A Deep Dive Into The tZero Tezos Tez0ken

Please note the Tez0ken is still in development and is subject to change.

Token Breakdown:

PriceUnknown/Not strictly a token.
MarketcapUnknown/Not strictly a token.
Circulating SupplyUnknown/Not strictly a token.
Max SupplyUnknown/Not strictly a token.
Market RankNot yet listed/Not strictly a token.
Token Type/DescriptionA “set of Tezos contracts that represent tZERO’s token and trading functionality. (Not strictly a specific token).
Release DateUnknown (expected summer 2020)
IndustryCan span multiple industries
Unique FeatureHas the ability to create multiple Tezos tokens on the tZero platform.
Relevant Websites,
Whitepaper/Git Repository
Blockchains UtilizedTezos
Role of TokenUtility
Tez0ken Breakdown

The Background:

At the end of October 2019, it was announced tZero, a subsidiary of Overstock and the largest security token platform had partnered with the Tezos Foundation and UK-based Alliance Investments on a project to tokenize £500 million ($643 million) in real estate. This includes the $25,000,000 Manchester River Plaza project to be initially tokenized.

Later in April 2020, it was announced that Vertalo has struck a deal with tZero, Advantage Blockchain consulting firm to tokenize $300 million of class A properties owned by a boutique firm Real Estate Capital Management based in Pennsylvania. Real Estate Capital Management has 3 different property funds listed on their website worth $81,000,000 and there are also some individual properties listed here.

When looking at ‘Class A properties on the website, one such property which is described as ‘class A’ is the ‘Market Square Plaza’ in Harrisburg (The state capital of Pennsylvania). This property is owned by an affiliate of Real Estate Capital Management. It should be mentioned that Advantage Blockchain are also based in Philadelphia.

Market Square Plaza, Harrisburg

However, when Dave Hendricks was asked about Vertalo’s collaboration with tZero he stated: “Yeah, so we noticed a ways back that there were some assets that worked really, really well for tokenization, or at least would work well for tokenization, and some assets that were not maybe as good to tokenize. Real estate, specifically private real estate funds and to some degree private REITs, are a huge asset class by themselves“. He went onto state: “If you’ve already formed a fund and it’s been around for a while, that fund could be brought into a platform such as Vertalo, an analog fund digitized, and then made more liquid using the kind of the features and benefits that come with digital asset tokenization.” With this in mind, a property fund may likely to be in the running to be tokenized through the Vertalo/tZero/Real Estate Capital Management/Advantage Blockchain collaboration, rather than individual properties like the one shown above.

Presently, the tZero ATS (Alternative Trading System) platform trades with two tokenized assets in the form of TZROP and OSTKO. The OSTKO token was distributed to common investors on a 10:1 ratio, however, to
trade the token Overstock investors must create an account on tZero as this is where it is exclusively traded.

As over 4,000,000 of these digital shares were distributed, this has since enabled instant liquidity to take place on the tZero platform. Since the OSTKO token started trading on the tZero ATS, the security token market cap has been able to surpass $100,000,000 for the first time.

The company said in April it was expecting to launch a third digital security in the coming weeks. It is not known whether that will be the Vertalo/Advantage/Real Estate Capital Management real estate token.

The introduction of the OSTKO token helps to bridge the link between the traditional stock market world and the tokenized digital asset world. This means that digital dividends tied to a Nasdaq listed company with a market cap of above $915,000,000 today, will be able to trade on the same platform where Tezos tokenized assets are set to be listed in the future, should those Tezos tokens get listed to the same tZero ATS platform.

The Tez0ken:

The initial launch of the tZero/Tezos token integration can be seen here: The project describes “the set of Tezos contracts that represent tZERO’s token and trading functionality.” This will allow security tokens living on the Tezos blockchain to be traded on the tZero ATS. In that sense, it’s not a token in itself but more of a token and trading functionality standard for newly issued Tezos-based tokens on the tZero platform.

