USD vs. CHF: An On-Chain Analysis
The US dollar has been the global reference currency since 1944 and dominates the on-chain world. Meanwhile, the Swiss franc, known for its stability, remains under-represented on-chain.
The Reserve Currencies
The US dollar became the world’s reserve currency in the year 1944, being only the second currency in global reserves (1). With the addition of more currencies into the global reserves over the years, the USD has since lost some market share. In 2024, the US dollar accounts for 58.85 percent of official foreign exchange reserves. This is a significant decrease as even in 2013, after the previous financial crisis, the US dollar still occupied a market share of 87 percent (2).
Today, other major reserve currencies include the Euro (19.69 percent), Japanese yen (5.69 percent), and Pound sterling (4.89 percent). There are a few more currencies, among which is the Swiss franc with a 0.23 percent share (2).
The Current Situation On-Chain
Cryptocurrency traders are familiar with USDT and USDC. At the height of the 2019 bull market, these two stablecoins had a combined market capitalization of 2.37 billion USD, rising to 149 billion USD by September 2024 (3). Including other USD-based stablecoins, the combined market capitalization of all tokenized US dollars is around 164 billion USD. At present, USD-based stablecoins make up 98.9 percent of the stablecoin market, while the USD itself accounts for just 58.85 percent of global reserves. The remaining 1.1 percent mainly consist of the PAX Gold token (0.74 percent) and tokenized Euros (0.31 percent) (4).
The dollar’s dominance stands out. Even the Euro, which is the second largest stablecoin after the US dollar, is far under-represented, and so are many other coins – including the Swiss franc.
Swiss Franc vs. US Dollar
Stablecoins are mostly used for trading. This has been their main use-case for years and that is highly unlikely to change. Stablecoins offer an easy solution to limit the exposure of one’s portfolio to the volatility of the cryptocurrency markets. A USD stablecoin is especially useful for US Americans, as they don’t face any additional forex-related volatility. However, this applies to few people outside the United States.
In 1971, the US dollar was valued at 4.29 Swiss francs, 2.91 Swiss francs in 1985, 1.81 Swiss francs in 2001 and 0.88 Swiss francs in 2024 (5). The trend is abundantly clear. With a decrease of more than 51 percent in nominal value since 2001, the US dollar has not been a great store of value for Swiss citizens. But this is not only about the US dollar. The Chinese yuan lost more than 32 percent of its value against the Swiss franc since December 2008 (6) and the Euro lost 43 percent of its value against the Swiss franc since November 2007 (7). This means that an investment into the Swiss franc in Euros in November 2007, would be up by 74 percent in terms of Euros today. An investment in the STOXX 600 (an index consisting of the 600 largest companies in the EU zone) in November 2007 would by now have increased by only 32 percent, which is less than half (8).
The list goes on, but the message is obvious: The Swiss franc is a very strong currency. The Swiss franc is thus not only interesting for Swiss citizens, but rather for any investor looking for a potential alternative to other reserve currencies.
The Need for a Swiss Stablecoin
With a performance like this, it may be a surprise that there has not been an attractive Swiss franc stablecoin until recently. The need for this is apparent.
The Frankencoin however goes far beyond providing an attractive way to balance portfolios. It comes with all the advantages of a Swiss franc but without the disadvantages of a centralized stablecoin. While the Frankencoin Association exists, it has no control over funds that are used as collateral, nor over the minted ZCHF, nor over the Frankencoin Pool Share tokens. This means uncompromising security and true decentralization.
Furthermore, the value of the Frankencoin is guaranteed by strong collateralization. Each ZCHF minted is more than fully backed with ERC20 tokens. These are not just any tokens either: The Frankencoin community can reject bad collateral before it even gets the chance to enter the system. To ensure that only good collateral is proposed in the first place, each proposal comes with a 1,000 ZCHF fee that discourages the proposal of unfit collateral.
Currently, most ZCHF are backed by WBTC, LsETH or tokenized shares of carefully analyzed companies.
With such a strong alternative to the US dollar, it must be assumed that the Swiss franc will expand its footprint in the stablecoin universe. As mentioned, the US dollar has a market share of 98.9 percent. There are around 170 billion USD stablecoins in circulation and the Swiss franc accounts for 0.23 percent of the world’s global reserves. Given these factors, this would theoretically translate to a 391-million-dollar market cap for the CHF, or 344 million CHF at an exchange rate of 0.88. As of September 2024, the Frankencoin has a market cap of around 9 million CHF.
As the Swiss franc continues to demonstrate its strength off-chain, the introduction of the Frankencoin could mark a shift in the stablecoin market. With its advantages and decentralized nature, the Frankencoin may well be what finally increases the Swiss franc’s presence on-chain.
Sources:
(1): "The Retirement of Sterling as a Reserve Currency after 1945: Lessons for the US Dollar?", Catherine R. Schenk, Canadian Network for Economic History conference, October 2009.
(2): https://data.imf.org/?sk=e6a5f467-c14b-4aa8-9f6d-5a09ec4e62a4
(3): https://www.tradingview.com/x/UXyouYdp/
(4): https://www.coingecko.com/research/publications/stablecoins-statistics
(5): https://www.tradingview.com/x/ngHnyXGC/
(6): https://www.tradingview.com/x/fYP66DzN/