Around a quarter of the $1.5 billion (CHF1.45 billion) raised by cryptocurrency crowdfunding ventures this year has found its way to Swiss foundations. Many people on social media channels are crying foul, but is there anything sinister behind half a billion dollars finding its way into such structures in the last few years?What’s been happening?This year, new cryptocurrency projects have stumbled on a rich source of seed capital – crowdfunding. This helps emerging ideas to get off the ground by bypassing cautious venture capitalists and tapping into a growing grassroots enthusiasm for cryptocurrencies.
The idea is not exactly new, but the so-called ‘initial coin offering’ (ICO) model has exploded this year. In the whole of 2016, some $222 million was raised in this fashion. In the first half of 2017, the volume of funds raised has already exceeded $1.5 billion.
For example, Tezos raised $232 million in a few days, beating the $150 million accumulated by the Bancor ICO some weeks before.
What’s this got to do with Switzerland?
These start-ups obviously need a place to house their newly acquired funds while they actually produce the innovations they have promised. Why not a bank account? Because they say they are non-profit, open source ventures working for the public good. Some even issue tokens to people who contributed to the crowdfund raise.
Switzerland, and especially canton Zug, has forged a growing reputation as a global cryptocurrency centre. The Zug-based cryptocurrency advisory service Bitcoin Suisse has been involved in several ICOs and estimates a quarter of the global capital raised now sits in Swiss foundations – that’s more than half a billion dollars over the last couple of years.
Switzerland has an established foundation model that support NGOs, charities and other entities. Foundations separate the funds from the people running the organisations, a way of making sure donations are not syphoned off into the wrong pockets. Independent officers manage the funds according to the organisation’s charter and not at the whim of individuals.
Law firm MME Legal says it has helped 13 crypto foundations to set up in Switzerland so far, and is advising around 10 more such entities.
So what’s the problem?Even from the beginning, when the Ethereum Foundation set up in Zug in 2014, social media posts challenged the motivation of setting up foundations as piggy banks for cryptocurrency ventures....