Swarm Markets is a regulated DeFi platform for trading crypto and real-world assets, providing secure, transparent, and compliant financial services.

A new kind of regulated DeFi platform opens opportunities for retail investors and institutional market participants, such as banks, hedge funds, broker-dealers, asset managers, and alternative investment industries like real estate, tech secondaries, and carbon credits. This platform enables secure and compliant trading of various assets, providing a bridge between traditional and decentralized finance. It enhances accessibility and transparency in financial services, making it easier for a diverse range of investors to participate in the evolving financial landscape. This is the innovation introduced by Swarm Markets.

What is Swarm Markets (SMT)?

Swarm Markets, co-founded by Philipp Pieper and Timo Lehes, launched in 2021. Both founders bring extensive experience in traditional finance and technology, having ventured into the blockchain space in 2016 by creating an open infrastructure for tokenizing securities. This evolved into Swarm Markets, a platform providing liquidity solutions for tokenized assets. Swarm Markets is regulated by Germany’s Federal Financial Supervisory Authority (BaFin), ensuring governance and accountability on par with traditional financial institutions.

In November 2017, Swarm Network held its first DAO vote on the SWM token release schedule. By January 2018, Swarm Network made open-source infrastructure available for tokenizing securities. The German Banking Act amendment in January 2020 aligned crypto assets with existing securities regulations, setting the stage for further development. In July 2021, Swarm launched the beta version of its liquidity platform on Ethereum, followed by the opening of its decentralized exchange (DEX) for crypto assets and securities in October 2021.

In January 2022, Swarm implemented its DEX on the Polygon Network. By May 2022, Swarm launched institutional-grade liquid staking, and in February 2023, it introduced tokenized stocks backed 100% by real equities. Swarm Markets has consistently evolved, merging technology, finance, and regulatory compliance to address barriers in both the blockchain and traditional financial ecosystems.

The executive team includes Philipp Pieper, Timo Lehes, Peter Schott Ghyssaert Aceves, Dr. Wolfgang Richter, and Katie Evans, each contributing their expertise to the platform’s development and success. Swarm Markets continues to innovate, providing secure and compliant trading solutions for diverse assets.

How Does Swarm Markets Work? Protocol and Market Participants

Swarm Markets operates on a compliance protocol layered by an automated market maker (AMM). This allows qualified users to access liquidity for qualified digital assets without the need for a centralized entity to facilitate trades. The smart contracts for Swarm’s AMM functionality are a fork of the Balancer Protocol, incorporating a permission layer compatible with Swarm Passports and whitelisted assets.

Balancer is a decentralized AMM protocol on Ethereum, serving as a flexible building block for programmable liquidity. Balancer can accommodate various swap curves and pool types by separating the AMM curve logic from core swapping functionality. These include traditional 50/50 weighted pools, custom weights for controlled exposure, stable swap curves, nested pools like Boosted Pools, and more. The Balancer Vault optimizes batching and path logic, ensuring low gas costs and capital requirements, benefiting from deep liquidity for base assets, and opening up numerous swap paths.

AMMs have key advantages: they are simple to deploy, fully transparent, more secure, and make liquidity provision easy. Providing liquidity to AMMs involves a straightforward process, contrasting with the complexity of traditional market makers on order book-based exchanges. AMMs also create more efficient liquidity with fewer participants in the value chain, leading to lower fees and higher liquidity efficiency.

Swarm enhances this model by adding regulatory compliance, increasing confidence and engagement. It introduces regulatory certainty to AMM processes, preserving users’ self-custody and alleviating concerns about centralized misappropriation. The compliance-compatible protocol can be extended beyond AMM functionality, allowing developers to build synthetic solutions on top of the protocol and contained assets.

Swarm also offers solutions for institutions without know-your-customer (KYC) and anti-money laundering (AML) providers, enabling them to offer regulatory-compliant tokenized securities and trading. Swarm’s Onboarding API allows partners to integrate a compliant digital securities trading infrastructure, leveraging Swarm’s compliance. This API is intended for partners without their own KYC provider, guiding users through identity verification and permissioning them to interact with Swarm’s digital assets on the Polygon network.

Onboarding a new user to trade real-world assets through Swarm requires obtaining two permissions, granted as non-transferable NFTs to the user’s address: KYC and Source of Funds. This process ensures that users are properly verified and can participate in Swarm’s compliant trading ecosystem.

Source: app.swarm.com

Next, we will explore the role of Market Participants in Swarm Markets, detailing how they interact with the protocol and contribute to the ecosystem.

Market Participants

Market participants in the Swarm ecosystem consist of liquidity providers (LPs), traders, and developers, each playing a vital role in the platform’s functionality and success.

