Digital Asset Trailblazer tZERO Discusses Digital Securities, Real Estate Potential, Primary Offerings

tZERO is a recognized trailblazer when it comes to digital securities. An early adopter of the concept of tokenization and digital assets, today, tZERO is a regulated Broker Dealer and an SEC-approved alternative trading system (ATS). Utilizing blockchain technology, tZERO enables both digital securities and other digital assets like NFTs.

According to the company’s website, tZERO is committed to fully complying with evolving regulations in the issuance and trading of securities, including digital assets. As it is widely anticipated that, eventually, all securities will be digital, tZERO is well-positioned to develop and operate the digital securities platform of the future.

In 2022, ICE (NYSE:ICE), the operator of the New York Stock Exchange, invested in tZERO, thus creating a strategic alliance with one of the largest exchanges in the world. When the investment was announced, long-time ICE executive David Goone became tZERO’s Chief Executive Officer.

In the past week, CI connected with Goone to receive an update on the digital asset pioneer. Our discussion is below.


tZERO supports primary offerings. Are these digital and traditional? If digital, are you partnering with a provider?

David Goone: To us, technology is meant to support the issuers’ objectives and investor experience, not be a solution in search of a problem.  We lead with product.  Supporting unique assets is our first priority.

We can and do support securities underpinned by conventional and digital technology or those that leverage digital technology while preserving the conventional essence of a security that regulators and market participants are comfortable with, depending on structure and objectives, and have developed unique compliance, custodial and operational infrastructure to enable that fluency.

To us, technology is meant to support the issuers’ objectives and investor experience, not be a solution in search of a problem Click to Tweet

What type of pipeline do you foresee for primary offerings in 2024? Are these mostly Reg D?

David Goone: Our pipeline reflects Reg CF, Reg D, and Reg A offerings. Given the average size of many of these offerings, the pipeline consists of more Reg. D and Reg A offerings. Each private placement type (e.g. Reg. CF, Reg. D, Reg. A) has unique regulatory guidelines related to secondary trading, which contributes to our client’s desire to pursue a specific approach along with the demographic of investor the issuer is seeking to have participate in the offering.

How are you sourcing new deals?

David Goone: Deals are sourced by a variety of channels that include, but are not limited to focused outreach efforts, consulting firms, law firms, 3rd party tokenization technology providers, broker-dealers, transfer agents/cap table management providers, and other referral partners.

Do all securities offerings eventually trade on tZERO’s marketplace (ATS)?

David Goone: Depending on the strategic objective of the client, offerings will trade within tZERO’s marketplace and be broadly accessible, traded within predefined parameters, or not traded at all if the client is seeking to enable secondary liquidity.

Is Real Estate a specific sector of interest for tZERO?

David Goone: Yes, real estate is one of the strongest asset classes reflected in our pipeline but we are working with a broad set of issuers that represent a wide range of industry verticals.

real estate is one of the strongest asset classes reflected in our pipeline but we are working with a broad set of issuers that represent a wide range of industry verticals Click to Tweet

Are you looking at debt and equity offerings? Are you seeing benefits to real estate issued utilizing blockchain technology?

David Goone: We are focused on both equity and debt.

Real estate has attracted a lot of focus. There are a couple of perspectives on it. One comes from a misapplication of the idea of what tokenization means. Tokenization as technology, in particular, as applied to the real estate industry, is extremely innovative and can lead to extreme efficiencies, particularly in real estate where there’s both outside and in the US, a problem with record keeping, a problem with fragmented databases that are maintained by local or national agencies that are not transparent, that are opaque, that are often wrong, that require significant transaction costs to research real estate title and to move real estate title with any degree of certainty, and that requires insurance products like title insurance, to compensate for some of the uncertainty that comes with the nature of these records. Blockchain-based databases or real estate records, which would be digitally native, transparent, and immutable, are a fundamental improvement for the real estate industry and could streamline the process of transferring titles.

Blockchain-based databases or real estate records, which would be digitally native, transparent, and immutable, are a fundamental improvement for the real estate industry and could streamline the process of transferring titles Click to Tweet

Now, the other use case for tokenization is taking real estate assets that historically, in a while, could have been available to retail investors either through their personal real estate investments, which for most people, is their home, or through securitized vehicles like REITs and others, generally having been available for sort of smaller scale real estate investments that are more private in nature and therefore available only to high net worth individuals and institutions.

If you are looking to securitize that industry, tokenization is appealing, but tokenization does not in and of itself solve the issue that what you’re doing is fractionalizing and securitizing an asset, and you have to comply with securities laws. Just because you call it a token does not get your Get Out of Jail Free card if what you are tokenizing looks like a security.

We all know the ongoing debate in the United States around that. So yes, real estate markets, it’s not a solution in search of a problem, but the technology that would power these fractionalized securitized, interests in, and sort of bespoke niche real estate assets that before were not available to a wider investing audience. First, you have to fractionalize and securitize in a compliant way. You got to have an asset that people want to invest in. And then, yes, blockchain-based records introduced greater efficiency and functionality into this asset class. That’s all from a fractionalization perspective.

