The digital token market may be about to become a little bit more like Wall Street.
tZero, a subsidiary of online retailer Overstock.com Inc., is joining with Argon Group and RenGen LLC to form a digital tokens exchange that Overstock Chief Executive Officer Patrick Byrne said will be the first in compliance with Securities Exchange Commission and Financial Industry Regulatory Authority guidelines.
There’s a pipeline of about $2 billion in digital assets sold through initial coin offerings waiting to start trading, with the first tokens expected to list in the fourth quarter, the companies estimate. Byrne’s long-term bet is that all securities will eventually be tokenized and trade using blockchain technology. An exchange that falls under the SEC umbrella is a step toward that.
(Related: Will Bitcoin Ever Be a Fiduciary Asset?)
“It’s a cleaner, more efficient, less expensive market,” Byrne said Tuesday at tZero’s offices in New York. “It will start with ICOs, but all the forces of economics will drive blue-chip issuers to this, and eventually we’ll see the first McDonalds or GM tokens. This isn’t going to stay a novelty.”
Shares of Overstock, which has been accepting cryptocurrency payments since 2014, surged as much as 13% to $26.50, the highest since December 2014.
Blockchain-based digital tokens have raised more than $2 billion, according to Coin Desk, surpassing venture capital funding, while the cryptocurrency market has ballooned to $130 billion, including bitcoin.
Most tokens issued in ICOs are application tokens, or tokens made to be used inside an application, and a tiny fraction are securities tokens, which represent a stake in a company or fund, and must comply with securities regulations, the SEC said in July. An increasing number of companies will decide to issue securities tokens, instead of application tokens after the SEC guidance, Byrne said.
Argon Group, which advises companies in their ICO process, will provide a vetting process for the tokens listed in the exchange, as concerns rise about a bubble in the ICO space, with companies raising millions of dollars with no working product. RenGen will be the market-maker in the exchange.
— Read Crypto Bill Could Ease Tax Burden on Bitcoin Transactions on ThinkAdvisor.