Telegram AMA with CEO Philipp Pieper
September 20th, 2018 8:30a PST / 5:30p CET
Hi Philipp, I was hoping to start with a difficult one. How do you see Swarm positioned vs other security token issuance platforms in the space?
We are very different both from an organizational set-up as well as from a positioning and go to market.
The Swarm org is a non-profit meant to democratize investing. So we are not moving into building investment banking or other consulting services, but instead open and free infrastructure that helps the market.
As such, we are also compatible with other players in the security token space and are even encouraged to look for collaboration there.
Will Swarm build [an] exchange?
Not an exchange directly, but infrastructure that helps bring security token trading to life.
Getting the technology adopted — by investors — what do you see as the biggest hurdle to that? The idea that Swarm will democratize investing was one of the things that drew me to the project. But I think it will take “smart money” to come in and really push this forward. What is the biggest obstacle to getting smart money onboard and how can Swarm overcome that obstacle?
It will take white glove services and a special effort on the regulatory side to get institutional players to adopt. But that is in full swing — for us and the entire industry. I think 6 months down the road things will look very differently.
But MAP is built on Stellar?
MAP is built on our fork of Stellar. Currently it’s in trials with a more centralized version, but when the time comes it will move into the decentralized infrastructure operating on the Swarm Master nodes.
This is good to hear, one of my questions was your plan to help educate potential investors on this emerging asset class? But it sounds like it’s already in the works.
Education is a huge effort and we’ve been at it since even well before publicly launching in January.
But education automatically also leads to discovery and hearing requirements first hand. And from what we’ve heard there are clear elements that are in the works to resolve some of the professional investor hesitance.
I see. Does Stellar have a generic smart contract language where one can code any sort of financial structures say stock splits, rights, etc?
There are options there. But also some well beyond Stellar, that we are looking at. In this case specifically you need a highly versatile and performant language, that can accommodate the broader requirements for security tokens as well as the individual deals made on top of those asset classes.
Possible to elaborate on those [education] elements?
Especially custody (especially for security tokens), and fiat2crypto on/off ramps.
Speaking of white glove service — Swarm is probably not organized or meant to deliver that. So could you see an enterprising Swarm community member organize a business around that within the Swarm ecosystem? And would you guys support and cultivate something like that?
Surely not. I personally am not convinced proper security (token) custody can be delivered by start-ups. This is more about finding and integrating the right partners than to build.
Are there any European players who have procured licenses for trading of security tokens?
I can see a lot of businesses evolving with new services that cater towards launching and maintaining STs.
There are a lot more challenging questions to be resolved than with simple utility tokens (and that was a challenge already…)
Malta is all over this.
Malta is one of them. But you’ll be surprised how active the institutional community in EU is looking into this.
And Binance is spreading the regulatory exposure. They are also partnered in Liechtenstein. And surely more to come.
I don’t think Malta has issued any licenses.
Malta is just in the process of launching their legislation (quite impressive btw). Subsequently we’ll see some more activity on the licensing side etc. But more interestingly it will be to see when the first ST is traded locally, and when the first ST then passports into EU27.
Why swarm have non profit company in USA and another one in Luxembourg ??
Neither is the case. There is the Swarm Organization, which is the Token Holders all together self-governing. And then there is the Swarm Foundation in Liechtenstein, which services the Swarm Organization.
U.S. accreditation laws are the one thing that’s nagging at me most. Can you give us a little more insight on when/if/how you see the U.S. accreditation laws loosening, particularly as they pertain to tokenized IO’s, and for the MDF for masternodes?
100% agree and there are so many reasons to start looking differently at who is a “sophisticated investor” and for what reasons. Yet, despite comments by some SEC staff I don’t think that is going to change soon. Too many obstacles in the way.
It looks for now that US is leading this. OpenFinance supposedly all ready to start trading?
We are fans of OpenFinance.
Any other European jurisdictions apart from Malta that are open to securities tokens trading?