Are there other asset classes that you are expanding into? I see that you are now offering NFTs. Are these issued as securities?

David Goone: Besides real estate, we are working with issuers within the technology, consumer goods, healthcare, gaming, blockchain, art, music, and other industries. We are offering NFTs that are issued as securities that will benefit from tZERO’s compliant infrastructure as that market recovers.

Where do you predict the most growth in the next five years? Is your partnership with ICE (NYSE) part of the equation?

David Goone: Based on current indicators, most of the growth will be driven by leveraging blockchain to gain operational efficiency (e.g. settlement, blockchain databases), providing access to unique elusive asset classes and pre-IPO investment exposure that have high investor demand. The partnership with ICE (NYSE) will continue to serve as a major strategic and competitive advantage supporting product access and connectivity.

Digital securities hold a lot of promise. Why has development been so slow?

David Goone: A lot of technological innovation, market infrastructure development, and probably most importantly, regulatory and policy, advocacy, and education have happened over the last number of years. Unfortunately, changing market infrastructure in the United States and elsewhere is a monumental task from regulatory operational technology and other standpoints. Just think back to the time when Wall Street was dematerialized from paper to electronic book entry or when the trading ecosystem went from Open Outcry to electronic trading. These are very significant journeys that take time and political and industry focus.

Some of the expectations that existed, if you go back to 2017 or so, around the rapid transformation of the public equities markets, for example, haven’t come to pass.  A lot of those have to do with the factors that I mentioned. They also have to do with some of the baggage that crypto has brought to the conversation around the role of blockchain in the securities industry.

On the one hand, crypto has elevated the conversation around the use case of blockchain technology, and on the other hand, crypto has brought with it, rightly or wrongly, the baggage around money laundering and other rightly or wrongly perceived issues, and that has slowed down some of the conversations.

But again, there’s been a lot of thought, a lot of work. The private securities markets, oddly enough, are easier to experiment in than public securities markets, and that’s where you’ve seen a lot of innovation, from tZERO and others, for what would it take for securities to be issued, maintained, traded, custodied and settled on the blockchain with various functions, importantly, being automated as opposed to being done by regulated market participants. It’s a smaller environment. It’s more niche. It’s less disruptive than changing public equities markets, and that’s where there’s been a lot of innovation. That needs to continue to happen, and we think the conversation around increasing penetration of blockchain technology into back-office processes maintained by large banks, clearing agencies, transfer agents, broker-dealers, and other market participants, and eventually, for customer-facing products and, ultimately, for technology that underpins the securities ecosystem as a whole is still a journey to happen. There are a lot of tailwinds in part because the conversation is shifting from one that’s being focused on crypto only as an asset class, which to me has always been a side point to the topic of what can this technology do for in this case, the securities industry, although there are a number of other use cases of course, and yes, this technology needs oil to run, and crypto is that oil.

We have to be thoughtful about how we treat these native digital assets. But the conversation has to be led by this is a technology revolution, and this is what it can do for the securities ecosystem, for example, conversation is not being properly grounded with fewer distractions, particularly as large institutional participants enter the ecosystem, whether it’s in connection with some of the ETF products, or some of the more nuanced things that might necessarily not resonate as well on the headlines that banks have been doing with testing, blockchain technology with rehypothecation collateral treatment or others. Where combined databases that are automated will introduce significant efficiencies in the market, and that journey will continue to expand and one that will touch everyday participants in the capital markets and the street more closely over the years to come.

A lot of expert experimentation you are going to see is in the private securities ecosystem because it's easier to do that without first mandating overall reengineering of Wall Street Click to Tweet

A lot of expert experimentation you are going to see is in the private securities ecosystem because it’s easier to do that without first mandating overall reengineering of Wall Street, which is not going to happen overnight, and people who thought it did, misjudged the ecosystem. You’re going to see more focus on wrapping traditional native digital assets into more conventional retail-friendly products.

So the ETF conversations represent that, and I think the important question that relates to the first point that I made is, what’s going to happen with crypto if the conversation is going to lead you in the direction of all these things as securities, with the exception of Bitcoin, maybe with the exception of Ether – we see there’s a lot of uncertainty now.

There’s certainly industry chatter, but Ether might get classified as a security that’s independent of the question about an Ether ETF -that can come about in one way or another. But if crypto is treated as a security, how can it exist in the securities markets, and what infrastructure is required to support that?

if crypto is treated as a security, how can it exist in the securities markets, and what infrastructure is required to support that? Click to Tweet

The SEC put out a path for special purpose broker-dealers, what was three and a half years ago, and they’ve only approved one that has been in beta mode, and there hasn’t been a lot of infrastructure and guidance in place for what it would take for regulated market participants to provide for compliant issuance, trading, custody and settlement of these crypto securities, that now have to exist lawfully in the securities markets. That has to be an intense area of focus as well.

Digital Asset Trailblazer tZERO Discusses Digital Securities, Real Estate Potential, Primary Offerings Click to Tweet

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