Swarm Markets is the change both crypto and Wall Street need
Swarm Markets’ licensed DeFi exchange will drive innovation for the entire financial system
It is generally accepted that the world of crypto and traditional finance are separate — or even competing with each other. Swarm Markets challenges the dogma that these worlds are incompatible. Not only are they compatible, but it’s both inevitable and essential that there be a single financial system in order for either side to move forward.
A hedge fund manager profits from private crypto investments, which their firm is excluded from participating in. Asset owners and issuers looking to tokenize securities are left with no choice but to run back to Wall Street after discovering the benefits of crypto do not extend to security tokens — there is nowhere to trade and no liquidity. The stories are so familiar that one easily overlooks the systemic roadblocks they describe.
We created Swarm Markets to solve both the problems of financial inclusion for institutional and retail investors and the liquidity challenges for a wide range of crypto assets, including digital securities. In doing so, we also open up a whole new world where the building blocks of crypto and DeFi can be applied to real-world assets in the traditional financial system.
Swarm Markets brings the players, the building blocks, and the capital all together into a single platform. This integration will encourage further development of new types of financial products and services, making the whole much larger than the sum of its parts.
Wall Street’s time-lag problem
Efficient markets are Wall Street’s marquee achievement. However, change is slow in traditional markets compared to crypto’s staggering speed of innovation.
It took the stock market more than a decade to digitize and shed the dead weight of human trading long after electronic trading had proved itself as a cheaper, faster, more dependable system. In contrast, the crypto market has historically experienced a paradigm shift roughly every 2–4 years, going from centralized exchanges (e.g. 2012 Coinbase) to decentralized exchanges (e.g. 2016 Ether Delta) to DeFi trading (e.g. 2018 Uniswap) at lightning speed.
Crypto promised to have all the answers to the traditional financial system’s woes, but despite the tremendous accomplishments of crypto pioneers, it remains a fringe investment. No one has done the hard work of building systems that convince government financial regulators that crypto markets are as safe for consumers and institutions as traditional markets.
Despite the massive pent-up demand on Wall Street for acceptable channels from which to participate in the profits derived from crypto’s technological leaps forward, regulators across the globe continue to intervene in every new venture and remind traditional market players that they have to sit on the sidelines and watch while others cash in. A tremendous amount of institutional and retail capital cannot be invested into crypto, transaction costs remain unnecessarily high because of middlemen fees, and trillions of dollars’ worth of assets cannot be digitized.
Swarm Markets has invested years of work and significant capital to earn the approval of Germany’s Financial Supervisory Authority (BaFin). The licenses granted by BaFin mean Swarm Markets can provide the same level of protection as traditional financial institutions. Now that the years-long process of licensing is complete, Swarm Markets is uniquely positioned to accelerate the pace of innovation for Wall Street.
Crypto’s liquidity crisis
Swarm Market’s founders Timo Lehes and Philipp Pieper took some of the first steps to address problems in crypto regarding the issuance of securities by founding Swarm Networks in 2017. Swarm Networks provides smart contract infrastructure for the tokenization of all types of assets and for decentralized, regulatory compliant fundraising. The Swarm Networks DAO is an open, permissionless protocol for token issuance and governance that makes it easy to create and launch a security token on the Ethereum blockchain using the SRC20 protocol.
The success of Swarm Networks exposed a massive problem simmering beneath the surface of every crypto project promising to bring regulated securities or real assets onto the blockchain: the lack of liquidity solutions to accommodate digital assets properly. Issuers wanted to know where their token could trade and where liquidity would come from — who would fulfil the role of market maker for their token?
A lack of trading outlets and liquidity solutions deters issuers from expending the effort and resources required for issuing a regulated security on the blokchain. Security token issuers who have done the work of preparing their offering usually marvel at the ease with which they can use Swarm Networks’ technology to launch a digital asset token, but the harsh reality of the crypto market’s liquidity crisis convinces many to go the traditional route rather than risk leaving Wall Street for a low liquidity market.
Swarm Markets addresses crypto’s liquidity problems by opening the floodgates to trillions of dollars worth of capital from the traditional finance market and by making more asset classes available to trade. Where existing DeFi protocols allow anyone to create a pools for crypto asset pairs, Swarm Markets adds the capability to create pools for myriad regulated assets like commodities (e.g. Gold), stocks (e.g. Tesla and Apple), and derivatives (e.g. carbon offset futures) to pair with crypto assets. By including more trading pair possibilities and bringing more asset-backed instruments to the crypto market, it’s easier to develop a market for new tokens because a higher volume of diversified liquidity is in the system.
A toolkit for new financial products and services
The true potential of Swarm Markets isn’t achieved by just adding together more of the same. By providing an onramp for new securities and making crypto tools available to new assets, Swarm Markets creates a laboratory for developing new types of financial instruments.
Asset custodians who want to create new securities around their assets can partner with Swarm Markets and leverage our banking licenses to launch new types of tokens while also saving time and money compared to launching on a traditional exchange. By eliminating costs usually associated with market makers and clearing houses, the cost burden of token issuance is eased. This will allow for greater participation in the financial ecosystem from new entrants and smaller entities, making for a more diversified marketplace that benefits everyone involved.
Instead of needing $50 million for a Wall Street IPO, a company with only a few thousand dollars in assets could create a token that trades against Bitcoin or gold ETFs — or Apple stocks for that matter.
We have some ideas about how the future looks when Swarm Markets makes these building blocks available to the world. So far, we are working with banks, auction houses, and other asset holders who have each surprised us with their unique creative vision for developing new products for the Swarm Markets platform.
Join now
Swarm Markets currently has a Launch Liquidity Program that is open for anyone wanting added rewards for committing assets to liquidity pools on the platform prior to the public launch. The program will only be open for a limited time so join now at https://swarm.markets/launchlp
Follow Swarm Markets here on Medium and on Twitter for more updates on the launch of the platform and the SMT token sale.
