Combining the advantages of blockchain with the security of bank deposits 

 What vision is the SBA pursuing with its Deposit Token project?  

Martin: We want to make the Swiss financial centre fit for the future together. Banks perform a central function for our economy by making money available. This function will still be relevant in a future in which more and more services are replicated on the blockchain. With this in mind, banks need to start thinking about suitable means of payment now.  

Andrea: The deposit token we tested made bank deposits programmable for the first time and represents an important step in this direction. Other goals include increasing efficiency, strengthening technological sovereignty and continuing to position the Swiss franc as a reliable currency in the face of international competition.

In the media, the deposit token is depicted as a defensive response to stablecoins. How do you see it? 

Martin: The deposit token isn’t a defence mechanism, it’s an evolution of the current system. We want to replicate bank deposits on the blockchain and thus create an innovative, additional means of making digital payments. At the same time, the deposit token remains a bank instrument that’s subject to the applicable laws and, in contrast to stablecoins – which have been unregulated up to now – ensures customer protection and financial market stability. 

Andrea: Exactly. The aim was to combine the advantages of blockchain technology with the security and robustness of existing bank deposits. Our test of legally binding interbank payments on a public blockchain was a world first that attracted attention internationally.

Does the deposit token require changes to regulations?  

Andrea: The Swiss regulatory framework has proven compatible with the issuance of deposit tokens. It’s based on legal principles governing payment instructions that have proven their worth over decades and can be used in a secure and legally compliant way. That said, changes may be needed here and there going forward to ensure the best possible support for the three use cases outlined in the results report when we get to “Deposit Token 2.0”. Close cooperation with supervisory authorities will be vital, especially given the momentum created by the announcement of a consultation on revised stablecoin legislation. We’ll be keeping a close eye on that to make sure that the deposit token remains competitive while also strengthening the stability of the Swiss banking system.

How could the deposit token affect the classic banking business over the long term?  

Martin: In principle, everything will remain stable. The deposit token will always be a direct liability for banks. It complements the present deposit model and makes it future-proof. We’ve now seen that the approach can be integrated seamlessly into existing balance sheet structures. This makes the model more credible.

In which specific use cases can a deposit token add value? 

Martin: In the proof of concept, we successfully tested two use cases: a payment between customers of different banks and a fiduciary custody process in which deposit tokens were exchanged for tokenised assets in an automated transaction. 

Andrea: These use cases proved themselves, but they probably don’t add enough value compared with the current system to justify an overhaul of financial market infrastructure. That said, it’s possible to imagine that payments using the deposit token could be integrated directly into automated business processes, examples being securities transactions and settlement of insurance claims.

How will this work in practice?  

Martin: An insurance policy for storm damage, for instance, could take the form of a smart contract linked to the deposit token that automatically triggers a payment to the customer when weather stations in his or her region record certain values.

Will there be a follow-up SBA project? 

Andrea: The SBA’s Board of Directors gave the green light for work to continue shortly after the results report was published. We’re now in talks with more banks, infrastructure providers and authorities about testing the deposit token on a larger scale.  

Martin: The project remains a strategic priority for the Association, and we’re working towards the next steps at a fast pace. We know exactly what we need to work on to realise our vision for the deposit token. Feedback from the industry shows that there’s a great deal of interest in Switzerland and beyond. It’s clear that the Swiss banks are taking on a leading role in this field, and we want that to continue.