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A Swiss foundation was the must-have accessory for cryptocurrency firms. finews.com reports on how a fizzled boom is leading to a rethink in crypto valley after several high-profile scandals.

Crypto foundations are booming: 10 percent of all foundation structures launched last year were set up to house a digital asset firm, according to data prepared for finews.com by StiftungSchweiz.ch, a data provider which tracks Swiss foundations. The overwhelming majority – 23 of 33 total – were founded in the canton of Zug, home to Switzerland’s crypto valley.

Originally intended for philanthropic purposes, the more than 13,129 foundations in Switzerland have found far wider applications. Luxury watchmaker Rolex and Victorinox, maker of the iconic Swiss army knife, are prominent examples of for-profit firms controlled by the secretive Swiss vehicles.

Scandals Cast Pall

The World Economic Forum, where tickets begin at 85,000 Swiss francs ($84,820), is set up as a foundation. A series of crypto scandals as well as regulatory murkiness have cast a shadow over foundations for blockchain firms.

«The boom of crypto foundations has fizzled», according to Oliver Arter, of counsel at Zurich-based law firm Froriep and specialized in foundation law. The structure appeared to be made for cryptocurrency firms: foundations fit the community-led approach often adopted by digital asset firms.

A handy side effect was that crypto firms could take in initial coin offering money far more easily than in other countries such as the U.S., and Switzerland's light-touch on taxing foundations helped.

Approach Backfires

The strongest proponent of crypto foundations was MME, a Zurich-based law firm led by Luka Mueller. The fast-growing firm set up foundation structures for prominent projects including Bancor and Ethereum. The iron-clad nature of the structure, which is impervious to outside meddling, seemed ideal. In fact, it can backfire badly, as recent examples illustrate. 

What went wrong? Foundations normally start with a huge pot of money, to be dispersed – typically charitably – over many years. « With crypto, the money flows usually in the opposite direction: projects are financed by affiliates or outside investors», said Raffaella Piraino of the Energy Web Forum, a non-profit promoting blockchain technology.

«This already makes the management of the funds very difficult.» She should know: Energy Web is organized as a foundation, but recently incorporated – as a Swiss «AG» – instead.

Months-Long Tussle