As ICOs start to face regulatory scrutiny, Overstock-owned tZERO makes the decision to offer a new type of token backed by securities.
After having experienced scrutiny from the SEC regarding its ICO, tZERO – a company owned by Overstock.com – has decided to run a security token offering (STO) that will close tonight just before midnight, Eastern Daylight Time.
The success of the offering could be known on Thursday this week during Overstock’s earnings call, but there is something a little more interesting about this whole ordeal.
As tZERO is a securities exchange that works through cutting-edge financial technologies, one can expect it to offer tokens in the most legal manner possible, and here is where security token offerings (STOs) come in.
A new model for trading tokens
ICOs have had their run, and there has been one common theme: a significant amount of them fail, and when they do, there is usually no recourse for the person who has invested in the tokens.
The team behind an ICO could take the money, and in that case, the investors would be left with a bunch of useless tokens. This is where the concept of STOs comes – as the name implies, these are tokens, which give their owners certain rights, including accountability from the company in case it decides to close its doors.
Usually, if someone invests in a project that goes south, the company behind the project liquidates its assets, pays its debts, then compensates its investors with the remainder of the funds. STO functions in a similar manner.
tZERO is perhaps the first significant STO out there, and if it experiences some level of success, other projects could follow this model to help assure potential investors.
For those who want to continue offering risky propositions, they may want to use Simple Agreements for Future Tokens SAFTs to avoid falling under too much scrutiny from the SEC.