Beyond Payments: The Store-of-Value Case for Non-USD Stablecoins

Transcript

Well, hello everyone. Uh you know, I'm Swiss, so I have to start exactly on time, otherwise that would not be fair. >> [snorts] >> Um Thanks all for coming by. Bye Jens. You don't like Swiss francs? Hey, you're really really really stuck with the dollar then, huh? >> [laughter] >> No. Uh thank you so much for coming. Uh my name is Johannes. I'm the managing director of the Franken Association. And um I want to talk to you about uh uh non-dollar coins. Uh before we start you know, who here owns stable coins?

That's that's almost everyone. Okay. Who here owns dollar stable coins? Same people. Who here owns non-dollar stable coins? Okay, a bit less. And who here owns non-euro stable coins as well? Two of them. Three. Oh, that's not bad because um 99.8% of the whole stable coin market is actually in dollars. And uh there's a good reason reason why, right? Obviously, the dollars have been the first ones in the market and yeah, they're really widely used because what do you stable coins for? You use them for transaction, cross-border

payments in DeFi, but you also use them as a store of value because you might want to and let me actually turn this on. >> [snorts] >> You might want to hold your money and and basically not be exposed to high volatility or you might want to you know, do some trades and need some um some collateral for that and that is almost always in dollars. Um it's about, you know, I think 300 and 50 billion is the market cap at the moment in total, but in dollar that's a really bad because the dollar is not a very stable currency.

And um so this number this is, you know, even making it look nice because if you look um over since since 1975 um the dollar is about 83% down against the Swiss franc. Or you can also say 230% up. Um you know, depends which which uh way you prefer. So, the dollar is just not a very very good stable asset. And when, you know, we talk about stable coins in general um no one really realizes that because we just all have this standard thinking in dollar terms.

And I want to kind of change that. Obviously, I have a personal interest in that as well. Uh well, we we touch upon it this this this briefly. I'm Swiss. Yeah, I grew up in Switzerland. I have a very fond uh you know, I'm very fond of our political system. Um and and why the Swiss franc is so stable. But uh yeah, by the way, this is dollar Swiss francs. I I think I didn't mention that. Um But if you want to use a stable coin as a store of value don't use a dollar. Um use something like this.

Um don't use a Bitcoin either. I mean, there is this research from a French university, you know, there's it's not it's not Swiss made. It's it's French actually. Uh they really start I think beginning of last year. And uh they said they well, they looked into if the Bitcoin is a good uh hedge against your political risk or a hedge against instability. And what they found is that well, yes, it is, but so is the Swiss franc. And the the second line it says here on the highlights is quite interesting as well. It says, "Golden treasury bonds don't hedge equity against geopolitical crash risk."

So, that means the Swiss franc and Bitcoin are actually better than holding gold in those situations. And um I mean, right now I think we are once again uh with the situation in Iran and Middle East in one of those situations where we should worry about this and where we should worry about what happens, you know, if there is like some long-tail risk happening. Um it might look like the dollar is is on a on a roll right now, but I would argue that this is much more to do with the current environment in the oil price rather than any any fundamental uh things important right just flows.

Now, if we zoom out a bit and and, you know, look at the Swiss franc. Um This numbers they're from from uh they're not quite up to date, but I think they they still hold. Um if you look at the kind of the the economic basis. So, what I took here is GDP as an indicator of the size of a country um and then the money supply. So, how much, you know, money is in circulation? M2 here is an example. And I looked at the relationship thereof. And what what you see is in in the US in the US um there's about a 0.7x relationship.

Meaning that the money supply is about 0.7 times the GDP of the US. It's a big country obviously. Um In the Swiss franc, it's almost double. Now, obvi- of course of course it's not a perfect relationship, but what this tells us quite nicely and keep in mind the dollar itself is a store of value. For big chunks or big parts of the world, people, you know, in Latin America, where you go there people they see the dollar as a safe currency. So, they hold dollar if they want to de-risk out of their local currency. So, the dollar itself is already um up there.

