Swiss finance is getting another crypto token: a group of heavyweight banking and tech partners wrapped a dry run. finews.com spoke with Swissquote CEO Marc Buerki, a key backer.
At the peak of April's coronavirus showdown, a capital markets technology group launched a new crypto standard for Switzerland. The group recently wrapped a test run of an equity token, it said in a statement on Thursday.
To do so, it incorporated an entity, tokenized its shares on the ethereum network, and traded and digitally stored the assets – reproducing the entire cycle of a traditional security on blockchain.
Swissquote, an online bank, provided the trading platform, while start-up Taurus took care of storage and white-collar law firm Lenz & Staehelin created the regulatory basis for the move. Swiss banks Vontobel, Arab Bank (Switzerland), Hypothekarbank Lenzburg, and crypto banks Seba and Sygnum also participated.
Founding members of the CMTA include Lenz & Staehelin, Genevan banking software firm Temenos, and Lausanne's prestigious EPFL technology university. Swissquote boss Marc Buerki's ambition is to advance the technology to the standard for issuance, trading, and custody of digital assets, he told finews.com.
Marc Buerki, the CMTA association just carried out the entire life cycle of a digital share – from issue to storage and trading. Did the pandemic make you step up this dry run?
On the contrary – it put the brakes on it. Distancing measures made coordinating among our members difficult. We are forgoing payment of a dividend on the token, because it would have necessitated a cash transfer. But all in all, everything went pretty much to plan.
And what is the plan with the token?
The test run was meant to prove that we can reproduce the entire cycle of a security digitally – and we were able to do that. We’re now working advancing the underlying, decentralized capital market infrastructure to the Swiss standard for tokenizing securities.
Detractors sometime criticize blockchain as a solution looking for a problem. As an engineer, can you vouch for the CMTA being more than merely technologically possible?
Of course it’s also a business case. There are roughly 600,000 firms in Switzerland, 230 of which are publicly listed. So the potential for alternative forms of capital raising is huge. Traditionally, investment banks decide on public listings. Our solution cuts out the middleman by linking investors with firms which want to raise capital. It’s about democratizing capital markets.
Investment banks are probably not too enthusiastic about it. Is it a coincidence that mainly wealth managers and merchant banks are fronting the association?
Our aim is not to squeeze investment banks out of the business. On the contrary: firms that issue an equity token based on our infrastructure can more quickly reach a level at which they are appealing to investment banks as potential clients. I see the offering as a kickstarter for them.
What are the CMTA’s members earning with the token?
The custody banks and digital storage provider Taurus can levy deposit fees, which are a lot cheaper than for physical securities. The transactions are also subject to broker commissions. Swissquote can bill an exchange fee for its role as a trading platform. The association isn’t here to primarily earn money, and is open to any interested parties. The ethereum blockchain, on which the token is based, is openly available.
CMTA isn't the first to launch a tokenized share in Switzerland, but has quickly garnered high-profile backers. Its 30 members include Pictet, Vontobel, Lombard Odier, Swissquote, and Union Bancaire Privée. Newer entrants including Seba, Sygnum, broker Bitcoin Suisse, the Tezos Foundation, and pharmaceutical supplier Lonza have also joined.
Competing Daura already operates a functioning tokenized ecosystem, backed by telecom incumbent Swisscom and SIX; the Swiss stock exchange is also working on its own tokenized trading platform, the SIX Digital Exchange, or SDX. This platform isn't expected to launch imminently – Swiss banks need to bring their technology up to snuff to integrate it.
You’re in competition with Daura, a Swiss token backed by a consortium including SIX and Swisscom. The Swiss exchange is also working on tokenizing its existing trading platform. What makes CMTA better?
SDX is late to the game. We don’t have the feeling that the offering can find a market. Then, Daura’s offering is hampered by its tokens operating on a private blockchain. We believe that open technologies like Ethereum show the way into the future.
Ethereum also represents the second-most widespread cryptocurrency, ether, after bitcoin. Will the CMTA be too reliant on cryptocurrencies and their colorful reputation?
The seller of our token will receive ether, which can be exchanged into fiat if desired. The high volatility of cryptocurrencies is a problem that I think will resolve itself when the market matures.
Cryptocurrencies are experiencing a boom following a long «crypto winter». The most important digital currency, bitcoin, currently trades north of $11,500, while ether is near $390 – a gain of 60 and 200 percent, respectively, thus far this year.
The surge is fueled by weakness in the U.S. dollar, flight from stocks, and the hunt for return amid record-low to negative interest rates. Crypto aficionados refer to bitcoin as a safe harbor currency similar to gold.
Prices for ether, bitcoin, and other tokens are surging. Does that help your initiative?
Bitcoin is in the process of establishing itself as a method of payment. Indirectly. This helps our initiative – if everything in the cryptocurrency scene were dormant, we’d be in a tough spot.
Investors have lost millions with token and coin issues in the past. Is that forgotten in the current hype?
Some people still maintain that crypto is just a scam. We want to show that we’re not the Wild West. Unlike utility or payment tokens, security tokens relay shareholder rights to the owner. The regulatory groundwork is extremely important: if the industry is ultimately self-regulated, we hope it will inspire Finma.
This would make tokenized shares an established market. How much did Swissquote earn last year with tokens and coins?
We generated revenue of about 5 million Swiss francs ($5.5 million) in commissions from trading digital assets last year. We expect to hit about 10 million francs for the full year.
