In the future, many traditional investments like real estate and corporate shares will come in the form of digital tokens that are bought and transferred on a blockchain. Right now, this type of investment—known as a security token—is still nascent, but a new tie-up between two important token outfits could accelerate its adoption.
This week the founders of 0x, an open protocol that underpins token trading, announced an alliance with Harbor, a compliance service for tokens that’s backed by the former COO of PayPal, David Sacks.
The move, which also saw Sacks join Ox’s advisory board, is significant because it helps to create an industry standard for security tokens, making it easier for investors and software developers to adopt them.
“0x and its growing network creates the opportunity to connect buyers and sellers around the world,” said Josh Stein, Harbor CEO. “By tackling the regulatory compliance challenges of tokenizing private securities, Harbor makes it easy for issuers and investors to abide by existing rules and regulations across jurisdictions.”
While security tokens are still far from being an everyday investment, they’re not just a theoretical concept. Last month, the luxury St. Regis hotel in Aspen, Colorado, announced it will sell digital tokens to investors who wish to own a share of the property.
According to Sacks, who is co-founder of Harbor and a partner at Craft Ventures, the real estate industry will be the first major asset class to migrate to a blockchain-based system of ownership. The advantage of security tokens, Sacks told Fortune in May, is they provide a greater form of liquidity. This is partly because they’re easier to divide and transfer than traditional investments such as private shares.
Meanwhile, 0x says its trading protocol is highly secure, even compared to conventional token trading services. According to CEO Will Warren, the difference is that 0x is decentralized, operating as a series of anonymous nodes—akin to Bitcoin—rather than as a central server that can be hacked.
Warren added that using a blockchain-based service for recording and transferring assets can also provide a superior form of transparency and record-keeping. He believes the tie-up between 0x and Harbor represents an initial step towards a new type of financial infrastructure.
“In the next five years, there will be a massive shift away from securities being in closed systems that are highly regulated and hard to access,” he said. “It will be a much more open system where trading location is less important. But for this to happen, there needs to be a security token tech stack.”
