Non-profit open source infrastructure vs for-profit issuance platforms
Swarm Capital is the latest digital securities issuance platform built on the SWARM protocol
Swarm Capital, a for-profit issuance platform for digital securities, has recently been announced as one of the latest entries into the rapidly growing block-chain sector. Swarm Capital offers a full spectrum of tokenization services built on the SWARM protocol. Even though these two entities (SWARM and Swarm Capital) share similar names and logos, it is important to note that Swarm Capital is an entirely separate entity from SWARM. Being that both of these entities have certain similarities, this article is intended to explain the differences between them. It will also discuss how they work together to provide an institutional grade digital securities framework.
Let’s start with SWARM. SWARM is a non- profit, community governed, decentralized digital securities infrastructure. It is an open source protocol that any organization can tap into and utilize for digital asset creation and management. SWARM technology enables blockchain tokens, such as ERC20 tokens for example, to be programmed with a set of restrictions, requirements, and guidelines to ensure compliance with specific regulatory criteria. This compliance enabling tech stack is referred to as the SRC20 protocol. SRC20 is in essence the magic that turns a regular token into a regulatory compliant security token. The SRC20 protocol is just one part of the equation though.
In addition to SRC20, SWARM utilizes custom developed technology called MAP (Market Access Protocol), an open source interoperability focused compliance and privacy protocol. MAP + SRC20 work in tandem to create an incredibly robust digital securities framework. This framework is powered by a decentralized network of approximately 400 master nodes.
SWARM is a blockchain agnostic solution that has the ability to issue and manage security tokens on a growing number of established public blockchains. SWARM is essentially the high speed rails that connect security tokens with service providers, exchanges, institutions, and any entities that are built on the SWARM protocol — all while maintaining compliance.
So if SWARM is the non-profit rails, Swarm Capital is the for-profit train. It is important to note that Swarm Capital will not be the only issuance platform built on SWARM protocol. There will be numerous for-profit trains running on these non-profit, open source rails. In fact, there are already numerous service providers, in addition to Swarm Capital, who are keen on utilizing SWARM. Unlike SWARM, Swarm Capital is a for profit business that offers a full suite of premium services on top of SWARM.
So why pay for services if you can tokenize with SWARM for free? While SWARM network offers free tokenization for its users, it is important to note that the tokenization aspect of a digital securities offering is just one piece of an intricate puzzle. While some sophisticated enterprises and tech savvy do-it-yourselfers may be able to handle all the additional steps required for a successful DSO, most issuers will need assistance. This is where Swarm Capital comes in.
Swarm Capital offers a modular suite of services, at a cost, that allow issuers more flexibility and less up front spending to conduct a full scale DSO. These services include investor on-boarding, KYC services, issuance, token management, digital custody, white label services, fiat gateways and more. So to recap, Swarm Capital is the for-profit train that charges money for its services. It runs on the non-profit, open source, free to use rail (SWARM).
So if SWARM infrastructure is non-profit and free to use, a logical question would be how can it sustain itself? The answer is by staking the SWM utility token.
The SWM utility token is the fuel that powers the SWARM network. The SWM token has many use cases. There will be an in depth write up focusing solely on SWM utility and staking coming out shortly. In this article, we are only going to briefly touch on issuer staking. Issuer staking is kind of like putting a deposit down to use the SWARM network, or rails if you will. Unlike a deposit or fee, the SWM stake remains in possession of the issuer at all times. These issuer SWM stakes, in combination with master node SWM stakes, provide an economic incentive system to ensure strong network functionality, security, value, and growth.
This is a new model of doing business, recently created by advancements in smart contract technology. There is NO FEE EXTRACTION. All the value is captured by the network. Again, SWARM does not get ANY revenue from these issuer stakes. These stakes remain on the balance sheet of the issuers, but are locked in a smart contract until certain obligations have been satisfied. This is what folks at SWARM like to call “having skin in the game”. Issuers want their SWM stake to be valuable, so it motivates them to act in ways to foster growth of the SWARM ecosystem. This goes the same for node operators as well.
Regardless of whether it’s Swarm Capital, another issuance platform, an exchange, or a private company — any organization minting security tokens using the SWARM protocol has to stake. It is the vital mechanism that allows no fee extraction. Besides straight tokenization of existing assets, these stakes are only required AFTER successfully reaching a certain funding target. There is a very low barrier of entry to running a DSO on the SWARM network. Any one can tap into the protocol and raise funds.
Hopefully this summary of the differences and similarities between SWARM and Swarm Capital was helpful. A more detailed staking guide and tokenomics article is planned next.