Smart Valor tackles cryptocurrency volatility problem

Pegging cryptocurrencies to traditional currencies is seen by some to be the answer to price volatility. Keystone

Cryptoasset trading platform Smart Valor plans to launch a new cryptocurrency pegged to the Swiss franc. The CHFt coin will join a growing list of so-called ‘stable coins’ designed to dampen the huge price swings of cryptocurrencies, such as bitcoin, which limits their everyday use.

Smart Valor said on Monday that it is in talks with Swiss banks and cryptocurrency exchanges to issue CHFt. Having a network of financial institutions pumping out a supply of the coins will provide insurance in case one of them shuts down, the Zug-based firm said.

The company’s platform allows people to trade a wide range of financial assets that have been digitally tokenised. The purpose of this structure is to “democratise” finance by making it possible to trade instruments without the need to go through the established financial system.

But using cryptotokens comes with a significant volatility risk. The young asset class is subject to huge rises and falls in value when investors crowd in all at once or when token hoarders indulge in large-scale sell-offs.

Allaying fears

Such volatility makes the likes of bitcoin an unsuitable means of making daily payments. It could also turn off traders from switching from the established financial system to the new world of crypto trading. Smart Valor CEO Olga Feldmeier believes CHFt will help to allay volatility fears and encourage more people to get into the so-called “token economy”. 

“The stable coin is not a prerequisite [to using Smart Valor’s platform], but instead it will be a kind of afterburner, fueling mass adoption on the investor side as many people will appreciate a stable currency behind their activities in the digital world,” she told swissinfo.ch.

“Already over 50 million people use bitcoin, and that number is growing every day. At the same time, people have been buying many other coins as they want to mitigate some of the volatility and for investment purposes. Stable coins will just be another, but important, choice people have.”

CHFt would by no means be the first stable coin – there are currently dozens of similar projects around the world and more in the pipeline. At least three of those Swiss projects are also pegged to the franc (see box below).

New exchange

Smart Valor does not have a firm timescale for when CHFt will be operational. The company, which recently won Swiss regulatory approval as a financial intermediary, says it eventually wants to issue the coin itself, but first needs to clear further regulatory hurdles.

Linked to this point is Smart Valor’s decision to set up a subsidiary in Liechtenstein, a jurisdiction seen by many as being even more friendly towards cryptocurrencies than “Crypto Nation” Switzerland. Liechtenstein’s regulator given approval to operate a crypto exchange for utility and payment tokens.

The platform has applied for a Liechtenstein banking license, in addition to its submissions for various licenses in Switzerland. Smart Valor is also seeking Swiss regulatory approval to launch an initial coin offering crowd investment scheme out of Switzerland. 

Stable coins

The first bitcoin transaction in 2010 saw two pizzas being bought for 10,000 bitcoin. Last December 10,000 bitcoin were worth $200 million (CHF200 million), but the price plummeted a few weeks later to $65 million. Such volatility holds back mass adoption of cryptocurrencies.

The holy grail is finding a cryptocurrency that retains its value to the same degree as traditional currencies. There are more than 100 projects worldwide trying to achieve this end, according to experts. They can be broadly broken down into three categories:

The first includes cryptocurrencies that are pegged to traditional currencies, among them CHFt, which follows the Swiss franc. Earlier this year, Scenic Swisscoast launched a private currency linked to the franc that can only be spent using the blockchain firm’s services. Alprockz also has a franc-pegged project called ROCKZ, while Swiss Longevity Holding has plans to launch a stable coin called SWIS.

Other stable coins are linked to physical commodities, such as oil or metals. In February, Venezuela created the Petro which is linked to the country’s mineral reserves. In Switzerland, Tiberius Coin is backed by a range of metals.

The third option is to use algorithms that automatically alter the supply of the stable coin once it inflates or deflates in value. Swiss project Forctis is developing the ARES token which can be adpated to represent any asset. The GenS stable coin, embedded into ARES, employs algorithms that keeps the value stable.