SEBA Bank is one of two institutions granted a license by FINMA, Switzerland’s bank regulator, to operate a crypto bank. Along with cross-town rival Sygnum, SEBA (based in Zug, outside of Zurich) is now able to conduct banking based on blockchain technology. Julius Baer is the first traditional bank to partner with SEBA, with more in the pipeline.
The bank went live in October with 15 beta clients, and fully operational as of November 4. It plans to open doors onshore in eight markets, including Hong Kong and Singapore, before the end of the year.
What’s this all about?
SEBA Bank is a spinout from a multi-family office run by Sebastien Merillat, who serves on its board of directors. (“SEBA” is a play on his name.) Merillat’s background is in industry and engineering. “I’m just passionate about technology and seeing how it will work,” he said.
His curiosity drew him to invest in Bitcoin, and while he liked the ideas behind crypto-currencies, he realized it would remain fringe without regulation and more user-friendly environment. In other words, it needed banking.
That led to him gathering a team including Guido Buhler, a veteran of Switzerland’s private-banking industry. Buhler is now CEO of SEBA Bank. He took on the project because he believes blockchain-based finance will integrate “finance” with the real economy of trade and services, in a way that doesn’t exist today.
“The transfer of value today is just about money, and money is just a measurement system that’s become the meaning of everything,” Buhler said. He believes blockchain technology will change finance’s relationship with the real economy because it makes it possible for actors to interact more seamlessly, eliminating many of the costs and wholesale operations that bloat the traditional finance sector.
For this vision to be realized, the blockchain industry must promote tokenization, creating a gigantic universe of digital assets.
“Bitcoin is tokenizing nothing,” which is why the crypto market cap today is a paltry $250 billion, Buhler said. He argues that tokenizing real assets could foster a $20 trillion market in five years – that’s the play.
But why? What will cause this eruption in tokenization, when use cases today still seem so tentative?
Most of it has to do with the efficiencies of digital assets, which eliminate most of the post-trade activities in classical finance, as new venues such as SIX Group’s SDX hope to demonstrate. And once that business case is clear, more digital assets will mean more collateral, which should boost crypto-based lending.
Another aspect is the trust of a blockchain, provided users are confident in the security of their private keys. That’s where a bank licensed by a respected regulator comes in.
“Digital identity is an excellent bankable asset,” Buhler said. Combine this with artificial intelligence to govern smart contracts, he argues, and crypto banks could create a global ecosystem that will mushroom in parallel to the traditional world of finance.
Buhler calls SEBA a universal bank, prepared to operate a balance sheet, trade in primary and secondary markets, manage both traditional and digital assets, and handle institutional and retail customers. It is a vision similar to other institutions building crypto financial institutions, but SEBA has the blessing of FINMA.
For now, the only retail customers it can accept are employees of Switzerland-based blockchain companies. Its institutional clients – companies, banks, asset managers, family offices, rich people – can come from anywhere.
The relationship with Julius Baer will give the private bank access to crypto-currency and digital-asset trades, as well as to SEBA’s tokenization capabilities. Buhler says the two institutions will work together to develop products for Julius Baer’s wealth-management business. In turn, SEBA will enjoy trade flows and help spur adoption of digital assets among the private bank’s clientele.
SEBA is offering its customers a Mastercard-issued card and e-wallet, which provides debit, credit, account and prepaid services.
Buhler likes to talk about the broader role of blockchain-based finance. He believes its approach to digital identity can provide the glue to tie disparate elements in today’s world, from democratic political systems to the need for economic activity to become more sustainable and equitable. It’s this bigger vision, he says, that marks blockchain-based finance’s divergence from the current analog version.