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July 19, 2022

Market cap; UK FS Bill; ESG bonds

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:

  • Crypto recaptures $1tn market cap
  • UK financial services bill lands this week – here’s what we want to see
  • ESG blockchain bonds

Crypto recaptures $1tn market cap – Timo Lehes

While we’re not about to pop the champagne on the return of a bull market, crypto has been sending some more positive signals in the past few days, which has seen the sector recapture its $1 trillion valuation, per CoinMarketCap.

There’s some really interesting themes at play here, which we’ve been seeing all through the so-called ‘crypto winter.’ The price started moving in a meaningful way last Thursday after the Ethereum Merge got a provisional date set for 19 September.

But while this has stoked some noise in the market, particularly with big banner tokens such as ETH and BTC – there is a much more important fundamental to consider with crypto and DeFi, which was a subject of discussion during our institutional crypto investing forum last week. 

Similar to equity market sell offs, the crypto winter has been a good way of shaking the fundamentally weak and unstable projects out of the woodwork. When you get a major downturn like this, the firms that are tacking along on eye-watering valuations, or zombie debts, will always face a comeuppance. Those that are left behind are well-capitalised, and carefully thought through and executed ideas. 

It’s no surprise we’ve seen a host of names hit the wall in the past two months. What we haven’t seen is some real, rigorously funded and stable projects come into trouble. Those have ticked on, and investors in those ideas will realise the benefit of the approach in time. 

UK Financial Services Bill is imminent – lets hope its not rushed – Philipp Pieper

The UK is pushing on with its financial services bill, which is set to include key crypto regulations, this week – despite current political uncertainty. Of course, the bill will have had some significant planning time but it appears the government is pushing on in order to meet deadlines and prevent it falling backward as the Prime Ministership changes hands. 

Key to the crypto sector is provisions it contains for regulation, especially pertaining to stablecoins. Stablecoins are a key aspect of the sector so it’s good to see the UK forging ahead in this area. What we’d like to see is a positive regulatory approach that enshrines access and transparency for DeFi users and investors. 

Per reports in the FT, the bill contains provisions that could see political intervention in ‘extreme cases’ of regulatory matters. This is a worry in that regulations only work when there is no room for manipulation from political leaders.

Central bank independence exists and has worked for a good reason – and DeFi is an extension of that thought process. Removing centralised actors from the financial process is critical for trust and transparency. Intervention is not a desirable outcome. 

ESG bonds on the blockchain are just the beginning – Timo Lehes

EDF Energy has issued tokenised ESG bonds via blockchain in collaboration with BNP Paribas. As banks go, BNP is pretty ahead of the curve on blockchain, but we’re still very much at the nascent end of the trend.

But these ESG bonds are a really good example of what Swarm Markets is championing, and what we see growing to become the dominant use case for DeFi – the on-chain digitisation for TradFi assets. Pretty soon everything from property to equities will be verifiable, ownable and tradeable via blockchain, and DeFi will be the sector that facilitates that. 

Offerings such as EDF’s might seem like a gimmick at this point in time, but they’re an early outlier of a much bigger trend that will ultimately see DeFi and TradFi merge into a new unified sector. Until now the focus has been too heavily on ‘crypto’ and its associated tokens, but the future is for blockchain to be used to manage traditional assets on transparent, secure and regulated DeFi infrastructure.