Yes. Liechtenstein, Switzerland, Germany, UK…. all are actively looking into this.
What precedence did the Dash fund set that allowed it not to be necessary for U.S. accreditation laws to invest? Simply because the underlying asset is defined as a utility token?
Sure. But look into the definition of the Howey test. Especially passive vs. active.
The saying “if you’re not first ,you’re last” seems to be especially true in Tech space (Uber vs Lyft, Facebook vs Myspace). Do you think this will hold in the STO space and why?
Not sure that this paradigm necessarily holds true in this segment. I don’t think the security token market is a winner-takes-it-all market. In fact, it’s somewhat misunderstood that we are only talking about one application. There are different relevant dimensions, some include, regional focus, asset segments, which part of the value chain (from token issuance consulting, to technical token issuance to trading and custody, just to name a few). We are already seeing that the early movers in the space have different focuses. But we can surely expect that as the market becomes more attractive, there will be established players extending their offerings into this area. So for the current market participants it will be to figure out where to play — short term and long term.
What impact does Polymath’s work with Etherum on ERC-1400 have on Swarm?
It’s great. We applaud the effort and are curious to see how the commenting and adoption will take place. There are certainly a lot of details to spell out. For certain applications operating on ERC20 will be feasible, for others not. For Swarm, we certainly will make sure that our market infrastructure is compatible with any widely adopted standard.
[In an] Interview on 25th May, Philipp mentioned there at 4 funds live and 50 in pipeline, with next few weeks 9–15 coming to market. Can you share what these are / where we can see them and how is the pipeline currently looking?
As security tokens are becoming the next evolution of the ICO model, it’s really captured the attention and imagination of the community that wants to be compliant and find a sustainable way to reap the benefits of tokenizing assets.
The pipeline is strong and getting bigger by the day. It’s a wave of opportunities that are tangibly coming into the market with some serious backing and astonishing capital volume. But I’ll caution that we need to be selective and diligent with what the right opportunities are that we expose to the market and how they find appeal with investors and in the markets to find liquidity.
At Swarm, we decided though, that after digging in we would not release one curated opportunity after the other, which is hard to scale. Instead, we’ve been absorbing the learnings of the first pilot launches and are refining some of the aspects of the model. At the same time we are working hard to make the tools that we have proven to work, more widely available. Stay tuned on related announcements.
In the same interview, Philipp mentions the target is 100 funds / 100k investors engaged, what timeframe did you see for this goal? How are you tracking this?
It’s transparent on the Swarm blockchain for anyone to see… But the current situation reminds us a little of when the scientists cheered about having decoded 1% of the human genome half way through the target 10 years. People were shaking their heads about reaching that goal. In fact, the 100% was reached way before target time because of non-linear effects. Once the recipe is right, institutions are embedded and trust and confidence is achieved end-to-end, things will move very quickly. I would say we can eye that goal within the next 24 months.
Swarm recently have had a vote to change quorum requirements, what kind of strategic decisions do you see going to a vote vs made internally by the team?
Governance is one of the more exciting aspects of blockchain projects in general and security tokens in particular. We see projects that don’t have functional governance spending enormous time trying to change for the better or simply in stalemate. While we developed governance based on Liquid Democracy for the outset, it’s a process that we need to trial continuously and experiment how to best engage different layers of the community. Ideally we strike the right balance between actionability and the broadest involvement possible, not just on the SWM token holder level, but also on the security token level and since a few weeks on the level of Swarm masternodes.
With the recent revision of the quorum and majority mechanisms, we put forth a proposal to give weight to those voices that participate in the votes and show engagement. We didn’t want the active/lean-forward community to have a hard time finding consensus against a passive/lean-back community. We want and value engagement. So I am happy that the community confirmed the proposal.
On decisions, I would like to see fundamental decisions about market policy, budgeting, and governance bodies be put to the SWM token holders. Meanwhile we are trialing how more tactical investment decisions are done with the subset of masternode holders. But surely there are layers in between that we will test out along the way.
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