Companies

Andreessen Horowitz-backed Harbor kicks off security token platform with the sale of a $20 million mega-dorm

Quick Take

  • Harbor, the security token platform with blue-chip backers, is set with its first offering
  • Investors will be able to buy a small slice of giant “mega-dorm,” which houses students at the University of South Carolina
  • The tokens won’t trade immediately and won’t be quite as easy to move as shares of stock, but will bring liquidity to a traditionally illiquid market

Harbor has officially launched its platform to tokenize private securities, the firm announced Tuesday. And it’s kicking things off with the sale of a tokenized real estate investment trust representing a stake in a $20 million mega-dorm. 

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Backed by Andreessen Horowitz, Pantera Capital, and others, Harbor offers a platform for firms and other entities to issue tokenized securities as a way to raise capital. Those tokens, which are based on blockchain technology, can represent ownership in assets spanning real estate to private equity to art.”This is our first offering,” chief executive officer Josh Stein said in a phone interview with The Block. Investors in the deal will have a piece of The Hub at Columbia, an off-campus housing complex for students at the University of South Carolina. The property will be divided into 955 tokens valued at $21,000 apiece, according to the firm. 

The dorm is unlike anything you probably lived in during your college years. The 14-story complex offers “world-class amenities,” according to its website. That includes a rooftop pool, a hot tub, and a 2,200 square foot fitness center. 

Stein said the platform blends together the positives of the crypto market with the compliance standards of traditional securities. “At any given moment we can tell the issuer the exact person or entity who owns what and when,” he explained. That functionality can help firms potentially avoid nefarious actors from using the tokens as a means to launder funds. Setting up an account on Harbor to purchase tokens on its platform is as simple as opening up a brokerage account. “We can KYC in 2-3 minutes and then you will go through the accredited investor verification,” Stein said, of the firm’s ability to “know your customer,” as is required by securities and banking law.

He added some investors have expressed interest in the deal. As soon as it closes, the firm will create the smart contracts that serve as a basis for the security token. Those contracts will be audited by a Big Four accounting firm, Stein added. The token will not begin trading immediately on an exchange as there is work to be done.

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What’s the big deal? 

One of the core advantages of tokenized assets is an increase in liquidity. As The Block previously covered, because of their structure, there are many assets in the market that are illiquid. Real estate, private equity, and collectibles fall into that group. Because of their illiquidity, these assets often are discounted — selling for less than actual worth. Some researchers estimate that illiquid assets, on average, receive a 20–25% discount to their value. By tokenizing these assets, issuers and investors can immediately benefit from increased liquidity and possibly higher prices. To be sure, Harbor isn’t the only firm working on tokenizing real estate. Decentralized exchange Airswap, for instance, created a protocol to tokenize real estate assets

“We are combining liquidity and access,” Stein said of his firm’s platform. That said investors will not be able to move out of their position as quickly as stocks or some cryptocurrencies. “It’ll trade like a micro-cap stock.” Those smaller capitalization companies can see prices shift substantially if there’s a mismatch between buyers and sellers.

Stein said the firm eventually plans to tokenize limited partner positions in private equity funds, which are also known for their illiquidity. 

Tokenization is not something that will transform all assets, however, some market observers say. Chris Concannon, the president of Cboe Global Markets, said recently at an industry conference he didn’t see blockchain “impacting the most liquid assets that we trade.”

Still, Harbor is targeting the private markets, where assets don’t see the same level of liquidity that big-name stocks like Apple do. “Tokenization of private securities can bring liquidity to trillions of dollars of traditionally illiquid assets,” Stein said.

Harbor’s background

In April of this year, Harbor raised $28M from a slew of investors including Founders Fund, Andreessen Horowitz, and Pantera Capital, bringing the total amount raised by the company to $38M. The Harbor platform helps assets issuers issue compliant security token via its “Regulated Token (R-Token) Standard.” According to Harbor, its platform helps address the current barriers preventing institutional issuers and investors from entering the crypto space. These barriers include security, compliance, and ease of use.