BitGo acquires token platform Harbor to expand into the digital securities space

Crypto custody provider BitGo has snapped up security token startup Harbor as it looks to expand outside of the sleepy custody market. 

The deal, announced Tuesday, came together quickly, according to a spokesperson. BitGo declined to share details around the size of the deal or when talks between the two firms first began. Harbor rode the 2018 security token hype — raising $38 million in the process — but struggled to execute on some of its ambitions. 

As The Block first reported, Harbor scrapped a high-profile deal to tokenize a luxury college dormitory in South Carolina in April. It's also not clear what became of its plans to tokenize venture capital firm funds. The Wall Street Journal reported the company was in talks with four venture capital investors, but it hasn't announced any developments on that front. Harbor shifted its business in 2019, focusing more on offering its technology to tokenize existing assets than as a fundraising mechanism. 

Indeed, the security token market has been slow to take off.

Overstock's tZero unit, which has raised over $100 million, only has two tokens trading on its alternative trading platform (both of which are related to the company). Speaking on background, a security token startup executive said that the lack of a robust secondary market for security token trading has put pressure on primary issuance platforms and technology providers, like Harbor. Several sources told The Block that Harbor had been shopping around for a buyer. 

As for the tie-up with BitGo, the firms share an interesting connection in David Sacks. Sacks founded Harbor in 2018 and invested in BitGo, both personally and through Craft Ventures, a venture capital firm founded by Sacks and Bill Lee in 2017. 

BitGo's ambitions 

BitGo's plan for Harbor isn't exactly clear. A spokesperson said the deal gives BitGo complementary infrastructure to build out an offering in the security token space, but emphasized that it is early days and future plans aren't concrete. 

The deal provides BitGo with a broker-dealer license, which The Block previously reported it was looking to clinch. In fall 2019, a Harbor subsidiary—Harbor Square Investments—received a broker-dealer license from the Financial Industry Regulatory Authority (FINRA). Harbor also became a registered transfer agent under the Securities and Exchange Commission (SEC).

In addition to acquiring the licenses, Harbor's technology, the talent, and the clients will all move over to BitGo. CEO Josh Stein is joining BitGo in some capacity. 

BitGo has long seen a potential in digital securities. It served as a custodian partner for Harbor before the deal and is integrated with rival Securitize as well.

BitGo's CTO Ben Chan previously told The Block that the firm's view is that digital assets will "drive the global economy" in the long term, noting "from a platform perspective, the platform we built can support stocks, bonds, and so on."

BitGo's plans to break out of custody also span trading. Sources close to the situation told The Block that the firm has been exploring a prime broker offering. It was also exploring the possible build-out of a virtual order book, as outlined by BitGo CEO Mike Belshe in a past interview with The Block. 

The BitGo spokesperson declined to comment on the product roadmap for 2020, but said the firm would be making a series of announcements that will make clear where the firm is heading.