So, some of the representatives from Swarm Fund decided to contact me to write a review on their project.
Now, before I took their offer, I had to let them know that I absolutely refuse to do any shilling.
I don’t know anything about Swarm Fund right now as I am writing these words, but I intend to give this project as FULL of an overview that I possibly can, so that I can dissect every aspect of it.
I made sure to let them know who I am, how I do reviews and that I will make sure to be fair (not overly biased in either direction), but critical as well. My plan is to illuminate things I think are done right, identify areas where there may be changes needed, and outline any questions that I may have.
Let’s Start With the Fundamentals
The first question that everyone should ask here is:
What is Swarm.Fund?
Fortunately, when I Googled them — their website came up as first on the listings.
https://swarm.fund/ (take a visit; see if you like)
On the front page, they boldly proclaim, “Swarm has launched the first security token blockchain.”
Underneath it are the words ‘Own’, ‘Trade’, and ‘Govern’, followed by a greeting, welcoming everyone to the “age of democratized investments”.
This all sounds interesting, but I need to know a little bit more information to get a gist of what they mean by ‘democratized investment’ or a ‘security token blockchain.’
So, I visited the ‘Swarm-Basics’ section of their website, located here: https://swarm.fund/swarm-basics/ — in order to get a better gist.
How Swarm Works
So, according to their website, “Swarm Fund is the blockchain for private equity.”
Now, hang on, before I go any further, let’s break down what ‘private equity’ actually is.
What is Private Equity?
Our friends at Investopedia have once again done us the solid of shelling out this topic in great detail. Check out this excerpt below:
So, essentially, private equity is sort of like the privatized versions of stocks.
Think of it This Way:
If you want to ‘own’ a part of Apple, you can just purchase shares of the company on the regular stock market.
However, if you want to own a piece of the local pizza joint down the street, which isn’t a franchise or traded on any public stock exchanges/markets in the United States (or elsewhere), you can gain ownership in that company via private equity.
Have you ever seen the show, Shark Tank?
If you haven’t, here’s a brief clip:
Basically, there are a panel of ‘sharks’ (super wealthy people that either have hundreds of millions or billions in net worth) that hear pitches from fledgling business owners that are looking for an investment boost in their company in order to take them to the ‘next level’.
Depending on the company, the person, and the pitch, the ‘sharks’ may decide to give them an offer — which is something that goes along the lines of “I’ll give you $20,000 for 15% of your company!”
That offer that they’re making is considered private equity.
Hopefully that helped shell this concept out a bit.
So, now that we understand what private equity is, let’s get back to Swarm.Fund:
What Does Swarm.Fund Do Again?
On their website , under the ‘Our Mission’ part, they state that, “Swarm Fund is the blockchain for private equity. It’s a fully decentralized capital market place that democratizes investing by using the power of blockchain to open up high-return, alternative investment classes to smaller investors through asset-backed funds using cryptocurrency tokens. It makes traditionally exclusive investment opportunities, such as aprivate equity and hedge funds, inclusive for the Swarm by pooling together smaller investments into larger, institutional-sized blocks.”
Now, I know that this is a mouthful, so let’s unpack this statement to get a better understanding of what Swarm.Fund is asserting above:
Claim #1 — It’s a fully decentralized capital market place that democratizes investing
Essentially, what this statement is saying is that Swarm.Fund has built a market place where everyone can have a ‘vote’ or a ‘say’ in the market, in terms of what they want to invest in, without discrimination. Adding the bit about ‘decentralization’ is to assure us that it follows the core tenet set about in Satoshi Nakamoto’s (anonymous founder of Bitcoin) whitepaper, which aimed to create a ‘trustless’ system.
So, we know that the project’s goals are to create a quasi-investment marketplace, devoid of any central controls (this gives me the impression that this may appeal to individuals that are looking for a safe haven or security from regulation — which can only impact centralized entities; more on this later).
Claim #2 — Swarm uses the power of blockchain to open up ‘high-return, alternative investment classes to smaller investors through asset-backed funds using cryptocurrency tokens’
At first glance, you may scratch your head and then ask yourself, ‘what does this mean?’
