"How does FINMA classify stablecoins?"

"FINMA classifies most fiat-backed stablecoins as payment tokens under its technology-neutral framework. This means issuers must navigate Swiss banking law, as accepting public deposits to back stablecoins may trigger banking licence requirements."

"Are there Swiss franc stablecoins?"

"Yes, Swiss franc stablecoins include XCHF (issued by Bitcoin Suisse) and DCHF (issued by Sygnum). These CHF-denominated stablecoins are designed for use within the Swiss and European DeFi ecosystems."

"What types of stablecoins exist?"

"There are four main types: fiat-backed (collateralised by currency reserves), crypto-backed (collateralised by cryptocurrency), algorithmic (using supply mechanisms to maintain peg), and commodity-backed (collateralised by gold or other assets)."

Term

Stablecoins: FINMA Classification, Swiss Legal Treatment, and the Swiss Franc Stablecoin Market

Q: "What is a stablecoin?"

"A stablecoin is a blockchain token designed to maintain a stable value relative to a reference asset, typically a fiat currency like the US dollar or Swiss franc. They provide the price stability necessary for payments, lending, and trading in DeFi."

Definition: What Is a Stablecoin?

A stablecoin is a blockchain token designed to maintain a stable value relative to a reference asset — typically a fiat currency (US dollar, Swiss franc, euro), a commodity (gold), or a basket of assets. Unlike Bitcoin or ETH — whose values are determined by market demand and fluctuate freely — stablecoins are engineered for price stability, making them suitable for payments, settlement, and financial applications where price volatility is a barrier.

The term encompasses a technically and legally diverse category of instruments. Not all stablecoins work the same way, and FINMA’s regulatory treatment depends critically on the stability mechanism used.

Four Types of Stablecoins

Type 1: Fiat-Backed (Collateralised by Fiat Currency)

The most commercially significant type. A central issuer holds fiat currency reserves — typically in a bank account or treasury securities — and issues tokens at a 1:1 ratio to the reserve. Token holders have a redemption right against the issuer for the equivalent fiat value.

Examples: USDT (Tether), USDC (Circle), EURC (Circle), XCHF (Bitcoin Suisse), DCHF (Sygnum)

Stability mechanism: The peg is maintained by the issuer’s commitment to redemption at par. If confidence in the issuer’s reserves erodes, the peg can break — as demonstrated by several smaller fiat-backed stablecoins that failed to maintain parity when redemption demands exceeded liquid reserves.

FINMA treatment: Fiat-backed stablecoins are typically payment tokens under FINMA’s classification — their primary function is as a medium of exchange or value transfer. However, the redemption right — the holder’s contractual claim against the issuer for fiat equivalent — means the issuer is effectively holding client deposits. FINMA’s analysis: a stablecoin issuer who accepts fiat from the public and issues tokens redeemable at par may be conducting regulated deposit-taking under the Swiss Banking Act (Bankengesetz), regardless of how the instrument is labelled.

Type 2: Crypto-Collateralised (Backed by Other Cryptocurrencies)

Crypto-collateralised stablecoins are backed by deposits of other cryptocurrencies, typically over-collateralised to account for the price volatility of the underlying assets. A user deposits ETH worth $150 to mint $100 of stablecoin — the over-collateralisation provides a buffer against ETH price drops.

Examples: DAI (MakerDAO), LUSD (Liquity — a Zug-based DeFi project), GHO (Aave)

Stability mechanism: Smart contract liquidation mechanisms enforce collateralisation ratios. When the value of a user’s collateral drops below the required ratio, the smart contract automatically liquidates the position and burns the stablecoin.

FINMA treatment: Crypto-collateralised stablecoins issued by decentralised protocols (smart contracts without an identifiable issuer) are the most complex category for FINMA. If no identifiable entity is issuing or redeeming the tokens, the deposit-taking analysis may not apply. However, FINMA’s effective decision-maker analysis — applied to DeFi governance — may identify protocol governance token holders or foundation operators as having regulatory obligations.

Type 3: Algorithmic (Not Fully Collateralised)

Algorithmic stablecoins use supply-and-demand mechanisms — typically involving a companion token — to maintain price stability without full collateral backing. When the stablecoin trades above $1, the algorithm mints new stablecoins; when below $1, it burns stablecoins by incentivising holders to exchange them for the companion token.

Examples: TerraUSD/UST (collapsed May 2022), Frax (hybrid algorithmic)

Stability mechanism: Algorithmic mechanisms that rely on maintaining market confidence in the companion token are structurally fragile — as the Terra collapse demonstrated.

