For decades, Switzerland has been revered as a global hub for finance.
Driven by a commitment to maintain its prominence in the financial sector, this alpine nation has actively fostered an environment that nurtures innovation in digital assets. We delve into Switzerland's notable strides in attracting leading blockchain companies that are shaping the landscape of digital asset innovation.
Switzerland, renowned for its precision and innovation, stands as a beacon of stability, security, and support in the realm of digital assets. At present, Switzerland's Crypto Valley, encompassing Zug, Zurich, Lugano, and Geneva, has cultivated a thriving ecosystem for digital assets, hosting over 1,000 companies, including 9 unicorns, and boasting a combined valuation of around $185 billion. The impressive figures speak for themselves.
Now, what is it about Switzerland that entices an ever-growing number of blockchain firms?
At the core of Switzerland's ecosystem lies the esteemed Swiss Financial Market Supervisory Authority (FINMA), which plays a pivotal role in shaping the digital asset landscape by providing clear guidelines and frameworks. In 2018, FINMA issued ICO guidelines, establishing a solid foundation of regulatory clarity and setting the stage for Switzerland's digital asset endeavors. The introduction of the Swiss DLT legal framework in 2021 further solidified Switzerland's pioneering position by enabling collective and segregated custody of digital assets. Switzerland's regulatory environment fosters innovation and attracts businesses seeking stability and support. This regulatory oversight also presents significant advantages for non-custodial companies like Chorus One.
Switzerland's regulatory prowess, lauded by Ilya Volkov, Board Member at Crypto Valley Association and CEO of Youhodler, lies in its rational and sensible approach. A key merit, Volkov notes, lies in Switzerland's well-defined and precise classification of securities, which helps prevent the confusion experienced in the US with certain cryptocurrencies. The country's early implementation of the EU Transfer of Funds Regulation (TFR) as the Travel Rule further exemplifies its proactive and forward-thinking regulatory stance.
A structural advantage of Switzerland's regulatory structure is that FINMA is the sole regulatory body covering nearly all crypto services (banking, ICO, staking, trading and money transmission). This unification prevents turf wars between regulators. Contrast this to the US system where different regulators - the SEC, CFTC, FinCEN and the state financial regulators - control different aspects of crypto services. When rule-making is fractured across different bodies, turf wars emerge - which regulator has jurisdiction over what element of the new industry. Turf wars in the US have trapped the crypto-industry into spending way more effort into lobbying and lawyers, than is merited by the small size of the industry.
Switzerland is also unique in having issued banking licenses to new “crypto-banks”. These banking licenses enable crypto-organizations to offer crypto custody, staking, crypto structured products and other services, while also benefiting from the brand stability provided by such a license. This move is unique in the world, where contrasting examples (like the US) are actively curtailing crypto-friendly banks. Infact, our private conversations with Swiss banking partners indicate that 2023 has been an excellent year for Swiss crypto-banks, as they are the only institutions that could capitalize on the failures of SVB, Silvergate and Signature Bank in the US.
According to Volkov, Switzerland's regulatory edge also extends to asset tokenization, enabling businesses to issue shares easily in token form and embracing NFTs for Intellectual Properties. This clarity propels Switzerland to the forefront of such initiatives globally. As a result, the country experiences a continuous surge in crypto adoption. Major players like AXA and Atupri accept crypto payments, while Crypto-ATM expansion and the availability of crypto purchases in post offices and Kiosks contribute to Switzerland's crypto-friendly ecosystem.
Tomas Matta, Chorus One’s Chief Financial Officer, highlights Switzerland's business-friendly approach when working with regulators and tax authorities. This means that authorities are open to engaging in dialogue, particularly in uncertain or unregulated areas.
A notable example is Switzerland's approach to Value Added Tax (VAT) for staking providers. Tax authorities in general might struggle with new aspects and complexity that blockchain transactions such as staking rewards introduce, which can often lead to a fiscally suffocating environment for companies (planning to be) active in these spaces. The Swiss tax authorities have a progressive approach by investing time and effort to adequately understand the technologies and transactions, being open to dialogues with different parties and finding solutions. This transparency and room for dialogue, coupled with low corporate taxes, have fostered a diverse ecosystem of digital asset-only banks, traditional financial institutions, and service providers offering a range of services such as custody, trading, and staking.