But the Swiss franc compared to the, you know, modest size of the Swiss economy is double in size of the dollar in terms of, you know, money being held just being by being held. This is just, you know, M2 as a an indicator here. So, it's a massive store of value in the real in the I'm saying real world, in the traditional world. If we look about state look talk about stable coins then, it looks a bit different. Um and those numbers are also outdated because there is, you know, the the the Swiss franc stable coins are now they've grown quite a bit uh in the meanwhile. Here it's, you know, 26 uh million total market cap.

Now it's I think about 50 million. Uh so, about double, but, you know, the relationship still hold. Um About 1% of the M2 is in uh stable coins. So, you know, 250 to 220-ish billion in the case of US dollar. However, only 0.002% in the case of the Swiss franc. Now, what does that mean or what what am I trying to say with this? There is a massive [ __ ] gap.

Right? There is um a fair market cap which, you know, we put at the lower bound because the whole market is growing uh of about 10 billion Swiss francs that should be in stable coins as of now as if, you know, the the the shape we're looking at in the current environment. You had a question, I think. How could you understand or estimate potential market cap I mean, it's a it's it's obviously very stupid calculation and it's very rough, but what I said is that okay, if in the current market environment about 1% of the M2 is in uh like of the of the dollar is in stable coins, you can make the same analogy. Okay, then what if also 1% of

the Swiss franc M2 would be in in stable coins. It's a very very rough just, you know, don't don't use this for investments basically, but it's a rough idea >> [laughter] >> to to show connections to show look like what are the relationships. I think it it it's it's quite fair to show this these numbers. Now, yes? Um no, but also I would argue here there's not enough data to do that because the non-dollar stable coins they're still in such a small

size of the market that any analysis you would do is probably going to be garbage in garbage out. Um which are very strongly over kind of shadowed by similar like single movements. For example, um if you look at the three largest non-dollar non-euro stable coins, one of the largest one is a a Russian or like a ruble stable coin. That is very clearly only the case of trade between Russia and China because anyone else cannot touch it because it's it's um on a sanction list, right?

And the second largest one is a Brazilian BRC stable coin, but if you look at the on-chain transactions there um it's about 200 million in in basically TVL and market cap. Um if you look at the on-chain transactions, there is not much going on. Like one basically address once meant the 200 million and then that's it. So, and the third one being the Franken coin. >> [snorts] >> Um so, it's it's a bit, you know, I I wouldn't yeah, I would I wouldn't do this analysis yet. It's there's not enough data to really be able to do a proper prediction.

But if you take a step back, right? Why is this go back. Why is this number extremely small? Because, you know, in in TradFi it's known it's known that there is um there's a use for it. There's a use for holding Swiss francs. And in DeFi or in in the traditional in the decentralized world, we don't really see that happening yet. There's been attempts. Um you know, this is six different Swiss franc stable coins um that have been launched. And out of them basically two died.

And I'll tell you why. And I don't have a pointer, unfortunately. But the ones VNXCHF and the Swiss stable coin market also did don't don't really do much anymore. And the reason for that is twofold. Um, how does Tether and Circle make money? Treasury bonds, right? They yield 4 5%. Right now, the short-term and mid-term Swiss treasury bonds have negative yields. So, you don't have an economics economic model to do that. But, that's only one problem, right? Uh, both the XCHF top top left and DCHF said, "Hey, you know, this is not a a problem for us. Like, we we really want to have that

Swiss franc stable coin. So, we we we'll do it anyways." And launched it. And, um, then the Swiss regulator basically said, "Uh-uh. Not going to happen." Um, or well, turn it off again because they they issued this very famous it's not so very famous circular in in in mid 24 where they said, "Okay, if you accept money from someone and this person or this entity has a claim against that money, you're a bank. You need a bank license because you basically take deposits. Okay. Well, it's annoying, but you can solve that.

