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Overstock Blockchain Securities Platform Presses Onward, with Some Questions Raised

Last Updated March 4, 2021 4:46 PM
Lester Coleman
Last Updated March 4, 2021 4:46 PM

Overstock.com, one of the most visible retailers to embrace bitcoin, grabbed the interest of securities traders when it announced a blockchain-based securities platform and later won government approval to issue stocks via the blockchain.

To help securities traders learn more about Overstock’s plans with its securities trading technology, Alex Pitti, a writer for Seeking Alpha, interviewed the communications director of Overstock.com. As a result of this interview , Pitti concluded he is not recommending Overstock stock since he questions Overstock CEO Patrick Byrne’s interest in the company. Pitti adds that he will consider investing in the company’s blockchain-based securities platform Medici when Overstock sells it.

Overstock Trading Platform

In December, CCN.com reported that the Securities and Exchange Commission (SEC) approved an amended Form S-3 that would enable the company to issue securities using block-chain-based technology. Overstock developed its securities-issuing technology through its TØ.com subsidiary, through which it plans to provide a “cryptosecurity” service to allow businesses to issue stock on the blockchain.

Byrne said at the time the technology will do for capital markets what the Internet has done for consumers; it will offer a reliable, transparent and highly-automated way to track who owns a security at a given time.

Pitti said there is a “cloud of distrust” over bitcoin since investors think the $3.2 million Overstock spent on Medici in the previous quarter was a waste. He wanted to interview someone at Overstock to help investors learn more about Medici’s achievement and its future. Byrne referred Pitti to Judd Bagley, Overstock’s director of communications.

Medici is working on eliminating the three-day settlement of stock trades and ending the problem with pre-borrowing shares in order to short them, Pitti noted.

What Do Traders Think?

Since Medici is selling the TØ product as a license to trading firms, Pitti asked Bagley if these firms wouldn’t view blockchain technology as eliminating their need or, at least lowering their profits. Bagley said no trading firms are currently using the securities trading platform, but this will change in the near future. He said there will always be a need for full-service firms and banks and they will welcome TØ since it will reduce costs and trade settlement time. He said both institutional and retail firms will use TØ on account of the lower costs and settlement times.

Asked which businesses will be most disrupted by bitcoin, Bagley said these will include copyright, identity, voting and land tilting, although the full list of areas is too long to list. He noted that Medici is investigating other uses of blockchain technology.

Since prime brokers have an interest in supporting pre-borrowing because it is very profitable for them, Pitti asked Bagley how TØ will innovate around this entrenched support. Bagley said prime brokers will be compelled to use the platform since the stock loan is a lucrative Wall Street industry. He said owners of shares available for stock loan will insist on allocating the inventory by means of the TØ short token product. He said this will ensure a fair market price for their shares.

When asked if high-frequency traders are his biggest customers due to offering pre-borrowing tokens, Bagley said he could not comment on the nature of customers most likely to buy pre-tokens. “We do know that the buyers will love the security of knowing they are in compliance with regulations governing short selling, and that the blockchain provides them with turnkey, auditable proof of their compliance,” he said.

Spin-Off The Platform?

Asked if Overstock’s bitcoin arm spinoff will be the first company listed on the blockchain-based public exchange the SEC approved in December, Bagley chose not to comment.

Asked how Ethereum can moderate its risk by hedging its exposure to bitcoin and if Overstock is working with Ethereum, Bagley said he would not comment on Ethereum. He said Overstock’s exposure to bitcoin risk isn’t very significant since it retains only 10% of its revenues from bitcoin; it converts the rest to dollars.

Concerning the crypto-bonds that Medici offers, Bagley said there have been two corporate bond transactions on TØ that were made to prove the security and safety of blockchain trading. He said these bonds were not intended to be profitable.

When bonds are offered to the market, he said he believes the business will be profitable.

‘Pipeline To Wall Street’

Pitti asked Bagley about SpeedRoute, a trading technology provider that Overstock acquired in August of 2015. Bagley said SpeedRoute is Overstock’s pipeline to Wall Street, and all TØ trades will move through SpeedRoute, but trading has not taken place yet on TØ.

Pitti also asked Bagley what impact Amazon would have on Overstock if it accepted bitcoin; would he view it as helping bitcoin or a competitive threat? Bagley said any bitcoin growth is good for Overstock.

Featured image from Shutterstock.