The team behind a new blockchain-based platform believes they have the key to letting the crowd go where only the entitled few have been allowed to invest.
Swarm Fund opens up high-return asset classes like private equity and hedge funds to the masses while bringing the collective finances of the crowd to private equity and hedge fund managers. And all is accomplished at a fraction of the cost it does through traditional methods, partner Timo Lehes said.
Mr. Lehes said Swarm Fund’s founders brought varied perspectives to the shared goal of creating decentralized alternative investment platform. Joel Dietz has a passion for disruptive technologies. Philipp Pieper’s background is in asset management and digital investing, while Mr. Lehes has spent time in alternative investments, syndications and family offices with a focus on technology.
Swarm Fund is a democratic platform operating on a three-tier token model that enables all investors to own a share of physical assets. Participants first buy SWM, the Swarm utility token that provides access to the platform and Swarm community along with full voting rights. The ERC20 token is housed on the Ethereum blockchain and is tradable on exchanges.
SUN (Swarm utility network) is a security token that provides access to the investments provided by Swarm’s syndication partners. SRC20 is an asset-based token established by each syndicate for every subfund on the network. It represents ownership of real physical assets much like a physical stock. It can be traded on the internal Swarm Network exchange.
Mr. Lehes described Swarm as a liquid democracy.
“The decentralized aspect is we are not controlling what is going on the Swarm platform.”
The community ultimately decides the opportunities, and the direction the platform takes in the future. As Swarm members build their networks, they can vet potential deals and make them available on the network where members view that individual’s past performance and reputation and decide whether or not to invest.
They can also follow and communicate with other members to grow their knowledge about the assets they wish to invest in so they can make more informed decisions. Members can delegate their vote on specific issues to proxies whom they trust because of their knowledge of that asset class.
Those deciding to invest pool their tokens and once the project is funded Swarm notifies legal entities that buy the asset. Swarm covers all legal work via multiple entities that are required to tokenize the asset. Once the asset is purchased, a SUN token is minted which facilities the return of profits to subfund investors and allows them to re-invest in other projects.
Mr. Lehes explained Swarm is a non-profit platform that keeps a small percentage of money for maintenance and upgrades. He described the community as a liquid democracy where all members have a say in how funds are deployed and how the platform grows.
“The question is how do you provide an efficient mechanism to make important decisions when you don’t want to centralize them but open them to a broader audience,” Mr. Lehes said.
Swarm is also aware of the changing regulatory environment and are confident they are compliant with securities law. SUN token qualification occurs on a case-by-case basis.
Qualification for the SUN tokens will take place on a case-by-case basis to ensure compliance with securities law, Mr. Lehes said. Swarm applies the Howey Test, which was created by the Supreme Court to determine whether specific transactions qualify as investment contracts. Those that pass the test are considered securities and are subject to certain disclosure requirements.
The “Howey Test” is a test created by the Supreme Court for determining whether certain transactions qualify as “investment contracts.” If so, then under the Securities Act of 1933 and the Securities Exchange Act of 1934, those transactions are considered securities and therefore subject to certain disclosure and registration requirements.
“If you have an engaged member base, you are passing the Howey Test,” Mr. Lehes said.
Additional protections are in place, Mr. Lehes added. Initial coin holders can only sell one-eighth of their holdings every 42 days in order to protect against pump and dump tactics.
The Swarm Fund public token sale re-opens on Oct. 21. Click here for more information. Swarm has a distressed real estate fund and a solar energy fund in development.