In a Form S-3 filed with the SEC on November 10, Overstock.com sought approval to issue up to $500 million in new securities “from time to time” in the form of common stock, preferred stock, depositary shares, warrants, debt securities or units. But approval of this S-3 is in not an immediate sign that Overstock is issuing any securities.

“This prospectus provides you with a general description of the security we may offer,” Overstock wrote in its S-3. “Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering.”

Further, while Overstock looked to gain approval to issue up to $500 million in new securities, it cannot be assumed that this is a one-to-one relationship to what the company might look to offer through its t0 platform.

“We may decide to offer securities as digital securities, which may pose unique risks to investors in such securities,” Overstock wrote.

According to the SEC form, “our digital securities will be issued, available for purchase and traded exclusively on a specific trading system that is registered with the SEC as an alternative trading system, or ATS — namely, the Pro Securities ATS. Moreover, only customers of the sole broker-dealer that will be licensed to provide access to the Pro Securities ATS digital securities trading platform with respect to Overstock digital securities, which will initially be DriveWealth, will be able to buy and sell our digital securities on the Pro Securities ATS.”

DriveWealth, a broker-dealer based in New Jersey, is a privately held firm founded in 2012. It is an investment platform targeting retail investors around the world.

In its filing, Overstock admitted that by using only the Pro Securities ATS, there would be significant risk for investors. In particular, “it is likely that there will be a limited number of holders of digital securities.”

Overstock goes on to say that, “because each series of securities offered as digital securities will be their own separate class of securities, distinct from any other securities trading on the NMS [National Market Systems], the Pro Securities ATS is likely to experience limited trading volume…”

On a national exchange, there are many broker-dealers attached, allowing for the potential for significant liquidity. By operating through the Pro Securities ATS and through only one broker-dealer, there won’t be nearly as many investors trading the offered securities.

Overstock admits that, due to this decrease in volume, that there could be “limited liquidity, resulting in a lower or higher price or greater volatility than would be the case with greater liquidity.” The ability to sell an asset in a timely fashion is not guaranteed.

Technology Remains Untested

While there are certainly risks with investing in the securities due to volatility and low liquidity, there remain considerable risks due to the technology.

The first has to do with its t0 technology.

“Our digital securities will be traded on a novel, untested system developed by the Pro Securities ATS specifically for trading digital securities,” the filing said. Some of the untested risks included regulatory uncertainty, technical flaws with the t0 technology, security breaches of the blockchain and the need for the Pro Securities ATS to halt trades for a period of time necessary to fix flaws.

Overstock also revealed the balance between incredible security and creating a system that is usable by the average person. “The general public, however, is not yet accustomed to using secure cryptographic methods and managing private keys.”

As the saying goes, how can this system be made friendly for Grandma?

“To make the system more user-friendly, the Pro Securities ATS and DriveWealth are each expected to hold the private keys of digital securities holders. Among other things, this will enable digital securities holders to manage their digital securities account with a simple login and password. If the repository is hacked and private keys are stolen, the thief could transfer affected digital securities to itself and sell the digital securities.”

Fundamentally, Overstock reveals one of the pain points many in the Bitcoin space have found. “The risk of theft of private keys is heightened so long as the centralized repository holds the private keys on behalf of digital security holders, as the thief is able to target a single security system for breach of multiple accounts.”

Fundamentally, the primary risks for investors are that this is a new initiative that Overstock is undertaking and is not an equivalent to common stock. Specifically, these shares won’t trade on a “stock exchange” and it is not pegged to any common stock. A share of Overstock on Nasdaq could be valued very differently than a digital security on the Pro Securities ATS.

Bitcoin Magazine will continue investigating the Overstock Form S-3 filing.

Jacob Cohen Donnelly is a consultant and journalist in the bitcoin space. He runs a weekly newsletter about bitcoin called Crypto Brief.