Johannes Kern, Frankencoin | The Other 3%, Why the World Needs a Stablecoin That Isn't the Dollar

So, today I'm going to talk about the other 3% um but actually I would speak very generous because right now about or more than actually more than 99% as you very rightfully said of the stablecoin markets is in dollars. And um that has some effects and I would like to dive into that what it actually means, what that means on different levels and and the what we should or if we should do something about that. Now, if you look at stable coins, um most people always talk about transactions, you know, moving value from one party to another. Cross-border transactions, payments, settlements, all those kind of things. Now, I argue there is a second use case and that second use case is a store of value.

You want to be able to hold your assets somewhere which um you know, might be gold, might be Bitcoin, but you might want to have something which is a bit less volatile and which is well, should hold value. And that's really what I'm interested in. Now, if we think about transactions, um you have to think about how the world was before. Um on legacy rails, you typically have a T plus two or T plus one plus one settlement. Uh there is a lot of money stuck in transit really.

It's just like a uh substantial I don't have a number here actually how much it is, but I think it's in the teens or in teens even. Um part of the money supply is just constantly stuck somewhere being sent from A to B in a settlement layer, uh in a collateral layer and so on. And that money um needs to be minted. That is money supply. Now, when we think about stable coins in general, settlement becomes basically immediate, you know, um think about Ethereum, you have a 10-second settlement time.

Uh with other stable coins or excuse me, with other layer ones, that's even shorter, you know, sub one second. But even with 10 seconds, that is basically there is no chance to risk. No one is really holding it. It doesn't really matter how the asset you're exchanging in is moving. And that has a profound effect on how financial rails can work, right?

You don't need a dollar to to hold it. It's just a momentary thing. So, if I want to go, let's say I I'm Swiss, right? I like the Swiss franc. But maybe someone likes gold.

They can have their assets in gold perpetually. They don't need to hold dollars or whatever to spend it. Just at the moment when you do the transaction you want to have one liquid currency or one liquid asset in which you can swap into very efficiently. And that is again, it can be, you know, we're not there yet, but it can be on a technical level a lot more efficient than it can be with traditional rails. And you immediately swap out of it anymore.

So, you don't have to have like multiple legs, multiple venues. It's enough if you have one shared asset which is just liquid to everyone. And this is somewhat an explanation of why the dollar is so dominant in this space. And that is good, right? You know, you don't need more.

Um you just, you know, have very, very small assets you want to hold. And then you if you want to exchange, you go via dollar. But you don't really hold it, right? You just go in and out again. And if you think about what are stable coins actually.

Now, I'm I know I'm in the US now and I I was on um stage yesterday with uh Paris, for example, with the the uh Bank of England, with the British Central Bank. And they have very, very strong opinions on this. Because effectively every stable coin dollar, know, Tether, um or Circle or all even the decentralized ones. In fact, what you're holding is some form of US Treasury because there's someone taking out the yield somewhere, but they're not actually even giving it to you, which is even worse. That's kind of the worst part, right?

You you don't you you hold the risk of the US Treasury, but you don't get paid for it. And we see that quite nicely here. Uh Tether is actually one of the largest holders of US government debt. And I just pulled this little list yesterday and we could see it's, you know, in between Israel and South Korea. Um I think there's not a single private player that is even closely holding that much US Treasury bonds.

Now, from the US perspective, this is obviously very nice because you can finance yourself like this. You have people who buy your Treasury bonds. From a sovereign perspective from other countries, they don't like that very much because they would like to sell their own. Their own govvies, right? And not just that everyone just buys the American ones.

And this is kind of this overview of and and I'm just like now referencing to that panel I had yesterday at with a with the French bank with yes, at the Bank of England. Um uh the head economist of of Switzerland. I was kind of the odd one out because the Swiss people have different problems. Um but they were also, "Hey, we, you know, either we do something about this now and we actually level the playing field and we become players in the market and we create regulation that allows us to, you know, play the game or the dollar's just going to eat the world and there's nothing we can do about it." Um so, yeah.

