Overstock Issues First Cryptosecurity


In January 2014, Overstock.com became the first major online retailer to accept payment in bitcoin. Less than eighteen months later, Overstock is now the first company to offer qualified buyers the option of purchasing private cryptosecurities, in the form of bonds. The corporate bonds will trade using Bitcoin’s blockchain protocol. This development represents a piece of the company’s cryptofinance initiative called “Medici.”

“We named the project ‘Medici’ for the Medici Bank of Florence. This bank grew very rich because it invented dual entry accounting, which engendered trust which led to wealth which in turn led to the Renaissance. Kind of a big deal,” said Overstock.com Director of Communications Judd Bagley. “It took over 600 years to make the next big innovation in book-keeping, and that was the Bitcoin blockchain in 2009. We’ve figured out a way to use distributed ledgers like the blockchain to bring enormous efficiencies and cost savings to transactions as weighty as equities trading, without sacrificing any of the security or investor protections market participants demand.”

Overstock developed its own platform called T0.com for trading the bonds. This platform, based on blockchain technology, allows trades to clear the same day they are made, in contrast to the three days traditional trades take to settle (also known as T + 3). This is just one of the benefits of using a distributed ledger. In addition to speed, the platform seeks to improve the transparency and reliability of trades. Owners of the cryptobonds will be able to track their assets directly on the Bitcoin blockchain.

Back in April, Overstock filed a shelf registration with the SEC stating its intentions to offer digital securities. On June 1st, the company distributed a document to qualified investors explaining its cryptobond offering. Overstock plans to sell $25 million in digital securities. On June 8th, Overstock.com CEO Patrick Byrne purchased the first cryptosecurity – a $500,000 digital bond. Byrne, a staunch advocate of new technology, has suggested that trading on blockchain technology will prove more transparent and efficient than traditional trading systems.

Note, not everyone can purchase these cryptobonds – the offering has been made exclusively to institutional investors that qualify under the relevant securities laws. This is one of the many ways blockchain technology is being applied outside of digital currency. Despite the propounded benefits of digital securities, time will tell if investors are willing to jump into cryptobonds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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