Harbor Regulated Token: Crypto-Security Compliance R-Token?
Harbor, found online at Harbor.com, is building a decentralized compliance protocol that works as a global standard for issuing and trading crypto-securities on blockchains. Find out more in our review.
What is Harbor?
Harbor is a fintech startup company launched in 2017 by former PayPal executive David Sacks. Sacks, the former COO of PayPal and CEO of Yammer, aims to disrupt the crypto-asset space by launching a decentralized compliance protocol.
The goal of Harbor is to change the way crypto securities are issued and traded on the blockchain.
The idea for Harbor emerged when the co-founding team was raising a new fund. The team was trying to decide if it was possible to raise that fund through an initial coin offering, or ICO. They decided there were too many compliance challenges involved with issuing regulated securities on the blockchain. At the same time, the team acknowledged there was an enormous opportunity in that space.
In early February 2018, Harbor announced a $10 million Series A round.
What Problems Does Harbor Seek to Solve?
Harbor aims to solve problems regarding compliance for asset tokenization.
In today’s crypto economy, companies struggle to maintain compliant token sales. Companies are unsure how to sell digitized assets in a legal and compliant way – including how to avoid creating a token sale that constitutes the sale of securities, and thus must be regulated.
At the same time, many companies want to launch a security sale using blockchain technology: they just struggle to do so in a compliant way. These companies are willing and able to comply with securities laws – but they’re unsure how to maintain compliance using blockchain technology.
With that in mind, Harbor wants to use the blockchain to help companies bring more liquidity and transparency to private security sales, solving major compliance problems along the way.
How Does Harbor Regulated Token Work?
How will Harbor solve compliance problems in the world of blockchain-based security sales?
One of the crucial products offered by Harbor is the Regulated Token Standard, or R-Token, which was announced in early February. It’s a standard ERC20 token – except it contains additional code to check an on-chain whitelist.
This whitelist is called a “Regulator Service”. The token will need to check that Regulator Service before the token can be traded. The Regulator Service can be configured to enforce any number of regulatory requirements, including everything from securities to tax laws, across multiple jurisdictions.
The whitelist could be used to complete basic requirements like KYC, AML, and investor accreditation, for example.
However, the whitelist could also be used to certify specific asset types like real estate. Real estate sales require tax withholdings on foreign investors under FIRPTA.
Here’s the basic process used by R-Token:
- Investors request a trade of the R-Token asset
- When a trade is requested, the R-Token checks with the Regulator Service
- The Regulator Service makes sure the investor has been verified and meets all the legal requirements
- If the investor does not meet certain standards, then the token will return an error and the token will not transfer
- This system ensures that every trade is compliant.
Harbor will make R-Token available to the blockchain community as an open source standard. The company plans to publish smart contracts for R-Token and the Regulator Service, with the long-term goal being to standardize how tokenized securities are issued and traded.
One of the unique things about Harbor’s R-Token is that it doesn’t require a centralized exchange to “certify” each transaction. Today, we’ve seen a number of exchanges launch with the promise of offer secure, regulated tokenized securities trading. R-Token, however, isn’t confined to any specific exchange: compliance is hard-coded directly into the token itself. The obvious benefit is that all trades involving the token – even person-to-person trades that occur outside of an exchange – will be compliant.
How Does R-Token Work?
Harbor’s R-Token makes every trade of a tokenized asset compliant. Here’s the basic steps for each compliant trade:
R-Tokens turn compliance into code by embedding rules into the token itself. This ensures only eligible investors can trade the token. Issuers can also limit the number of investors and require holding periods.
Potential investors must get verified. Investors go through a verification process (KYC/AML/investor accreditation) to determine token eligibility. Approved investors are added to a whitelist on the Ethereum blockchain.
R-Token regulates all transactions by itself. When an R-Token transaction is initiated, the R-Token checks the whitelist to confirm the trading parties meet regulatory requirements. If so, then the transaction is approved, and the token is transferred. If not, then the token’s transaction returns an error.
R-Token’s key features include:
- ERC20-compatible and works with the existing Ethereum ecosystem
- Transfers can occur only between whitelisted individuals meeting trade requirements, even when that trade occurs outside of an exchange
- Flexible framework allows for the enforcement of basic securities regulations (like KYC and AML) as well as more complex tokenized securities (like foreign investor verification for real estate transactions)
- Regulatory compliance is applied across trading platforms at the token level
Who’s Behind Harbor Regulated Token?
Harbor’s team include Bob Remeika (co-founder and CTO), Arisa Amano (co-founder and CPO), and David Sacks (co-founder and Chairman).
Remeika’s previous experience includes work as VP of Engineering at Zenefits and as a Senior Engineer at Yammer, Inc. Amano, meanwhile, was Vice President of Products at Zenefits and the Director of Product Marketing and Design at Yammer. David Sacks, meanwhile, is the former COO of PayPal and CEO of Yammer.
Harbor was founded in San Francisco in August 2017. In February 2018, the company announced a $10 million Series A funding round.
Harbor Regulated Token Final Thoughts
Harbor aims to make it easier for companies to issue compliant tokens on the blockchain. Instead of creating a centralized exchange for compliance, Harbor will “hard code” compliance into the tokens themselves. To do that, Harbor has created an ERC-20 compliant token protocol called R-Token. R-Token is a protocol that checks a blockchain-based whitelist prior to each transaction. Trading parties must be verified by that whitelist for the trade to be completed.
The protocol is customizable. At the basic level, R-Token verifies KYC, AML, and accreditation. However, it can also be customized to verify foreign investors – say, to meet real estate requirements.
The end result of Harbor and R-Token is that companies can issue legal, compliant securities on the blockchain. To learn more about Harbor and how its R-Token technology works, visit online today at Harbor.com.