Swarm intelligence refers to the phenomenon of self-organizing systems. Although this concept is largely employed in artificial intelligence and interfacing research, swarm behavior has long been observed in biological communities, for example, bird flocking, fish schooling, and even bacterial growth. In considering the swarm model, each organism's actions inform a collective, intelligent behavior exemplified by the whole group.
Swarm Fund applies this idea to its private equity blockchain. Its crew seeks to cultivate a financial environment that can operate without much formal control because of the trust and transparency Swarm is building into the system.
The Swarm team attempts to achieve a democratic investment model by "open[ing] up high-return, alternative investment classes to smaller investors through asset-backed funds using cryptocurrency tokens" (also known as security tokens). In normal circumstances, such investments are fairly exclusive due to strict regulatory guidelines set by the Securities and Exchange Commission (SEC). Entities caught selling unregistered security tokens are subject to legal consequences. However, the Swarm Fund is attempting to offer these tokens in compliance with the SEC.
Swarm's security tokens act as digital representations of the ownership and governance rights tied to physical objects (or assets) in the real world. Essentially, users tokenize their assets, such as a football team or a building, and offer them as investment opportunities on the Swarm Invest platform, where individuals can then trade these tokens in a manner Swarm claims the SEC will embrace.
Swarm's tokens adhere to the SRC20 standard, which extends the Ethereum network's ERC20 standard (though Swarm is built on Stellar) by baking in properties of real-world assets, such as location, purpose, legal rights and obligations, and transfer restrictions. Applications later built within the Swarm ecosystem must also follow this protocol.
Besides creating the SRC20, Swarm has also developed a compliance and regulatory system, called Market Access Protocol (MAP), for the exchange of security tokens. According to a press release from today, the new protocol purportedly "provides a streamlined solution that facilitates the efficient flow of compliant transactions while offering both privacy protection for participants and regulatory compliance."
Swarm believes a streamlined solution is important because of the various qualifications for a transaction to be considered compliant, including credential verification and token standards. Swarm's MAP consolidates this information into a graph that shows whether a user's wallet is ultimately compliant.
Philipp Pieper, CEO and co-founder of Swarm Fund, shared with ETHNews why he believes the MAP is a significant addition to the security token industry:
"The current landscape has a number of proprietary whitelist solutions for security tokens, each requiring a custom integration with every service provider and exchange. This dramatically limits liquidity as it will not scale, but more importantly it means there is no common protocol for ensuring regulatory compliance. Anthony Pompliano [founder and partner at Morgan Creek Digital Assets] wrote that a 'regulatory-compliant protocol governance system' is what the industry needs, and what the SEC and other regulators will embrace. We agree. That's what Market Access Protocol is and we look forward to building this with the rest of the industry."
Despite the team's relatively recent release of its Swarm Invest platform in January 2018, it seems to have made considerable progress toward its goal of fostering an inclusive security token trading environment.