BaFin-Licensed DeFi Firm Swarm Starts Onboarding $15M of Pledged Liquidity

Swarm Markets, which claims to be the world’s first regulated DeFi protocol, says 250 customers have ponied up funds.

AccessTimeIconJul 1, 2021 at 7:24 a.m. UTC
Updated May 9, 2023 at 3:21 a.m. UTC
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Buttoned-up decentralized finance (DeFi) is becoming a thing.

Swarm Markets, which claims to be the world’s first regulated DeFi protocol, said Thursday it is onboarding signees to its liquidity provider program. The firm is licensed by German financial regulator BaFin.

The Berlin-based trading platform has managed to shoehorn DeFi into existing regulatory infrastructure and has some $15 million pledged from over 250 customers, the firm said.

Traditional finance firms are dipping their toes into DeFi pools but are unsure of trading with unknown counterparties and pseudonymous liquidity. Swarm meets regulatory know-your-customer (KYC) requirements while remaining private, the company said.

When it comes to cryptocurrency regulation, Germany’s position is clearer than most, with a provision to allow regulated firms, including banks, to be custodians of crypto. Indeed, Swarm co-founders, Philipp Pieper and Timo Lehes, moved from the U.S. to Germany to set up shop for this reason.

Swarm was engaged in "very constructive dialogue" with BaFin as part of an application made in early 2020, Pieper said.

“It became evident that DeFi was not just a gimmicky play for crypto insiders, and there was real novelty in shared liquidity and protocol-based lending,” Pieper said. “It gained more credibility with institutions by the month, and regulators also saw it as a winning proposition.”

Having identification of wallet holders baked in is necessary if you want to capture a lot of capital sitting on the sidelines of DeFi, said Lehes, but it’s also important to know about the ownership of the platform too. 

“There’s really two problems to solve there,” Lehes said. “One is that you don't know who you're dealing with on the other side, which means potentially a risk of some kind of money-laundering situation that you don't want to be in. The other part is you’re susceptible to a rug pull if you’re not dealing with a counterparty that’s identified and preferably licenced.” 

Swarm says it’s starting off conservatively with a few asset pools covering major tokens like BTC, ETH and DAI, and promising yields in the “high single digits to early teens,” with rewards depending on the activity and volumes in each pool.

“We are not aiming to do something that’s a short-term boost with a fantasy return number,” said Lehes. “We’re aiming to build products and pools that have a longevity to them, and providing a return is actually sustainable over a longer period of time.”


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