By Josiah Wilmoth
Blockchain startup Harbor has unveiled the release of the “R-Token Standard,” a compliance protocol designed to standardize and automate the issuance and exchange of security tokens.
‘R-Token Standard’ Aims to Automate Security Token Compliance
Announced this week, the R-Token Standard is based on the ERC-20 standard used to program Ethereum tokens. R-Token adds additional smart contract functionality to enable security tokens — not just security token generation events (TGEs) — to comply with jurisdictional regulations governing securities issuance and trading.
The release of the R-Token Standard whitepaper is timely, given that US Securities and Exchange Commission (SEC) Chairman Jay Clayton stated in Tuesday’s Senate hearing on cryptocurrencies that every token sale that he has personally encountered has been structured as a security and is subject to SEC oversight.
“Blockchains have revolutionary potential to improve liquidity and transparency for private securities, but regulatory compliance remains a significant roadblock,” said Bob Remeika, Harbor co-founder and CTO. “We created Harbor to deliver critical compliance infrastructure needed for crypto-securities. The Harbor protocol will allow issuers to play by existing rules, enforcing compliance across all transactions and jurisdictions — from ICOs to secondary trades.”
Regulating Security Tokens at the Protocol Level
Harbor is not the first company to seek to tackle the question of how to create security tokens that comply with federal regulations, but it differs from others in that it seeks to do so at the token level.
Companies such as Overstock and Indiegogo have built TGE platforms designed to allow startups to issue tokenized securities in a compliant manner, but Harbor says there are inherent problems with performing compliance at the exchange level.
Harbor says that since exchanges cannot control what buyers do with the tokens once they withdraw them, TGE platforms must restrict trading to a single, centralized exchange. This greatly reduces liquidity and eliminates one of the key benefits of tokenizing the security in the first place.
The open-source R-Token system, on the other hand, uses a series of smart contracts to verify that all transactions comply with jurisdictional securities regulations such as residence, KYC/AML status, and accredited investor registration. If a user attempts to make an invalid transfer, a smart contract known as the Regulator Service will prevent its execution.
Consequently, security tokens built according to the R-Token Standard will be tradeable on centralized exchanges, enhancing their liquidity without sacrificing regulatory compliance.
Strategic Coin is a leading research and advisory firm for companies planning to integrate blockchain capabilities into their business model via utility token launches. Our customer research reports provide qualitative and quantitative analysis of token use cases and platform value. With the Strategic Coin Advantage network of partners, we offer customized services for the pre-launch, full-launch, and post-launch phases of Token Generation Events (TGEs).
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