Liquidity providers (LPs) contribute ERC-20 tokens to liquidity pools on Swarm, receiving a prorated portion of the pool fees from token swaps as incentives. Anyone qualified via passport can become an LP. They range from passive LPs, who accumulate fees as income, to professional LPs who engage in active market making and arbitrage, and token issuers who create market liquidity for their projects. LPs can create new pools for any qualified tokens and allow other LPs to join the pool, providing flexibility and control over their investments.

Traders in Swarm can swap their tokens for other tokens within a pool, paying a fee specific to that pool. Traders include individuals, entities, or software bots. They choose from various pools with unique trading conditions determined by the configuration of tokens, weights, and fees. Traders’ profiles range from professionals seeking favorable exchange rates and compliance confidence, to arbitrators profiting from inefficiencies between decentralized exchanges (DEXs) or centralized exchanges (CEXs), to Ethereum smart contracts seeking programmatic liquidity for liquidating positions or automating trades.

Developers integrate directly with Swarm’s smart contracts to create new interactions with tokens, trading interfaces, retail experiences, and more. They leverage Swarm’s technology to build innovative solutions, enhancing the platform’s utility and reach.

The interaction between pool settings, pool volume, and external prices creates market forces incentivizing traders and LPs to maintain stable token ratios, preserving value for LPs. Traders pay fees to LPs for asset swaps, and pool creators set their own swap fees. A portion of these fees or a percentage of the assets being swapped is claimable by Swarm, ensuring the platform’s revenue.

Swarm tokens are backed by real-world assets, such as stocks and bond ETFs, bought in traditional financial markets. These assets are held by institutional custodians and verified by a token trustee, ensuring transparency and security. Tokens can be redeemed for the value of the underlying assets at any time, with monthly asset disclosures made publicly available. Swarm is working towards real-time asset verification for added trust.

Business accounts on Swarm are also available, allowing businesses to trade without limits. These accounts undergo institutional-grade compliance checks, including know-your-business (KYB) verification, ensuring efficient customer due diligence. The Swarm Wallet enables users to view their assets in connected Ethereum addresses and monitor their holdings in Swarm liquidity pools, offering comprehensive asset management features.

Market participants contribute to the platform’s ecosystem by setting trading terms, providing liquidity, seeking optimal trading conditions, promoting the platform, and forming strategic business relationships. This diverse stakeholder environment fosters a robust and dynamic DeFi marketplace, driving Swarm’s growth and innovation.

Source: docs.swarm.com

xTokens

xTokens on Swarm Markets are ERC-20-compliant tokens that represent balances supplied to the protocol, serving as a permission layer for transactions. xTokens ensure that users are onboarded and have the correct trading permissions. Users must have a Swarm passport, requiring KYC and AML checks, to interact with xToken assets. These tokens are non-transferable and only used within the Swarm platform, enabling efficient and compliant transactions through proxy wallets, which save on fees and manage liquidity provision, ensuring security and anonymity for user data.

Swarm Markets Use Cases

Swarm Markets provides a regulated DeFi platform that bridges the gap between traditional finance and decentralized finance, offering a range of use cases for various market participants.

• Liquidity Provision and Trading: Swarm Markets enables liquidity providers (LPs) to contribute ERC-20 tokens to liquidity pools, earning a portion of the pool fees from token swaps. Traders can swap tokens within these pools, benefiting from a secure and compliant trading environment. This creates a dynamic marketplace where users can efficiently manage and grow their digital assets.
• Tokenization of Real-World Assets: Swarm Markets allows for the tokenization of real-world assets, such as stocks and bond ETFs. These tokenized assets are backed by real equities held by institutional custodians, verified by a token trustee. This feature provides investors with a transparent and secure way to access traditional financial assets through a DeFi platform, enhancing liquidity and broadening investment opportunities.
• Institutional-Grade Compliance and Security: Swarm Markets employs robust compliance protocols, including know-your-customer (KYC) and know-your-business (KYB) verifications, to ensure regulatory compliance. This makes the platform suitable for institutional investors, such as banks, hedge funds, and asset managers, who require a high level of governance and security in their trading activities. The integration of compliance with DeFi technology provides a safe and reliable environment for large-scale financial operations.

Swarm Markets leverages the benefits of decentralized finance while ensuring regulatory compliance, making it a versatile platform for retail and institutional investors. The combination of liquidity provision, real-world asset tokenization, and stringent compliance protocols positions Swarm Markets as pioneering in the evolving financial landscape.

What is the SMT Coin?

SMT is Swarm Markets’ native token for governance, staking, and transaction fees. Its total supply is 250 million units, of which 32.7 million are already in circulation (May 2024).

SMT is used to power the platform’s ecosystem and incentivize participants. SMT is designed to offer rewards, fee discounts, and governance capabilities. Up to 50% of the total supply, or 125 million SMT tokens, is allocated to a rewards pool, distributed weekly over a 100-year period at a diminishing rate. This pool incentivizes liquidity providers, real-world asset holders, and SMT stakers. The distribution begins with about 1.4% released in the first 90 days after the Token Generation Event (TGE), followed by a gradual reduction.

