In a change in business strategy, Harbor has decided to help companies tokenize existing securities, rather than helping them issue their own security tokens. According to an announcement made at the start of the week, the firm developed tokens on the Ethereum (ETH) blockchain that represent the shares of four total real estate funds that are worth approximately $100 million.
The intentions behind the decision are to facilitate the trade of these private securities for the holding investors, a number that comfortably surpass one thousand. The tokenizing of real estate funds will also make things easier for 17 broker dealers and placement agents that work with iCap Equity, the manager of the funds.
The Best Investment Experience
“For years, we’ve been looking for ways to create the best investment experience we can and for us that means providing liquidity for them,” were the words of Chris Christensen, the CEO of iCap.
Harbor has made its fame around the industry by helping customers raise funds via the sale of security tokens. Now, in quite a strategic shift, the company is now building a proper ecosystem to host those assets.
Josh Stein, the startup’s CEO, explained it more concisely. He said that the firm “evolved from crowdfunding and tokens to being the Salesforce.com of the security token field,” according to the leading executive of the San Francisco-based enterprise.
Buying to Speculate
The firm originally made an attempt to develop tokens that were backed by real-life assets, but they saw that if investors were interested in ICOs which only value was that of a promise, they thought that their level of interest would be even greater if the tokens were backed.
Yet, Stein observed that “the overlap between investors demanding tokens and investors interested in security tokens was zero. People were buying tokens but they weren’t buying it to invest, they were buying it to speculate.”
Harbor established an alliance in late 2018 with DRW Holdings, with the intention of smoothing the sale of almost 1,000 tokenized shares in an apartment building, but the pact fell through on early 2019 because of problems between the issuer and the mortgage lender, among other things.
Harbor is now offering clients a network in which all actors involved, including broker-dealers, investors, and even advisors, can trade their securities in a private way.
According to Christensen, the funds are “high-yield, [which] usually requires a lockup” period in which the involved investors are obligated, by contract, not to sell their shares in a period that goes from three to five years.
“We just knew if we can provide measured liquidity for them and allow us to continue our business model [but] allow them to … exit as needed, that would be cutting-edge,” Christensen explained.
It typically works like this: the iCap customers acquire their securities and sign up for the multi-year lockup period, but it could happen that the investors need their money to be returned to them before it ends, according to Christensen. The old approach would dictate that they would need to find another fellow investor that wants to buy the securities, respecting the remainder lockup.
However, that process was costly and often took too much time, but per Christensen, his firm has served as a facilitator for $2 million worth of trades for funds like these.
“What Harbor does is they automate this entire process. Those who want to come in come in, those who want to exit can do that,” he concluded.
By Andres Chavez