I mean, that's just a nugget of where the policy makers stand in the European Union. Switzerland is different. Because Switzerland um is more on that side, right? Because I was now always talking about transactions. And if you hold value, so if you want to stay in that currency, and if you look at stable coins as a store of value, then the denomination starts to matter because it's not a 10-second exposure anymore.

It is now it can be years, it can be decades. And um yeah, the dollar is not a very good store of value. I just, you know, put that here into the room. I know I'm in the US. Um but I'm basically here, you know, making this point that this is the Swiss franc versus the the US dollar since 1975.

Um it's about, I think, uh 300% appreciation in value. Um and it's not as look like it's stopping. Now, this is the other side of that same metal, right? Uh where and it's also geopolitically from the US, it's it's something they want. From Switzerland, not so much because Switzerland is an export country.

So, Switzerland doesn't like to have a too much of a strong Swiss franc. But US investors, you can actually use that. And um that's where I'm making my case for FrankenCoin. I've never I've not have said a word about FrankenCoin yet, but what is FrankenCoin? Uh FrankenCoin is actually the the digital version of the Swiss franc, right?

We're the largest decentralized Swiss franc stable coin. Um currently about and this is all in in Swiss francs, so in dollar it's a bit more, it's about 80 million US dollars in TVL. Um you have a very high yield on it. And uh it's super liquid. And it's fully decentralized.

So, basically what you're getting with this is an asset that is not depreciating, but it's just holding its value, and you have control over it. There's no, you know, uh bank that can lock your account, that can take the money away from you. It's yours. And I think this uh is a pretty interesting value proposition for big big parts of the world that do not necessarily want to be exposed to an extractive financial system. I just supporting that, right?

Um it's not an issue of holding a reserve, it's fully fully decentralized. And I just want to close this and I I why I'm here, why am I doing doing this this keynote is really uh I want to kind of open the eyes and okay, well well what do stable coins do, right? It's transaction is one thing which many people are doing Jordi's just talking about, but there's also this other side of things for uh the store of value for holding your assets and that's where we need to have diversity and that's um where this other, you know, 1% or we want to build out uh this into uh this 3% um come in and are, you know, there to be a hedge against turmoil, to be accessible, to be be held, and to be globally accessible. I have brought a book um just to finish up. It's the history of the Swiss franc over the last 250 years.

People who have seen me speak before maybe have actually seen that book. I'm more than happy to give it away. So, if you want one and sometimes you do a question, I'm not doing that today, but if you would like that book, come to me and happy to give it to you. It's it's a quite interesting uh thing because it's it very nicely shows the you know, what is a currency? Where does the value of a currency come from over a longer period of time?

And and how intertwined it is with the political environment, with the geopolitical environment, um and even with the cultural environment of of uh of, you know, of periods and and of countries. And um I have 40 seconds, so one last sentence. Now, you know, we're in 2026. I'm rather young. There's some people are older than me in this room, there's some people are younger than me, but um going very deep into currencies, the one thing we would say is do not expect the status quo how it is now to be the status quo in 10 years.

Because things change and uh currency environments can change very very quickly. And um not because they've been like this for 5 years, they will be like this for like this for the next 5 years. Thank you very much. I think I have time for one question, maybe. Yes.

Uh thank you very much for this talk. project Question I have is how how do you manage the deep peg risk?

Deep peg risk. Um so this is CDP that would be completely on other keynote. I'm happy to go into it, but it's uh basically

Given your collateral

Yes, exactly. So it's it's it it comes down to collateral risk management, right? The the collateral basket, what is it backed by? How much is it over collateralized? And then you want to have a look at look how do you manage deep peg risk short term?

Which is a lot harder than long term because short term it's market forces, right? It's market making, basically. While long term you say, "Okay, as long as the collateral is worth more than the the asset which is issued against it, there should not be a deep peg." Theoretically. Yes.

It would be worth less because Swiss franc would appreciate I mean

Against the dollar, yeah, but that depend depends exactly. That depends what you have as a collateral. That's why there's a lot of gold, for example, in there. Or Swiss franc denominated assets, which is the hard part. Thank you very much.