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 Treasury provides direction on crypto regulation
- US crypto infighting increases as Texas enshrines digital asset rights
- Quadriga reimbursement saga timely self-custody reminder
- Zimbabwe turns to gold-backed digital assets
UK Treasury Committee report highlight why crypto needs tokenization of securities –
The UK Treasury Committee has just announced in a new report that it recommends cryptocurrency trading should be regulated as gambling. The committee has cited crypto’s lack of ‘intrinsic value’ and ‘no useful social purpose’ as key reasons why this should be the case.
This new report highlights that the UK is yet to find a clear approach to regulating crypto and is lagging behind its EU counterparts. Germany, for example, updated its Banking Act in 2020 to classify crypto as a financial product, meaning anyone dealing with cryptocurrencies has to be regulated just like any other German financial institution. Germany’s approach ensures clear guidelines for crypto organisations and better protection for retail investors, an approach that the UK could benefit from following instead of leaving crypto investing to chance.
With MiCA on its way bringing all EU countries under one unified approach to crypto, the UK better get its ducks in a row if it still wants to achieve the status of being a ‘crypto hub’.
Despite its flaws, the report does acknowledge the potential value of blockchain technology for financial institutions if it moves away from volatile, unbacked assets. At Swarm, we share this viewpoint. To protect retail investors and bring institutions onboard with the use-cases of blockchain technology, we need to move to the next iteration of crypto – tokenization of real-world assets.
Tokenizing real-world assets will allow investors to access the trading benefits first realised in crypto trading, such as easy access to global markets, 24/7 trading and instant settlement, while also having the safety and deep liquidity of regulated traditional financial landscape.
The UK Treasury Committee’s proposed approach to cryptocurrency is by no means perfect but they have successfully drawn attention to some of the issues of cryptocurrencies. Issues that tokenization of real-world assets can fix.
Texas enshrines digital asset rights as US crypto infighting grows
The situation in the US has gone from bad to worse as politicians, regulators and other actors all pitch in to create evermore uncertainty for crypto and digital asset firms in the world’s largest economy.
In the latest move, Texas is looking to enshrine the right to digital asset ownership in its constitution, giving the asset the same legal protections as guns and right to a fair trial.
The curious mix of state and federal rights in the US makes the situation all the more complicated. But the real problem here is with no certainty over whether or not they will be squeezed out in the next weeks or month, meaning crypto and DeFi firms have no confidence in their US-based operations at the moment.
With rumours rife over an even more extreme crackdown from lawmakers, which could essentially give regulators free rein, the conditions for businesses looking to work in the digital asset space are not far off toxic. No wonder some major players are rumoured to be looking abroad.
The truth is that the more the US prevaricates on its friendliness to the digital asset ecosystem the more investment, innovation and talent it will push abroad. Polities such as the EU have a much clearer set of rules to oblige in MiCa, while other destinations such as the UK and Singapore are working on their own digital-asset-friendly frameworks.
Quadriga reimbursement is a timely reminder of why self custody matters
The aphorism ‘not your keys, not your crypto’ has been a frequent theme of many recent debacles in the crypto space. But we’ve had an old-school reminder from QuadrigaCX – who’s exchange lost $190 million-worth of investor tokens when the keys to the funds died with the chief executive.
Investors are set to be reimbursed just 13% of their investments on the platform, which collapsed in 2018. While it is a testament to the work of regulators and administrators that they’re getting anything back, it’s still a bitter pill to swallow.
A more contemporary reminder is that of the BlockFi customers frozen out of nearly $300 million in crypto assets when the firm froze transfers. The firm, which filed for bankruptcy in November, was subject of court proceedings by investors looking to reclaim holdings. The court has since turned down their request leaving many with enormous losses.
We’ve had many of these examples rise up in the past year, but now more than ever market participants need to be aware that self custody is the solution to digital asset ownership. While platforms have offered much in terms of convenience, it is no substitute for secure ownership protocols.
It is true that DeFi has to work really hard now to make custody as seamless, user-friendly and regulatory-compliant as possible. Doing so will provide investors the assurance they need to become confident long-term market participants through innovations DeFi has developed.
Zimbabwe turns to digital gold to cure old financial woes
Perennially financially troubled Zimbabwe has successfully issued gold-backed digital assets. The sale, while coming from an unusual corner of the world, is testament to the real value of digital real world assets (RWAs).
While an extreme example of fiat debauchery, inflation and dollarization, Zimbabwe represents what a lot of us think. Wealth is only as safe as the asset it functions in. Gold is one of the oldest safe havens for wealth in the world. Digitization of those assets is a really big step, one which a country like Zimbabwe, wracked by currency devaluation, is keen on.
The IMF, unsurprisingly, has criticised the issue. But this is the direction of travel for financial institutions looking to bridge the gap between TradFi assets and digital RWAs. Time will tell if it pays off for the country, but it certainly is no bad thing to get ahead now.
Closer to home and digital gold adoption is making good progress in many regions. Swarm for its part has partnered with Volksbank in Germany to offer gold NFTs to the bank’s retail customers, meeting a clear demand from users to be able to retain real ownership of real assets such as gold, securely and digitally.