You know, stable coins are big big and big enough business to get a bank license. >> [snorts] >> But, then they also said, "Anyone who has that claim against you is your client. And needs to be not only KYC'd, but basically fully onboarded as a bank client." And anyone in here who's ever done a bank onboarding in Switzerland in the recent years, and most of us have like bank accounts since they're children since they're kids, so that's easier. But, anyone who's done a bank onboarding in recent year knows this is a massive undertaking. And that also led to the kind of the legal interpretation that those tokens must only be transferred to own or to other identified bank clients of that same bank. Meaning,

Swiss franc stable coins became non-transferable. And those projects ba- basically had to shut down. Least some couple more, right? Swiss stable coin market is a theoretical concept where they want to do like an only domestic payment kind of tokens. I'm not going to really talk about those. Uh, VNX tried it as well. They basically tried to issue it in Liechtenstein. Um non-regulated. I they're not very active anymore uh at the moment. Um, I think they also Yeah, it's it's hard to do.

Um, and then you have the two on the right left. So, you have Frankencoin. Frankencoin is now the by far biggest uh [clears throat] Swiss franc stable coin. Um, it's also just a station I'm not representing, but it's one of one of them. It's a fully decentralized stable coin and that's why it works, right? It's fully decentralized. Um, it has no issuer. And because it has no issuer, it can exist. It's fully legal. It's fully compliant with any both, you know, EU Mika and Swiss laws. And then you have a new entrant which is quite interesting, um, which is on is very very new and on the bottom right. It's the All Unity uh Swiss franc stable coin.

And >> [clears throat] >> now, as a Swiss, I it hurts it hurts my my heart a bit. It it makes me a bit sad that they had to go to Germany and under Mika in Germany issue a Swiss franc stable coin because the Swiss regulator just kind of wouldn't allow it. So, now the only regulated stable coin Switzerland has is German. They have the same problems as the other ones where economics are very hard, right? Where um, they can't really do the Tether or the the USDC business.

Um, but, you know, they've done it. They it's been built for for a large Swiss broker as internal use mainly, but it's there. And and this is really nice for Frankencoin as kind of the DeFi implementation because it's not very liquid either the the All Unity one is that it gives Frankencoin um kind of a way to liquidity very easily. Now, what is Frankencoin, right? I've I've I've talked about different implementations on stable coins. I think you all are aware of what a CDP is and and and what a centralized stable coin is or should I quickly touch on that?

Very briefly. Basically, centralized stable coin is a stable coin by issued by a centralized entity which like Tether or Circle, you give them a Swiss franc or a dollar and um, they then take that and give you a token and you can always convert it back with them. A decentralized stable coin works differently in that there's no entity. However, you have debt collateralized debt platform where you can lock in your assets um like Bitcoin or ETH or those others which is in top which I'll talk about in a second. And you take out a loan. And as long as this collateral is larger than the loan you take out, the system is very stable and very secure.

It's like MakerDAO does that. Liquidity does it. Um, Aave with Gear Joe also does it. So, that's how Frankencoin works in a very high level. Now, what is cool in Switzerland? Like, I was now ranting a bit about how hard it is to do a centralized, you know, regulated stable coin in Switzerland or I can possible. At the same time, it is very easy to issue tokenized stocks in Switzerland because there's this beautiful law. It's called the Bundesgesetz zur Anpassung des Bundesrechts an Entwicklungen der verteilten elektronischen Register aka DLT law.

Um and what it allows you is to just issue equity in form of token. Because say, I do a share share capital increase and I'm just saying the new shares are going to be tokens. Full stop. That's basically what you do. And then you have those with all the legal rights that come with shares. They're just in form of a token and you can use them, for example, in Frankencoin as collateral and you can borrow against it. And I have here three examples of of companies or projects that are tokenizing and those things. I mean, you might know Ondo being the biggest one. I think X stocks ticker to recently acquired by Kraken.

And Aktionariat is Swiss shop. They're very very specialized like on more SME type of companies. And we have uh on Frankencoin there's all of those assets are enabled as collaterals. So, you can use S&P 500 shares or index shares to borrow Swiss francs. And there's more to come. Now, where are we going, right? Um, and like I I I I I ranted before and and the ones who speak German here they will understand that um, on the right-hand side is Swiss the digital Swiss franc comes from Germany.

