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.

September 27, 2022

Mainnet; The Merge; Apple & Disney NFTs; BaFin vs SEC

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:

  • Mainnet takeaways: permissioned DeFi is the key to institutional adoption
  • The market will decide liquid staking is the future
  • Big players Apple and Disney making NFT market moves
  • Philipp in Fortune – the SEC is playing catchup, that’s why we picked BaFin 

Our key takeaway from Mainnet: the rise of permissioned DeFi

Swarm Markets was at Messari Mainnet last week. Our key takeaway? Permissioned DeFi and its rise is a key to unlocking sector growth and adoption.

In an environment in which regulatory compliance and oversight is becoming an ever bigger presence in crypto and DeFi, permissioned DeFi is looking more and more like the solution to the regulatory riddle.

Permissioned DeFi – in which users are whitelisted and onboarded to platforms with key AML and KYC considerations at the front of the process – could unlock the sector’s potential by removing bad actors from the equation. 

At first glance DeFi and permissioned DeFi might seem at odds. DeFi by its very name is decentralised first. But this raises important security and stability questions that are leaving institutions hesitant to adopt, particularly with some high profile losses to various types of financial crime. 

Permissioned DeFi eliminates these concerns at a stroke. In our discussions at Mainnet what seems clear is the sector is buying into this belief now. In conversations with institutional exchanges and liquidity providers, it was clear that Permissioned DeFi is the way forward for institutions. 

Swarm itself has always operated as a permissioned DeFi platform, with robust processes to ensure total user confidence. This comes from a clear understanding that TradFi institutions, while keen to explore the potential benefits, are acutely aware of the risks. 

The Merge is still young, but the market will coalesce on liquid staking

The Merge is barely one week old, but lots of conclusions have already been drawn. The truth of that is market movements in such a short space of time are little more than noise set against a tough macroeconomic backdrop. 

But in our view there is a key aspect of the Ethereum ecosystem that is going to have an enormous impact, given time, on the market. That is the value proposition of liquid staking. 

This comes through key aspects such as yield generation, price exposure and ongoing liquidity. Essentially what we’re discussing here is a fundamentally higher quality level of asset class versus basic ETH tokens. 

Ultimately the market will make its own judgements about what is more valuable, but the additional propositions offered by stETH are clear, and holders will vote with their feet in due course. This is a long-term macro trend for the asset rather than a cyclical issue, and will be nothing short of revolutionary given time. 

On Apple and Disney making NFT moves

The NFT market has appeared on something of a back burner in recent months. But the quiet inclusion of NFTs on the Apple app store platform, and moves by Disney to shore up its legal basis for ownership, are important signals for those watching the space.

Apple’s move to incorporate NFTs-focused apps to its ecosystem is a potentially significant step, purely because of the sheer scale of its platform. Bringing technologies to platforms that already have large audiences will shore up their adoption. 

NFT developers have been quick to excoriate Apple for imposing 30% commissions on earnings. These are valid concerns, but ultimately this is the price of doing business in an environment Apple has total control over. 

Meanwhile, another major household name is building up its NFT proposition and is similarly acting fiercely on trend for its own behaviour. One of the core principles of Disney’s value proposition is the extremely proactive defence of its own copyrights. This makes the news that Disney is hiring NFT-focused lawyers no surprise. 

What is clear here is both firms are making tentative steps into the market, fully on their own terms. The message for developers in the space is clear – these companies value your innovations, but will make you work to their rules. The opportunity beyond this is to compete and contrast with a proposition that doesn’t maximise value for end users or the innovators. 

How Germany’s regulators beat the SEC in the race for crypto regulation

As DeFi increasingly divides into either regulated or unregulated spaces – Swarm took an early decision to establish itself in Germany under the purview of BaFin. This was a logical decision, compared to a US market that lacked a coherent regulatory framework for DeFi.

That situation is changing as the SEC catches up, but we have been very satisfied with our choice. BaFin has led the way working toward the legitimisation of the digital asset landscape and integration into financial markets. 

Although it’s been careful to stipulate that regulation must be tailored to prevent stifling new technologies, BaFin has been clear that DeFi won’t get regulatory carte blanche. And that’s critical. This technology has the potential to overhaul our entire financial system; it needs suitable regulation if it is to compete with traditional financial markets.

Read Philipp’s full OpEd in Fortune