United States: Implications For Launch Of tZERO, First U.S. Registered ATS

Last Updated: January 29 2018
Article by Trevor M. Dodge

The world's first SEC-registered cryptocurrency exchange may be just around the corner. As detailed in their October 24 Form 8-K, Overstock.com subsidiary tZERO has entered into a joint venture with The Argon Group and RenGen LLC to launch a U.S. registered Alternative Trading System ("ATS") for digital tokens. If successful, the tZERO ATS may represent a monumental development in the evolving landscape of blockchain-based fundraising by providing secondary market liquidity for ICO tokens affirmatively offered and sold as securities.  

tZERO's potential importance to the token ecosystem emerges from the context of the uncertain regulatory environment in which ICOs operate today. If ICO tokens are "securities" they are subject to the federal securities laws; yet whether any particular token constitutes a security turns on a case-by-case determination that must be made in accordance with the economic realities of a given transaction.

Lacking much clear, unequivocal guidance, potential ICO issuers are left in a quandary. Depending on the characteristics of the tokens, the network they operate on, and the manner in which they are offered and sold, ICO tokens may – or may not – be securities.

So far, most ICO issuers have responded with attempts to avoid the securities laws by designing tokens that do not possess security-like features, and instead derive value from various forms of actual or supposed utility. To further insulate issuers from legal risk, these so-called "utility tokens" have been coupled with creative offering structures, of which the SAFT is the most recent example.

There are a number of drawbacks to approaches designed to avoid or end-around the securities laws. Indications from the SEC signal that it may be difficult if not impossible to conduct any unregistered ICO without running afoul of the securities laws, regardless of the characteristics of the underlying tokens. Further, a series of class action complaints demonstrate that regulatory enforcement is not the only, or perhaps even the most immediate, operational threat to ICO issuers. Even the SAFT structure has come under criticism. Meanwhile, lacking any rights in or claims against the issuing entity, many existing utility tokens arguably possess little real value beyond their ability to fetch ever-higher prices on the secondary market due to the emergence of a dangerous speculative bubble.

Thus, it seems at least some ICO issuers could benefit from registering their tokens as securities or selling them pursuant to an exemption. Doing so would provide issuers with greater certainty; a more stable foundation upon which they can build out their projects (and perhaps sleep a bit more soundly at night). It would give developers freedom to program tokens with an array of functionalities that they may otherwise be tempted to avoid, such as ownership, dividend and liquidation rights, or coupons and redemption schedules. Investors may respond positively, and pay a meaningful premium, for tokens that are presumed more legitimate and reliable because issued in connection with the SEC's uniform disclosure requirements. Such ICOs might even provide issuers with access to certain markets they may otherwise be unable to reach, such as institutional capital prohibited by organizational documents or applicable regulation from investing in the unregistered and non-exempt ICOs that are common today.

So why haven't we seen more ICOs that self-identify their tokens as securities and sell them accordingly?

To be sure, the requirements for compliance with securities laws are too costly or constraining for many issuers – and may be particularly problematic for certain distributed applications that rely upon the free and ready transferability of their tokens in order to properly function. But there is currently an additional important and often under-appreciated problem that besets such an approach: an utter lack of secondary market liquidity for tokens that are explicitly and undeniably also securities.

According to the SEC, any exchange platform that facilitates transactions in tokenized securities must register as a national securities exchange or operate pursuant to an exemption. This bars any unregistered, non-exempt secondary trading platform – i.e., every cryptocurrency exchange in operation today – from listing tokens that are offered and sold as securities.

tZERO promises to fill this void. As a registered ATS, tZERO would provide access to secondary market liquidity for ICO tokens brought to market through proper SEC processes. The existence of such a platform could change the calculus for many developers considering designing tokens with security-like characteristics or offering their tokens as securities via avenues such as Regulation A+, Regulation CF and Regulation D. Additionally, other registered exchanges are sure to be created if tZERO takes off, perhaps even bearing further technological capabilities in order to establish competitive advantage.

While there will most certainly be barriers to full-fledged adoption, the tZERO experiment is a live illustration of the dialectical relationship between regulation and innovation, which just may dramatically alter the landscape of blockchain-based fundraising as we know it today.

Implications For Launch Of tZERO, First U.S. Registered ATS

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions