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Overstock's Security Token Trading Platform, tZero, Is Now Open. Who Can Use It?

Overstock.com's tZERO security tokens are now available for investors to buy and sell, according to a recent announcement. While at a basic level, tZERO tokens are one of the 1,600-plus blockchain-based cryptocurrencies in existence today, the tokens stand out in two ways.

1) tZERO Is a Security Token

The first is that tZERO tokens are security tokens. That means that they act solely as an investment instrument, rather than performing a function within a platform. In this sense, security tokens are akin to stock or shares in a company: Organizations sell them as a way of raising capital and the tokens hold financial value, but they do not contribute to the actual operations of a software platform.

Security tokens are usually defined in opposition to utility tokens. The latter are tokens that are used within a specific platform; for example, you might create a blockchain-based supply-chain management system in which participants use utility tokens to pay each other for goods and services that are part of the supply chain. Utility tokens are sometimes also sold to raise capital, but they still play a functional role on a platform.

The security token concept has come en vogue over the past couple of years among investors who see security tokens as more efficient and transparent ways to raise capital and invest in companies than traditional capital markets. 2018 and early 2019 saw a lot of activity on the security token front, with ICOs or complete token launches by organizations like SharesPost and the OpenFinance Network.

2) Overstock.com Owns tZERO

By most measures, then, tZERO is not the first security token to go live. But the launch is still quite significant for another reason: Overstock.com, the online retailer, owns tZERO (through a portfolio company). Overstock founded tZERO in 2014 with the goal of exploring new ways to use blockchain technology in capital markets.

Plans for a tZERO security token have made headlines several times since tZERO's launch. Overstock demonstrated a tZERO security token trading platform prototype in April 2018, followed by a token sale in August that raised $134 million.

Although tZERO, as noted above, was hardly the only security token in development during this time, its association with Overstock.com gave it a cachet that other security tokens could not match.

The tZERO Token's Limited Launch

The launch of the token for live trading is another step forward, albeit one of limited scope. For now, if you want to buy or sell tZERO tokens, you have to be an accredited investor and you have to trade through a brokerage account set up by a company called Dinosaur Financial Group LLC.

This means that tZERO tokens aren't readily available for trading by the public at large. Small-scale crypto investors are unlikely to be able to get into the tZERO market at this point. So are companies that might want to use the tokens to raise capital.

Still, the token launch promises to offer insight into a couple of topics that are of interest for the crypto world as a whole. One is how regulators treat the token from here, and whether any new friction arises that could signal further obstacles to overcome for the security token market writ large before security tokens become practical to use on a large scale. The other is the speed at which tZERO moves forward to make its tokens available for use by more people and whether it is able to beat other organizations vying to launch similar tokens.

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