swissinfo.ch asks what a new Swiss stock exchange, fusing the worlds of traditional and crypto finance, will mean for the burgeoning home-grown blockchain industry.
What is the SIX Digital Exchange?
It is a new trading platform to be rolled out in mid-2019 by the SIX Groupexternal link, which runs the Swiss stock exchange. SIX says the fully regulated exchange will be the “first market infrastructure in the world to offer a fully integrated end to end trading, settlement and custody service for digital assetsexternal link.”
This means the platform will host all elements of trading under one roof, unlike other crypto exchanges that use third parties to execute parts of the chain. It will be run on a distributed ledger system (DLS) with similar properties to blockchain. Financial assets, such as bonds and equities, can be digitised and attached to a digital token to store their value and allow swift transaction between parties.
Other stock exchanges are also looking at DLS technology. These include the Australian Securities Exchangeexternal link that plans to put its clearing system on such a platform, plus Nasdaq and the London Stock Exchange. But no exchange has gone as far as SIX in creating a completely new platform combining all elements of trading.
The fact that SIX Group is owned by 130 banks indicates that the Swiss banking sector is keen to take part in the cryptoassets sector. The exchange would provide a safe platform for them to do this without fear of regulatory issues.
What else could it do?
Thomas Zeeb, SIX head of securities and exchange, says the new platform would allow “all market participants to develop their own business models within that ecosystem”.
This is interesting for firms such as the Zurich-based Instimatchexternal link that digitises financial assets, such as bonds, and connects borrowers with lenders - from family offices to municipal authorities. Founder Hugh Macmillan says the new digital exchange could be just the platform the company needs to further its aim of reducing settlement times and slashing costs.
“This opens up a completely new world that is long overdue,” he told swissinfo.ch. “Why no-one has done this earlier is a mystery to me.”
Zeeb also alluded to ways the SIX platform could help clients create initial coin offerings (ICOs), a crowdfunding method that has seen start-ups to raise some $13.7 billion (CHF13.6 billion) globally in the first five months of this year alone ($456 million in Switzerland).
The Swiss financial regulator was one of the first to issue guidance on ICOs, suggesting that most digital tokens that start-ups sell for (mainly) cryptocurrencies during a fundraise could be classified as securities. But it is not yet known whether firms could list their tokens on the SIX Digital Exchange or whether these digital assets could be traded on the platform.
How will this affect existing crypto enterprises?
A digital exchange that encompasses the whole trading chain with full regulatory approval looks like stiff competition for a number of small crypto exchanges in Switzerland. But the reaction has been positive. The behemoth exchange has added a layer of legitimacy to the sector and its arrival could magnify the size of the cake in Switzerland for everyone.
“Until now, the professional financial services sector has been questioning whether the tokenised digital assets industry is actually for real,” said Richard Olsen, founder of digital assets marketplace Lykkeexternal link. The SIX exchange represents “an incredible endorsement for our strategy of being fully compliant.”
As a small, agile company with a fully functioning platform and two and a half years’ experience, Lykke will not be threatened by SIX, Olsen added. “It would be terrible to be the only restaurant in town.”
Bitcoin Suisseexternal link, which forecasts revenues of CHF7 billion across its business lines this year has welcomed the news. “The announcement of SIX Group’s plans means that crypto assets enter the mainstream. It is a great endorsement for the crypto financial service industry by a key player in the traditional financial centre, and it is a huge opportunity for Bitcoin Suisse,” co-CEO Arthur Vayloyan told swissinfo.ch.
Cyrill Tröndle, founder of the SCX Swiss Crypto Exchangeexternal link, believes that the SIX platform will strengthen the industry’s foundations in Switzerland, allowing all players to benefit. “We appreciate any recognition of the market that underpins the importance of a functioning blockchain-based infrastructure,” he stated.
Melonportexternal link, a decentalised portal that allows fund managers to set up, manage and trade portfolios of assets, also sees a brighter future for the digitised financial sector thanks to the SIX exchange. “We see it as complimentary. The range of new digital assets that SIX will open up (such as equities) will complement the already existing crypto asset universe that users of Melonport’s technology regulated and operated asset management infrastructure already have access to,” said CEO and co-founder Mona El Isa.
So everyone is happy?
Not quite. For one thing, the new SIX exchange will not be fully decentralised – a key component of the original bitcoin blockchain ideal. This means that the platform will not be ‘owned’ and managed by anyone who uses it. There are some in the crypto sector who therefore dismiss the SIX digital exchange as a poor imitation of blockchain.
Although perhaps not everyone would agree with Ethereum creator Vitalik Buterin, who at a recent Zug conference expressed the viewexternal link: “I definitely hope all centralised exchanges go burn in hell as much as possible.”
SIX is also playing coy on where bitcoin and other cryptocurrencies will fit into the platform. It appears that it will not at first be open to the direct trading of cryptocurrencies (perhaps only indirectly if it accepts assets such as ICO tokens that have been purchased with cryptocurrencies). A final decision on how to deal with bitcoin & co has been postponed to a later time.
“It’s a missed opportunity to have bitcoin and other cryptocurrencies trading as part of the new exchange. Switzerland needs a professional CHF-BTC exchange to really become a Crypto Nation,” says Lucas Betschart, President of the Bitcoin Association Switzerlandexternal link.