Plunge of 60% in three months, the plight of STO seen from tZERO

As the first STO project, tZERO has been attracting attention since its inception. It wants to build an STO exchange. However, since tZERO was officially launched, only one STO token has been allowed to trade, and that is tZERO’s own security token TZROP .

[Deep Chain Original]

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The financing plan has been aborted many times

The first STO project tZERO has encountered various difficulties recently.

The first is the frustration of financing.

In August last year, GSR Capital, a Hong Kong-based private equity investment firm, announced that it would acquire an 18% stake in tZERO from Overstock.com at a valuation of US$1.5 billion, worth US$270 million, and spend US$104.55 million to purchase About 3.1 million Overstock shares, and an additional investment of $30 million to participate in the purchase of tZERO tokens.

The deal, with a total investment of up to US$404 million, was originally scheduled to close in December 2018, but was postponed until the end of February at the request of GSR.

However, on March 1, Overstock announced that the deal had not closed, and GSR brought in another investor, Makara, to co-lead a $100 million investment in tZERO common stock.

In late April, in a letter from Overstock to shareholders, the company’s CEO Patrick Byrne stated that the $100 million financing co-led by Makara Capital and GSR Capital failed to complete on schedule again, which is already the second financing plan. second miscarriage.

According to Byrne, according to the binding contract signed last year, GSR is still obliged to purchase tZERO tokens worth 30 million US dollars from it, and the purchase agreement must be completed three days before Overstock's next scheduled shareholder meeting.

What made GSR Capital (GSR Capital), which originally planned to invest heavily in tZERO, hesitate again and again and reduce the investment amount?

This has to mention the second dilemma that tZERO is facing: tZERO’s security token TZROP fell 60% after its listing!

Listing broke 60%

As the first STO project, tZERO has been attracting attention since its inception. In October 2018, tZERO completed the issuance of its security token TZROP, which is also the first completed STO case on the Ethereum mainnet.

TZROP, whose full name is TZERO PREFERRED, can be seen from the name that it is essentially a preferred stock. Equity token holders do not participate in company management and only receive dividend income.

According to the token economic model, TZROP holders will receive 10% of tZERO’s quarterly adjusted income. By distributing dividends, investors can obtain a clear return on investment, and at the same time encourage holders to temporarily lock tokens to obtain dividends to maintain prices Stablize.

According to an official email sent to investors by tZERO, the STO complies with the U.S. securities laws, has conducted KYC/AML verification for all its investors, and is in accordance with Regulation D and Regulation S Section 506(c) , are exempt from registration.

tZERO initially set a target financing amount of US$250 million, but due to the impact of the cryptocurrency bear market last year, its final financing amount was discounted. The actual financing amount was US$134 million, and a total of 1,079 qualified investors participated in the subscription.

What tZERO wants to do is equivalent to an STO exchange. It has been officially launched since January 2019. Unlike other lCO tokens, STO transactions are not 24 hours a day. The market trading time is synchronized with Wall Street, that is, the United States Trading is only available between 9:30am and 4pm ET.

So far, only one STO token has been listed on the entire exchange, and that is tZERO’s own token — TZROP.

TZROP was officially launched on the tZERO platform on January 25, 2019, with an opening price of US$8, which once reached US$9.99, an increase of up to 24%. Based on the opening price, the transaction amount on that day was US$185,000.

However, the good times did not last long. From the second day on, TZROP began to continue to decline. On the eighth day, the currency price fell below $3, which was 60% higher than the opening price.

In the following three months, the currency price has been hovering around $3, and the trading volume has also shrunk by nearly two-thirds in March and April.

For investors, such a result is obviously unacceptable. TZROP was sold at a price of $10 during the fundraising period. Although some investors bought it at a price of $8 or lower during the pre-sale period, it is different from the current 3 Compared with the price of US dollars, it is still a huge loss.

A trader, Mark Nelson, said that he believed that the selling pressure came from the original tZERO investors, most of whom were investors during the lCO boom last year. The true nature of the currency.

