Under the umbrella of the Swiss Bankers Association (SBA), PostFinance, Sygnum Bank and UBS conducted a "deposit token" feasibility study. For the first time, banks executed a legally binding payment across institutions using bank deposits and a public blockchain.
The resulting report forms the basis for a standardized infrastructure for blockchain-based financial services in Switzerland, according to a press release. Back in October 2024, the three banks announced the project, as CVJ.CH reported. At that time, the participants called the quasi-stablecoin a book money token (BGT), backed by assets such as deposits at the Swiss National Bank or money market instruments on the issuer’s balance sheet. The feasibility study (Proof of Concept, PoC) has now tested the transfer of book money outside the blockchain, triggered by tokenized payment instructions ("deposit tokens") on the blockchain.
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Technical and legal feasibility ensured
The Swiss Bankers Association began the announcement of the results with an admission: domestic payment systems in Switzerland are already very efficient and low-cost. Nevertheless, they reach their limits with new use cases. Traditional payments are not programmable, not continuously available for higher amounts around the clock, and can only be integrated into blockchain-based ecosystems to a limited extent. By representing bank deposits on the blockchain, payments could in the future not only be processed instantly and finally on a shared infrastructure, but also directly embedded into automated business processes.
The feasibility study tested two specific use cases: first, a payment between bank customers of the respective banks, and second, a secure escrow process in which deposit tokens were exchanged for tokenized assets and the transactions settled automatically. The governance structure of the system is based on clearly defined roles and the use of smart contracts. These enable verifiable processes, technical security, and compliance with regulatory requirements.
The results show that a deposit token deployed across banks - as described in the feasibility study - can function technically on a public blockchain with access-restricted applications and trigger legally binding payments, according to the SBA. For scalability, additional design adjustments and closer cooperation with more banks, infrastructure providers and authorities are required, it adds. Nevertheless, the participants are quoted with optimism.
"The tested deposit token is a strategic step toward the future and underscores the innovative potential of the Swiss financial center. With the successful proof of concept, the course has been set for further work - for a new, additional innovative form of digital payments." - Martin Hess, Chief Economist and Head of the Digital Currencies project at the SBA
Key differences to stablecoins
The project can be interpreted as a direct response to the rapid rise of stablecoins, which were declared a national priority under the Trump administration. However, the differences between traditional stablecoins and "deposit tokens" are important. Stablecoins are fully backed by liquid assets such as government bonds and cash equivalents. The new US legislation (GENIUS Act) mandates this 1:1 collateralization. In practice, these are mostly government securities, with redemption guaranteed directly by the Federal Reserve.
The described "deposit token," by contrast, tokenizes payment instructions and deposits at a bank. These are only partially backed by actual assets. In the event of a bank run, holders of a traditional stablecoin would likely fare better. On one hand, stablecoin issuers are obliged to back each digital dollar with liquid assets. Bank deposits are not subject to this legal obligation. On the other hand, government bonds are held off-balance sheet and carry the guarantee of the central bank. Deposits, however, enjoy this privilege only up to a limit of 100,000 Swiss francs (esisuisse).
Fully leveraging the potential of blockchain
In the feasibility study, the settlement of transactions ultimately took place "off-chain" - that is, at the participating banks. Moreover, the deposit tokens were programmatically limited to bank customers. As a result, some of the most important features of blockchain technology were absent. Unlike traditional databases, decentralized technologies are distributed across a network of computers. This eliminates single points of failure and protects the system from external attacks. Constant synchronization and the public verifiability of blockchain records stored in multiple locations prevent manipulation and provide strong trust guarantees based on cryptographic properties. In addition, stablecoins are accessible to everyone, can be settled around the clock, and are usable in DeFi applications.
As already noted in the October 2024 report, Swiss banks must not only acknowledge these characteristics but also actively embrace them. Otherwise, there is a risk of showcasing pilot projects that ultimately fail to meet customer demands.