The Tez0ken is split into 3 separate main components and is written in the popular Tezos language Ligo. Ligo is a language that allows developers to write longer contracts than would normally be done in Michelson (the domain-specific, functional, stack-based, strongly-typed language used to write smart contracts on the Tezos blockchain). The Ligo language, on the other hand, is an imperative language that compiles down to clean Michelson code with a Pascal-like syntax.

The components of the Tez0ken consist of: the token, the registry, and compliance. This amounts to many smart contracts working in unison.

The Token Dynamics:

The Token contract is the “main contract that handles the base methods in the tZERO security token ecosystem“.

An overview of the Tez0ken architecture can be seen here:

The Tez0ken Overview Architecture On Github

When comparing to the original Ethereum token on tZero, with the new Tez0ken, there are some differences. On the Ethereum architecture there appears to be an extra ‘Storage’ section:

The Original Ethereum tZero Token Architecture On Github

The Tez0ken also seems to be interlinking with the ‘Registry’ in the token component, whereas on the Ethereum token architecture the ‘Registry’ component does not seem to be present at this stage of the architecture process.

The Tez0ken Token Architecture On Github

Here above, you can see I (Investor), R (Registry) and C (Custodian) entity examples interlinking.

The Original Ethereum Token Architecture On Github

Here above you can see the I (Investor) and C (Custody) entities interlinking, however, the registry does not seem to take part in this section of the design.

The Tez0ken is Tezos token standard FA2.1 compliant. Both the Tez0ken and the Ethereum tZero implementation are also compliant with Delaware regulations, as stated here:

The Tez0ken is “compliant with Delaware Senate Bill 69 and Title 8 of Delaware Code relating to the General Corporation Law.”

The token supports the following Title 8 requirements:

The tZero Tez0ken

This is important, as tZero is a Delaware company tZero used to be a Utah corporation, however it was later incorporated in the state of Delaware.

Delaware Senate Bill 69 & Token Standards:

The state of Delaware in 2017 signed Senate Bill 69 into law. The amended bill means that blockchain stock ledgers are legally recognized in the state.

This led to developers on Ethereum to attempt to generate a token standard that would be compatible with the newly introduced regulations. One such proposal came in the form of Eip-884. It was described here as an “‘ERC20` compatible Token that conforms to
* “Delaware State Senate, 149th General Assembly,
* Senate Bill No. 69: An act to Amend Title 8
* of the Delaware Code Relating to the General Corporation Law.”

On the Github page here it can be seen that the status of the Eip is still in draft and was described as a “mimimal extension over the minimal an extension as possible over the existing ERC-20 standard”.

After the EIP was proposed there were some concerns relayed online with regards to the ERC-884 project and the Delaware blockchain amendments. An article by Andrea Tinianow in Forbes, explored this issue and it stated here:

…one recent article describes ERC-884, a draft Ethereum token specification designed to represent equity in any Delaware corporation. Each of these tokens represent a single unnumbered share. Issuers maintain a private database (off the blockchain) that records the name and physical address of the token’s owner as well as the Ethereum address corresponding to the token. Token owners are whitelisted and have their identity verified. Shareholders who lose their private key, or otherwise lose access to their tokens, can cancel their tokens and have them reissued. Thus, although the ERC-884 is designed to transfer shares of stock, the share ownership information is captured in an off-chain database.

She went on to state here:

This arrangement is in stark contrast to what was contemplated by the Delaware Blockchain Amendments which I set in motion as the founding director of the Delaware Blockchain Initiative. The Delaware Blockchain Amendments eliminated the requirement of a central authority to maintain the stock ledger, and with it certain risks of human error related to the issuance and transfer of shares. Specifically, the Amendments clarified that a Delaware corporation may issue shares and maintain its stock ledger on a blockchain (through smart contract functionality), without the need for a single central officer or agent (e.g., the corporate secretary or transfer agent) to serve as the recorder and clearing house for all issuances and transfers.

