The worlds of crypto-assets and traditional finance have been brought closer together by Swiss bank Vontobel’s Digital Asset Vault. More banks are expected to follow suit, often in combination with technology firms to bring cryptocurrencies to the masses.
Digital Asset Vault is a plug-in platform that enables other institutions to both store and trade crypto-assets on behalf of their clients. It combines Vontobel’s trading know-how with the expertise of Swiss crypto-company Taurus to solve two problems in one stroke.
The vault allows people to trade cryptocurrencies without the technological hassle of holding their own encrypted private keys. It also lets banks keep cryptocurrencies off balance sheets, which would otherwise force them to hold large amounts of capital in reserve to insure against potential losses.
The aim is to provide a fully regulated corridor to trading in crypto assets that appeals to institutional investors. The platform will focus on cryptocurrencies, such as bitcoin, rather than the forecast wave of tokenised securities.
Last year, Gazprombank Switzerland teamed up with financial software company Avaloq and crypto-storage specialist METACO to develop a similar service. It is due to go live in 2019 once regulatory approval is given.
METACO CEO Adrien Treccani told swissinfo.ch in an interview last month that Gazprombank’s adoption of the platform is just the tip of the iceberg. “Many banks want to move into the crypto-market but are waiting for the first movers to overcome regulatory hurdles,” he said. “In the next two years most banks will be integrated into this asset class.”
“At the moment, there are discussions going on with several banks that are interested in our solution, both in Switzerland and internationally,” said Avaloq spokesman Andreas Petrosino. He added that other banks were expected to follow suit once Gazprombank’s platform has cleared a path.
Geneva-based Taurus said in its press release on Monday that its crypto-storage platform “is already in production with several leading financial institutions”. But the company said it is not allowed to name any of the institutions besides Vontobel.
State-owned telecommunications company Swisscom is also working with financial institutions to ease their path into crypto-assets through its Swiss Blockchain unit.
Vontobel was one of the first banks in Switzerland to dabble in crypto-assets by issuing cryptocurrency-linked tracker certificates from 2016. They were followed by Cornèr Bank and Swiss fintech firm Amun, which released an exchange-traded product on the Swiss stock exchange last November.
Falcon private bank and digital trading platform Swissquote have been early crypto-service adopters too, also by teaming up with crypto-specialists who take custody of the assets. Swissquote allows its own clients to invest in initial coin offerings (ICOs) – crowd-investing schemes used by blockchain firms to raise start-up capital – through its platform.
Bank Zarattini also makes the same offer in combination with crypto-financial services firm Inacta, but this service is also open to investors outside the bank’s circle of clients.
There are also at least two brand new financial institutions, Seba and Sygnum, waiting on the sidelines to launch as crypto banks – provided they get the licenses they seek.
Cold shoulder treatment
It is all a far cry from the cold shoulder treatment that Swiss banks have been giving the growing blockchain industry. Some banks, particularly larger institutions that have had been through tax evasion probes, are still showing extreme caution towards the crypto scene. Vontobel is the largest home-grown Swiss bank to date to break ranks.
A gradual thawing of attitude has been helped by the Swiss government’s plans to regulate the blockchain sector while accepting cryptocurrencies as an asset class with an inherent value.
For some cryptocurrency enthusiasts, merging the likes of bitcoin with the mainstream financial system runs contrary to the spirit of a decentralised economy. They will not be rushing to Vontobel’s Digital Asset Vault but will prefer to retain complete control of their cryptocurrencies and exchange them peer-to-peer instead.
Other investors are yet to be convinced by decentralisation but still want to trade crypto-assets. Actors on both sides of the financial industry divide – mainstream and crypto – are increasingly aiming new services to capture this class of investor.