"Currently most digital currency investors are still very speculative. If you really want to play the essence of security tokens, buying this token is an investment in a company. Whether it is a short-term, medium or long-term investment, it should not be the current transaction. situation."

Regarding TZROP's poor performance in the secondary market, Saum Noursalehi, CEO of tZERO, expressed confidence in the future: "I think the value will only be suppressed for a short period of time, and then it will fully recover, even before it opens to the public to start trading in August. , it will exceed $10.”

Additionally, tZERO board member Bruce Fenton said the company is working to get more institutional players to work with the platform.

"Our more important next step is that tZERO can have more connections with other brokers and exchanges." Fenton said, "tZERO has many contacts on Wall Street that may help distribute.....It is very early in the development , so we need to be patient."

STO dilemma

"ICO has already stinks, STO is the future", "STO is equivalent to a legalized ICO, an upgraded version of IPO"...

At the end of 2018, there was a wave of STO craze in the currency circle, and everyone pinned their hopes of cryptocurrency on STO. However, a few months later, the headlines of the currency circle in 2019 were firmly dominated by IEO, and STO seemed to disappear.

Why is there so much thunder and little rain in STO, and there are very few real online projects?

First of all, the STO threshold is too high.

For project parties, whether it is ICO or STO, they have only one final demand - financing, and the compliance cost of STO is relatively high.

Similar to IPO, the compliance of STO will involve the increase of various costs, such as legal fees, audit fees, the fees of issuing agencies and consulting agencies, and the costs of various disclosure obligations after the completion of the issuance, etc., which will lead to real There are very few STO projects that can come out.

Secondly, the audience for STO fundraising is too narrow. Compared with ICO, most STOs have requirements for qualified investors and can only obtain investment from a small number of investors.

Taking the United States as an example, a qualified investor refers to an investor with an annual income of more than US$200,000 (or a total income of more than US$300,000 with a spouse) or assets of US$1 million (excluding self-housing) in the past two years. With the small and broad field of cryptocurrency investment, this will exclude most retail investors.

This is also one of the difficulties faced by the tZERO exchange. There are too few qualified investors who can register with their real names on the exchange and participate in transactions. If there is no traffic, there will be no trading volume. According to tZERO, less than half of the total 1,000 accredited investors traded on the platform after launch.

For STO tokens, this has given birth to a fatal problem - insufficient liquidity.

Most STO tokens have a 1-year lock-up period. The process from fundraising to trading on exchanges is relatively long. Investors need to wait patiently. Time constraints and other issues, in the blockchain world known for its speed, STO is like a jogging tortoise, it can only show off its armor: Look, I am compliant.

The more important problem is that there is a huge difference in the investment philosophy of the target audience of STO and cryptocurrency.

The essence of security tokens is still securities, and their intrinsic value comes from the dividends brought by the corresponding shares. For example, TZROP promises to use 10% of the gross profit every quarter as dividends. If you want to obtain long-term benefits, you must hold them for a long time.

At the same time, based on financial data, traditional securities have a complete set of valuation models and logic, and it is difficult for STO tokens to generate several times or ten times of returns in a short period of time.

For cryptocurrency investors, they prefer fast in and fast out, cash out in time, and pursue high returns of ten times and hundreds of times while taking high risks. STO tokens are not their ideal choice.

People who agree with value investing will choose to buy stocks and hold them for a long time; investors who agree with cryptocurrency will choose to buy existing non-STO tokens.

STO seems to be in an embarrassing situation where both sides are not happy.

Compared with traditional securities financing methods such as IPO, the traditional securities market still has great convenience in terms of the number of users, capital, liquidity, security, and public acceptance. STO does not have obvious advantages; compared with lCO/IEO, STO compliance costs are high, efficiency is low, and liquidity is poor.

This article is original for Deepchain (ID: deepchainvip). Unauthorized reprinting is prohibited.

This article is original for Deepchain (ID: deepchainvip). Unauthorized reprinting is prohibited.