However, I interpret this statement to be an affirmation of the blockchain’s core objective; which is to allow the ‘average’ or ‘unaccredited’ investor to make investments in various projects by buying tokens that are issued on the chain, which are representative of a stake in a particular company or some other investment stake.
It makes sense that they would say this “opens up” ‘alternative investment classes’, because most private equity opportunities are only available to high-earning and affluent individuals because of regulations that mandates that investments that the SEC considers to be securities can only be sold to accredited investors. If you’re not sure what an accredited investor is, let’s just say they have a boatload of money.
So, you can tell from the definition of an ‘accredited investor’ above, that this precludes most ‘typical’ investors.
Thus, from what I’ve gathered so far, it appears that Swarm’s purpose is to make regular investing more accessible to the ‘common man’. There are a few questions I have in terms of the ramifications of this, regulation-wise, but I’ll save that for later.
In terms of preliminary questions/concerns that I have at this point though, they are as follows:
- We’ve seen the federal government in the United States as well as other jurisdictions convey serious concern over privacy blockchains like Monero and ZCash because of their ‘untrackable’ nature (see: https://cryptodisrupt.com/us-government-considers-restrictions-on-privacy-coins/). I’m wondering whether this same concern may one day be extended to Swarm.Fund (if it survives long enough and grows big enough). The reason why I have this concern is because this seems like the perfect method for individuals to attempt to usurp the SEC and other regulating bodies.
- On a general level, I’m sort of curious on how the appreciation of privatized assets on the chain will work (perhaps I’m being preemtpive in my asking of this question and this will be covered in the whitepaper that we’re going to get to later). Let’s say that I decide to issue a token to represent a cryptocurrency index on the chain called cryptoindextoken. How will the value of this token be pegged to the external asset class that it is supposed to represent?
- What is the backup plan for when the SEC decides to (and they most likely will) try to impose their will on the blockchain? Now, as mentioned with #1, in the case of privacy coins, the government and other regulating bodies have long since realized that they will never be able to directly regulate truly decentralized projects (because that’s impossible). However, they can put the pressure on centralized exchanges to de-list certain coins or face the ultimatum of swift and punitive measures from the government. And usually this threat alone is more than enough for any project to get the axe.
- Now, I’m not saying that this is something that is likely or even plausible in the near or distant-future. However, I think backup plans are good and I’m curious as to what Swarm.Fund’s plan would be. I only bring this up because I believe that it is highly unlikely the government will simply allow companies/orgs to issue securities on this blockchain and sell to unaccredited investors simply because their investment is tokenized. The SEC has made it clear on numerous different occasions (including recently when they deemed Ethereum to be a security), that the nuance of something being issued on the blockchain makes absolutely no difference to them.
How Swarm Works (Continued)
Alright, so the next part of the mission statement reads as follows: “The Swarm blockchain allows real world objects to be ‘tokenized’ using the SRC20 protocol, a cryptographic standard for security tokens, and a world first. Tokenized objects become ‘assets’ that can be easily managed, governed and traded. Swarm is built on TokenD and the Stellar blockchain.”
Alright, let’s unpack this part of the Mission Statement the same way that we did above:
Claim #1 — SRC20 Protocol
If this made you immediately think of ‘ERC20 protocol’, then good, you’re on the right path here.
To help explain this concept, I’ll use that term ‘ERC20’, as a familiar frame of reference to help light on what is meant by these ERC20/SRC20/etc., protocol names.
Okay, So What is an ERC20?
Great question. In a nutshell, ERC20 tokens can only be built on the Ethereum blockchain.
The name ‘ERC20’ basically represents a ‘standard’ that smart contracts on the Ethereum blockchain adhere to. This is what allows the tokens to be easily intercompatible with one another (i.e., you can trade OmiseGO for Bancor Network tokens without too much hassle and you can store both in the same wallet as well).
This is because they are on the same ‘network’ (sort of).
The ERC20 standard is essentially what gives everyone the connected/connection among each other.
Here’s an article that helps explain this concept a bit further:
1. ERC-20 tokens are tokens designed and used solely on the Ethereum platform. They follow a list of standards so that they can be shared, exchanged for other tokens, or transferred to a crypto-wallet. The Ethereum community created these standards with three optional rules, and six mandatory.
