Fintech Spotlight: How tZero Is Narrowing The Delta Between Public, Private Assets

A massive delta exists between public and private assets.

That’s according to Solomon Tesfaye, the vice president of business development and capital markets at tZero Group Inc, a subsidiary of Medici Ventures, the venture capital arm of Overstock.com Inc OSTK.

After spending a career in investment banking, venture capital, and operations within the industrials, technology and health care industry, Tesfaye told Benzinga he joined tZero to bring high-quality assets onto the firm’s private secondary market platform and to form strategic partnerships.

Liquidity Is Key: Liquidity is the core differentiator between public and private assets, Tesfaye said. 

“Two times more capital is deployed in the private market space —as opposed to the public markets — but there’s 330 times more liquidity in the public space.”

Since its founding in 2014, tZero has bridged the gap between liquidity and capital deployed.

Through tokenization, the firm’s secondary market platform allows private assets to have liquidity optionality.

“We essentially digitize equity within a particular company, and enable that to trade on our platform,” Tesfaye said. “Investors can trade a position, within a private asset, as simply as trading Tesla shares.”

The tZero Product: The firm's offering can be divided into two parts: technology and broker-dealer connectivity.

A proprietary, blockchain-agnostic platform created by tZero allows assets to be tokenized with ease according to regulatory frameworks and issuer preferences.

In terms of connectivity, tZero owns multiple broker-dealers, including SpeedRoute, an equity order routing and execution platform that services nearly 150 broker-dealers.

tZero allows for broker-dealers to subscribe to its private secondary markets platform.

“They bring in tens of thousands, if not hundreds of thousands of investors into our ecosystem, instantly,” Tesfaye said of the relationship broker-dealers have with tZero.

“Whenever they join our private trading ecosystem, that gives any of their investors access to the private assets on our platform, and naturally increases our liquidity.”

The firm said it holds nearly 97% of the global liquidity within the digital security space on its platform. This statistic bodes well for tZero’s effort to democratize access to private assets.

Unlike typical issuance platforms, tZERO allows for easy liquidation.

“We’re not simply giving individuals a seat at the table. We allow them to leave the table as well, whenever they so choose,” Tesfaye said. 

Tesfaye On Disruptive Trends: During the pandemic, tZero has amped up its efforts around personalization, scale and speed to market.

With tZero’s fully commercialized platform and pipeline of asset classes like real estate, issuers can get as specific as they want when it comes to the tokenization process, the tZero exec told Benzinga. 

“The regulatory guidelines are the base, but then, if an actual issuer says that they don’t want more than 20% of their float or equity to be owned by any individual in our ecosystem, we can code that in. If they only want the asset to trade in certain jurisdictions, we can code that in, too.”

Overall, the process is frictionless, Tesfaye said.

If a minority investor in a private asset was looking to liquidate a position, there would be an appraisal, and higher probability that the sale would occur at a discount due to the absence of an efficient private market trading venue, he said. 

“Typically, depending on the type of capital raise, there may be a lock-up period before an asset can trade on a venue. We’re really targeting direct trading, similar to direct listing in the IPO market, where they are not looking for new capital. They are simply trying to get their investors liquidity optionality.”

It's a faster process and takes four to six weeks, he said. 

The Innovation Outlook: It's a new financial revolution that uses distributed ledger technology to bring accessibility and transparency to traditionally illiquid assets, the tZero exec said. 

“Really, at tZero, we’re digitizing all or a subset of the equity in a particular asset, and allowing that to trade on our platform,”Tesfaye said.

The experience is similar to trading on platforms like Robinhood, E-Trade and Charles Schwab Corporation SCHW, he said. 

“You have the ongoing trading ecosystem that offers true liquidity, as opposed to fragmented liquidity, or one-off capital raises, and then the transaction is over.”

To learn more about tZero, click here.