SEC Filing Hints at Overstock's Plan for Bitcoin-Based Securities

Online retailer Overstock.com has outlined how it might issue digital securities in a new Securities and Exchange Commission (SEC) filing.

Apr 28, 2015 at 3:13 p.m. UTC
Updated Sep 11, 2021 at 11:39 a.m. UTC

Overstock.com, the online retailer currently developing decentralized stock market Medici, has outlined how it might issue digital securities in a new Securities and Exchange Commission (SEC) filing.

Submitted on 24th April, the S-3 form outlines Overstock’s intention to issue new stocks or securities. The offerings, according to the company, could amount to as much as $500m.

The filing also details how Overstock may seek to issue digital securities through an alternative trading system. Under a section entitled 'Risks Applicable to Digital Securities Offerings', the company states:

"We may decide to offer securities as digital securities, meaning the securities will be uncertificated securities, the ownership and transfer of which are recorded on a cryptographically-secured distributed ledger system using technology similar to (or the same as) the distributed ledger technology used for trading digital currencies."

The prospectus goes on to identify how the digital securities would differ from traditional securities, highlighting that settlement periods would be much shorter. In terms of risk, the company also acknowledges the "novel and untested" nature of the concept.

Overstock director of communications Judd Bagley suggested the filing fits into the company's broader plans to use the technology underlying bitcoin to power a new kind of stock exchange.

"There are many parts involved in achieving this, and one of them is the Alternative Trading System we’ll be using to match buyers and sellers. In other words, an ATS is part of the Medici project," he said.

Details, risks

According to the prospectus, faster settlement times are one benefit of utilizing digitally-based securities. Overstock also pointed to the various risks associated with the concept, some of which parallel the challenges of holding digital currencies.

Notably, the prospectus outlines how, if implemented, the trading system would disclose certain types of investment information, explaining:

"The number of securities, the purchase price paid for the securities and the public keys associated with the securities involved in each transfer of the digital securities from the first issuance of the digital securities will be permanently available to the public."

The document also references the potential use of multi-signature technology, noting how "any number of [private keys] may be required in order to authorize a transfer of ownership of the digital securities."

Limited liquidity was identified as a key risk factor within a crypto-powered trading environment that could pose a risk to investors.

"You may not be able to resell your digital securities on a timely basis or at all," the filing notes.

Medici work underway

According to Bagley, Overstock's work on the Medici crypto stock exchange continues. The project dates back to last year, when the company announced it had hired several Counterparty developers to build out the concept. Some later left the project.

Bagley noted that an alpha version of the exchange is currently being tested internally. Looking ahead, he said that Overstock will continue refining and polishing the concept:

"Once we’ve demonstrated that this platform works for trading in digital equities, we’re going to continue iterating and adding functions that will make it resemble any other trading experience, except for the fact that trades will settle much more quickly and securely."

"The technology works," he added. "It’s very exciting."

Image via Shutterstock

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