“Swarm Intelligence” is a scientific field that arose from the study of self-organizing biological systems. Many species make heavy usage of multi-track systems to incentivize types of socially positive behavior. This formalization allows larger types of complex life to develop and evolve in a dynamic fashion. In many ways, this is similar to the mathematics behind fractals. The formalization happens at the level of harmonic principles, rather than at the specific structural level, as often happens with hierarchical organizations.
The Swarm Fund attempts to applies this concept (formally known as “stigmergy”) to finance through blockchain technology. In particular, reputation plays a key role as different system behavior is tracked and positive behavior is incentivized. Consequently, the greater the trust and transparency of the underlying system, the less formal command and control methods are needed and the more finance can be fully automated. Although we started entirely internally to the blockchain community, this ostensibly applies to all asset types.
Swarm Fund was inspired by the idea that smart contracts could lead to greater trust, transparency, and access in finance. It initially launched as a membership network dedicated to this purpose in the summer of 2014 and ran a successful $1mm blockchain crowdfunding campaign that was the first of its kind.
After launching a “Silicon Valley” style incubator house it also helped develop, fund, and launch several projects, including Bitcoin Comic book, Woodshares, the first dedicated crypto-asset fund, and several other projects that remain in stealth mode.
Additionally, the founders realized many of the barriers to creation on this space were regulatory and worked primarily on governance and organizational design, including speaking at various industry events, including partnerships with Singularity University, Agentic Group, and ExO Works.
After key learnings from these engagements we began implementing the most advanced blockchain governance system developed to date, which integrated concepts of liquid democracy, futarchy, and reputational systems.
We are currently focused on hard assets that have mostly been neglected within the crypto-asset world, especially unique financial assets that would highly benefit from automation. For example, we are looking at real estate, distressed real estate, art, and SaaS platforms. All of these highly lend themselves to tokenization. That said, we believe that all types of investment are highly likely to benefit from a reputation-based model.
The Swarm network uses a stake-weighted liquid democracy system for governance, of which stake is gradually sold off to interested parties. This implementation is described in detail in the Network State Whitepaper.
The Swarm platform makes primarily through individual deal opportunities that the network participates in make money. This is done through what is traditionally called a “carry,” a distribution of realized return that goes to the platform. Additionally at some points we may charge a fee for project listing.
Our MVP is a stake weighted liquid democracy organization deployed via Solidity smart contracts. It has the possibility of proposing proposals and dynamic allocation of capital to causes or sub-projects. Additionally, stake can be bought and participants. The smart contracts are open source and can be viewed here (link tbd)
Our core team is largely comprised of entrepreneurs who have gone into finance after a couple of successful tech companies. Joel Dietz was an early MVP and competitive coder in the Salesforce world before getting involved with blockchain and has been involved with multiple successful enterprise SaaS companies, including his own consulting business. Philipp Pieper has built and sold several companies, including Proximic. Timo Lehes was an engineer who after a couple of exits had gone into finance and investment banking. Our early advisors also include Mark Oei of the Sequoia Heritage fund and Jack Peterson of Augur
“The DAO” was a fascinating experiment that appropriately garnered a lot of attention for doing something that was extremely ground breaking. Unfortunately, it may have attempted to do too much too quickly. Our implementation has started with a more robust governmental model and has several checks and balances that prevent technical failures from causing damage to real assets
The DAO was an ownerless venture capital fund driven by majority consensus deployed as a DAO. It shows, among other things, the enthusiasm in the market for such a solution. Its major flaws included a rush to market,, an overly centralized single implementation, a lack of a solid governance model that allowed for evolution, and distributed economic incentives that did not allow for individual achievement.
Our model is different from the DAO in that each project resembles a traditional company in its ownership structure in that ownership is gradually sold off over time to the crowd and it becomes autonomous in stages as the technology and model are proven. This allows rapid decision making and iteration during the early stages of the project when this is necessary and some degree of pivoting and technological upgrades may be necessary during the implementation.
Our model is deliberately modular in the sense that funds are pooled around subprojects and that each project has its own set of incentives and can succeed or fail without affecting the overall network. This means that each individual can decide on the value of various offerings on their own without an extensive or complicated consensus process.
