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.

May 31, 2022

Vitalik Buterin, NFTs, CoinShares report

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:

  • Buterin comments on DeFi
  • Google trends NFT data
  • Institutional investors are buying the dip

Buterin is missing a component from his DeFi criticism – regulation – Philipp Pieper

Ethereum founder Vitalik Buterin has recently made scathing remarks about DeFi, in particular in relation to Terra. In many ways his criticism of what has caused enormous instability in the sector is valid, but he’s missing out on one key area we think matters hugely – regulation.

The Terra stablecoin debacle was able to take place in the absence of regulatory oversight. Buterin’s comments centre on the fallibility of an algorithmic stablecoin and its fundamental flaws. However, regulatory oversight in the form of robust standards for stablecoins issuance, requiring uncorrelated assets to back each token, would have minimised investor risk. The Terra/Luna fall out could act as a watershed moment in stablecoin regulation.

There are disjointed regulatory environments and very different attitudes between different regions globally. Countries such as Germany, where Swarm is regulated, seem to be taking a robust but positive position on crypto, with other lawmakers in the EU block watching their approach closely. But crypto is by its nature a global market and this requires a joined-up approach from major regions to ensure investors and institutions are protected appropriately.

Google Trends NFT data is no surprise, now the hard work begins – Timo Lehes

The death of the NFT sector is now frequently and somewhat predicted. The meteoric rise in prominence of the technology has been coupled with a sorry retreat in the past few months, as Google Trends data suggests.

But we would suggest what is happening in this sector is more akin to the 2017/18 cycle for crypto. This is the moment when crypto assets first really reached public consciousness. The hype died down and with it the value of major tokens such as bitcoin and ether, but they didn’t vanish.

Instead what took place was a concerted effort by those involved in the sector to build on projects and develop innovative ideas. There was a ‘weeding out’ of sorts, that sorted the stable and long-term projects from those that were not going to survive a crypto winter. This is what we see happening now for NFTs. Now is the time in which the exciting projects that have real funding and grounded ideas come to the fore. 

It’s actually a really exciting time for the sector. We see developments for NFTs way beyond the art world and sports, which is where the big hype seems to be centred on right now. Gaming is a huge growth area too, but again this is just one small possibility for a technology that can effectively create digital twins of non-virtual assets such as equities or even property. The potential for an enormous change in the way ownership of assets of any kind is not far away. 

Institutional money isn’t leaving crypto – Philipp Pieper

Results from the latest CoinShares fund manager survey are clear, institutional money isn’t fleeing crypto. This is an important moment for the sector and crypto markets more generally.

There has been much discussion in recent weeks over the increasing correlation between tech stocks and crypto. The reasons for this vary but broadly comes down to much increased institutional presence and activity, which mirrors in both asset classes. 

The CoinShares survey indicates something important – institutional investors aren’t being spooked by the current volatility in markets. In fact, volatility is not such a bad thing for some funds that use it as an investment strategy. 

Institutional experience knows well enough to not sell in fear. Institutions are ready, cash in hand, to invest in what it sees as future winners in the sector. In times of market stress, money doesn’t leave the market, it leaves the riskiest choices. What we’re ultimately seeing is a realignment of money, and this is not necessarily a bad thing.