Swarm Markets is a regulated DeFi trading infrastructure for crypto assets and securities.
Swarm Markets is a regulated DeFi trading infrastructure for crypto assets and securities.
Swarm Markets claims to be the world’s first licensed platform for DeFi, regulated by the German Federal Financial Supervisory Authority (BaFIN.) The project operates as a compliant AMM-based decentralized exchange (DEX) for Ethereum. The project targets both institutions and individual investors seeking a less risky way to participate in DeFi.
Swarm supports multiple different types of tokens, both crypto-assets and tokenized versions of real-world assets (RWAs) and was one of the earliest entrants into the now-high-growth segment of tokenized RWAs.
How was Swarm Markets developed?
Swarm Markets was founded in 2017 by two tech entrepreneurs and investors – Philipp Piper and Timo Lees. Both previously led companies through to IPO.
They spotted the potential of asset tokenization relatively early and set about developing a platform that could bring RWAs on-chain, which later also developed into a liquidity solution for such assets.
The founders, based in Berlin, took the unconventional step of approaching BaFIN early on, seeking regulatory oversight akin to traditional financial institutions. They recognized a growing demand for DeFi products and tokenized assets among both institutional and individual investors, but the unregulated nature of the industry was hindering their adoption.
In 2021, the project announced it was onboarding up to 250 liquidity providers, who had pledged $15 million. It also launched the first version of its DEX on Ethereum.
As of 2024, many different types of tokens are authorized for listing on Swarm Markets, including tokenized versions of stocks like Apple, Tesla, and Nvidia.
How does Swarm Markets work?
Automated market makers (AMMs) are a familiar setup for decentralized exchanges in the DeFi sphere. Most, such as Uniswap, Balancer, or Curve, use AMMs only for cryptocurrencies and tokens. However, Swarm Markets targets investors who want to trade on-chain tokens representing all kinds of assets, including stocks, bonds, commodities, and more.
The Swarm AMM DEX is a forked version of the Balancer protocol, which also features compliance layers. The underlying AMM works in the same way as Balancer, in that liquidity providers contribute ERC-20 tokens representing crypto-assets or securities into liquidity pools, where they are available to traders who want to swap the same assets.
However, participation in Swarm Markets is only permissible for those who have obtained a Passport. This is effectively a Know Your Customer (KYC) process that connects to a self-custodial crypto wallet such as MetaMask or Ledger. Swarm also operates business accounts, which enable participation by institutions.
Swarm also operates a permissionless, decentralized over-the-counter (dOTC) trading service for institutions wanting to execute large transactions on-chain. It supports features like configurable partial order fulfillment and expiration dates, and private offers between specific wallets.
The project implemented dOTC orders following a clarification from the European Supervisory Market Authority (ESMA) that the scope of the new Markets in Crypto Assets Regulation (MiCA) will not apply to decentralized applications and services. Therefore, the operation of the dOTC service may change in the future if ESMA adopts a different position regarding DeFi services.
Due to legal restrictions, Swarm Markets isn’t available in all countries. It does not service US residents, although residents in many European, Asian, and Latin American countries are permitted.
How is SMT used?
SMT is the Swarm Markets token, which offers several utilities.
Fee reductions
Swarm traders can reduce their trading fees by up to 50% if they opt to pay the fee in SMT.
Liquidity rewards
Providers of liquidity to Swarm pools can earn additional rewards in SMT to act as an extra incentive.
Loyalty rewards
Swarm will allocate rewards to users who hold SMT alongside other assets in their crypto wallet, according to the ratio. Loyalty rewards are tiered, starting at the base level for holding 1% of a wallet balance in SMT and increasing up to double rewards if the wallet comprises more than 10% SMT.
Tokenomics and token distribution
SMT is an ERC-20 token issued on Ethereum. The maximum supply is set at 250 million tokens, with half of those allocated to the reward pool. A further 20% is held in reserve, while 10% goes towards the SMT Community pool, which receives 1.25% of the allocation per quarter.
Swarm Market essentials
- Swarm Markets is a licensed trading platform for crypto-assets and tokenized real-world assets, such as stocks, regulated by the German financial watchdog, BaFIN.
- Users must undergo a KYC check to have their wallet authorized by the platform, before they can trade or provide liquidity to a Swarm pool.
- SMT is a token used to obtain fee discounts and incentivize loyalty and liquidity provider participation.