
As the digital economy exponentially expands, financial institutions have come up with plans to be a part of the cult. Joining the digital economy club now is the Swiss Bank as per the recent announcement.
Recently, the Swiss Bankers Association, which is a professional organization of Swiss financial institutions, released a white paper revealing its plans for Swiss banks to support the digital economy. The document stated that the initiative has been put forward with the intention to support the development of the country’s digital economy goals.
According to the document, the group settled on a Swiss Franc “joint” deposit token to achieve its endeavors. The paper also highlights the familiarity of a stablecoin in the Swiss financial system and says that they have limited penetration.
The stablecoins have limited involvement in the country’s financial system even as end-to-end digitization is becoming more common in business models. Additionally, no Swiss stablecoins are accessible to the general public.
As highlighted in the document, the authors try to suggest a variety of stablecoins. Amongst them is a deposit token “issued by regulated and adequately supervised intermediaries” and issued and redeemed 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 provide it with the greatest potential.
In addition, the authors of the paper identify three design options for a deposit token:
- Standardized tokens: Any interested commercial bank can issue its own deposit token, which must comply with technical norms and be fully backed by secure and highly liquid reserves.
- Colored tokens: Each commercial bank issues its own deposit token and is free to determine its technological basis and the underlying reserves. The only common feature in this scenario is that all issuers are regulated.
- Joint tokens: A special-purpose vehicle (SPV) jointly owned by the participating commercial banks issues a single design token that is fully or partially backed by secure and highly liquid reserves.
Among the deposit tokens listed, the authors suggest choosing the third type. They say that a joint deposit token would facilitate money creation because of its flexibility, low fees, and could earn interest when held in bank accounts. It would be less liable to run than tokens issued by individual banks. The table below is from the document and compares the different types of tokens.

The authors also addressed the technical aspects including the legal and economic requirements that would support choosing a joint token. As stated in the paper:
From a technical standpoint, all the economic and legal requirements that have been identified can be met. […] In principle, the 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. Deposit tokens are relatively newer compared to the presence of digital currencies. Sources suggest that the first time a deposit token originated in Project Guardian.
The project is an initiative of the Monetary Authority of Singapore launched with several financial institutions in May last year that sought to explore DeFi applications in wholesale funding markets. JPMorgan, one of the participants in Project Guardian, executed the first DeFi trade on a public blockchain as part of that project in November last year.