The Swiss National Bank's DLT Projects

Transcript

Ladies and gentlemen, good morning. Good morning everybody. Hello. Um, a warm welcome this morning uh to the Crypto Valley Conference day number two. Um, it's great to have you here this morning. My name is Benedict Orban. I'm head of ecosystem at CV Labs. But today and actually with this uh event I'm actually the board member of the crypto valley association. We are the organizers if of this amazing conference and we are very glad to have you all here this morning and along the conference. So I will be today this in the morning sessions your moderator. If

you have any questions on who is speaking what is happening please look at the agenda and worst case come to me. I'll be down there at the end. So, uh, without further ado, I would love to kick off this day and welcome on stage Emmy Lurens, the president of the board at Crypto Valley Association, and Rooney Husl, the dean of HSLU. They are the guest, you you are their guest today. Hiu is a co-host and co-organizer also of the conference you're attending. It's great to have you here. The floor is yours.

[Applause] Good morning everyone. It's a pleasure to be here. Welcome to the second day of the CVC. As uh Benedict just said, I'm really curious to see who is here for the first time. Wow, that's incredible. That's 50% of the room. Welcome. Thank you so much for being curious and wanting to learn more about this fantastic technology as well as what we do here at the CVA. Uh maybe a really quick overview. We have been founded in 2017 and the gentleman next to me is responsible core responsible for that. Uh Renee has been part of the board or was part of the board for the early years. And um

maybe a few data points about the CVA. We have uh a dozen of working groups. The working groups power or association. We have working groups relating from regulatory to investors working group, inter uh institutional working groups, startup working groups as well as um a really important working group is uh is also the security uh and tech working group. There are a lot of um changes in in our industry but it's really nice to have traditions and our flagship event which is the crypto valley conference. This happens every year and this is where the working groups as well as the members the corporate members come together. Our

corporate members are um not only in Switzerland but international globally everywhere and 60% of them are actually outside of Switzerland. This year I would like to highlight in the conference that we focus on topics such as AI, such as um stable coins, CBDC but every year we return to some traditions such as uh the startup working group where we or not start startup working group startup competition where we had people even from Singapore, from San Francisco as well as Israel. Um so yeah it's really nice to see that people come joined from TUK but we have um we have industry uh

peers and and colleagues and members who join uh from the other side of the world. I would like to to ask you to just ask questions, connect, collaborate and uh make sure that you learn something today and also join the boat cruise because that's also a tradition we have every time at the end of the first day. And with that, um Renee, you would like to share a few thoughts um as well. Sure. Thank you very much. I also would like to welcome you here very very warmly and I think most of you already had a quite a pleasant day yesterday. I just looked at the picture and I saw actually we're were quite active and even in the evening I think it was quite

some discussions and I think a good exchange as Eric just mentioned I I would say you already did this and I encourage you to follow this this pause as Eric just mentioned actually this is now the seventh time that we're actually having this crypto conference really our flagship event here and I would say one of the anchorstones also in this in this community when you see the blockchain community has some ups and downs and I would the conference really is a steady a steady anchor and really uh focusing at that and also I'd like to thank you all the ones for the first time also the returning uh participants that actually you're here again and I think there really a good opportunity to do this this is just one thing I just like to mention also that in March this year we

had also the polar auto academy academ here where actually they stayed here for two and a half weeks and uh did some uh education and different activities they were from uh more than 32 countries all over the world they were selected out of 700 uh applicants there and it was very also quite interesting to see it about one/ird actually was focusing on more on f finance fintech fintech uh uh topics the other one one-third was on the base technology about one-third in other applications which also quite interesting to see that also not only fintech usually is primary focus actually to see what's also in in the in the public media and stuff like that but you really see that the base technology really takes some more attention and we

