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.

June 28, 2022

Lido; MiCa; LaGarde

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:

  • Lido staking volume not the issue
  • MiCa legislation imminent
  • LaGarde DeFi financial stability comments

Lido looking at limiting staking volume – Timo Lehes

Major DeFi staking platform Lido is looking to limit the size of its staking share on Ethereum, which its community overwhelmingly voted against. And probably because the measure isn’t seeing the wood for the trees. 

Aside from issues stemming from lack of decentralisation of cloud services – another problem entirely – the problem with Lido isn’t that it’s controlling too much staking, it’s that there’s little transparency or oversight of what is happening inside the protocol.

It would be far better for a proposal to be put forward to enable end-to-end transparency of process, to give users and investors more confidence in the system. This will only become more essential as ETH moves to a proof-of-stake model, which is looking at a major expansion of staking on the network, and with it exposure to these relative risks.

A limitation of the platform’s ability to provide ETH staking and liquidity for stETH could also have another unintended consequence. At times when the market requirement for liquidity raises, any limit on Lido’s own scale could create a dangerous artificial buffer to this liquidity – something the market really does not need at the moment. 

EU MiCa legislation finalised this week – Philipp Pieper

The three major EU institutions will meet this week to finalise plans for MiCa and TFR. The legislation could have wide-ranging consequences for the crypto sector in Europe at a delicate time for the industry and market more broadly. 

Foremost, it is a very good development to see harmonised EU regulation that will start creating a common base of understanding on crypto assets and service providers across the EU markets. Yet, once passed, the details of the implementation of rules within MiCa will be interesting to observe across the industry. 

It appears as if, for now, NFT providers are going to be exempt from statutory changes. DeFi looks set to be more or less shielded from the changes, after vigorous appeals from the sector, including a petition signed by us at Swarm too.

But stablecoins are still in the firing line with some fairly heavy-duty new rules coming in relating to registration and issuance, which non-compliance could see them forced off EU-based platforms. 

Other big questions still outstanding include AML provisions for crypto, particularly relating to unhosted wallets. At the moment it looks like the EUR 1,000 threshold won’t be introduced, meaning all crypto transactions will have to comply.

LaGarde DeFi comments – Philipp Pieper

ECB boss Christine LaGarde has made some acerbic comments relating to DeFi in front of the European Parliament’s Committee on Economic and Monetary Affairs. But while her comments might come across as derogatory of the industry, she’s not wrong in principle.

Crypto and DeFi do need regulation. Swarm is no shrinking violet on this, and we’ve been vocal for some time for the need for regulatory boundaries to be set for the sector. But there is a really important distinction to be made between regulatory styles.

We want to see positive, thought out regulation that encourages growth but protects participants. What we want to see avoided is knee-jerk, reactionary rules that tamp down on the sector’s ability to operate. This is especially difficult in current market conditions and made worse when unsettling comments are made about the stability of the system.