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.

October 5, 2022

Deutsche Telekom; ESG; Ether staking

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:

  • EU sets sights on energy-intensive blockchains
  • Deutsche Telekom looking at Ethereum staking
  • Ether staking access issues

Deutsche Telekom looking at Ethereum staking

Deutsche Telekom has outlined plans to support Ethereum staking, in a notable development for the telecoms giant. The firm has several other interests in DeFi and crypto, but this marks a notable player’s entry into the newly-formed staking market. 

What’s clear here though is a major institution, albeit one better known in telecommunications, sees the value in operating validator nodes, and providing access to staking for its customer base. We’re still in the early days post Merge but it is without doubt one of the most significant steps for the sector in recent years. 

A varied and healthy market for staking on Ethereum is to be encouraged. What is really important though is for participants to take regulation seriously and approach the market with compliant solutions that protects participants. 

The market is clearly moving toward liquid staking as a valuable proposition, with permissioned DeFi at the heart of this. The sector will grow and adapt along these lines, but key aspects of regulation such as AML and KYC should be at the heart of any proposition. 

EU sets its sights on energy-intensive crypto practices

The shift of the Ethereum blockchain to proof-of-stake has thrown energy usage of crypto in sharp relief. Major reductions in energy usage are touted as one of the key benefits of the shift to PoS. It would seem that regulators in the EU are taking heed of this.

Per a report in Politico, EU authorities are looking to produce energy labelling for crypto assets – akin to those you might find on a fridge or a washing machine. The issue is an obvious one to tackle, particularly with major cryptos such as bitcoin using significant quantities of energy to process and mine. 

But the move speaks to a bigger macroeconomic issue in play. The pinch point of energy policy is a big problem for Europe at the moment, especially in light of the Ukraine conflict. 

Although it makes sense to look at how intensive these processes are, much of it won’t be emanating from Europe, with mining operations a global pursuit. But where Europe tends to lead on regulation, the US and other nations follow.*

Returning to the Ethereum PoS change though, the energy issue is becoming a key differentiator between these projects, and bitcoin. Many bitcoin proponents now actively tout its energy-intensitivity as a feature, not a fault, of the blockchain. The intellectual and economic gymnastics to prove this though, are considerable.

*See Philipp’s recent OpEd in Fortune for more on the ‘Brussels effect’ in regulations

Ether staking is a big deal, but access needs to improve

Ether staking is a huge step for the crypto community, but the industry now needs to step up to improve access to the process for average users. Per a report in CoinTelegraph, complaints among everyday users are rising on messaging forums such as Reddit. 

This is of no surprise. Staking is operationally complex and investors have relied on an influx of players into the space, offering access to these attractive yield products. However, this must not come at the cost of transparency and a clear indication of how user assets are treated. 

The series of crashes and collapses that took place earlier this year are the stark reminder that transparency is critical to the access question. Investors are acutely aware now of how their assets should be treated. 

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.

Read more about crypto’s flight to transparency in Timo’s OpEd for the Digital Bytes substack.