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:
- Citibank’s tokenization of private equity funds
- DeFi’s startling recovery
- The European Central Bank’s attack on Bitcoin
Institutional adoption shows tokenization is the future of finance
As is always the case, it takes time for innovations to catch on. The early adopters are the first to realize a new technology’s potential, but in finance it’s not until institutions start to take note do they become mainstream. Therefore, the fact that one of the US’s largest banks is exploring tokenization, the process of digitally representing an asset on a blockchain, is major news.
Citibank has partnered with exchange-traded fund firm WisdomTree and investment manager Wellington Capital on a hypothetical private equity fund, which Citi tokenized using blockchain technology. According to Coingeek, the fund’s distribution rules were encoded through smart contracts, which automatically transferred the proceeds to WisdomTree clients.
The question remains on why they’re tokenizing. Many already in the DeFi ecosystem tout the benefits of increased efficiency through disintermediation. If you’ve worked in traditional banking, you know that only when these institutions can make money from new technology, will they take the huge amount of time and energy to replace legacy systems.
We are unwavering in our belief that tokenization is the future of finance. Bringing all asset classes onto one infrastructure means institutions and individuals can benefit from cross-asset margining and get a better grip on their portfolio or company’s risk profile.
The fact some of Wall Street’s biggest and most respected firms have, in a way, endorsed it and shown that it is possible to tokenize a private equity fund, only indicates a direction f travel for the adoption of blockchain technology.
DeFi’s turnaround is silencing the doubters
The total value locked in decentralized finance has just surpassed $80bn, the first time it has breached that threshold since the downfall of the Terra stablecoin nearly two years ago. According to Bitcoin.com, the value locked in DeFi has soared by nearly $42bn in the past 130 days alone.
But why? And what does this mean for the sector? In answer to the first question, the end of the Crypto Winter has led to an increase in investor confidence, which has filtered through into the DeFi market. We expect this trend to continue, especially if the prices of well-known crypto assets continue to rise.
It also proves that while the DeFi sector – like most others – is susceptible to the vagaries of the wider market, it is also resilient. The fact that DeFi projects had added more than $42bn in assets in the past few months shows that and proves the doubters wrong. DeFi will only expand in number and in size in the coming years.
ECB’s pop at Bitcoin is unhelpful and misses the point
The European Central Bank has once again set its sights on Bitcoin, arguing it has failed on its promise to become a global decentralized digital currency and that it ‘is still hardly used for legitimate transfers’. It also argued that, despite the Securities and Exchange Commission (SEC) recently approving spot Bitcoin ETFs, it remains ‘unsuitable as a means of payment or as an investment’.
Regarding Bitcoin’s adoption as a global currency, it’s worth referring to history. It took thousands of years for coins and notes to replace bartering and notches on clay tablets as a means of settling debts. Even today, while the US dollar is the most dominant reserve currency, it has only been so since the end of the Second World War. Let’s not forget, these things take time and Bitcoin is just 15 years old.
With regards it being an unsuitable investment, we’re not sure the thousands of people who have made stellar returns by trading Bitcoin would agree with that. Is it volatile and high risk? Yes, of course it is, but nobody is seriously suggesting otherwise.
There are, of course, concerns about Bitcoin’s use in illegitimate transfers, but the same can be said of the euro, US dollar or any other major currency you care to mention. Instead of talking down Bitcoin and other cryptocurrencies, the ECB’s efforts are better served creating guardrails that allow cryptocurrencies to thrive while protecting consumers.
