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 6, 2023

Olive oil bonds; JP Morgan; US crypto regulation

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:

  • Would you buy a digital olive oil bond?
  • JPMorgan launches RWA blockchain for interbank settlements
  • Relief for US crypto sector as data shows major outflows

 

Digital olive oil bonds show depth and demand for on-chain RWAs 

 

The launch of the Lamar Olive Oil digital bond shows there is no investment too small or niche to be considered for on-chain listing. 

 

Among niche financial instruments, digital bonds for an olive oil firm might seem more niche than most. But the fact that an olive oil company is introducing such an instrument is testament to the fact that the market is growing significantly.

 

As Swarm has done, major equities are a strong starting point, as are mainstream debt instruments such as TBills. But the potential for the market extends far wider and deeper as these oil bonds would suggest. 

 

Digital RWAs offer investors and TradFi institutions a third way – offering the innovation of blockchain and crypto while couching real asset values in real world, measurable commodities or other kinds of investments. In turn this is all made digitally-verifiable and secured by blockchain technology.

 

This third way eschews the inefficiencies of TradFi and the unconstrained risk of crypto. DeFi is changing the game by embedding the best practices of each ecosystem and is going to expand exponentially in the coming years as TradFi and other investors adopt digital RWA ownership and exchange. 

 

Could US crypto soon find relief from regulatory uncertainty? 

 

The news that US lawmakers are considering proposals that would enshrine certain crypto asset rules will be welcomed by the crypto community. 

 

But we’re a long way from resolving an issue which is leading to major bouts of capital flight as uncertainty abounds still.  Data from Glassnode shows that a significant capital flight is underway from the US in terms of the crypto market. While to an extent this is as a result of the volatility created in the wake of FTX and others, it is also heavily led by the uncertainty of the operating environment for firms. 

 

In the past there was a question mark over whether you needed regulation in order to survive, but now that seems to be evermore apparent. Regulation was once accused of stifling innovation, but now it looks like the only way to operate a financial business on chain successfully. This would appear to be proven by changes of leadership at Binance, for example.

 

The lack of any clear framework has created in effect a policy vacuum for the sector in the US. This has cleared the way for regulators to interpret existing financial rules and frameworks and target crypto projects as they see fit.

 

While this is good in some circumstances where real harm is being prevented, in other areas key development and innovation is being stifled, and even scared abroad, by US officials acting with a heavy hand.

 

This stands in stark contrast to the work of legislators and regulators such as the EU, with a clear framework coming in through MiCa, and other regions where at the least positive noises are being made about managing the sector carefully and constructively.

 

JPMorgan running interbank settlements via blockchain 

 

JPMorgan is reportedly running major interbank dollar settlements with six banks in India using blockchain technology. 

 

In the first instance it is encouraging to see a major financial institution such as JPMorgan deploy blockchain technology in a large-scale practical application. It is clear evidence, yet again, that blockchain is proving to be a transformational technology which, in the right hands, increases efficiency and transparency while controlling costs and security. 

 

But the fact that the bank is using it to settle a fiat currency is even more interesting. Digital RWAs are expanding exponentially in demand and presence in the financial ecosystem. Afterall, stablecoins are the first example of tokenized real world assets. For JPMorgan to use blockchain to settle fiat transactions – instead of traditional methods – is a key shift in the way that financial institutions interact with the technology.

 

It marks an inflection point whereby these TradFi institutions are no longer just dabbling with the technology to buy and sell crypto assets that may or may not be largely speculative. They are using it to settle real world use cases with other institutions that have little to do with an otherwise self-selecting crypto audience.

 

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