Get ready for regulated token trading.
Announced today, tØ, the capital markets arm of Overstock's blockchain-focused subsidiary Medici, is launching a first-of-its-kind alternative trading system (ATS) that will provide a platform for the exchange of cryptographic tokens categorized in the U.S. as securities.
A joint venture with RenGen (a fintech firm that will serve as the market maker) and Argon Group (an investment bank specializing in ICO capital raising), the ATS will be regulated by both the SEC and the Financial Industry Regulatory Authority (FINRA).
In short, the ATS will offer a legally approved, regulated alternative to a major securities exchange, such as the New York Stock Exchange and Nasdaq.
As such, the platform may be seen as a major step forward for the token space. Simply put, there are currently no other regulator-approved ways for U.S. investors to trade security tokens.
Patrick Byrne, CEO of Overstock.com, told CoinDesk:
Stepping back, the launch of the ATS follows statements by Overstock in June indicating that the company was looking for new ways to utilize technology originally developed as part of a planned blockchain stock market offering aimed at traditional capital markets.
But, as profiled by CoinDesk, in the wake of an SEC decision to class some tokens as securities, Overstock's Medici arm found itself with a fully formed product ready to capitalize on another market entirely – one that had been gaining momentum globally.
It might be an understatement, but the market for cryptocurrency investments is booming, having eclipsed the $2 billion mark this year, according to the CoinDesk ICO Tracker.
And that may be a drop in the bucket compared to what's ahead.
Emma Channing, Argon's general counsel and interim CEO, told CoinDesk she believes her firm's new ATS could see $2 billion in trading within the next 12 months.
Put another way, Argon projects that the total ICO issuance volume could soon top $4 billion.
In addition to creating liquidity for a new type of security, Byrne said the new platform will have appeal in that it will reduce transaction costs by 80–90 percent over the model now in use by traditional securities exchanges.
The benefits of blockchain would also allow trades to clear at the time of execution, compared to the current three-day time lag that investors currently experience at traditional stock exchanges, he said.
According to Byrne, decreased costs and faster settlement times will mean a fairer market, with greater liquidity and more efficient price discovery.
But the impact could be felt by another key group: developers and entrepreneurs launching token sales.
In the current environment, ICO issuers are now faced with a dilemma – either they must attempt to create a token that does not meet the SEC's definition of a security, or they must meet that definition and give up the liquidity that comes from being publicly traded.
According to Channing, though, the new platform announced today will eliminate that choice.
"We believe this is exactly what the SEC was asking for in the DAO report," she told CoinDesk.
Channing went on to describe how, in Argon Group's view, the new platform will allow ICO issuers to design tokens that are investment products.
"You can promise a return, you can promise portfolio tokens, you can promise all sorts of interesting ways of providing a financial return," she said.
Speaking to the same point, Overstock's Byrne struck a similar note:
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