Less than half-an-hour’s train ride from Zurich, in the center of the picturesque town of Zug, there’s a centuries-old building with a frescoed facade, ancient timber ceilings and pastel window shutters.
This former town hall would make a welcome stop for any tour group exploring Switzerland’s rich architectural heritage. Yet everyone walking in and out of its imposing entrance is wearing formal attire. A futuristic logo sits atop the door – it reads ‘SEBA BANK’ – and a solitary symbol, ‘₿’, peers through the window to Zug’s cobbled paving.
You might think that a steel and glass skyscraper would be a more fitting choice for the headquarters of Switzerland’s first regulated crypto bank. But SEBA’s founders chose these premises for a reason.
It was here, in 2016, that Zug’s local government became the first municipality in the world to accept taxes in bitcoin – and the new tenants are no less determined to bridge the traditional economy with the new digital one.
Päivi Rekonen, SEBA’s chairwoman, is the kind of fintech leader that nonagenarian investors like Warren Buffett and Charlie Munger simply won’t acknowledge the existence of – steeped in banking experience, fiendishly clever, and convinced beyond any doubt that bitcoin and blockchain technology are reshaping the global financial system.
“We are still, in my view, in the early days of this new industry, this digital assets universe,” Rekonen, who’s held senior positions at a Rolodex of technology and financial giants – Nokia, Cisco, Credit Suisse and UBS – tells me in an interview in SEBA’s plush office.
“The institutional money, and also the professional investors, they have woken up to the reality that market values have skyrocketed – in DeFi (Decentralized Finance), in NFTs (Non-Fungible Tokens), in cryptocurrencies. The data is beginning to show that this is happening, this is absolutely happening … And if you look at the size of the institutional money bucket, we are just at the beginning. I think we’re at the beginning of an entire industry.”
SEBA was founded in 2018 by Guido Bühler, Sébastien Mérillat and Guido Rudolphi.
In 2019, it received a banking and securities dealer license from FINMA, the Swiss Financial Market Supervisory Authority, becoming the joint-first regulated bank anywhere in the world to specialize solely in digital assets. The other licensee was Zurich-based Sygnum. More regulatory approvals have flowed in, including the right to provide institutional-grade digital asset custody to collective investment schemes – another first.
German-speaking Zug was a natural choice for a base of operations; not just because of the local government’s enthusiasm for bitcoin, but also the growing number of blockchain companies that had set up shop in the small town, widely dubbed the “Crypto Valley” of Switzerland (although other municipalities such as Italian-speaking Lugano and French-speaking Neuchâtel are now giving it a run for its money). The Ethereum Foundation – a non-profit organization that promotes the world’s second largest cryptocurrency – was established in Zug in 2014. Today, about half of Switzerland’s 1,000 or so crypto start-ups call the town home.
“It was important for us to be in a location where we have access to talent,” Rekonen says. “You want to be somewhere the employees also want to be – somewhere with likeminded companies, institutions, associations – so that you can learn and you can grow. I think SEBA chose the right place to be.”
She adds, however, that for any new technology: “When innovations are born, there’s often also resistance.” Cryptocurrencies in general and bitcoin in particular continue to be perceived, wrongly, as Ponzi schemes and tools for money laundering by a sizable chunk of the global population. Many governments and regulators – albeit not Switzerland’s – eye the sector with deep suspicion, fearing its potential to disrupt financial markets and intentionally laying down hurdles for investors.
“So,” Rekonen says, “you need to start thinking about how do you build trust with the communities that you’re serving, with the clients that you want to attract?”
The answer – according to Swiss politicians, anyhow – is regulation. The country’s Federal Council, its highest executive body, enacted ten legislative amendments last year, updating the law to spell out how cryptoassets should be handled by regulated entities when it comes to custodying, securitizing, complying with Anti-Money Laundering (AML) rules and more. Combined with the steady stream of licenses being issued by FINMA, this blanket ordinance gives legal certainty to the new class of institutional investors gingerly dipping their toes in the market.
“[It means] there’s less time required to explain how we are doing this, because they know that we are regulated in the same way. They know we have the same AML, KYC (Know Your Customer) requirements,” Rekonen says. “So it kind of shortens the discussion, and at the same time it helps us to demystify the topic. Because we don’t have to spend so much time on the trust aspect.”
SEBA, like any financial services provider, doesn’t publicize details about its clients; Rekonen will only say that most of them can be classified as “early adopters” in the space. They include crypto companies that need corporate accounts to bridge their fiat and digital holdings; miners; founders and early team members of successful crypto projects; and high-net-worth individuals with a background in professional investing.
