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.

February 22, 2023

UK asset managers, tokenized public stocks, DeFi future

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:

  • UK asset managers want to tokenize their funds
  • Swarm launches world-first stocks and bonds on DeFi
  • DeFi is forging ahead with new opportunities

 

UK asset managers want to tokenize their funds

 

A report from the UK’s financial regulator the FCA underlines clear demand for the tokenization of asset management funds. 

 

The FCA acknowledges that tokenization of funds could “transform” how they work and “support better outcomes for firms and investors.” it also gets to one of the keys of the issue, the removal of various middlemen in the process of exchanging ownership of funds.

 

Asset tokenization via blockchain removes, at a stroke, various layers involved in the sale, custody and ownership processes typical in TradFi right now, that adds layers of complexity and cost. The FCA adds that tokenization would have little impact on investors’ choice of investments or how funds are managed by the asset manager. It is simply a question of exchange and ownership modernization and efficiency. 

 

It is also encouraging to see that the FCA notes the distinction between tokenized assets and cryptoassets. This nuance is often missed. Cryptoassets are largely unregulated with little clear collateral in place to guarantee the value of the token. This is where real world assets (RWAs) differ – they are backed by an asset that has a real value, such as a stock, bond or fund unit. 

 

It is encouraging to see the UK regulator taking such a positive stance toward tokenization. This is an explosive growth sector which has the potential to completely reframe how TradFi interacts with investors, businesses and their assets.

 

Swarm launches world-first tokenized blockchain stocks and bonds

 

Swarm has launched a world-first DeFi investment offering for Apple, Tesla, and two US Treasury bond ETFs. The fully asset-backed tokens are available on the Polygon blockchain for both retail and institutional investors, with no minimum investment. Trading is available 24/7 on Swarm’s permissioned DeFi platform. 

 

It is the first service of its kind for investors looking to access real world assets (RWAs) using digital blockchain technology, while meeting full regulatory requirements to provide complete confidence to users.

 

Swarm will add more stocks and real world assets in the future. Visit swarm.com and watch the video (1.30 mins) of our Head of Comms, Katie Evans, to find out how Swarm is bringing real world assets on chain.

 

Timo Lehes, co-founder of Swarm comments: “Swarm is the first entity to offer and trade tokenized T-bills and stocks via a regulated and decentralized platform. We operate within the German regulatory environment, meaning we can issue and trade real world assets on blockchain, unlike any other entity. 

 

“We have started with stocks and bonds, and will soon extend this to any asset that needs to be traded on a regulated platform, from carbon credits to real estate or private holdings. To date, traditional market participants have not had a comprehensive and regulatory compliant solution for issuing and trading real world assets on-chain. 

 

“The FTX and Celsius crises last year only highlighted key structural and regulatory weaknesses in the market, demonstrating that crypto collateral is too highly correlated and easy to manipulate. Regulation, in the right parts of the ecosystem, is critical while decentralization enhances the transparency required to build trust.

 

“Our announcement is significant for both DeFi and TradFi. There is clear demand for high quality assets to become available on-chain. Institutional participants will now be able to deploy assets from traditional markets via blockchain through Swarm. 

 

“Swarm is a hybrid platform, combining the depth of liquidity and value of traditional financial markets with the advantages of blockchain technology. We are the only trusted platform that institutions with a fiduciary responsibility can use to issue, trade and manage quality collateral on-chain with confidence and in a decentralized way.” 

 

For more, see coverage of our announcement in The Defiant, Institutional Investor, Blockworks, CityAM, AltFi, Yahoo Finance, Finextra, FinanceFeeds, Invezz, Crypto News

 

DeFi is poised to take on new opportunities

 

We noted with disappointment a piece from Paul Vigna recently, which accused DeFi of failing to match its promise until it confronts its problems. 

 

Vigna conflates the bad activities of firms such as ThreeArrows, Celsius and FTX with the activities of the DeFi market. But while these firms had access to DeFi liquidity, the overleveraging, fake decentralization and conflicts of interest created were not the fault of market makers but bad actors within those organisations. 

 

He also accuses DeFi of sloppy code writing practices that lead to hacking attacks and customer losses. Again this is an anecdotal rather than systemic failure of the sector. Indeed, with the right regulation in place, much of the losses associated with this kind of failure can be – if not eliminated – then at least accounted for. 

 

While the sheer number of attacks is indeed high, this isn’t a DeFi-specific phenomenon. The entire global financial system is under constant attack from bad actors, be they trying to steal pensioners savings, or enticing teenagers to pay for fake car insurance. It is an inevitable consequence of money, really. 

 

The article then points the finger for last year’s troubles squarely at DeFi through the failure of the Terra stablecoin. While it was indeed the catalyst for a terrible sequence of events – it was the algorithmic nature of the stablecoin, not the DeFi element of the project that caused its downfall. Had Terra been backed one for one by real world assets (RWAs) then it is likely the collapse in value would not have taken place. 

 

Finally, Vigna says that DeFi lacks a formal set of standards for coding and operating. Again this is not wrong, but it is incumbent on regulators to set those standards. In the vacuum there will always otherwise be failures. Not everyone is guilty of them though and this is why regulation is key. 

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