As seen in previous articles, the financial world is evolving, driven by the need for greater efficiency and to reach new investor types. This shift is reshaping how we think about and trade traditional assets.
Bringing real-world assets (RWAs) onto the blockchain opens up new possibilities, but it also calls for new, safe, and effective ways to trade. Today, the stakes are particularly high when it comes to large block trades of any asset on chain, from crypto to RWAs.
Current options fall short at servicing the needs of market participants who want to transact in large volumes on chain at any time.
Investors face the risk of the other party defaulting, the uncertainty over the robustness of this type of infrastructure, and high slippage — issues that can significantly erode trust and confidence when conducting high-value transactions on-chain.
In this article, we’ll take a close look at how Swarm’s proprietary technology, the Open dOTC, is solving these critical challenges.
Here’s a summary of what we’ll be exploring in this article:
- Counterparty Risks
- dOTC
- dOTC Select
- Impacts on RWAs
Counterparty Risks
While the blockchain provides a transparent and immutable ledger for digital transactions, its intrinsic pseudonymity and lack of intermediaries can sometimes exacerbate counterparty risks.
In response to these challenges, over-the-counter (OTC) cryptocurrency trading emerged as a solution, facilitated by market makers and centralized exchanges. These entities stepped in as trusted intermediaries, conducting thorough due diligence and providing a measure of security that was lacking in direct blockchain transactions.
Over the counter (OTC) trading allows for large block trades away from public order books on lit venues, like exchanges, mitigating market impact and offering a level of privacy and personalized service that is particularly attractive to high-net-worth individuals and institutional investors. It also means that large volumes of crypto assets could be moved at any one time, whilst absorbing any shockwaves they might cause on price.
However, while OTC trading addressed many of the initial concerns, it wasn’t without its drawbacks. The centralized nature of these OTC services often came at the cost of increased fees due to intermediary involvement and the introduction of potential single points of failure.
These limitations stood in contrast to the decentralized approach as defined in blockchain-based architecture, creating a tension between the need for secure, large-volume block trading and the desire for peer-to-peer transactions that can be transacted autonomously and are disintermediated.
dOTC
The beauty of smart contracts lies in its ability to ensure that both parties will comply with their obligations, a principle exemplified by the Open dOTC — a common goods service in the form of a smart-contract-based central limit order-book (CLOB) that allow for high-value transactions, reducing slippage and removing counterparty risks.
Decentralized over-the-counter (dOTC) trading brings the essential function of high-value transactions from traditional finance into the blockchain space. It enables large-scale, private transactions of on-chain assets without intermediaries.
Currently available on Ethereum, Polygon, and Base, the open dOTC harnesses smart contracts to remove the middlemen from the OTC trading process. This approach enhances efficiency and mitigates credit risks by fully collateralizing trades.
dOTC plus compliance
Swarm will add a series of features to the dOTC in the upcoming release of the platform, dOTC v2. This core addition will introduce a range of compliance options, allowing users to fine-tune their trading environment.
At one end, the platform maintains its fully permissionless nature, preserving the freedom to transact without restrictions. At the other, users can opt for enhanced security measures, including KYC standards or the ability to whitelist specific wallets for transactions.
By offering this range of options, the Open dOTC strikes a balance between accessibility and compliance, positioning itself to meet the needs of both institutional investors and newcomers to DeFi. More than that, it represents a significant step forward in creating a user-centric trading environment for real-world assets.
Impact on RWAs
We acknowledge that the RWA sector is currently in the phase of building liquidity. From what we’ve seen and heard from users, using AMM pools for RWAs does not provide an optimal trading environment at the moment, especially as high slippage can occur.
As a key driver for this movement, we recognize that in order to best suit the industry’s unique characteristics, we need to build tools that can capitalize on such elements, improve user experience and better support integration into DeFi.
With the latest upgrades we’re rolling out, any asset can be incorporated into the dOTC as long as it has a corresponding smart contract. This is: trade any asset, with no counterparty risks, no slippage, and choose the level of compliance to suit your needs.
About $SMT
- You can buy and exchange $SMT on Uniswap (Ethereum and Polygon), MEXC, Gate.io, (under the ticker $SMTX,), BingX, Bitstamp, the Swarm platform and Open dOTC.
- For tokenomics and distribution, visit the $SMT docs page.
- Visit CoinGecko for up-to-date $SMT stats and figures.
- Join the conversation on X and Telegram.
- For total circulating supply figures, use our API.
