Switzerland’s marquee digital assets projects are finally coming together

The curtain will be raised on some of Switzerland’s most significant digital assets projects by year-end, according to a key figure at its central bank.

Thomas Moser, alternate member of the governing board of the Swiss National Bank (SNB), told The Block in an interview that SIX Digital Exchange (SDX) — the hotly-anticipated digital asset bourse spearheaded by Swiss stock exchange operator SIX Group — will launch before the end of the year.

“They intend to go live probably this month, certainly before the end of the year,” said Moser. A spokesperson for SIX Group declined to comment, but The Block understands that the timeframe is accurate. 

SDX is built on enterprise software firm R3’s Corda, a private blockchain targeting regulated markets. Todd McDonald, co-founder and chief product officer at R3, said in a written statement that the impending launch of SDX “is the combination of many streams of work converging.” 

That includes “the technology build-out of mission-critical infrastructure of SDX and Corda, the education of the wider ecosystem on how this works and what it means to them. And, most importantly, the regulatory approval,” said McDonald. 

SDX finally got permission to launch its digital assets platform from the Swiss Financial Market Supervisory Authority (FINMA) in September, after a lengthy wait. The project was first unveiled in 2018.  

The exchange will be powered by what Moser described as a form of stablecoin, not by central bank digital currency (CBDC). It will, however, rely heavily on the support of the SNB — which has itself been experimenting extensively with CBDC.

Trials and tribulations

In December 2020, the SNB published the results of Project Helvetia, in which it worked with the Bank of International Settlements (BIS) to test several applications of a digital currency in the settlement of large bank-to-bank transactions. The primary impetus for Helvetia was the development of SDX.

At that time, Moser told The Block that the SNB’s next step would be to test whether a CBDC could be properly reconciled with commercial banks’ accounting systems. That work is now complete, he said, with a report on the findings set to be published early next year.

The SNB is also involved in a second initiative, called Project Jura, together with the Bank of International Settlements and Bank of France. Unveiled in June, the project was set up to explore the potential for the cross-border, cross-currency settlement of tokenized financial instruments — such as a bond, but underpinned by blockchain — and wholesale CBDCs. It is similar to Helvetia, but with the added complexity of crossing national boundaries.

“There was a wholesale euro CBDC involved issued by the Bank of France, and that will be then changed against the wholesale Swiss franc CBDC provided by us,” said Moser. Project Jura is expected to be completed by the end of the year, with a report coming potentially as soon as November, Moser added.

The SDX ‘stablecoin’  

Despite these efforts, however, transactions on SDX will not be made using CBDC at launch. Instead, the bourse will rely on what Moser described as a stablecoin, albeit one backed by Swiss francs in a central bank account.

“They will go live with their own stablecoin,” he explained. “But it’s going to be special in that they will use their account that they have with us as backing for their stablecoin. So it’s not going to be like Tether, with the commercial bank account that they use to underlie their stablecoin.”

The International Monetary Fund defines such central bank-backed stablecoins as “synthetic CBDCs.” But Moser isn’t convinced it’s a CBDC. 

“I would not call it that because a CBDC is really a liability of the central bank,” he said.  The currency that will power SDX at launch is instead a liability of SIX Group, adding a dimension of credit risk.

Moser acknowledged, however, that SDX’s stablecoin will be the first in history to be backed by central bank money. 

R3’s McDonald said that the SDX model is a prime example of “what is called ‘atomic delivery vs payment’ where a digital asset exchange settles into the equivalent of central bank money.” It is a model made possible, McDonald added, by “the unique position of SDX in their market” and the forward-thinking mindset of financial market infrastructure players in Switzerland. 

Whether SDX will in time come to incorporate a wholesale CBDC issued by the Swiss central bank is unclear.

“In the beginning, SDX will certainly not be systemically important. They will be relatively small,” said Moser. “But in the future, it could be that it would be in our interest and in everyone’s interest that the settlement would be done in central bank money, and then we would issue a wholesale CBDC.”