Our model also have an ‘innovation tax’ which is taken from each project and goes back to fund public goods that can benefit the overall network, rather than somehow attempting to take this out of the actual fund itself. We also believe raising less capital but having a coherent governance structure and high quality business opportunities will allow significant appreciation in the base asset.
|The DAO||Swarm Fund|
|Organizational model||Centralized (single mega-fund)||Modular (each project is distinct)|
|Governance model||Full democratic voting||Stake-weighted delegated voting|
|Curation model||By “curators” prior to listing||Post facto by community|
|Sale model||All at once||In stages based on needs at the time|
|Blockchain model||Ethereum Foundation’s official chain (ETH)||Can be deployed across multiple chains|
|Liquidity model||Full immediate liquidity||Escrow model with liquidity released over 12 months|
|Infrastructure model||Needs to be funded by vote||Consistently applied innovation tax that goes back into funding base infrastructure|
As with all software systems, you are potentially vulnerable to problems in poorly written code or in the underlying system infrastructure (e.g. compiler/interpreter). In the case of the DAO Hack there were elements of the both which turned out to be particularly explosive in combination.
Additionally, as with all prominent and open elements of high financial value, the DAO made itself the subject of intense scrutiny and attracted sophisticated attackers. In this sense, we expect that our system will over time attract the same level of attention.
Consequently, it is our desire to make sure that all of the different levels of our stack are adequately trialled and audited before release and make sure there are adequate safeguards in the case of technical failure.
To this end, we have adopted a tiered roll out mechanism similar to the Ethereum versions, in which the first implementation exists on a private blockchain and goes through versioning and release cycles in which the functionality is tested and made available. Additionally, all source code is open source, following industry best practice, and undergoing multiple levels of third party auditing.
Additionally, we have introduced Szaboian-nested intent clauses in our non-profit to enforce intent even in the case of smart contract failure
A concept coined by Nick Szabo based on the legal systems of the middle ages in which there was a standard interpretation of a legal clause including an “override function” in which a third party could interpret whether ethics and intent had been appropriately followed. This was possible due to the difference between feudal and religious court systems and their different domains. Within the world of smart contracts this effectively mean that the intent is codified first then the smart contracts represent an implementation of the intent. It also means that at a point in which the implementation diverges from the intent, the third party can make sure that the intent is followed. In our case, an Estonian non-profit serves as the third party to the smart contract implementation, acting as both custodian and enforcer of intent.
There have not up until now not been any decentralized marketplaces that were governed by their members, nor any that evolved alongside a reputational system. Additionally all decentralized marketplaces have looked primarily at internal blockchain types of assets rather than structured real assets with unique financial instruments that lend themselves to automated investment.
We believe that the combination of real value, automation, and reputation is a generalizable model that can provide clear short-term value and can evolve into an industry standard for all investment systems that benefit from increased trust and transparency.
Yes, our white paper, which outlines the various components that make up the network stack will be available on the homepage soon if it isn't already.
We were directly inspired by the original Ethereum whitepaper and have been generally lead to the place where there is the best maintained platform technology, the highest degree of delivery, the most liquidity, and the most robust developer community. That said, we are highly aware that there are now many chains that have implemented EVM smart contracts. We will use our own internal smart-contract driven governance system to decide which public chain to deploy onto when the token holders decide that they want to do this.
The whole system is designed as a non-profit which maintains the platform technology with multiple nested sub-funds. Fees are designed to make all sub-funds pay a platform fee in order to exist to participate and to provide on-going funds for maintenance of the “commons,” which presumably enhances the overall network effect. The primary fee is the “carry” which is a common design feature in venture capital and hedge funds and which means that the platform accrues money when people who are using the platform make money. This will be a minimum of 1%. There may also be usage fees and processing fees for the platform either through us or third-party payment processors.
With our open access model any person or AI can create any account and make any ascription of reputation or value to any other. Like many other open access models, this has the potential downside of spamming and pollution of the actual trusted value statements. Consequently, we are simultaneously working on an underlying decentralized reputation engine, which incentivizes good actor behavior and creates a trust layer for the network based on track record.
Yes, the smart contract implementation supports local usage and participation through Mist or another ERC20 wallet.
We will have a tiered release cycle in which the platform will remain in a stable state on a private blockchain for several months before official release onto a public one in order to give us sufficient time to iron out any problems.
Our initial smart contract implementation is on Github.