Crypto Nation: What makes Switzerland so attractive to Crypto projects?
- The unique foundation structure and crypto-friendly banks have attracted many global businesses to make their headquarters in Switzerland.
- Swiss legislation is favourable to economic activities, especially Blockchain DeFi.
- Data shows Switzerland is a hub for crypto companies, and it is the most crypto-friendly country in Europe.
For centuries, Switzerland has been known for the safe storage of assets, strong property rights and a fair legal system. Over the last few years, Switzerland has established itself as an attractive destination for cryptocurrency and blockchain projects. Once known for cherry production, the small town of Zug has been nicknamed “Crypto Valley”, due to the large number of projects that have their headquarters there. The latest research data shows that the total number of companies in Crypto Valley alone is 960 with a market valuation of $254.9bn, while employment has increased to 5,184 people. Crypto Valley now has 11 unicorn crypto projects with a valuation of over $1bn including Ethereum, Cardano, Polkadot, Aave, Cosmos, Solana, Tezos, Dfinity, Near, Nexo and Diem (formerly Libra).
Zug is located in a Canton of the same name and it is approximately half an hour from Zurich by train. Known for being friendly to business and FinTech startups, residents can pay for goods and services, and even their taxes, with cryptocurrencies like bitcoin. The city has also offered a blockchain-based digital identity for its citizens since November 2017. However, today, the spread of cryptocurrency companies has proliferated across this idyllic Alpine locale. Zug, Zurich, Vaduz (Liechtenstein) and Geneva have all played a massive role in making Switzerland the “crypto nation” and one of the world’s leading blockchain hubs, attracting both start-ups and hundreds of millions of dollars in investments.
According to the Legal Advisor for DLT and FinTech at MME, Aurelia Nick,
“Switzerland enjoys an international reputation as a trustworthy, reliable and innovative financial centre. Many years of experience in the banking and financial markets sector, coupled with technological know-how, tech-savvy regulators and a well-developed infrastructure, offer excellent conditions and a first-class ecosystem for the fintech industry. Furthermore, with the adoption of Swiss federal laws to the developments in DLT technology this year, Switzerland has also done pioneering work, i.e., by removing market entry barriers for fintech companies and by strengthening the competitiveness of the Swiss financial centre by significantly enhancing legal certainty and regulatory predictability. Hence, Switzerland offers ideal conditions for driving innovation in the DLT and fintech sector.”
Switzerland has a concentration of companies due to both the political choices of the Swiss Federation, Cantons and the financial history of the country. In the past, banking secrecy and low taxes have been of great importance. Furthermore, thanks to Switzerland’s neutrality, its financial centre played an important role on the international market during the two world wars. Switzerland is one of the main financial centres in the world. Zurich, Geneva, Basel and Lugano are primarily known for their capital markets and asset management. Almost a quarter of the world’s foreign assets are managed in Switzerland, which implies the presence of a large number of banks and insurance companies. The financial sector accounts for around 10% of the gross domestic product.
Two of the main problems that cryptocurrency companies face include compliance with the regulations and laws of the country in which the company is incorporated and finding banks that are willing to bank with them. Swiss lawyers and regulators have actively worked on a legal framework to establish the country as a crypto hub. A key defining feature of Switzerland is the Swiss Foundation structure. According to Aurelia Nick, MME, what sets the Swiss foundation apart from other foundations in Europe, such as a German or British foundation is that
“The Swiss foundation law is in terms of defining the purpose and organisation liberal. But once set up, the law requires registration in a public registry, supervision by a federal authority and – most importantly – that a foundation deed cannot be easily changed anymore. Hence, the Swiss foundation has similarities to a smart contract: Once registered (deployed), it is public and the terms cannot be easily changed and are in a way self-executing. If flexibility is needed, it has to be “coded” into deed and is public. Accordingly, the major differences to other foundation laws are: transparent/public, own legal personality, no beneficial owners, supervision, difficult to change. Since the primary goal of a Swiss foundation is to implement the purpose defined at its formation, blockchain developers can use a foundation to ensure that their projects are in line with their core values, such as decentralisation, inclusivity and non-profit technology development.
Therefore, the foundation is an ideal legal form for long-term infrastructure projects, such as protocol development. Examples include the Ethereum Foundation and the Dfinity Foundation, all of which are based in Zug, Switzerland, and aim to support the development of new open decentralised software architectures.
However, there are no significant tax or regulatory advantages compared to foundations elsewhere in Europe. The decision to use a foundation for the issuance of a token thus has no decisive tax or regulatory background, but rather aims to strengthen participants' trust in the respective DLT project.”
In addition to the popular foundation legal structure, the banking landscape is very competitive. Switzerland and Liechtenstein have several legacy banks such as Maerki Baumann and Bank Frick and several crypto-focused banks such as SEBA and Sygnum that welcome cryptocurrency projects.
Role of FINMA
The regulation of Swiss financial markets is principle-based and technologically neutral. The Federal Financial Market Supervisory Authority’s (FINMA) treatment of cryptocurrencies and stablecoins follows their existing approach adopted for blockchain-based tokens, i.e. the focus is on the economic function and the purpose of a token. FINMA published guidelines that define how to apply financial market legislation in the management of token sales (ICO) from February 2018. The guidelines also define the information FINMA needs to process and the principles on which it will base its responses. Creating clarity for market participants In assessing the ICOs, FINMA focused on the economic function and purpose of the tokens issued by the organizer of the ICO. The key factors are the underlying purpose of the tokens and whether they are already tradable or transferable. FINMA published a supplement to its ICO guidelines in September 2019 outlining how it treats stablecoins under Swiss supervisory law. FINMA has seen a steady increase in the number of stablecoins since 2018.
Swiss political decentralisation makes it a natural home for DeFi
On September 10, 2020, the Swiss parliament passed a law to update existing corporate and financial regulations to make way for DLT technology. The law went into effect in early 2021. This Blockchain Act aims to accommodate decentralised technologies while maintaining Switzerland’s integrity and reputation as a commercial and financial center. The Blockchain Act passed to the Swiss Senate without opposition, after an initial consultation in December 2018.
Switzerland was rated the number one crypto-friendly European country, according to a 2018 study by Blockshow. The study focuses on regulations on cryptocurrencies and Blockchain-related projects. It means that Switzerland is the most attractive country in Europe for blockchain startups. Switzerland has become the hub for cryptocurrency-related projects for entrepreneurs and investors from all over the world. Switzerland has been shown to be open to experimenting with Blockchain technology.
Blockchain technology has become intrinsic to government, institutions and economic activities, and continues to play a bigger and bigger role in the daily lives of Swiss people. Due to the strong property rights, fair contract and court system, history of privacy for an individual’s bank account value and transactions, and currency based on sound money principles until the 1990s, Switzerland is the ideal place to embrace the cryptocurrency revolution. Talented labour and capital is flying to Switzerland from the US, UK, Asia and its European neighbors, such as Germany and France, and this trend does not appear to be slowing down any time soon.
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