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.

October 24, 2022

Rishi Sunak; EU DeFi; House NFTs

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founders, Philipp Pieper and Timo Lehes, and head of comms, Katie Evans, on key industry news that has caught our eye, plus our own developments. 

Comments available on the following news items:

  • Rishi Sunak will be good for UK crypto
  • Is the US in danger of taking the wrong approach on DeFi?
  • First NFT home sale

Prime Minister Rishi Sunak could be good for UK crypto

Rishi Sunak has won the contest to be the next leader of the UK Conservative Party – and therefore Prime Minister of the UK. His appointment to that position could be a good moment for the development of #CryptoBritain.

In his time as Chancellor, his fiscal policies during the COVID pandemic, like the eat-out-to-help-out scheme, were arguably forward thinking so it stands to reason he would boldly support the development of a digital asset economy in the U.K. 

In short, the most important takeaway for the crypto community in the UK right now is that the person in charge of the country is no crypto hardliner, and sees the benefit of the digital assets revolution underway in financial services. 

Under his watch the Financial Services and Markets (FSM) Bill initiated its progress into legislation. This bill contains key regulatory frameworks for crypto and stablecoins that bring the asset class in line with traditional financial products, much like the German regime has done since 2020. Let us also not forget that he was Chancellor who oversaw the Royal Mint’s announcement to issue its first NFT. 

It will be very interesting to see who is appointed to his Government now. Key proponents such as Matt Hancock, who was formerly a senior Government minister, could receive cabinet positions. Hancock has recently and vocally been a proponent of crypto. 

Beyond that, the City minister Andrew Griffith last week introduced new amendments to the FSM Bill which would widen the scope of the legislation to cover a broader set of crypto beyond stablecoins. Swarm Markets was in the Houses of Parliament just last week with Mr Griffiths so we watch with interest if he’ll continue in post. 

Is The US in danger of moving in the wrong direction on DeFi?

A debate around the direction of travel for regulation of DeFi in the US is rising – and its pitting the EU as a direct competitor for leadership of regulatory innovation for the sector. 

A report published by the EU last week highlighted the importance of regulating in the right way – by balancing the needs of innovation, transparency and financial inclusion which are key facets of DeFi against pseudonymity, leadership opacity and control of contracting processes. 

The report is an excellent primer for legislators looking to develop more regulatory frameworks for the sector and is clear that DeFi should not be prevented from innovating to grow and improve financial services. 

In contrast, criticism is rising over the US regulatory approach to the sector. This was most notably brought to light through comments from major crypto stalwart Sam Bank-Fried last week who said a recent US bill would ‘kill DeFi.’ Bank-Fried has faced a notable backlash from the DeFi community over his comments. 

The issue comes back to questions over the degree of centralisation within DeFi protocols. The sector needs some centralised elements to build trust with regulators. But it can still deliver decentralised architecture so users can benefit from yield products and the efficiencies of blockchain tech. 

Our view is that the regulatory innovators tend to see adoption of their frameworks elsewhere, the ‘Brussels Effect’ we have mentioned in this memo frequently. With the EU leading the way on efficient DeFi regulation, it is highly likely that we’ll see adoption by other regulators of similar processes and frameworks in order to come to as unified an approach as possible across the globe. 

Selling your house as an NFT

The first ever sale of a home using NFT blockchain technology gives us a firm example of how real world assets could soon exist seamlessly on blockchains. 

NFTs exploded into public consciousness last year but this year has seen a baleful market pull back as the appetite for digital cartoons and other frivolous offerings have met the reality of rising interest rates and hard-pressed investors. 

But the technology that underpins NFTs is much more powerful than digital pixel ownership alone. NFTs have enormous potential to digitise a range of real world assets from equities and other securities to physical homes as the house sale in South Carolina demonstrates. 

It is not hyperbole to say that NFTs could soon be a trillion dollar industry. But this will come through the introduction of tangible assets to the blockchain rather than the creation of notionally valuable new assets. The property market alone is enormous, and ripe for digital disruption in a world where ownership is still often proven via physical documentation.

The platforms that are able to onboard these real world assets and provide seamless, safe and secure ownership rights will be the winners of this, as of yet, very early days expansion.