Overstock creates blockchain-powered private bond

Overstock CEO Patrick Byrne

Online retailer Overstock.com has prepared to offer a $25-million private bond using the Bitcoin blockchain.

The company announced Friday it became the first company to solicit qualified institutional buyers in a digital corporate bond that will trade using blockchain technology. This development is part of Overstock’s broader cryptofinance initiative called Medici. CEO Patrick M. Byrne announced Monday that he made the first purchase of the cryptobond for $500,000.

“It’s not exactly Jonas Salk injecting himself with his polio vaccine, but I wanted to own the first cryptosecurity ever issued,” said Byrne in a press release. “I intend to demonstrate my belief not just in Overstock, but in the TØ.com platform that we built and, indeed, in the cryptorevolution itself.”

TØ refers to the fact that trades on the platform securely settle on the same day, rather than three days later in what Wall Street traders call “T+3.” Overstock said the TØ.com technology uses the Open Assets protocol.

WIRED reported that earlier last week, Overstock circulated a document among hedge funds, private equity groups, and other prospective Wall Street investors indicating it was offering the cryptobond. According to the circular, Byrne said he “believes that cryptotechnology can do for the capital market what the internet has done for consumers.”

WIRED said Byrne considers the bond a step toward a public stock market spurred by blockchain-like technology, a replacement for the kinds of platforms that operate NASDAQ and NYSE. Overseen by cryptographic algorithms, such a market could possibly be more transparent, more reliable, and more secure than the current system. “There are all kinds of ways to rig the market,” said Byrne to WIRED. “We want to make it un-rig-able.”

Byrne sees cryptosecurities as a means of finally changing a system of which he is critical. WIRED noted that a decade ago, Overstock fell victim to naked short selling, which involves traders selling stock they do not have. Byrne fought back against this practice, criticizing traders as well as politicians, regulators, and reporters.

Last fall, Byrne announced that Overstock was using Bitcoin-like technology to develop a system that would enable the company to issue public stock over the Internet, and Overstock recently filed papers with the Securities and Exchange Commission seeking approval for the offering.

While the commission has not yet approved the offering, Overstock is using the same system to issue its private bond, which does not need explicit approval from the SEC, said WIRED. The magazine said this can serve as a proof-of-concept for the company’s push toward a blockchain-based public stock market.

James Angel, a professor of finance at Georgetown University, sees some promise in this concept, but wonders whether Overstock can persuade others to adopt it.

“Getting lots of stodgy fiduciaries to sign up is the hard part,” said Angel to WIRED. “People are very conservative about their money. We have a custodial system that pretty much works. The thinking is: If it ain’t broke, don’t fix it.”

But Byrne considers the project not just an ideological endeavor, but a prospective business, with other companies possibly using Overstock’s technology to issue their own securities.

The cryptobond is a small step forward, Byrne acknowledged, but he considers it a significant one. Speaking with WIRED, he compared it to Chuck Yeager breaking the sound barrier. “That’s what we’re trying to do.”

Image courtesy of Overstock