The Swiss Bankers Association has published a white paper on how Swiss banks can support the development of the country’s digital economy. The solution agreed upon by the group is a “common” Swiss franc deposit token.
Stablecoins have limited penetration into the Swiss financial system, although end-to-end digitization is increasingly common in business models, and no Swiss stablecoins are open to the general public. he says.
The paper’s authors propose a variety of stablecoins—that is, a deposit token “issued by regulated and reasonably controlled intermediaries”—issued and paid out by smart contracts and denominated in Swiss francs. The token could be designed as a ledger-based security rather than a set of instructions to have the greatest potential.
The document identifies three deposit token design options: Standardized tokens that can be issued by any commercial bank with a uniform standard, colored tokens that are issued by commercial banks according to any standards they choose, and common tokens that are issued by a licensed and supervised special entity. special purpose vehicle consisting of participating banks. The authors prefer the last option.
A common deposit token would facilitate money creation due to its flexibility, low fees and could earn interest when held in bank accounts. It would be less prone to runes than tokens issued by individual banks. further:
“From a technical point of view, all the economic and legal requirements that have been identified can be met. […] In principle, DT should operate on a public blockchain with additional protocols to ensure sufficient privacy and transaction efficiency.”
The token would ideally be a layer 2 solution usable in decentralized finance (DeFi) applications and capable of self-custody or bank custody.
The Swiss Bankers Association (SBA) has published a white paper on the digital Swiss franc, outlining various proposals for tokenized deposits on the blockchain. https://t.co/SsPwziNRRm
— Central Bank Payments News (@cbpaymentsnews) March 14, 2023
Deposit tokens are a relative newcomer in the ranks of digital currencies. According to a recent review in The Washington Post, they arose in Project Guardian, an initiative launched by the Monetary Authority of Singapore with several financial institutions in May 2022, which sought to explore DeFi applications in wholesale funding markets.
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JPMorgan, one of the participants in the Guardian project, made the first DeFi trade on the public blockchain as part of this project. JPMorgan and project participant Oliver Wyman published a document that discussed the merits deposit token technology in February.