FINMA treatment: Algorithmic stablecoins are the category least likely to constitute regulated deposit-taking (no fiat deposits are accepted) but most likely to raise investor protection concerns. FINMA has flagged algorithmic stablecoins’ consumer risks in supervisory communications.

Type 4: Commodity-Backed

Commodity-backed stablecoins are tokens representing claims on physical commodities held in custody — typically gold, silver, or oil. The token price tracks the commodity’s market price.

Examples: PAX Gold (PAXG), Tether Gold (XAUT), Swiss-based gold-backed tokens

FINMA treatment: Commodity-backed tokens are typically asset tokens under FINMA’s classification — they represent a financial claim on an underlying asset. Asset tokens are securities; their issuance and trading require compliance with Swiss securities law, and intermediaries must be FINMA-licensed securities dealers.

FINMA’s Token Classification Applied to Stablecoins

FINMA’s 2018 ICO guidelines established a three-part classification framework — payment tokens, utility tokens, asset tokens — that remains the foundation for stablecoin regulatory analysis. Applying this framework to stablecoins:

Payment Token Analysis

A fiat-backed stablecoin whose primary function is payments — transferring value between parties — is a payment token. Payment tokens are not securities under Swiss law. But they are subject to AMLA compliance for intermediaries, and their issuers face the deposit-taking question.

The deposit-taking test under Swiss banking law: Does the issuer accept repayable funds from the public on a regular basis? If yes, the Banking Act may require a banking licence.

The test is met by most fiat-backed stablecoin issuers: they accept fiat currency from the public (investors purchasing stablecoins), they issue tokens redeemable at par (the repayment obligation), and they do so on a regular basis (ongoing issuance and redemption). The Swiss banking law consequence: a stablecoin issuer conducting these activities without a FINMA banking licence is operating illegally.

The Banking Licence Implication

This is the most commercially significant consequence of FINMA’s stablecoin framework: most fiat-backed stablecoin issuers cannot legally operate from Switzerland without a Swiss banking licence.

A Swiss banking licence requires:

Minimum capital of CHF 10 million (for smaller banks; larger operations require more)
Ongoing capital adequacy requirements (risk-weighted assets framework)
FINMA ongoing supervision, annual audits, and reporting requirements
Fit and proper requirements for senior management
Liquidity requirements

These requirements are achievable for well-capitalised entities (Sygnum and AMINA obtained banking licences) but represent prohibitive costs for most stablecoin startups. The practical consequence is that Swiss franc stablecoin issuance at scale is limited to FINMA-licensed banks — currently Sygnum and AMINA — and to narrowly structured instruments that avoid deposit-taking characterisation.

Exemptions and Structuring Techniques

Swiss practitioners have identified several structuring approaches that may allow stablecoin-like instruments to operate without a banking licence:

Restricting to institutional counterparties: If a stablecoin is only issued to professional/institutional investors (not the public), the public deposit-taking threshold may not be met. FINMA’s “public” threshold focuses on retail accessibility.

Operating through a licensed intermediary: A stablecoin issuer can partner with a FINMA-licensed bank (Sygnum or AMINA) which acts as the regulated issuer or custodian, with the stablecoin project operating as a technology provider. This outsources the banking licence requirement to an existing licensee.

Issuing as a CISA-regulated money market fund: Structuring the stablecoin as units of a FINMA-authorised money market fund avoids the deposit-taking issue (the investment is treated as a fund subscription, not a deposit) while providing the fiat-pegged stability. This is more complex but legally clean.

The Swiss Franc Stablecoin Landscape

Switzerland has historically lacked a widely-used CHF stablecoin, despite the commercial demand for Swiss franc-denominated settlement in DeFi and RWA tokenisation. Two products merit attention:

XCHF: Bitcoin Suisse’s Swiss Franc Stablecoin

Bitcoin Suisse AG — Zug’s founding crypto institution — operates XCHF, an ERC-20 token on Ethereum that is collateralised by CHF held in custody. XCHF is issued by Bitcoin Suisse and redeemable at par for CHF.

Bitcoin Suisse operates as an SRO-VQF member (Switzerland’s self-regulatory organisation for financial intermediaries) rather than as a FINMA-licensed bank. XCHF’s issuance structure has been designed to operate within the parameters of Bitcoin Suisse’s regulatory framework while providing CHF-equivalent functionality for DeFi and crypto settlement use cases.

XCHF is one of the longest-running Swiss franc stablecoins in operation. However, it has not achieved deep liquidity in DeFi protocols — the CHF-denominated DeFi ecosystem remains underdeveloped compared to USD-denominated alternatives.

