Investment

Switzerland and the return of numbered secret accounts

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Having had its banking secrecy dominance strongarmed away by the US over a decade ago, Switzerland seems to be rapidly asserting a lead position again, this time in the world of digital assets. For as one crypto custody provider quipped, storing private keys is rather like a return to numbered accounts.

Indeed, the innovation taking place in the Alpine country is dizzying. Taking a proactive position back during the Initial Coin Offering (ICO) craze, Switzerland’s “crypto valley” in Zug suddenly became as much a part of the place as chocolate and watches, as far as the crypto community was concerned.

These days, Switzerland is attracting a more heavyweight digital asset crowd, including large business consortia and major financial infrastructures from places like Germany, Russia, Singapore, all looking to test drive platforms in this congenial setting.

The innovation taking place in the Alpine country is dizzying

Most recently, the country’s main stock exchange group, SIX (a key crypto driver working closely with Swiss regulators) revealed it was creating its own cryptocurrency pegged to the Swiss franc: a so-called “stablecoin” in crypto parlance.

SIX could not provide any further detail on this; key questions would be whether the SIX crypto is backed by commercial bank money held with Swiss lenders (some stablecoins use algorithms to fix prices, while others resist proper audits and have a flimsy reputation as a result), and if the stablecoins would be used privately by SIX and its partners (like JPMorgan Chase’s feted JPM Coin) or exist publicly like the universe of stablecoins used to trade crypto on exchanges.

Tokenized fiat currency living on a blockchain allows for both sides of a tokenized trade to be completed simultaneously or atomically in financial terms. As such, blockchains have the power to revolutionize delivery versus payment DvP, or payment versus payment for that matter. Central bank money on a blockchain is the Holy Grail as far as enterprise use goes, but commercial bank cash is a great start.

Stepping back, SIX said its Digital Exchange (SDX) would be in production in the second half of 2019. The plan is to start by tokenizing stocks and bonds, and then moving on to explore digital versions of other physical assets like fine art. SDX is also focusing on so-called security token offerings (STOs) and, according to the group’s chairman, might even raise some funds itself via an STO.  

Meanwhile, the crypto innovation being driven by SIX and SDX seems to be exerting a gravitational pull on other digital asset platforms. Notably, the parent company of the Frankfurt Stock Exchange, Deutsche Börse, is working with Swiss government-backed Swisscom to test drive tokenized equity in Switzerland, thanks to the jurisdiction’s favourable view of crypto.

Deutsche Börse has created a crypto custody consortium called “Custodigit” to operate in Switzerland. As well as Swisscom, this includes custody specialist Metaco; Sygnum, a Singapore-based fintech enabler; and Daura, a platform for digitizing Swiss shares of small companies.

More recently, Russia’s National Settlement Depository (NSD) announced it would be launching its D3ledger in Switzerland. When Moscow-based NSD launches D3ledger next month, the platform will track ownership of several assets: a security token representing unregistered shares in a small healthcare company; sora, a cryptocurrency developed by Japanese tech provider Soramitu; and the top two cryptocurrencies by market capitalization, Bitcoin and ether, along with any ERC-20 token that runs on the Ethereum blockchain.

In the case of Bitcoin and Ethereum, the assets will be depository notes, akin to the way depository receipts for foreign company stocks are traded on US exchanges.

Speaking candidly, Artem Duvanov, head of innovation and a director at NSD, said the SIX effect, which is attracting other players to Switzerland, is also directly driving changes in Swiss law regards crypto.

“There are some proposals for a new law which I think are driven by the SIX project. I am pretty sure because I see proposed changes which are meeting the requirements of SDX. I think the SDX project will drive changes in Swiss law and so everybody will follow,” he said in a recent interview with CoinDesk.

A spokesman for SIX said that the exchange is in close contact with the relevant regulators, preferring to use the term “sparring partner” when it comes to helping to address blockchain-related issues and how those might be represented in law.

“The fact that more and more infrastructure providers are moving into this area confirms that we are on the right track,” he added.

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