Another hidden advantage for Switzerland, in matters of tax policy, is that the nation doesn't not levy capital gains taxes on assets for private investors, unless those gains are derived from short term professional trading. Hence, private investors are able to take full benefits of huge booms in crypto asset prices during bull markets.
Another driving factor in the prominence of Crypto Valley is the existence of a very unique collaborative mindset. This is heralded by ecosystem builders who drive and build interconnection each day such as CV Labs of which Fabiola Luna Huerta is ecosystem manager. She outlines that “Companies, academics, federal institutions and a supportive business environment collaborate - offering expertise, networks and shared access which is particularly vital when new stakeholders enter’. Fabiola also highlights that “Crypto Valley ranked No1 in CoinDesks recent ranking of Global crypto Hubs, it had the highest ranking in the two heaviest weighted criteria overall, regulatory structure and quality of life”. Currently we have over 1135 blockchain related companies in the Valley and the number keeps growing as Switzerland is one of the best places in the world to set up, make connections, live freely and work smart with global talents in a decentralized way.
"Switzerland placed No1 in the Crypto Hubs 2023 rating by CoinDesk. This result is not an overnight miracle but the sustained work of multiple stakeholders building the Swiss ecosystem over the past 10 years”. - Fabiola Luna Huerta
The Swiss Digital Asset Custody Report 2023 serves as a testament to Switzerland's prowess, showcasing the extensive depth and breadth of this ecosystem. Among the 34 identified providers, established players like Bitcoin Suisse and Crypto Finance stand alongside emerging forces such as Berner Kantonalbank (BEKB). Traditional Swiss financial institutions like Luzerner Kantonal Bank have also embraced the digital wave, expanding their custody services for digital investment products and propelling a remarkable surge in offerings.
(Illustration: Increase in digital asset institutions in Switzerland 2022 vs 2023)
Switzerland's home to numerous network foundations and collaborative peers like Interchain Foundation (Cosmos), Ethereum, Near, Aragon, Bancor, Solana, 21Shares, Aave, Curve, and others further facilitates the collaboration among like-minded innovators in the region.
While Switzerland’s dedication to embracing blockchain-based technology has propelled it to the forefront of crypto regulation, European rivals are eagerly vying for a position in the market.
Liechtenstein has had its DLT legal framework in place for several years, and countries like Malta, Germany, France, and Luxembourg are also taking steps to embrace digital assets. In the summer of 2021, Deutsche Börse's majority stake acquisition in Crypto Finance from Switzerland demonstrated the German stock market's commitment to establishing an institutional and regulated crypto exchange. France, as one of the first countries to regulate the use of blockchain/DLTs, issued the PSAN (Prestataires de Services sur Actifs Numériques), a comprehensive framework for digital assets. Earlier this year, the European Parliament approved the MiCA Law, representing the EU's first regulatory framework to monitor and regulate crypto-asset transfers. MiCA’s positive impact is already apparent, with significant developments such as Deutsche Bank's application for a Digital Asset Custody License from Bafin.
Nevertheless, Switzerland's independence from the regulatory confines of the European Union grants it the agility and freedom to swiftly adapt and embrace a progressive approach to governing the sector. Additionally, the close ties that many Crypto Valley companies have with the EU equip them with the necessary expertise to navigate regulatory changes efficiently, building upon their prior experience with regulatory clarity. Consequently, the Swiss nation is poised to maintain its leading position in Europe by spearheading regulatory advancements in the digital asset realm.
As the global regulatory landscape for cryptoassets undergoes transformations in both major and emerging economies, the concerted efforts of esteemed financial centers, including Switzerland, in establishing frameworks that attract and promote the thriving crypto economy serve as compelling evidence that digital assets have solidified their status as an institutional asset class.
Moreover, Switzerland's allure extends beyond its regulatory advantages. With a neutral, stable social climate, a consistent political system, robust infrastructure, reputable universities, and an exceptional quality of life, it stands as a sophisticated destination of choice for global stakeholders.
A heartfelt thank you to Ilya Volkov, Board Member at Crypto Valley Association and CEO of Youhodler, and Fabiola Luna Huerta, Ecosystem Manager at CV Labs, for sharing their valuable insights on Switzerland's alluring digital asset ecosystem.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 40+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.