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Fintech analysis

Matthew Allen takes a look at the issues and talking points surrounding the fintech frenzy in Switzerland.

By Matthew Allen

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The following content on this topic was first reported or is still being reported live. You will find the latest stories first. Then follow the timeline backwards.

Governance rowTezos Foundation rift sends out seismic ripples

Fireworks over Zug

The Tezos Foundation fireworks are not as pretty as others to be seen in Zug

(Keystone)

The meteoric rise of Swiss involvement in the initial coin offering (ICO) boom has encountered further turbulence with a serious governance spat at the Tezos Foundationexternal link

The public fall-out between the Tezos project’s founders, Arthur and Kathleen Breitman, and Johann Gevers, the president of the foundation created to spend the vast sums raised from the public in the summer, will make some already wary people even more nervous.

On Wednesday, the Breitmans published a damning attack on a perceived lack of activity by the Tezos Foundation, accusing its managers of falling behind schedule in implementing the building blocks for the cryptocurrency.

But more damagingly, the statementexternal link accuses Gevers of “an attempt at self-dealing, misrepresenting to the council the value of a bonus he attempted to grant himself.” Gevers has been suspended with the Breitmans baying for his permament removal from the foundation. In the statement, entitled “The Path Forward”, the Breitmans heavily hint at a more hands on role for themselves at the foundation.

Gevers has rejected the allegation, telling Reuters the attack is an “illegal coup” fuelled by “character assassination” and “outright lies”.

Scandal unwelcome

Whatever the outcome of the dispute, the Swiss crytptoasset community will be alarmed by more negative publicity. Last month, the Swiss financial regulator (Finma) closed down a crypto scam, whilst investigating 11 other cases, and soon after said it was probing the whole ICO business in Switzerland.

Organisations such as the Crypto Valley Associationexternal link have been working on a code of self-regulation for the ICO industry that has brought some $600 million into the coffers of Swiss-based foundations. “The rapid development of token launches has raised concerns around stability and security, and as a leader in this field, it’s our responsibility to support the industry,” statedexternal link president Oliver Bussmann.

The last thing the crypto community wants to see are the size 12 boots of regulators trampling all over the lawn. A potential legal and regulatory battle over the Tezos Foundation would hardly suit this purpose. 

Finma and the Swiss Foundation Supervisory Authority in Bern are remaining tight-lipped about their intentions towards the Tezos Foundation. But the sums involved are hardly trifling. In July, shortly after the ICO that raised $230 million in a matter of days, the foundation said it held $220 millionexternal link worth of cryptocurrencies. According to Reuters, that figure has swelled to more than $400 million as the value of bitcoin and ether soared in the intervening months.

Peace of mind?

The Tezos ICO specifically did not guarantee any financial return, but nevertheless, should the project collapse or become impaired as a result of the row, there could be a lot of angry investors. Bloomberg has reported that the value of the Tezos tokens (Tezzies) has slumped dramatically in the last couple of days.

And then there is a credibility issue that has been raised on social media platforms dedicated to the crypto crowd. The whole point of creating a foundation to spend funds raised from ICOs is to create a legal barrier the cash and the project founders. This is to give investors peace of mind that their investment will be spent on creating the technology rather than lining the pockets of individuals.

The Breitmans insist that their proposed new roles will not damage the independence of the foundation, nor enrich themselves. The reaction from investors may not be quite so assured.

Tezosexternal link bills itself as the next generation of cryptocurrency, able to perform self-amending smart contracts on blockchainexternal link.

Crypto learningUniversity 'walks the walk' with bitcoin payments

A student in robes and mortar board is thrown up in the air by colleagues

Students will be keen to learn how much higher cryptocurrencies can rise

(Keystone)

For students with a few bitcoin to rub together, Lucerne’s University of Applied Sciences and Arts might be the place to study. The university has started accepting the cryptocurrencyexternal link as a means of paying tuition fees.

The transactions will be handled by Zug-based crypto trading platform Bitcoin Suisseexternal link, which has agreed to absorb exchange rate losses and currency fluctuations. Students will pay a 1% transaction fee to further insulate the university form such losses.

Situated close to Zug’s Crypto Valley, the university is chiseling out a niche for fintech researchexternal link. It is also a member of the Crypto Valley Associationexternal link that is positioning the central Swiss region as a global hub for fintech and cryptocurrency activity.

Among other initiatives, the non-profit group is beating the drum for “initial coin offerings” (ICOs) in the region – plus a drive to self-regulateexternal link the sector.

