The securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended or with any other regulatory authority of any State or other jurisdiction of the United States or Canada and (i) may not be offered, sold or delivered within the United States or Canada, or to, or for the account or benefit of any U.S. Person or Canadian, and (ii) may be offered, sold or otherwise delivered at any time only to transferees that are Non-United States Persons and Non-Canadians.

August 9, 2022

Blackrock; CFTC, Celsius

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founders, Philipp Pieper and Timo Lehes, on key industry news that has caught our eye, plus our own developments. 

Comments available on the following news items:

  • BlackRock-Coinbase tie up is first look at DeFi’s future
  • Crypto legislative melee developing in the US
  • More transparency, driven by DeFi is how you stop another Celsius

BlackRock’s tie up with Coinbase is a look into DeFi’s future

Toward the back end of last week two of the biggest players in TradFi and crypto announced a partnership, which has made waves across both sectors. BlackRock is the quiet giant of finance running trillions of dollars of investor cash, while Coinbase is one of the largest platforms in the crypto market. 

While the possible scale of the partnership is notable, this is not the most exciting aspect of it. The deal, which focuses on crypto institutional investing, is tantalising because it shows a direction of travel for the crypto sector toward more TradFi integration. 

Although not a DeFi partnership, this kind of tie up is demonstrative of what the future holds for the sector. In essence, TradFi/DeFi partnerships will become the norm, integrating as Fi. DeFi has an opportunity to transcend investment platform offerings and give traditional institutions and users access to key game changing technologies. 

What we’re ultimately likely to see happen in the next few years is the progressive adoption by TradFi of DeFi infrastructure that is at its heart, transparent, secure and accessible. 

The endgame of this is the blurring of the lines between the sectors. Really we see the financial industry in general adopting DeFi infrastructure to underpin everything from recording asset transactions to custody, trading and everything in between. 

US legislative melee on crypto underway

With a global process underway to bring crypto and DeFi under the regulatory purview of Governments and regulators, three different bills have emerged in the US Congress per reports, all aiming to bring crypto within the remit of the Commodity Futures Trading Commission (CFTC).

At the heart of this is legislators in the US grappling with the crypto sector and trying to understand what it is, and how it functions. Key debates have been running for some time over whether tokens are securities, or another kind of asset. This is where the debate is up to in the US. 

It’s tough to argue the toss over who should be regulating crypto in the US. What’s really important here though is that regulatory clarity needs to be in place sooner rather than later. This is essential for consumers, investors, businesses and any other party interested in the future progression of the sector. 

Talk of crackdowns, creation of new rules and regulations and other warnings are whistling in the wind when there is clear demand for DeFi services and problem solving. The best way to proceed would be to bring these new services within existing remits and establish clear and transparent rules. This will enormously boost confidence and engagement within the sector. 

DeFi transparency is how you stop another Celsius

The decision to freeze withdrawals by Celsius and Three Arrows Capital only weeks after Terra’s algorithmic stablecoin collapsed has dealt yet another blow to investor confidence in crypto. Bankruptcy, liquidation and ‘ghosting’ episodes like these are a painful reminder of an industry trying to mature, whilst innovating at lightning speed. 

Crucially, the regulatory and, ironically, transparency puzzle pieces are still missing from the crypto jigsaw. Recent events have been attributed to failings of decentralised finance (DeFi). However, contrary to popular belief, DeFi actually did its job. It was the smart contracts, designed to execute transactions without human intervention or intermediation, that liquidated positions first. The subsequent liquidity cascade has prompted questions around transparency of centralised finance’s (CeFi) practices.

The tooling in DeFi offers transparency and self-sovereignty that investors need to help prevent events like Celsius from happening again. Encouraging the use of financial architecture that deploys self-custody tools to investors gives asset holders greater control over their collateral. Add a regulatory layer to this, and you have a winning combination for investor protection.