Fresh from re-landscaping El Salvador’s economy, stablecoin company Tether is now giving the southern Swiss city of Lugano a crypto makeover.
Tether is helping El Salvador migrate to bitcoin – and it’s now also backing Lugano’s “European Capital of Crypto” ambitions.
Lugano’s “Plan B” project is a public-private partnership to attract blockchain start-ups and inspire greater cryptocurrency adoption among companies and citizens.
Other Swiss cities, such as Zug, Zurich and Neuchâtel, have successfully built up local blockchain industries. Switzerland now counts well over 1,000 enterprises, employing more than 6,000 peopleExternal link, according to the CV VC Top 50 ReportExternal link.
Lugano has already launched its own blockchain for businesses and a LUGA reward points token – and clearly desires a bigger cut of the action.
“We believe there will be five or six blockchain hubs in the world,” Tether’s CTO Paolo Ardoino told me. “We have seen the emergence of El Salvador, Miami, Dubai and Singapore but Europe currently lacks a really important hub. This could be Lugano, as a multicultural city right in the heart of Europe.” (I’m not sure if Crypto Valley ZugExternal link would agree with this statement).
Lugano “not intimidated”
Tether produces stablecoins, which are crypto payment tokens pegged to US dollars. The decentralised finance system is flush with about $80 billion worth of tethers. But along the way, Tether has run into regulatory problems.
In October, Tether and its sister company Bitfinex were fined $42.5 millionExternal link by the US Commodity Futures Trading Commission (CFTC) for regulatory infringements. Question marks remain about how Tether audits the financial instruments that back the stablecoin. The Financial Action Task Force says stablecoins are flaky and may present a real threat to the financial system.
But Lugano’s mayor, Michele Foletti, is unconcerned. “Bitcoin, cryptocurrency and blockchain are terms that frighten many people, but Lugano is not intimidated,” he said during the unveiling of Plan B.
Speaking to me later, Foletti added that Lugano – as Switzerland’s third largest financial centre – has experienced numerous bank scandals over the last few years.
“There has been no shortage of reputational issues relating to the traditional banking sector,” he said. “In my view, the reputational risks of Plan B are lower than we have seen with the banking sector in recent times.”
Ardoino says that Tether has worked hard to improve its auditing and transparency record since it started in 2014. The company was not obliged to admit guilt during its recent financial settlement with the CFTC.
“We don’t want to break any rules. When you innovate you can’t expect the existing laws to perfectly cover your groundbreaking product. We have made mistakes, but we have immediately made amends. We are doing our best to be a healthy actor in this space.”
Lugano has the blessing of the Swiss financial regulator to allow bitcoin, tether and LUGO payments for taxes and municipal services. The city will not hold cryptocurrencies in its treasury but will use intermediaries to convert payments into Swiss francs. This is the same approach taken by ZugExternal link, Chiasso and ZermattExternal link, but Lugano says it accepts crypto for a wider range of taxes and services.
This includes parking fines, sewage and cemetery taxes, issuance of passports, access to cultural and leisure amenities and market stall fees.
Economic promotion campaigns love big budgets. Plan B has up to CHF100 million available for attracting blockchain companies to the city and CHF3 million to help companies integrate crypto into their businesses.
All of this will come from private sector partners, led by Tether and the India-based blockchain company Polygon.
Tether, and its sister company Bitfinex, have looked into establishing a Swiss base. But they have so far struggled to find the talent, despite a wealth of financial, regulatory and compliance experts in Switzerland. That is why an unspecified sum will fund some 500 student grants to take blockchain training at local universities.
The real success or failure of the project will be the reaction of businesses and citizens living in Lugano. Precious few retailers have adopted a crypto payment systemExternal link run by Bitcoin Suisse and payment infrastructure provider Worldline.
No-one knows from one week to the next if their bitcoin will pay for a basket of goods, half a basket or two baskets. The tether stablecoin is designed to retain the same constant purchasing power. This could boost adoption, provided that people trust tether.
Lugano has fallen behind the growth of other regions in Crypto Nation Switzerland. The city now hopes to close the gap by pushing the boat out further than others.
Are bitcoin or tether legal tender in Lugano?
Not quite. It’s not illegal to pay for goods and services in bitcoin (and other cryptocurrencies) or in euros (and other traditional foreign currencies) provided the counterparty accepts this form of payment.
But that does not make any cryptocurrencyExternal link or foreign currency legal tender in Switzerland. Only the federal authorities decide on this legal distinction – not cantons. And the Swiss Confederation has named Swiss francs as the only legal tenderExternal link in the country.
If I ask to pay my Swiss restaurant bill in bitcoin or euros, the restaurant is free to agree or decline. If I want to pay the bill in Swiss francs, the restaurant must agree and cannot decline this method of payment. The same goes for all commercial transactions, taxes and municipal services.
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