Updated: Jul 14
Written by Guest Contributor, Philipp Pieper,
Co-founder of DeFi exchange, Swarm Markets
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 and seeks to integrate both assets and participants on one regulated platform. 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 return to Wall Street due to lack of liquidity and a trading platform that suits their compliance needs. It is easy to overlook the systemic roadblocks they describe.
We created Swarm Markets to solve problems of financial inclusion for both institutional and retail investors and address the liquidity challenge for a wider range of tokenized assets, including digital securities. We’re bringing 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 after electronic trading had proved itself as a cheaper, faster and 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 financial regulators of the safety and benefits crypto markets can offer consumers and institutions. As a result, a tremendous amount of capital sits on the sidelines, waiting to enter the DeFi ecosystem.
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, uniquely positioning it 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 associated with issuing compliant securities on the blockchain by founding Swarm Networks in 2017.
Swarm Networks provides an open, permissionless infrastructure for the tokenization of all types of assets, making it easy to create and launch a security token on the Ethereum blockchain, using the SRC20 protocol. However, there remained an issue: lack of liquid venues to trade these new assets.
A lack of trading outlets and liquidity solutions has deterred people from investing in the resources required for issuing a regulated security on the blockchain. The crypto market’s liquidity crisis convinces many to go back down the traditional route rather than risk leaving Wall Street for a low liquid market.
We’re opening the floodgates to trillions of dollars worth of capital from the traditional finance market by putting a compliance wrapper around our venue and the assets traded. Everyone on the platform must be verified, removing counterparty risk and bridging the gap between CeFi and DeFi. 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.
Adding more trading pair options and bringing more asset-backed instruments to the crypto market will make for a more varied market with diversified liquidity 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 for new assets, Swarm Markets creates a laboratory for the development of new types of financial instruments.
Asset custodians who want to do more with their idle collateral can partner with Swarm Markets and leverage our banking licenses to launch new types of tokens, 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 inclusive marketplace.
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.
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.
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.