Lucerne is not the first university in the world to accept bitcoin payments – there are others in the United States, Britain and Cyprus. Nor is it the first Swiss institution to open its arms to the cryptocurrency.

Zug council accepts some payments for services in bitcoin (more than 40 residents have taken advantage at the last count). The town of Chiasso, in canton Ticino, followed Zug’s example this year. Business services firm Ernst & Young also accepts some bitcoin payments in Switzerland, while Swiss Federal Railways allows customers to buy bitcoin from some ticket machines.

Such initiatives have been written off in certain quarters as gimmicks, designed purely to cash in on the current rampant publicity surrounding cryptocurrencies. But others argue that it makes complete sense for companies with an active interest in crypto not just to talk the talk but also walk the walk. It’s only by encouraging more use of crypto that it can get off the ground.

How far off the ground bitcoin will fly is also a matter of opinion. The value of bitcoin and other cryptocurrencies has soared in the last 12 months. Is this a sign that crypto has matured to point of mainstream acceptance or does it point to an empty bubble about the burst – a view espoused recently by JP Morgan boss Jamie Dimon and UBS chairman Axel Weber.

Like some other parties in Switzerland, Lucerne’s University of Applied Sciences and Arts appears to be hedging its bets a bit – engaging with bitcoin behind the protective screen of a third party. Crypto watchers, like myself, will be watching to see how that pans out.

Oct, 2017

Fintech hubConservative Swiss seek fintech niche

The town of Zug framed by mountains

The central Swiss town of Zug hosts Switzerland's Crypto Valley

(Keystone)

Having arrived to the party fashionably late (as per tradition), Switzerland is now positioning itself as a leading fintech hub. Welcome to the global party. 

There's certainly enough of the pie to go around and it makes perfect sense to have a range of interconnected jurisdictions driving forward the digital finance revolution. But what will differentiate fintech Switzerland from Singapore, London, Berlin or Silicon Valley?

To a large extent, Swiss firms will use fintech to both improve its strengths and tackle some ongoing challenges. There are already plenty of examples of start-ups - both cooperating with and disrupting - the wealth management, asset management and insurance sectors. Established companies in these industries are to a greater or lesser extent working out their own in-house fintech strategies. Regtech solutions also promise to save time and money for institutions bogged down in the regulatory red-tape of AML, KYC, 2B2F etc.

Beyond pure finance, blockchain also has potential to bring huge efficiencies to the commodities trading business (massive in Switzerland).

So who's the new kid on the Swiss block? Cryptocurrencies - not that Switzerland's inventing the stuff, but lawyers, accountants and consultants are cashing in on the crowdfunding ICO craze. Where do you put all the multi-millions you raise in an afternoon? A Swiss foundation, of course. Something like a quarter of the $1.5 billion+ raised by ICO globally this year is being shifted to foundations - mainly in canton Zug.

Mindset crucial

How can Switzerland extract more value from the fintech revolution? By attracting more basic research, according to Crypto Valley President Oliver Bussmann. In future, Crypto Valley will be inviting researchers and academics to conferences along with start-ups and money men. The theory goes that if the nucleus of the next big thing can be worked out in Switzerland then it increases the chances of the project staying here when it takes off.

But it might take more than that - something along the lines of a fundamental shift of conservative Swiss thinking, according to David Siegel, the driving force behind the Pillar Project. Siegel will shortly move Pillar Project to a London HQ, which is apparently better placed to host such a creative and ambitious disruptor. It seems the Swiss have trouble with a “company” that lacks shareholders, a board of directors and an obvious chairman.

Back to those ICO piggy banks in Zug, such as Ethereum Foundation, Bprotocol and Tezos Foundation. They are (or will soon be) distributing the funds to develop projects and turn dreams into reality. The fear is that precious little will stay in Switzerland – instead, being spent abroad.

Having arrived fashionably late to the party, is Switzerland wearing the right fancy dress costume?

Breadwallet seems to think so. It's setting up its global HQ here. “Switzerland has emerged as a hotbed of digital currency startup activity, and we were attracted by its leadership in conservative financial legislation,” says CEO Adam Traidman. “Its strong reputation for financial privacy for consumers is the ideal fit for our charter to empower individuals with the benefits of bitcoin.”

So for some, Swiss conservatism is an attraction, while it's a turn-off for others. Let's see where this leads us....

UPDATE: It looks like the Swiss government has taken noticeexternal link of this inflexible company regulation gripe. Interesting.

Sept, 2017

Global reachSwiss fintech spreads its wings

An antique large globe

Switzerland wants to join the dots with other global fintech hubs

(Keystone)

For a few years now, Switzerland has been establishing a domestic base for an expanding fintech scene. Now the alpine state wants to go global by forging key tie-ups with other global hubs.