But the bank’s biggest clients – in terms of assets held, anyway – are already financial institutions.
“Who is institutional money? It could be a big bank, and the money behind it is their clients’. Those clients are beginning to ask, ‘Is this an asset class you participate in, you recognize, you advise on?’ If the answer is, ‘No, no, no,’ then they’ll say, ‘Well, where can I go?’
“So the institutions are beginning to get that pushback. And they are looking for answers. If you’re a big institution – or even a small institution – you have to ask yourself the question, ‘Am I going to invest in the infrastructure myself? Am I going to build my own custody solution, and [interact with] all the crypto layers and protocols and processes that come with it – on top of my own infrastructure? Or am I going to look for a partner?’.”
The best antidote for anxiety about the cryptosphere, Rekonen strongly implies – without saying it – is having a reputable partner to hold your hand. And if you’re going to do that, then a Swiss banking license is seen as “a rare stamp of approval”.
SEBA has a broad spectrum of products tailored to the needs of its individual and corporate clients. On the simpler end, its trading platform allows users to hold and hedge 14 cryptocurrencies – BTC, ETH, DOT, LTC, XTZ, ADA, XLM, USDC, BCH, SNX, UNI, YFI, LINK and AAVE – in addition to eight fiat balances and the SEBA Gold Token, a digital token backed by physical Swiss gold.
It also offers diversified index trackers such as the SEBAX Exchange Traded Product (ETP). The bank’s research department continually assesses tokens for inclusion in its flagship index, which comprises a basket of seven cryptocurrencies weighted heavily in favor of bitcoin (40.4%) and Ethereum (21%). Holdings are rebalanced on a monthly basis according to a rule-based smart beta methodology. Clients can also compile their own basket of cryptoassets using Discretionary Mandates and Actively Managed Certificates (AMCs) – the latter available in white-label wrappers, allowing B2B clients to develop a bespoke, regulated crypto investment product for end customers without jumping through all the hoops needed to bring it to market.
In an era of historically low – and, in Switzerland, negative – interest rates, the ability to generate a yield by holding cryptocurrencies is particularly alluring. The bank caters for this segment with its SEBA Earn platform, which allows clients to stake three proof-of-stake coins (Polkadot, Tezos and Cardano) and will soon enable lending of proof-of-work bitcoin and Ethereum.
Staking is a process whereby coins are locked up on a blockchain – albeit without leaving their digital wallets – in order to facilitate the running of the network.
These services only scratch the surface of what’s possible in the DeFi realm, but, as Rekonen explains, the bank is treading carefully when it comes to protocols and smart contracts that push Switzerland’s regulators to the limits of their oversight capabilities.
“DeFi in a regulated environment is still quite new, and we have very clearly taken the position that we are going to be in the permissioned DeFi space,” she says, referring to protocols such as AAVE Arc, which use Know Your Business (KYB) checks to ensure that all the participants of a liquidity pool are identified and approved. “We actually have some really interesting DeFi projects coming up, but I cannot yet talk about them. Again, we see the demand from institutions. They are saying, ‘Look, I want to understand this, I want to be in this’. But going for an open DeFi protocol [with unvetted participants] is just a ‘no’ for a big institution.”
In February, SEBA opened its first overseas office – in the Gulf emirate of Abu Dhabi, another crypto-friendly regulatory environment.
The bank has also appointed a chief executive for Asia – based in Hong Kong – and now has clients in two dozen countries spread across five continents. As you would expect for a Swiss financier, Rekonen is treating international expansion as a top priority.
“We started here in Zug, and it’s a good place to be,” she says. “But we also need to grow outside. We never envisioned that we would be just a local player. From the beginning, we really believed in this being a global industry – that’s the philosophy of bitcoin and blockchain.”
Growth of the roughly 100-strong workforce could take many forms. SEBA doesn’t rule out acquisitions – and it has the cash to make them, thanks to a 110 million Swiss franc ($116 million) fundraising in January. But for an industry as dynamic as cryptocurrency, Rekonen is quite rightly focused on the near-term.
“We are a fast-growing startup, but we’re still a startup,” she concludes. “So we have to make choices, and we have to be clear on our focus areas and on our strategy.
“Where SEBA and the entire industry is in ten years’ time, I don’t even dare to comment on that. I think for now, we have our focus. What’s really important for an organization like ours is that, when we build our capabilities, we build them with the mindset of scale, and the mindset of replicable models.”
Thanks for reading. The next article in this four-part series about Switzerland’s emergence as a bitcoin and blockchain hub will be my interview with Mathias Imbach, chief executive of Sygnum. It will be published on Wednesday, April 27.