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July 11, 2023

EthCC; Ripple; MiCa and stablecoins

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founder, Philipp Pieper, and Chief BD and Comms Officer, Katie Evans on key industry news that has caught our eye, plus our own developments.  

Comments available on the following news items:


  • EthCC preview – tokenization the topic to watch
  • Ripple dives into real estate tokenization
  • MiCa stablecoin warning


EthCC preview: tokenization is the word on everyone’s lips


Katie Evans and Philipp will be in Paris next week for EthCC. The event is a huge chance for European crypto innovators to come together at an exciting time for the sector. We’ll be participating in a Centrifuge event ahead of the conference, dedicated to tokenization.


Thinking around what has been the biggest development in the crypto space and tokenization is the number one subject that comes to mind. The trend encapsulates all of the major themes the sector is experiencing at the moment, including the increasing involvement of TradFi, market forces like inflation providing impetus to take costs out of economies, and  the changing regulatory environment among others.


Our expectation is that the key groundwork for the wider expansion of tokenization is now there, with the products, instruments and infrastructure for tokenized RWA markets moving into place. There is more to do, but we’re not at a critical mass where the next bull run for crypto is going to create a major wave of movement into the tokenized RWA space. 


NFTs were the poster child of the last bull run, but have lost much of their shine in the ensuing price collapse. But RWAs offer something much more compelling in the form of real tangible assets that investors can understand the pricing of and appreciate growth potential. Ultimately what DeFi is doing is creating a new, transparent, secure and seamless way for asset holders to manage, buy and hold assets digitally. 


Ripple dives into real estate tokenization


Ripple is taking part in a Hong Kong Monetary Authority pilot which is exploring the potential of real estate tokenization. The inclusion of property into DeFi as an asset class is inevitable, and the experiment’s outcome will make for interesting reading. 


Ultimately tokenization is possible for essentially any kind of asset, be it bonds, stocks or houses. There are added complexities to an asset such as real estate but ultimately it comes down to digitally-recorded and verified ownership and exchange via blockchain. Property rights are one of the most fundamentally important aspects of modern society so blockchain’s ability to record and protect ownership in a wholly digital world makes perfect sense.


In Ripple’s case there are definitely questions about the use of a CBDC in the project. We’ve got lots of CBDCs in development around the world, but so far there has been little reassurance that these fiat substitutes will be private, free from restriction or other significant caveats. Moreover, questions remain as to whether these CDBCs would even be usable on public blockchain infrastructure. 


Ultimately though property is one of the biggest asset markets in the world, worth trillions and underpinning much of the wealth of the world. Unlocking this wealth in the form of exchangeable tokens could be revelatory in the way in which the market functions. The same is true of both stock and bond markets, and could revolutionize how the global financial system is structured. 


MiCa stablecoin worries show rules need to be evolutionary


Legal experts have raised concerns that stablecoin daily limits stipulated in MiCa could cause issues for the market. The transaction limit shows that the regulations, in both word and application, need to be flexible to the market which it serves.


MiCa overall is a major step for the EU looking to enshrine a framework for digital assets and the market. We’re already seeing the on-shoring of capital from other regions, particularly the US, looking for that regulatory certainty.


There are always going to be kinks in the outlay of the initial framework that need adjusting – it’s up to legislators and regulators to pay attention to the industry and its needs in that sense. More broadly though, we’re likely to see a MiCa II emerge in due course, similar to MiFID and MiFID II. 


The difference here is the pace of regulatory change seems to be improving. It took years for the second MiFID to come through but we anticipate much quicker updates of a theoretical MiCa II in this instance. The market is growing at pace and regulators will need to stay ahead to continue to offer the most encouraging environment possible. When you’re in a global regulatory race for space, this becomes inevitable. For its foibles the EU has often led in regulatory matters, with many other jurisdictions following where it leads.