Now You Should Know What an SRC20 Token Is
So, based on the description that I just gave you, this should help you to understand what an SRC20 token is as well.
In a nutshell, this is a standard or a set of rules that the Swarm.Fund blockchain developers have created for all tokens created on their blockchain.
This means that the tokens on the blockchain should have intercompatibility.
This, in my opinion, is huge and, if this blockchain/project gains some serious traction in the near/distant-future, then this could be something to even further accelerate development on the chain.
Here’s the actual screenshot of the explainer, directly from Swarm.Fund’s website, if you need a brief recap:
Claim #2 — Tokenized Objects Become ‘Assets’
This is something that we will probably need to review the whitepaper first (next article) in order to shell out in greater depth.
However, from the gist of what I’ve seen, the concept of tokenized objects becoming ‘assets’, is one that’s needed and useful. So, if this is something that the Swarm.Fund token can bring to fruition successfully, then it should entice those in the business sphere to seriously consider tokenizing their asset. This would be a smart way to keep track of ownership as well.
Swarm.Fund was kind enough to explain what they meant by tokenization on that same webpage as well.
According to Swarm.Fund, tokenization is the, “Process by which any asset is ‘converted’ into tokens which can then be purchased, traded or simply held. Tokenization of assets happens on the Swarm blockchain. Tokens essentially represent traditional ownership and grant rights to the token holder (owner) which are protected by the immutability of the distributed ledger, a revolutionary technology.”
This lines up with my understanding of what it means to create a token, so we’ll move forward from there.
Now (I suspect), you may have naturally asked yourself the question, ‘What types of assets can be tokenized with the Swarm SRC20 protocol?’
Thankfully, there’s a section to address this question as well.
According to Swarm.Fund, “Objects or ‘assets’ such as buildings, farms, businesses, hedge funds, and development projects can be tokenized, meaning that their ownership can be split into any number of pieces called tokens. Tokens that represent an investment in an asset are called ‘security tokens’. In addition, assets such as football teams, concerts, highways, schools and banks can be purchased, tokenized and governed by groups of hundreds or thousands of token holders from all over the world. Investors can pool funds and then, by vote, decide on the assets they would like to invest in or purchase.”
This, too, makes sense and falls in line with what I imagined they meant with the statement, “Tokenized Objects Can Become ‘Assets’”
Let’s say we just created some Basketball Trading Cards and we have a bunch of rookie cards that are really valuable. However, there are a number of counterfeits circulating out there and purchasers want to be sure that they are receiving the real thing.
We could represent this asset with an SRC20 token on the Swarm.Fund blockchain by simply attaching a QR code to the back of the card (to verify its authenticity).
So, whenever one wanted to verify the card’s authenticity, they could just scan that QR code and see if it matches up with the tokenized asset.
I’m sure there are other nuances to the example that I just posted above, but I’m sure you all get the general gist.
Check out this brief explainer directly from swarm.fund’s website if you need a recap:
Now, Let’s Have a Look at the Development Team for Swarm.Token
And here are the advisors:
And let’s not forget — last, but certainly not least:
With such a prestigious line-up, it’s definitely no wonder that there’s a lot of hype around this blockchain.
Swarm.Fund looks like a VERY promising project. I’ve been told by many individuals in the space that tokens such as Swarm.Fund represent the ‘future’ because of their focus on security-based tokens.
I have to say that I’m inclined to agree with that notion, especially as regulations begin to heighten in the blockchain space.
At this point in time, it may be a bit premature to make any judgments about the Swarm.Fund blockchain as a whole, but it definitely should be thrown in the ‘promising’ category.
This is nothing to be slept on, for sure!
Pending the team’s response to this article, there may be a part two coming which dives into the whitepaper and some of the other technical details surrounding the project.
Until then, see ya next time!
Disclaimer: This article was sponsored by the Swarm.Fund team via Swarm tokens. The author does not hold any Swarm tokens and did not at the time of this article’s publication in order to reduce potential conflicts of interest. Article was commissioned under the understanding that a non-bias review would be given. No guidance was given by the team or any of its members on the subject matter or the content; only corrections rooted in fact were advised (i.e., correcting the spelling of someone’s name, for example).