The community pool, which holds up to 10% of the supply (25 million SMT), distributes 1.25% quarterly. Additionally, 20% of the supply (50 million SMT) is reserved for future use, with a five-year linear release starting three years post-TGE. Importantly, there is no team allocation, ensuring fairness and transparency.

Source: medium.com/@SwarmMarkets

Vesting is enforced by wrapping SMT tokens, which appear as vSMT in users’ wallets until they are vested. Once vested, vSMT can be converted to SMT and used without restrictions. Vesting dates occur quarterly, allowing holders to unwrap 20% of their vSMT holdings at intervals.

SMT also offers a protocol fee discount. Traders holding sufficient SMT can opt to pay protocol fees in SMT, receiving a 50% reduction. This feature encourages the use of SMT within the Swarm Markets ecosystem.

The SMT reward distribution logs are published regularly on Swarm Markets’ GitHub repository, ensuring transparency. The controlled release of SMT tokens aims to maintain stable valuation and provide adequate rewards as the platform grows.

Swarm Markets Main Features

Swarm Markets offers a range of powerful features designed to provide seamless and efficient trading experiences for its users. Here’s an overview of its core components:

Swaps

Swapping tokens on Swarm Markets is a straightforward process. Before making your first transaction, you will need to set up a proxy contract to save on gas fees. Once the proxy contract is activated, you can select the token you wish to swap from and the token you want to swap to. Approve Swarm’s handling of the specific token, and then confirm the transaction. This ensures that the swap is executed on the Ethereum blockchain efficiently, providing a smooth user experience with lower transaction costs over time.

Source: docs.swarm.com

Pools

Swarm liquidity pools allow users to provide liquidity easily. Users receive Swarm Pool Tokens (SPT) representing their pool share when adding liquidity from an Ethereum address. These tokens can be redeemed for the assets in the pool at any time. Pool-specific swap fees and Swarm fees are deducted from trades, increasing the pool’s assets and the value of SPTs. Users can add multiple assets in configured ratios or a single asset, maintaining balance through the platform’s swapping and trading functions, thus ensuring flexibility and liquidity.

docs.swarm.com

dOTC

Swarm’s decentralized over-the-counter (dOTC) trading service facilitates large transactions on the blockchain, reducing slippage and removing counterparty risk. Users place buy or sell orders using the dOTC contract, which acts like an escrow account. This service is particularly beneficial for institutions, offering features like partial orders, private offers, and offer expiration. To use dOTC, users must be qualified on Swarm, ensuring compliance with KYC and AML regulations. This simplifies high-volume trading and provides a secure, efficient alternative to traditional OTC trading.

Source: app.swarm.com

Swarm Markets continues to innovate, offering comprehensive features that cater to both individual and institutional market participants, enhancing the overall trading experience.

Tokenized Stocks and Bonds

Tokenized Stocks and Bonds on Swarm Markets offer a unique way to invest in traditional assets using blockchain technology. Tokenized stocks provide exposure to highly liquid public stocks with 24/7 trading and risk management, backed by real stocks and compliant with regulations. Tokenized US Treasury Bond ETFs allow investors to earn yields of 4.5% while benefiting from the security and transparency of blockchain. Both asset types are issued by SwarmX GmbH, ensuring a secure, regulated, and innovative investment opportunity within the blockchain ecosystem. Invest now to diversify and optimize your portfolio.

Source: swarm.com

Is SMT a Good Investment?

SMT, the native token of Swarm Markets, appeals to many investors due to the regulated nature of the platform, offering a blend of DeFi’s flexibility with the security of traditional finance. This regulated approach can attract retail and institutional investors seeking compliance and safety. However, the DeFi landscape is highly competitive, and numerous platforms are emerging with similar offerings. While SMT shows promise, potential investors should consider the evolving market dynamics and increasing competition when evaluating its long-term investment potential.

How to Own SMT?

To own SMT, you can use the services of a centralized crypto exchange. Start by creating a Gate.io account and get it verified and funded. Then, you are ready to go through the steps to buy SMT.

News on Swarm Markets

Swarm Markets announced in March 2024 on their blog that $SMT staking has seen explosive growth since its introduction in Q3 2023. The number of stakers has increased by 300%, with 10% of all $SMT currently in circulation locked in staking. Stakers earn rewards based on the trading volume of tokenized real-world assets on the Swarm platform. The dynamic APY, sometimes hitting triple figures, makes staking attractive. Swarm Markets continues to provide liquidity pools for both retail and institutional investors, enhancing the DeFi ecosystem.

Take Action on SMT

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