Last March, the Swiss Bankers Association (SBA) published a white paper on the Deposit Token (DT), a digital Swiss franc stablecoin. Now, the three banks UBS, PostFinance and Sygnum have signed a letter of intent for a proof-of-concept (PoC) by 2025.
The "Digital Currencies" project is seen as an important step towards improving the services offered by the Swiss financial center and maintaining its competitive edge in the digital economy. With the letter of intent, the Deposit Token initiative has reached another milestone, the SBA said in a press release. In the proof of concept, the SBA will act as a platform to ensure that non-participating market participants are informed and involved in relevant decisions throughout the project cycle.
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Deposit Token: A digital Swiss Franc stablecoin
While central banks around the world are flirting with the introduction of CBDCs for the general public, the Swiss National Bank (SNB) sees innovation in this area as the responsibility of the private sector. This was confirmed by Thomas Moser, deputy member of the SNB board, in an interview with CVJ.CH. According to the Swiss Bankers Association, the introduction of the Deposit Token (DT) should help to make the Swiss financial industry more competitive and facilitate access to digital payment options.
The features of the Deposit Token are outlined in the SBA's white paper. A key aspect of building trust is that the Deposit Token can be exchanged for cash at any participating institution at any time. The DT will be backed by assets such as balances at the Swiss National Bank or money market instruments on the issuer's balance sheet, just like normal cash. The participating commercial banks will issue the DT through a joint investment vehicle and back the value of the digital franc with reserves. In effect, the Deposit Token is a stablecoin.
Are Swiss banks waking up to the potential of blockchain?
Behind the "dry press release" lies a remarkable admission, writes NZZ am Sonntag journalist Markus Städeli. Swiss banks indirectly admitted this week that their business processes and IT systems are outdated. Instead, they are evaluating a technology developed in the obscure crypto industry.
Indeed, blockchain offers significant efficiency gains for today's financial system. 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. The constant synchronization and public verifiability of blockchain records stored in multiple locations prevent manipulation and provide strong guarantees of trust based on cryptographic properties.
Popular excuse: "Blockchain, not crypto"
The key element is precisely this decentralized and public nature of blockchain networks, which the SBA acknowledges in its white paper. In contrast, private blockchains use the same distributed ledger technology (DLT), but are based on a closed network of authorized actors, losing many of the benefits. Nevertheless, banks can still boast in public press releases that they are "experimenting with blockchain".
UBS, one of the participants in the DT pilot project, is a prime example of this clever trick. For years, Switzerland's largest bank has warned about the "significant risks" of cryptocurrencies. In 2021, UBS published a warning on its blog about bitcoin, advising clients to protect themselves from total loss because bitcoin allegedly has "no intrinsic value." The bank has since removed the post from its website. However, it is an open secret that UBS still closes accounts of clients linked to the crypto industry.
Participation in pilot projects for stablecoins and central bank digital currencies (CBDCs) does not change this reluctant stance. In response to inquiries about "crypto," the bank's media department says it is monitoring developments "in the areas of digital assets and distributed ledger technology." UBS thus cleverly avoids the terms crypto and bitcoin. If the Deposit Token does indeed use a public blockchain, it would be a significant step in the right direction.
