Death, taxes and crypto: Lugano attaches its ambitions to the stablecoin

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Fresh out of El Salvador’s economic revamp, stablecoin company Tether is now giving the southern Swiss city of Lugano a crypto makeover.

This content was published on March 7, 2022 – 15:43

swissinfo.ch

Tether is helping El Salvador migrate to bitcoin – and it now also backs Lugano’s “European Crypto Capital” ambitions.

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Lugano’s “Plan B” project is a public-private partnership aimed at attracting blockchain start-ups and inspiring greater adoption of cryptocurrency among businesses and citizens.

Other Swiss cities, such as Zug, Zurich and Neuchâtel, have successfully developed local blockchain industries. Switzerland now has well over 1,000 companies, employing over 6,000 peopleExternal linkaccording 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 wants a bigger share of the action.

“We think there will be five or six blockchain hubs around the world,” Paolo Ardoino, CTO of Tether, told me. “We have seen the emergence of El Salvador, Miami, Dubai and Singapore, but Europe currently lacks a really important hub. That could be Lugano, as a multicultural city in the heart of Europe (I don’t know if Crypto Valley ZugExternal link would agree with this statement).

Lugano “not intimidated”

Tether produces stablecoins, which are crypto payment tokens pegged to the US dollar. The decentralized financial system is teeming with about $80 billion in tethers. But along the way, Tether ran into regulatory issues.

In October, Tether and its sister company Bitfinex were fined $42.5 millionExternal link by the United States Commodity Futures Trading Commission (CFTC) for regulatory violations. Question marks remain over how Tether audits the financial instruments that back the stablecoin. The Financial Action Task Force says stablecoins are fragile and can pose a real threat to the financial system.

But the mayor of Lugano, Michele Foletti, is indifferent. “Bitcoin, cryptocurrency and blockchain are terms that scare a lot of people off, but Lugano is not intimidated,” he said when unveiling Plan B.

Speaking to me later, Foletti added that Lugano – as Switzerland’s third largest financial center – has seen many banking scandals in recent years. “There is no shortage of reputational issues related to the traditional banking sector,” he said. “In my view, the reputational risks of Plan B are lower than what we’ve seen with the banking industry lately.”

Ardoino says Tether has worked hard to improve its audit and transparency record since its debut in 2014. The company was not forced to admit guilt during its recent financial settlement with the CFTC. “We don’t want to break any rules. When you’re innovating, you can’t expect existing laws to fully cover your breakthrough product. We made mistakes, but we immediately redeemed ourselves. We are doing our best to be a healthy player in this space.

Millions pledged

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 linkChiasso and ZermattExternal linkbut 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 facilities and market stall fees.

Economic promotion campaigns like big budgets. Plan B has up to 100 million francs available to attract blockchain companies to the city and 3 million francs to help companies integrate crypto into their activities.

This will all come from private sector partners, led by Tether and Indian blockchain company Polygon.

Tether and its sister company Bitfinex considered establishing a Swiss base. But they have so far struggled to find the talent, despite a slew of financial, regulatory and compliance experts in Switzerland. This is why an unspecified sum will fund some 500 scholarships to pursue blockchain training at local universities.

Adoption reference

The real success or failure of the project will be the reaction of businesses and citizens living in Lugano. A few valuable retailers have adopted a crypto payment systemExternal link operated by Bitcoin Suisse and payment infrastructure provider Worldline.

Nobody knows from week to week if their bitcoin will pay a basket of goods, half a basket or two baskets. Tether stablecoin is designed to maintain the same constant purchasing power. This could boost adoption, provided people trust tether.

Lugano has lagged behind the growth of other Crypto Nation Switzerland regions. The city now hopes to close the gap by pushing the boat further than the others.

Are bitcoin or tether legal tender in Lugano?

Not enough. It’s not illegal pay for goods and services in bitcoin (and other cryptocurrencies) or euros (and other traditional foreign currencies) provided that the counterparty accepts this method of payment.

But that does not make any cryptocurrencyExternal link or foreign currency legal tender in Swiss. Only the federal authorities decide on this legal distinction – not the cantons. And the Swiss Confederation has designated the Swiss franc as the only legal tenderExternal link in the countryside.

If I ask to pay my Swiss restaurant bill in bitcoin or euros, the restaurant is free to accept or refuse. If I wish to pay the bill in Swiss francs, the restaurant must give its agreement and cannot refuse this method of payment. The same applies to all commercial transactions, taxes and municipal services.

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