Key points
A Swiss franc stablecoin is a digital token that aims to be worth one Swiss franc. It is not a bank deposit.
Some are backed by reserves the issuer holds. Others are backed by crypto collateral worth more than the tokens.
Frankencoin (ZCHF) and AllUnity CHFAU are two examples. They are examples only, not recommendations.
A stablecoin can lose its peg, and its issuer, its collateral or its software can fail.
A stablecoin is not protected by the FDIC or by esisuisse, the Swiss deposit protection scheme.
This article explains Swiss franc stablecoins in general. It is not investment advice.
What a stablecoin is
A stablecoin is a digital token that aims to keep a steady value against a normal currency. A Swiss franc stablecoin aims to be worth one Swiss franc. It lives on a blockchain, so it can move between wallets at any hour.
It is not a bank deposit and it is not money issued by the Swiss National Bank. It is a promise made by a company, or by a set of rules in software.
How the peg is kept
There are two common designs.
Backed by reserves. A company issues one token for each franc it holds in reserve, often in bank accounts or short-term government debt. Holders can redeem tokens with the issuer for francs. If the token trades below one franc, traders can buy it cheaply and redeem it, which pulls the price back up. This design depends on the issuer: its reserves, its audits and its willingness to pay out.
Backed by crypto collateral. Anyone can create tokens by locking up more value in other crypto assets than the tokens are worth. If the collateral falls too far, the system sells it, often by auction. A small price gap from one franc is a chance for traders, and their trades push the price back. This design depends on the collateral, the rules and the software.
Two examples
These are examples only, not recommendations.
Frankencoin (ZCHF). A decentralized Swiss franc stablecoin backed by crypto collateral. Its site says each token is backed by more than one franc of collateral, that weak positions are sold at auction, and that a reserve absorbs losses. Holders of its governance token make decisions. A Swiss non-profit supports the project but says it does not control it. Its own site says no system is risk-free.
AllUnity CHFAU. A Swiss franc stablecoin that AllUnity says is backed one to one by franc reserves, with a right to redeem at face value under EU rules. AllUnity’s site says its content is for businesses only, not for individual customers.
Swiss banks have also tested franc tokens of their own. We have not checked the details of those tests with the banks.
The risks
De-peg. A stablecoin can trade below one franc. It can recover, or it can stay down.
Issuer risk. With a reserve-backed token, you depend on the issuer having the reserves and paying out.
Collateral risk. With a crypto-backed token, a sharp fall in the collateral can leave the system short.
Smart contract risk. A bug or an attack can freeze or lose funds. Audits lower this risk but do not remove it.
Liquidity risk. You may not find a buyer at one franc when you want to sell.
Exchange-rate risk. If you spend in dollars, a franc token rises and falls with the franc.
No deposit insurance. A stablecoin is not protected by the FDIC or by esisuisse, the Swiss deposit protection scheme.
Sources
Frankencoin: https://www.frankencoin.com
AllUnity: https://allunity.com
Questions
Is a Swiss franc stablecoin the same as a Swiss bank account?
No. It is a token on a blockchain. A Swiss bank account is a deposit at a bank in Switzerland, with Swiss deposit protection up to a limit. A stablecoin has no such protection.
Can a stablecoin lose value?
Yes. It can lose its peg, its issuer can fail, or its software can fail.