see a lot of activities in that field and also just to mention at the end that actually last year the canton of souk uh initiated it initiative to finance the blockchain research activities. It's some joint research activity with our university at the university of Lousern where we try to encourage and uh to increase the research activities in this field. They're actually investing for five years close to 40 million which is quite a nice amount of money to really push this activities forward. And that with this I'd like to to end or hand over to Ari again and wish you a a good day nice exchanges and uh get the best out of it and I'm looking at the sky that hopefully the rain stays away because it could be that actually in the

evening there could be some raindrops but I'm looking that only very very few will be there. Okay. Okay. She just said they're not coming. So I wish you ordered good weather. Nice. Yeah. Okay. I wish you a very nice day. Thank you very much. Thanks so much Renee. And also a heartfelt thank you goes out from the Crypto Valley Association to HSL because we always have the pleasure to enjoy your support. Uh and thank you for hosting us. And uh also thank you to Nikki Chani and my board colleagues for uh for working hard to make sure that this event is a success. So yeah, let's uh let's move on with the agenda and uh hand it over back to Benadak.

[Applause] Thank you very much. That was the opening. um we jump straight into the first keynote and um so we will have someone from the Swiss National Bank. His name is Thomas Mosa. And you know like Switzerland considers uh herself as being the crypto nation and a crypto nation has a cryptosavvy and crypto interested bank who leads charge and leads the thoughts in this space and explores how to apply this amazing technology for the benefit of a country which is as great as the technology. So please welcome on stage Mr. Moser from the Swiss National Bank.

[Applause] Good morning everyone and thank you for having me. So I will talk a little bit about decentralized central banking. What have we been doing on the blockchain lately? Here you see our CBDC projects. Uh you see the one that are in light gray are the ones that we have already completed. The darker blue ones are the ones that are active. Um, so you can see we focus mainly on wholesale CBDC which is a CBDC that is available only to financial institution but not to retail individuals. Uh here we have the Helvetszia uh project um

projects that we did and that led to our Helvetszia pilot where we have now a wholesale CBDC live in production uh on uh uh six digital ex exchange SDX. So people um especially communities have been doing that so far, cities who can issue digital bonds on SDX and can settle them in central bank money. So this is live since uh December 2023. I think it was probably the first if not and one of the first wholesale CBDC's life in production. We have also done uh some uh uh crossber uh um projects but those were just uh uh uh

proof of concept so they are not live. We had project chura together with the bon def which was uh settling uh digital securities in central bank money both in in digital euros provided by the bon defrost and wholesale CBDC in Swiss Frank provided by us. I think one of the more interesting projects was project uh Mariana where we actually built a decentralized exchange on Ethereum uh together again with the bon defrost with the monetary authorities of Singapore and we had this liquidity pool with wholesale CBDC's from these three institutions where uh automated market maker would uh take care of the

exchange. So extremely interesting project. I actually tried to do some Swiss Frank uh interventions on that uh decentralized exchange but the liquidity pool was so deep I could hardly move the exchange rate. Uh and then we have Agora where we are involved and maybe I should also mention here that these projects that we do are mainly together with the BIS innovation hub Swiss Center. So these are our partners where we can try out things if it works like uh Helvetsia we take it then into production. um on our own. So, Agoroga is a is a huge project. Uh we have uh seven central banks involved. So, the Swiss National Bank is one of them. Seven central banks across three continents. Uh we have more

than 40 financial institutions involved including several Swiss banks. And the idea is to have a a blockchain that where you can do payments in tokenized deposits provided by the commercial banks and they are settled then in central bank money provided by the central bank. So we have the Americas, Asia and Europe involved big project ongoing. We had one project on a retail CBDC which was really just a experimentation because the position of the Swiss National Bank has been that we do not see a use case at least at this stage for a retail CBDC in Switzerland.

