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August 23, 2023

New Zealand; Singapore; McKinsey

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:

  • New Zealand cautious on crypto regulation
  • Singapore makes big step to stablecoin regulation
  • McKinsey on tokenization


Legislators in New Zealand are taking too cautious an approach to crypto regs


A report compiled for legislators in New Zealand has struck a highly cautious tone on crypto regulation that won’t be to the benefit of market participants. 


While a sensible and careful approach is really important, it is wrong for legislators to take too slow a process in regulating the sector. The longer that crypto functions outside of any kind of official framework, the longer that bad actors will continue to have an influence over participants and expose the market to higher risks than necessary.


New Zealand is in danger of falling behind its peers, particularly as major Western regions such as the EU and UK forge ahead with comprehensive models for regulation of the sector. Closer to home jurisdictions such as Singapore are taking a clear stance too. 


The danger here isn’t just that countries which don’t get ahead on regulations will lose out market share, it is that participants in the market, as it already exists, will continue to be exposed to unnecessary risk and failures that could leave investors and consumers nursing significant future losses. 


The quicker countries move to regulate the better because creating a framework isn’t about legitimizing bad actors – it is about codifying what “good” looks like. 


Singapore makes a step toward stablecoin regulation


Singapore has announced a regulatory framework for stablecoins, marking a big step on the road to greater inclusion of tokenized assets in a major financial center. 


Stablecoins are essentially a tokenized form of fiat currency. They act as an entry point for people to move on chain and at times have been safe haven assets for those who want to escape the volatility of crypto-native tokens like bitcoin and eth. But high-profile de-pegs have resulted in greater demands for transparency over the assets held in reserve, supporting a stablecoin’s price, as well as a diversification of those assets to highly liquid traditional financial products away from volatile crypto assets.


The EU’s MiCa is the first attempt by European legislators to regulate Euro-denominated stablecoins but Singapore is hot on its heels. MiCa comes into force for stablecoins in June 2024, requiring stablecoin issuers to be licensed in one of the EU27 countries. Those distributing euro coins will also have to have e-money licenses, which could prove to be an inhibitor for the EU-stablecoin market, as regulatory barriers for issuance are higher than in the US and Asia. 


As a direct integration of web3 infrastructure with a traditional financial asset class, it makes sense that these tokens are first addressed by regulators because they are the most easily understood. Having a regulated stablecoin market will incubate a healthy DeFi system, which might potentially bypass the traditional banking system. 


We are already seeing applications taking tokenized forms of cash and financial products to give consumers direct access to yield-bearing assets that cut out the middleman. In this new world, traditional financial institutions will need to re-think financial product design that puts consumers at the heart.     


McKinsey looks to tokenization as the origin and future of crypto


Tokenization is one of the most important trends of 2023. But as a McKinsey report points out, it is in many ways the original plan for crypto as an idea. 


Tokenization of real world assets (RWA) is a huge step in the right direction for the crypto sector because it eliminates the volatile and ungrounded token market at a stroke. Instead we get the benefits of blockchain married to real, tangible and, crucially, easily-valued assets. 


McKinsey points to capital efficiencies, operation cost savings, democratization, transparency and better value infrastructure among the many potential benefits of tokenization. These are all highly laudable and achievable aims through blockchain technology.


It is no surprise TradFi institutions are beginning to look up and take notice of DeFi innovators. Cost bases and efficiencies are one of the most important areas for these institutions to improve upon, especially in the current climate of razor thin margins and value for money when it comes to investment markets.


We’ve seen significant consolidation, streamlining and efficiency-saving implemented already this year. The next step will be to look at tokenization and DeFi to deliver major technological improvements to financial infrastructure and in the process make the market more transparent, secure and affordable to manage.