Will Switzerland be the next crypto haven? Distributed ledger law supports tokenized assets and Swiss franc stablecoin

The latest IFZ FinTech Study report for 2023, released by the Lucerne University of Applied Sciences and Arts in Switzerland, analyzes the current status of global financial technology (FinTech). Over the past few years, FinTech companies have become important suppliers in the Swiss financial industry through continuous development and innovation, providing technology-based solutions for traditional financial services. By the end of 2022, Switzerland had a total of 437 FinTech companies, with the industry continuing to grow. In global rankings for having the best conditions for FinTech companies, Zurich and Geneva ranked second and third respectively, following Singapore, while New York and San Francisco in the United States ranked fifth and sixth. Source: IFZ FinTech Study 2023

Swiss DLT Act and Regulation

Switzerland, located in Central Europe, is not only known for its picturesque landscapes but also for being at the forefront of innovation in technology and financial regulation. Switzerland recognized the importance of Distributed Ledger Technology (DLT) and blockchain technology early on. The Swiss Federal Council began researching this area in 2018 and after several discussions and revisions, finally passed the Distributed Ledger Ordinance (DLT Ordinance) in September 2021.

The DLT Act introduces the concept of "Uncertificated Register Securities," aiming to enhance the legal certainty of "tokenization" rights and financial instruments. According to the DLT Act, Swiss law provides electronic registration rights and the possibility of claims, offering functions and protections equivalent to transferable securities.

Under this legal framework for Uncertificated Register Securities, rights include those of issuers, such as contractual claims, or membership rights such as shares in a company. Therefore, asset tokens, utility tokens, hybrid tokens, and stablecoins can all be issued in the form of Uncertificated Register Securities.

Various Financial Innovation Services in Switzerland

Authorized by the DLT Act and the Swiss Financial Market Supervisory Authority (FINMA), Switzerland has been at the forefront of various financial innovation services, including:

• In August 2019, FINMA granted banking licenses to SEBA Crypto AG and Sygnum AG, making them the first banks globally to offer digital asset services.
• In October 2019, the Swiss Stock Exchange SIX collaborated with the Swiss National Bank to explore Central Bank Digital Currency (CBDC) technical options. Recent pilots involved Citigroup, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg, and UBS, aiming to issue real-time wholesale CBDC to support transaction settlements on the SDX network, a subsidiary of SIX based on blockchain technology, which has received regulatory approval from FINMA.
• In 2020, real estate investment company BrickMark purchased a property in Zurich for 130 million Swiss Francs, with a portion paid using BrickMark tokens.
• In 2021, SEBA Bank AG issued gold-backed tokens in collaboration with Argor-Heraeus and aXedras.
• UBS and the city of Lugano separately issued 375 million and 100 million Swiss Francs worth of bonds using the SDX blockchain platform.
• By early 2023, platforms like Aktionariat and daura had issued tokenized stocks for nearly 100 Swiss companies.
• There are also stablecoins pegged 1:1 to the Swiss Franc issued based on blockchain technology.

Switzerland Unaffected by Crypto Winter

Despite the challenges facing the global crypto industry, Switzerland's two major exchanges, BX Swiss and SIX, have not been affected by the crypto winter, maintaining a high level of product variety and quantity.

Recent activities, such as the ongoing pilot of the Swiss National Bank's CBDC, and the growth of private enterprises in the digital asset sector, continue to thrive. PostFinance, the financial services division of the Swiss Post, wholly owned by the Swiss government, has partnered with digital asset service provider Sygnum Bank AG to offer access to the cryptocurrency market for 2.5 million customers.

Aside from the well-known cities of Zurich and Geneva, Switzerland is also home to other cities renowned in the blockchain world, making it a hub for innovation in this field.

Zug, the Birthplace of Ethereum

Zug, located south of Zurich, is the Swiss canton with the lowest tax rates, just half of the national average. Many multinational corporations in trade and finance have their headquarters here. Vitalik Buterin, the founder of Ethereum, established the Ethereum Foundation here. The relaxed regulations and low tax rates have attracted numerous blockchain startups to set up base here, earning Zug the nickname "Crypto Valley." Zug began accepting Bitcoin and Ether for tax payments in 2021.

The headquarters of SEBA, the first bank to be specialized in digital asset business, is also located here. Another licensed entity is Sygnum, headquartered in Zurich.

Lugano Aspiring to Become a Blockchain Hub

In Lugano, the southernmost city in Switzerland, a collaboration with stablecoin issuer Tether established a fund of 3 million Swiss Francs last year, aiming to make the city a major blockchain hub in Europe.

The initiative "Plan ₿," founded by Tether and the city of Lugano, seeks to expand the adoption of Bitcoin and stablecoins throughout the city. It utilizes Bitcoin's Lightning Network technology to transform the city's financial infrastructure. Over 150 Lugano stores and businesses, including McDonald's, now accept Bitcoin, Tether, and LVGA stablecoins pegged to the Swiss Franc as payment for goods and services.

According to a press release by Tether at the end of March, the fashion brand Guess has also started using Bitcoin Lightning Network technology for its POS system, offering customers the option to pay with Bitcoin and USDT.