Swiss offerings have no chance. So, there is a bit and that this is the the kind of the most prestigious Swiss newspaper NZZ uh who wrote this as title. Um, [snorts] and then on the on the other side you see uh Lucius is the guy who invented Frankencoin and basically, you know, we're just doing it decentralized and you can use it um I think we have questions afterwards. Um, you can use it to pay in Swiss supermarkets and sports enabled. You can go in there and natively pay with with Frankencoin. You can use you can also use pay you have a Visa card which I'll show you in a sec as well to do that. So, kind of we're trying to build, but Swiss politics are not helping much.

>> [snorts] >> Some more points here, right? Now, there's a discussion going on in Switzerland about this. However, and this is the same in the European Union, no yield. So, centralized stable coins are not allowed to pay out yield. Um, and that obviously we are. Frankencoin is allowed because it's decentralized. So, there is and I was on a panel about this on on on Friday at the Stable Summit. Um, there is this big coexistence coming for regulated ones or centralized stable coins for easy liquidity and then decentralized ones to be able to to have yield on top and so on.

Yes, thank you so much. I just have a QR code here if you want to try it out. Um, this is both not my project. This is uh GnosisPay, but it's really cool because uh what it allows you to do you can use it. You know, you have the most stable currency in the world. You pay with it wherever you go and uh you get 3 and 1/2% yield and up to 5% cash back. Yeah, I think we have some time for questions, right? Thank you very much. >> [snorts] >> Can you hear me? Yes. Perfect. I I have

one question. So, if a US citizen has like normal uh S&P 500 stocks, Mhm. then how can they use them to borrow uh Swiss uh Yeah. francs? Now, >> [clears throat] >> I would argue the easiest way for them is to sell them, at the same time buy the tokenized version of it and then use this because I believe just from a how financial plumbing works, getting those exact shares which are held by some bank or somewhere tokenize is going to be a massive pain in the butt. So, sell them, the same time you buy them again in token form.

Perfect. Thank you. But, the first uh part you you mentioned that I I I guess like for uh in Switzerland, so you can buy stocks and those stocks can be directly converted into tokens. Is that how it works? >> No, they're issued as tokens. So, you know, also have what is a stock? A stock in a especially privately held company is just an entry on ledger somewhere in in a the auction book like the the the centralized shared ledger which is a Excel sheet often actually in a company and you just instead of having it in Excel sheet it's in form of a token. So it's the it's from the initial offering of that share it is in form of a token.

And is that how they are issuing the the stocks in Switzerland? Some stocks you can it's one option you have. That's amazing. Nice. Nice talk. And where in what decks and what sex decks and similar like exchange do I can buy the the token? So on Dexes it's very liquid on Uniswap, Curve swap, Curve there's a really cool Curve FX pool between the dollar and Swiss francs. Some base Ethereum Polygon It's pretty liquid on Gnosis chain

because of Gnosis Pay. When we're talking about Sexes Maxy but the most liquid venue here and also the cheapest venue is to use an on-ramp like Mobile Era. So that gives you 0% fees. Awesome. Thanks. So sorry I came a bit late. I don't know if you mentioned that already but we work with stable Swiss stablecoin together and I didn't quite understand like what the difference of Swiss stablecoin and Franken coin is and why are you better?

First question here what is is is there a token of the Swiss stablecoin? Yeah. Where is it? Doesn't exist yet. It's not a thing. It's an idea right? Um so it's not live that's maybe the first biggest difference. And the reason for that is they need to change the laws to change to actually be able to issue that because they want to do a centralized stablecoin. Now I would argue that the biggest difference is the the focus right? Um Franken coin is DeFi native. It's it's accessible to anyone who's in the digital and decentralized world. It's also this idea that if you want to have exposure to the Swiss franc you can get it with it.

Swiss stablecoin has this idea and you know correct me if if I'm wrong here because you're working directly with them to have a domestic payment right? It's it's very domestic thing where they want to work with local banks and kind of create a new payment system. To which I would argue is why. You know uh of course card payments are expensive as heck but they work and they work everywhere and breaking into that market is very expensive and very hard with I would argue very little kind of added benefit. In the domestic market especially.

Thank you. Perfect. Thank you very much for coming by and you know if you have any questions I'll be around for a bit.