A few days ago, Switzerland and Israel announced they wanted to deepen financial sector cooperationexternal link, including the fintech sector. The financial regulators of both countries will swap notes on emerging fintech trends and how these technologies affect regulation.

Swiss Finance Minister Ueli Maurer has previously stated his desire to share fintech know-how with Singapore, on a visit to the island state. The Swiss Finance + Technology Association followed this up by signing a memorandum of understanding with the Singapore Fintech Association to foster greater cooperationexternal link.

Swiss fintech has also been busy establishing collaboration with Russia. Crypto Valley co-founder Søren Fog - and founder of blockchain Company iprotus - is reportedly discussing the creation of a joint Swiss-Russian Center of Competences in Blockchainexternal link.

And having kicked off in Zug, Crypto Valley is also looking hard at establishing a global network of Labsexternal link - tailor made working spaces for fintech start-ups. London, Hong Kong, New York, Paris, Dubai, Singapore, Amsterdam, New York and Tokyo - the Crypto Valley community has been invited to vote on where new labs will be set up in the next two years.

July, 2017

Raising cashWho says ICOs will crowd out VC sugar daddies?

Uncle Scrooge McDuck jumps into a pile of money

It's not all about money, but also expertise, say venture capitalists

(Keystone)

Venture capitalism is dead. Long live initial coin offerings (ICOs)! In June, the crowdfunding phenomenon, for the first time, raised more cash for crypto and blockchain start-ups than VC seed capitalexternal link. So that proves it.

Hang on a minute, perhaps not so. A couple of crypto conferences in Zurich last week had the VCs fighting back. The smarter funds are determined not to be crowded out by ICOs that have raised more than $1.6 billion so far this year.

There is a general recognition that the standard VC model has to adapt, but a refusal to accept that it is irrevocably broken. Throw money at a start-up, sit back and wait for the returns to start flowing without offering anything else? That’s what ICOs do…

Here’s what a few prominent VCs had to say an ICO Summit in Zurichexternal link.

For a start, VCs are better placed than the person on the street to filter the few decent start-ups from the general detritus, said Miko Matsumura from Pantera Capital. Pantera has $100 million set aside to invest in the new wave of tech start-ups, making the fund “exceedingly bullish” on ICOs, Matsumura said.

But, he added: “At the moment ICOs seem to be an attempt to prematurely decentralize Silicon Valley venture capital without solving the problem of trust at a distance. With that problem we have a market that is probably about 90% bullshit and actually less than 10% quality. The deal flow has gone through the roof and it’s insane how many ICOs there are.”

Wild West

Matsumura is also among the VCs attempting to bring structure and order to the ICO Wild West – starting with a self-regulation projectexternal link designed to establish trust before things start breaking down and bringing state regulators crashing down China style on the sector’s head.

Jamie Burke, founder and CEO of Outlier Ventures, pointed out that there is more to venture capitalism than capital.

“People don’t come to us for money. They can raise more money than we have in our fund in 30 minutes. What they want is someone to help them navigate this space,” he said. “We are building the foundations for the next digital economy. What communities need is guidance on how to structure these things.”

And here’s what Richard Muirhead of Open Ocean had to say: “The art of great VC investing needs to be as finely tuned as possible for this next era, and not get distracted by the quick riches of early liquidity.” In other words, avoid the mistake being committed by Joe and Josephine Public right now.

IPO, ICO...now GPO

On Thursday, at yet another Zurich conference on ICOsexternal link, I spoke to Jeff Stewart of Urgent VC. Jeff has a bee in his bonnet. He is not specifically concerned about the state of venture capitalism, but he is miffed at the state of the capital markets in general – particularly in the United States. He contends that the US stock markets are no longer the place for tech companies to list and gain access to growth capital. That’s because they are broken, he insists.

So Urgent VC has an urgent mission – to invest in promising Silicon Valley tech start-ups and guide them towards global listings. Let’s get away from Nasdaq and find larger, more reliable and more flexible pools of capital in other parts of the world, particularly Asia, he says.

According to Jeff’s vision global IPOs will become the norm, coupled with global ICOs that break down the geographical walls fencing off capital pools. His vision comes in three stages: young tech companies will undertake global public offerings (GPOs), listing wherever there is willing capital. 

Many companies will also create tokens, so we will have IPOs and ICOs running side by side on a global scale. Eventually, the two means of raising capital will merge and become indistinguishable, creating a new means of capital raising that will work on a higher plane than jurisdictional stock exchanges.


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