In essence, as an off-chain database was still necessary with the initial proposal of ERC-884, it still carried with it the central authority risks that the Delaware Blockchain Initiative could help avoid.

When looking at the Tez0ken token architecture, it appears that this can be avoided by not having the storage component held off-chain. This would be similar in approach to the Vertalo on-chain cap system. Vertalo states: on their website: “Investors hold their assets over the blockchain-powered cap table without the need for a 3rd party, giving them complete control.” This would be in keeping with the spirit of the Delaware Blockchain Amendments. Vertalo also states here:  “The FA1.2 protocol for smart contracts on Tezos allows for the handling of digital securities in a way that satisfies SEC requirements.” 

Indeed the existing ERC-20 token standard from which the ERC-884 standard was devised was not constructed with security token regulations in mind and some believe it has issues separating custody ownership and beneficial ownership.

As this post from the Polymath network states: “Within ERC-20, the `approve` and `transferFrom` functions provide a kind of limited custodial ownership, but the security token owner still retains full rights to decrease the allowance or transfer tokens away entirely to a different address. As a result, custodians (whether organisations or smart contracts) must take full ownership of the token in order to guarantee their unilateral right to transfer the token so as to ensure that they are fully responsible for any changes in beneficial ownership of the asset. Typically the custodian then maintains (either on-chain or off-chain) a separate ownership record which maps their aggregated balance held in custody back to each individual beneficial owner.

The post goes on to state: This has a number of unfortunate consequences:

  • the on-chain cap table of the asset is no longer an accurate reflection of beneficial ownership and instead mixes custodial ownership and beneficial ownership
  • beneficial owners lose the ability to directly benefit from capital distribution such as dividends or coupon payments and must rely on custodians to facilitate these transactions
  • beneficial owners can no longer participate in corporate governance directly and instead must rely on custodians to pass through their votes, or vote on their behalf

As the Tezos FA1.2 token standard has been devised with a heavy influence of the tokenization of digital assets, it can be deemed more flexible and modular in design in terms of navigating the complexities of different entities and the different rules and rights they may have in a process. There is no doubt tZero has the entities needed for such a space, which may or may not form part of a digital asset process. For example, it is not possible for a broker-dealer to facilitate a transaction and then sign off the transaction. Different entities have different permissions on what they can do.

For example, they have a broker-dealer subsidiary called SpeedRoute, which announced in April, 2020 record trading volume for US Equities Markets demonstrating the scalability. SpeedRoute is used by tZero within its ATS system for the trading of digital securities. Speedroute, co-located in Equinix NY4 states that over 6 billion shares are routed through speed route every trading day.

Other entities such as Dinasaur Financial, a New york Institutional Brokerage Firm could be involved. These different entities have different roles and all must be included in the smart contract framework in order to ensure regulations are met when it comes to the permissions of who can do what within the entire process.

Alongside that, there is a flexible need to distinguish clearly between custodial ownership and beneficial ownership.

On Ethereum where you have many different token standards for different purposes, the Tezos token standard strategy has been to combine different elements of alternative token standards into a more unified, yet flexible and modular approach. This will become even more apparent with the upcoming FA2.0 token standard, which is set to develop standards for even more groupings of digital assets including NFTs (Non-Fungible Tokens).

The Registry

The Tez0ken registry….maintains groupings of investor, broker-dealer, and custodian accounts that define and coordinate the behavior of these interacting entities.” When digging a little deeper it states:

The registry is the grouping of storage, investor, broker-dealer, and custodian contracts that define and coordinate the behavior of each entity.” We can see here that there are different contracts being used for the different parties involved, each with different privileges and alluding to a multi-contract structure.

Again there are big differences when it comes to the Tez0ken registry components and the original Ethereum tZero token registry components. On the Tezos architecture, most elements seem to feed to/from the registry, however, the Ethereum architecture appears to be a lot more fragmented and there is the notion of separate ‘stores’ for each party.

