Several high-profile scandals and the lack of foresight when it comes to governance have led to the stumble of many Suisse-based cryptocurrency foundations Finews reported on February 18, 2019.
Foundations Marked Switzerland’s Economic Climate
Foundations, while not the backbone of the Swiss economy, have been an inescapable part of the country’s history. Initially intended for philanthropic purposes, there are now more than 13,000 foundations registered in Switzerland, and most of them have found applications that have far exceed those of charity.
According to Finews, luxury watchmaker Rolex and Victorinox, maker of the iconic Swiss army knife, are prominent examples of for-profit firms controlled by the secretive Swiss vehicles. The country was also a hotspot for crypto foundations, with ten percent of all foundation structures launched in 2017 and 2018 related to digital assets according to data from Stiftung Schweiz.
The overwhelming majority of those foundations, 23 of the 33 total, were founded and registered in the canton of Zug, known as Switzerland’s “Crypto Valley.” The structure of a foundation seems tailor-made to fit the needs of a cryptocurrency company as such organizations fit the community-led approach often adopted by digital asset firms.
(Source: House of Switzerland)
Another point that made Zug so appealing to crypto businesses is the fact that they could take in ICO money much easier. Switzerland’s low taxes and lenient regulation regarding crypto businesses have made it a haven for blockchain and crypto businesses, with many companies leaving the U.S. to exploit the country’s favorable economic climate.
Too Much of a Good Thing
However, what seemed like a sure recipe for success soon began hitting significant bumps. Oliver Arter, counsel at Zurich-based law firm Froriep, told Finews that the boom of crypto foundations has now fizzled.
According to Raffaella Piraino of the Energy Web Forum, a non-profit promoting blockchain technology, too much of a good thing was what caused the model to fail. Foundations usually start with a significant amount of money – sometimes even measured in the tens of millions. That money is set to be dispersed over many years on different projects and causes, which are usually charitable.
However, cryptocurrency foundations have turned the model backward. Piraino explained that with crypto, the money flows in the opposite direction, meaning that affiliates or outside investors finance projects.
“It doesn’t make sense to tie up commercial activities in a Swiss foundation if the people involved expect a profit, or view it as an investment,” Arter said. He explained that many crypto foundations were set up in a very commoditized and simplified manner. The structure of such a foundation cannot be clearly defined, which led to a series of governance problems such as the ones reported in Tezos.