Swarm Markets, a regulated blockchain platform and Crypto AM ‘outstanding contribution to DeFi’ award winner, is making waves in the decentralised finance (DeFI) and traditional finance (TradFi) landscapes with its groundbreaking efforts to bring real-world assets on to the blockchain.
Swarm is led by co-founders Philipp Pieper and Timo Lehes. Philipp is a tech entrepreneur, having founded Loop Media, a streaming platform that IPO’d on the New York Stock Exchange last year, a mentor at StartX and Singularity University, and also a member of Germany’s Digital Finance Forum – a group of professionals that advises the country’s finance minister on the future of financial markets.
Timo is a longtime Fintech investor at Aurigin and Pex, as well as an entrepreneur, having set up the SEC-licensed arm of a Scandinavian boutique M&A investment bank and was also fund manager with multiple IPOs in his portfolio. The pair aim to use tokenization of real-world assets to create a new financial market that brings together the best features of TradFi and DeFi.
Having swiftly recognised the potential of tokenisation as early as 2018, Swarm has successfully tapped into the growing demand for real-world assets being brought on-chain. Since its launch of tokenised public stocks and bond ETFs on February 24, 2023, Swarm’s user base has grown by 11% in the first month, which ran from February 24 to March 23 and an additional 6% in the second month, from March 24 to April 23.
The company also experienced high demand for its offerings, with three product sell-outs within the first month. This surge in user adoption and asset demand highlights the growing popularity and recognition of the benefits of tokenisation.
Being an experienced fintech investor, Timo constantly had an eye on the crypto space.
“The advent of crypto brought with it an exciting new market that everyday people could access,” he said.
“However, it was plagued with pitfalls that could and have caused some serious financial harm.
“For crypto to truly thrive as a new financial market, huge changes need to be made. And tokenisation of real-world assets looks to be an effective way of addressing the glaring problems present in crypto.”
Tokenisation has emerged as a game-changer in the investment landscape in recent years. So much so, that tokenised gold has surpassed $1 billion combined market cap in March 2023 and the stablecoin market, tokens representing fiat currencies like the US Dollar or British pound, now sits at $128.61 billion. The process of turning real-world assets into digital tokens is revolutionising how assets are bought, sold and traded.
Swarm’s founders believe that tokenisation is the final puzzle piece in realising the promise of DeFi. With no geographical barriers, zero initial capital requirements and 24/7 market access, DeFi was slated to democratise access to the huge returns possible with investing. However, due to the unregulated, volatile nature of the space, this has yet to be realised. Instead, it is a high risk, high reward landscape with a high number of scams, which have cost investors over $450 million so far in 2023.
Tokenisation can take DeFi to the next stage. The TradFi landscape has far more assets, liquidity and regulation. By taking the underlying premise of DeFi and incorporating the stability of TradFi, tokenisation can allow investors safer and more flexible trading – creating ‘Fi’ a new, unified financial market that unlocks the true promise of blockchain technology.
Tokenisation also has the potential to bring trust back to the crypto space following a very damaging year. 2022 saw the collapse of leading exchange FTX due to it artificially inflating the price of its token, which acted as collateral against investor funds and then being unable to pay-out following a bank run. The collapse cost investors at least $1 billion and severely damaged trust in the space.
This could be avoided using tokenized real-world assets. When brought on-chain in a regulated and trusted way, real world assets can be used by crypto exchanges and issuers as high-quality collateral, giving investors confidence that their funds are fully backed.
One of the key factors contributing to Swarm’s success is its commitment to transparency and investor protection. The platform ensures that tokenized assets are backed by real-world securities purchased from traditional financial markets. Swarm can integrate blockchain technology with these assets because it is regulated as a German financial institution, under BaFin, to deal in both securities and crypto. It was crucial for the company to achieve this regulatory status, as identified by Swarm’s co-founders at a time when people disregarded the idea of DeFi and regulation.
“The crypto space has been a Wild West since its inception and while a small number of investors have made great profits, the majority of participants have fallen prey to scams, bad business practices or volatile market movements,” he said.
“It was only a matter of time before regulators turned their attention to the space.
“We’ve been skating to where the puck was headed since we initially launched Swarm back in 2021 and it’s now paying off. As other EU-based organisations need to rework their businesses from the ground up and seek approval from regulators, it’s business as usual for Swarm.”
Swarm’s regulation-focused philosophy has also given it a significant advantage over its competition. With the Markets in Crypto-Assets (MiCA) legislation now set in stone, crypto companies operating in the EU must now achieve regulatory approval. Swarm’s pre-existing status means it is set for MiCAs implementation and doesn’t have to go through the untested approval process. While other companies face uncertainty, Swarm is prepared for the regulated future.
With its early achievements and the increasing number of users on its platform, Swarm is well-positioned to expand its offerings and capitalise on the growing popularity of tokenisation – something that we can already see happening.
And there’s no slowing down. Only a few weeks after launching tokenised Apple, Tesla and two US Treasury bond ETFS, Swarm announced it will be adding seven new securities to the platform. This included Blackrock, Coinbase, Coupang, Intel, Microsoft, Microstrategy and NVIDIA. The organisation is also planning further additions to allow investors more ways to trade.
Swarm Markets’ success story is a testament to the transformative power of tokenisation, protected by features like decentralisation and regulation. By leveraging blockchain technology and pioneering the integration of traditional finance with DeFi, Swarm is at the forefront of a financial revolution. As tokenisation gains momentum and reshapes the way assets are traded and invested, Swarm continues to pave the way, providing investors with new opportunities, enhanced liquidity, and a more inclusive investment landscape.