The Tez0ken Registry component on Github – Full size picture can be found here.
The tZero Ethereum Registry component on Github

The Compliance

The Tez0ken compliance contracts “maintain the set of trade rules and exemptions (e.g. Reg AReg D, etc.) allowing valid trades, while halting improper ones from taking place.” On further analysis, it states: “The compliance contract uses compliance rules to regulate the transfer of tokens. The contract maintains and manages the collection of rules which enforce compliant transfers between account types (custodian, broker, custodial-account, or investor).”

The original Ethereum token compliance section states the same, however, there is another piece added to the end:

The Original Ethereum tZero Token Compliance Section

In this type of contract, rules are stored within buckets matching the sender’s account type. In computing the term ‘bucket’ can have many different uses, however, it is most often used to describe: “…a type of data buffer or a type of document in which data is divided into regions.” As stated, although this may make the system more fragmented it can help to prevent unnecessary compliance checks on accounts. This could potentially prove quite expensive.

Within the Tezos architecture being used on the Tez0ken, Big Maps (a storage element of Tezos smart contracts) are being used. Here, on the Tezos Stack Exchange, a brief description is given of what a big map is used for.

Therefore, as only part of the big map is being accessed/updated is read from disk the gas costs can be kept low and the size of the big map is not taken into account. This could help make tokenized smart contracts very cost-effective in comparison to competitors.

Big maps were an upgraded change that occurred during the Babylon Upgrade which meant that developers were no longer restricted to a single big map per contract and has thus opened the door to the Tez0ken to use this feature. The big maps upgrade was not enacted in layer 2 and instead was an on-chain upgraded feature.

This gives Tezos a unique advantage over competitor chains when considering the speed and ease of upgrades in comparison. Sometimes it is necessary to adapt the plumbing of layer 1 in order to enhance the innovation and efficiency of layer 2 solutions. This is also the same for token standard contracts. Rather than waiting years for an on-chain upgrade to amend any plumbing needed, a highly needed layer 2 feature solution change to layer one can be enacted in around 3 months.

Here, you can see how Tezos core developers prioritized this on-chain plumbing solution of big maps in order to progress the development of smart contracts being created by other developers:

Awa Sun Yin part of the Tezos core development team explaining the reasoning for including Big Maps in the Babylon upgrade.

When looking at the architectures of both the compliance components, both on Tezos and Ethereum, the Ethereum architecture again seems more fragmented and split up.

Here below is the Tezos architecture for the compliance component:

The Tez0ken Compliance component on Github

For comparison, here is the original Ethereum tZero token compliance architecture component:

The Original Ethereum Token Compliance component on Github

After reviewing these architectures, it could be argued that the Tezos process seems more efficient in design. There are fewer components and ultimately in the smart contract world that can mean less cost. For example, it could mean less gas is used moving to and from those components within a smart contract framework. It also seems that the Tezos framework can be kept on-chain due to the structure provided by the Tezos FA1.2 token standard helping to satisfy various regulatory requirements.

The Potential For Baking?

On Github tZero have been experimenting with baking here using the Flextesa Tezos testing tool with ‘EasyBake’ auto bake on operation, however, it is not yet known whether tZero will add baking functionality in the future.


The Tez0ken is still in development, however, it could potentially open the door to many Tezos-based tokenized assets listing on the tZero ATS platform in the future. The architecture for the token is both FA1.2 compliant and compliant with Delaware General Corporate Law, Title 8.

It is expected like most other standards being developed on Tezos it will also eventually be compliant with the Tezos FA2.0 token standard being developed by TQ Tezos, Serokell, Nomadic Labs and many other parties. tZero has built on the FA1.2 standard with its unique standard, which helps them tackle issues important to them and the regulations they face. The unique features of Tezos and the strategic design of its token architecture have helped in its selection for various future tokens to be traded on one of the largest digital securities platforms to date.

The Tez0ken has not had much publicity to date, but its architecture could prove to be a very important step in the adoption of security tokens living on the Tezos blockchain.

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