But the project uh wanted to test and uh I think successfully showed that you could have or produce or uh deploy uh retail CBDC that is both scalable that is privacy preserving for the payer and that is also quantum resistant. So these three uh features we tested if you're interested by the way all these projects you can find them the reports on the internet. So where does that all fit in? We have uh so our real interest on wholesale CBDC has been settlement in central bank money and I think this is an issue that will become particularly important if

this flood of stable coins is coming that everyone expects once the US regulation is in place. The big question for you all is if you receive all these US dollar stable coins. I mean you can either hold all these different stable coins in your wallets and then you have these different issuer credit risks or you can uh clear and settle them. Uh you can actually do it for instance like like uh like a a check the good old checks where you just take that stable coin give it your banks and and your bank then goes and cashes that or redeems it with the issuer and puts that money into your account or the third way would be exactly settling it in central bank money that you have a wholesale

CBDC in between. So the and that's what project Agora is actually testing. So the settlement and clearing of stable coins will become an issue and and uh settling it in central bank money is clearly one way to go. And there are different ways how you can settle in central bank money. And one would be this is this um um first blue. Is it blue here or is it gray? Uh line that I have. So that you could say we just let uh a private institution issue a stable coin, but we let them back that stable coin with central bank money. Maybe we even make that central bank money uh somehow bankruptcy remote in the sense that if you're the stable coin holder

and that issuer would go bankrupt that you would have access directly to central bank money. So that would be one way to go. Um we do not have uh I mean this is a legal we we looked at some of the legal questions but that's not something we have tested. We have also not had demand on this. When we talked to the banks, they said nice, you know, nice if there is nothing else. But even if it's bankruptcy remote, you still have some uh friction there because you don't know how fast you get that money and and so on. So, it's clearly not the same as having central bank money directly. And if you want to have central bank money directly, you have these two ways. You can either build a link into our normal RTGS systems and use the accounts and link that to the

blockchain. We have tested that in Helvetsia and actually interestingly we will have in Switzerland a um BX digital. They received a license this year and they will go live somewhere in fall of this year. And that's exactly what they do. they will use the Ethereum blockchain for digital assets and they have a link that we already approved. They get a link into our accounts. So there you can settle uh securities in central bank money but through the traditional accounts. So that's one way and as I said soon live interesting to see how that works and then we have already live that's the wholesale CBDC and SDX is live with that as I said since December 23. So for it will be

very interesting to see these two different models. What are the pros? What are the cons? Uh varies more more demand and then also for us with the link what are the restrictions of such a link because if you link the count system and the blockchain then you have to syn then you have synchronized settlement. You do not have everything integrated nicely as you have that on the on the blockchain. So it will be interesting to see what are the limitations of this approach. We are also uh involved in a project that is really led by the New York uh Fed that this is uh just testing different smart contracts for monetary operations and there the blockchain is nice with the atomicity that you get for instance if you do a repo transaction

you give the collateral and the money flow if they if it's atomic of course you have an additional security in there. So these are the kinds of things that are tried out. So really just tests on different types of smart contracts that could be used for monetary uh policy operations. And then finally uh we have this project Permissa which uh we just reissued the report and this is really I think a really cool project because the use case for a blockchain if there ever was a good use case for a blockchain apart from bitcoin then it's really project permissa and this is a um currently the way it works is the world bank you know gets financing from

different countries and they really have this promissary notes which are papers, pieces of papers. We are the custodian. All the other central banks are the custodian of these papers. So, a wellbank needs money. They call the Ministry of Finance. The Ministry of Finance calls us. Someone goes and gets that piece of paper, uh crosses off the number that's on there, writes a new number by hand, and then we we uh actually make the payment, which is, you know, I couldn't believe it when I saw it. And then we said, let's put that on on the blockchain. We did that in in Project Permissa. It works perfectly well. Um, everyone is actually happy. We had several countries involved including India, uh, Saudi Arabia, South Africa.

So, all countries are extremely excited about it. But we currently face kind of a collective action problem. Someone has to take the lead. And as you can imagine, it's not technology. It works. The issue really is governance. Who owns that thing? Uh, what is the operating model? And I fear a little bit that this perfectly sensible project might have a rough start or even die just because of these governance issues. So very unfortunate but uh from a technical point of view a beautiful example of uh how you couldn't use uh blockchain uh in payments and I'm basically on time. That uh was my presentation. Thank you very

much.