This opinion piece was published on Finews from 7th of October 2024.
The Swiss Financial Market Supervisory Authority has stirred up the blockchain sector with its new regulations on stablecoins. In his article for finews.first, Ralf Zellweger explains why this new approach could harm Switzerland’s financial center and innovation landscape.
Stablecoins – arguably the most successful product of blockchain technology aside from Bitcoin – are under heavy pressure in Switzerland. The Swiss Financial Market Supervisory Authority (Finma) issued a new supervisory notice at the end of July, which led to an uproar in the industry, as expressed in the Swiss Blockchain Federation’s official response. The Finma reacted to an article on finews.ch, explaining in a subsequent piece that it was merely clarifying existing rules. So, is this all a big misunderstanding?
If the Finma statements were interpreted literally, it would essentially mean the covert abolition of digital cash. Stablecoins are digital currencies that function like cash. They enable direct peer-to-peer payments without the need for banks, payment service providers, or other intermediaries. This accessibility makes them a fast and cost-effective alternative to traditional payment systems.
«It’s like having to show an ID for every cash transaction»
A key aspect is the difference between the two types of wallets used to hold stablecoins:
- Non-custodial wallets: These function like a real wallet in digital form. The owner has full control over their assets, and the provider merely supplies the technical infrastructure. The provider has no access to the assets. Payments can be made directly between sender and receiver via the blockchain—without intermediaries.
- Custodial wallets: These are similar to bank accounts. Banks and fintechs centrally manage the assets and have control over transactions and assets. This means they can approve, monitor, or even block transactions. Users must identify themselves and trust that the provider securely manages the assets and handles transactions properly.
Finma’s «clarified» practice aims to subject non-custodial wallets to strict identification requirements. This is akin to requiring an ID for every cash transaction. However, strict regulations already exist to prevent money laundering: Identification is required to convert stablecoins to bank currency above 1,000 francs – a far stricter threshold than physical cash, where identification is only necessary above 10,000 francs.
«The Finma is cementing the dominance of established players in payment systems»
The new regulations go even further by allowing the transfer of stablecoins only between identified wallets. This strips stablecoins of their core advantage: fast, barrier-free, and direct transactions without unnecessary hurdles.
By extending identification requirements, the Finma is destroying the inclusive potential of stablecoins. Mandatory identification creates an unnecessary barrier, costly for both providers and users. The Finma is cementing the existing structure dominated by established players in payment systems, along with their excessive fees—fees that stifle trade in Switzerland.
We all indirectly pay these excessive fees as consumers through higher product prices. Stablecoins could inject some much-needed competition into a stagnant market with too little competition, which would benefit the entire economy.
«This is overkill»
Stablecoin use cases are still in their infancy. Around the globe, startups are creating new applications for cash—but in digital form. Success, as with any innovation, is not guaranteed, but the potential is enormous.
Switzerland has long been a leading hub for blockchain technology, promoted under the leadership of former Federal Councilor Ueli Maurer and the Finma team of Thomas Bauer and Mark Branson with an innovation-friendly interpretation of regulations. It is concerning that Switzerland is now carelessly jeopardizing one of its competitive advantages without cause.
The total volume of stablecoins in circulation, issued in Switzerland, is currently only around 1 million francs. Given this very early stage of market development, it is even more surprising that Finma is spreading fear and concluding that stablecoins could threaten the reputation of Switzerland’s financial center.
The opposite is clearly true: this is overkill, and as collateral damage, the entire innovation-friendliness of Switzerland suffers.
«Otherwise, Switzerland risks a major setback as a financial hub»
The Finma’s new rules jeopardize the potential of stablecoins as a barrier-free, digital means of payment. Existing anti-money laundering regulations are already sufficient—identification is required above 1,000 francs, far exceeding the requirements for physical cash. Further restrictions are unnecessary and threaten Switzerland’s innovation ecosystem.
Switzerland was once a global leader in financial innovation. Now, it risks losing that edge. Overregulation creates unnecessary hurdles, cements outdated structures, and forces innovative startups to leave Switzerland for the EU, where digital cash remains barrier-free.
The loss goes far beyond the blockchain sector – it affects the entire financial center and economy. Let’s hope this really is a big misunderstanding, and that Switzerland remains a place for barrier-free digital cash. Otherwise, Switzerland risks a major setback as a financial and innovation hub.
Ralf Zellweger is a veteran of the payment industry and an early Bitcoin adopter. He is the co-founder of Centi, a company that has developed various barrier-free use cases based on the Centi Digital Franc, particularly in the area of micropayments.
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