DCHF: Sygnum’s Approach

Sygnum Bank has explored and developed CHF-equivalent digital currency products within its banking licence framework. As a FINMA-licensed bank, Sygnum can issue tokenised CHF deposits — essentially digital Swiss francs — to institutional clients without the deposit-taking regulatory barrier, because Sygnum already holds a banking licence that authorises it to accept deposits.

Sygnum’s digital CHF products are distinct from public stablecoins in one important respect: they are not issued to an unlimited public but to Sygnum’s institutional banking clients. This institutional restriction sidesteps the public deposit-taking question while providing CHF settlement functionality for Sygnum’s tokenisation and RWA clients.

The TerraUSD Collapse: FINMA’s Implications

The collapse of TerraUSD (UST) in May 2022 — during which $40+ billion in value was destroyed within 72 hours — had significant implications for FINMA’s approach to stablecoin regulation.

Terra’s algorithmic stability mechanism relied on LUNA (Terra’s companion token) absorbing sell pressure from UST through an arbitrage mechanism. When confidence in the peg broke, the mechanism entered a “death spiral”: UST selling created LUNA selling, which reduced confidence in the peg further, accelerating UST selling. Within days, both UST and LUNA approached zero.

FINMA’s response:

Confirmation of the asset token risk framework: FINMA issued supervisory communications confirming that algorithmic stablecoins whose companion tokens are not themselves backed by hard assets represent investor risk that Swiss entities distributing such instruments must disclose appropriately under FinSA.

Enhanced due diligence for stablecoin integration: Swiss-regulated entities (banks, securities dealers, SRO-VQF members) that integrated stablecoins into their products were required to conduct enhanced due diligence on the stability mechanisms of each stablecoin — not merely its legal classification but its economic resilience.

Stablecoin disclosure requirements: For Swiss-licensed institutions offering stablecoin products to professional clients, FINMA updated guidance on the required disclosures about peg stability mechanisms, reserve quality, and redemption rights.

MiCA’s Stablecoin Rules and Switzerland’s Divergence

The EU’s MiCA regulation establishes specific requirements for two stablecoin categories:

Asset-Referenced Tokens (ARTs): Tokens referencing multiple assets, currencies, or commodities. Under MiCA, ART issuers must: be authorised by an EU national regulator; hold reserves in specified composition (60%+ liquid assets); maintain capital requirements; and provide redemption rights at par.

E-Money Tokens (EMTs): Tokens referencing a single official currency. EMT issuers must be authorised as credit institutions or e-money institutions in an EU member state.

Switzerland’s framework diverges from MiCA in several important respects:

Banking Act vs E-Money Directive: FINMA’s requirement for a banking licence for fiat-backed stablecoin issuers is stricter than MiCA’s e-money institution option. An e-money institution licence in the EU requires significantly less capital than a Swiss banking licence. This means that the Swiss framework imposes higher barriers to stablecoin issuance than MiCA’s e-money framework.

No specific stablecoin category: Unlike MiCA’s ART/EMT distinction, Switzerland does not have a stablecoin-specific regulatory category. FINMA applies its general token classification framework (payment token, asset token) to each specific stablecoin on its merits — a more flexible but less predictable framework.

No Swiss equivalence for EMT issuers: Under MiCA, a firm with an EU EMT licence cannot passport into Switzerland. Swiss EMT-equivalent stablecoins require Swiss regulatory authorisation independently of MiCA licensing.

Global Comparison: USDC, USDT, and Regulatory Status

USDT (Tether): The world’s largest stablecoin by market cap (~$140 billion as of 2025) is issued by Tether Ltd, registered in the British Virgin Islands. Tether’s reserve composition has been subject to regulatory scrutiny in multiple jurisdictions. Under Swiss law, USDT would constitute a payment token; Tether’s offshore structure means FINMA has limited direct jurisdiction but Swiss intermediaries handling USDT have AML obligations.

USDC (Circle): USD Coin is issued by Circle Internet Financial, registered in the US and subject to US financial regulation. Circle publishes monthly reserve attestations showing USDC is fully backed by cash and short-term US Treasury securities. Under Swiss law, USDC is a payment token; Swiss intermediaries have AML obligations for USDC handling. Circle holds EMT authorisation in France for MiCA compliance — giving USDC full MiCA status in the EU.

Swiss institutional implications: Both USDT and USDC are available on Sygnum and AMINA’s trading platforms for institutional clients. FINMA-licensed banks can facilitate client access to these instruments while maintaining their own AMLA compliance obligations.