Since Switzerland introduced its distributed ledger technology legal framework in February 2021, the European banking hub has positioned itself at the forefront of the crypto assets marketplace. It has done this by classifying cryptocurrencies as an asset class, similar to property or gold, rather than as a security. Now retail investors have been granted entry to this market.
As part of this trend, Swiss securities services provider Taurus, a company backed by Deutsche Bank, has been granted a new licence that allows it to extend its services and allow access to its digital asset TDX marketplace to retail investors. This makes it the latest addition to the list of entities pushing for the mainstreaming of digital assets.
On January 24 2024, the Geneva-based firm announced that it had been given the green light by Switzerland’s Financial Markets Supervisory Authority to allow retail investors to create accounts and trade tokenised security and digital assets through its platform.
“We have observed a growing appetite from issuers, and retail players, to explore more opportunities and be able to access this kind of tokenised asset, and we have concluded that the market is mature enough for us to tap into it,” says Yann Isola, head of product at TDX.
Market shift
Patrick Stäuble, founder and CEO of Teylor, a Swiss digital platform that enables lending transactions between financial institutions and small and medium-sized businesses, says that there has been a “massive digitisation and simplification of the processes in many areas of banking and lending” in recent times.
“Tapping into the retail market makes sense because it is important to have a variety of funding sources, and the segment is obviously a huge one, but also there has been a great deal of regulatory support that gives retail investors more access to the private market,” says Stäuble.
Greater access to financial information and the rise of new technologies have opened the tokenised asset world to a broader clientele. Isola says that retail investors are mostly looking for a space where they can gain access to niche parts of the market, trade crypto assets and invest in digital tokens.
“There is a whole spectrum of assets that are now being tokenised, and we have a platform where investors can access the secondary market through TDX, where they can trade and sell digital assets,” says Isola. “But also, along with the exchange, we provide an [over the counter] platform where investors can trade digital currencies.”
With the opening of the TDX marketplace to retail clients, investors are gaining access to primary and secondary markets where different players can congregate to trade digital securities, while boosting liquidity through both auction-based and continuous trading markets.
According to Stäuble, investors can be separated into two groups: the ones that want to buy and trade classic crypto assets like bitcoin and Ethereum, and the players that want to make more traditional investments via private equity and unlisted companies. The tokenisation of these assets, he says, is “a tool that allows their access in a more comfortable way”.
“Today, for retail players, accessing a private equity fund is not an easy task, because some of these funds may not be interested in that type of investor — I think that the digital realm becomes a means to access this asset class in a way that is easy, legal and safe,” he adds.
Avoiding risk
In 2024, the digital asset market remains a sector known for its volatility. In recent years, the segment has seen a slew of regulatory changes that have appeared on the back of a major reshuffling of a number of the industry’s most prominent players and the collapse of some of its biggest institutions, including cryptocurrency exchange firm FTX.
Isola says that the collapse of FTX has shown what can happen when investors do business with an exchange that hasn’t taken appropriate measures to reduce counterparty risks, and that the EU’s MiCA regulation helps bring in more clarity.
“Clear guidelines were something that the industry had been lacking for a long time, which is a critical thing to have when you want to do business in the right way,” says Isola. “Having the MiCA framework helps people understand how to do things correctly — but it is not about restricting the sector; it’s about bringing more clarity to it.”
Despite being a non-EU country, institutions in Switzerland are still affected by MiCA if their crypto-related businesses have ties to EU jurisdictions. According to the 2022 edition of the Swiss Digital Asset Market Report, entities in the country that offer custody services for direct investments in digital assets were holding around SFr13.2bn ($15bn)-worth of assets.
Stäuble adds that one of the key ways to avoid risk for firms like Teylor is to work with “reputable platforms” that can guarantee that the source of the funds is accurate.
“If you’re a firm looking to scale up its investor base, you have to make sure that you are getting the right type of investors, and you have to make sure that when they are withdrawing or investing funds, it’s all safe,” he says, adding that Teylor has trusted counterparties and processes in place that help guarantee safety and regulatory compliance.
