity. Overstock said at the time that Makara Capital was still in the process of conducting due diligence on tZero and might invest in the future.
Separately, GSR Capital hired tZero to develop a token for trading cobalt, which was intended to simplify the discovery, purchase and tracking of cobalt.
In January 2019, tZero’s trading platform officially launched. A month later, it was reported the platform was struggling to meet volume expectations and the price of its token had declined. In June, tZero launched a second digital security to trade, a Digital Voting Series A-1 Preferred Stock (OSTKO), which a new version of the digital corporate bond Overstock offered in tZero’s early days.
Around the same time, Overstock’s quarterly filing revealed that it had seen a $10 million net loss in the second of 2019. In August 2019, tZero announced that it would open its security token trading platform to retail investors. The platform was initially only open to accredited investors. Around the same time, CEO Byrne resigned from the company after admitting to an affair with a Russian spy. He dumped his 13% company stake in September.
In April 2020 Overstock.com announced plans to distribute its long-delayed “digital security” shareholder dividend on May 19.
On that day shareholders of record on April 27, 2020, received one Digital Voting Series A-1 Preferred Stock (OSTKO) for every 10 of the online retailer’s shares they hold, according to a company press release.