Swissrealcoin

A Swissreal estate fund offering Tokens instead of shares. Its software development is outsourced. Swissrealcoin’s token mechanics are opaque. It appears that Swissrealcoin issues new SRC when the value of the coins rises, diluting investors’ holdings as a result. It does so on the assumption that the price of real estate will continuously increase, and never suffer a correction in price. On the other hand, there is no apparent method to remove SRC from circulation, which could cause SRC to further devalue with no transparency checks.

Website: https://www.swissrealcoin.io/

White paper: https://www.swissrealcoin.io/RZ_SwissRealCoin_Whitepaper_A4_E_v2.pdf

Legal structure

Tailored for the Swiss legal landscape. It is suspicious that its main selling point is “crypto-haven Switzerland”.

Swissrealcoin recognises that it is offering a security and excludes the US, EU and any other jurisdiction that requires regulatory compliance for security offerings. It begs the question, with these restrictions in place, what purpose does Blockchain serve in this instance?

It is important to note that Swissrealcoin tokens are not legally tied to the real estate. Since there is no legal connection of the tokens to the real estate, investors are essentially putting faith in Swissrealcoin to deliver funds to investors at an unspecified time in the future. It can, therefore, be argued that the so-called “asset-backed” tokens on offer are in fact not backed by assets.

If every asset shall be owned by Swissrealcoin, and it plans on expanding into different countries (aka: jurisdictions), this proves a legal hurdle when it comes to the global investors that want to invest in different assets.

Token economics

SwissRealCoin (SRC): a stable coin linked to Swiss real estate that also provides voting rights.

However, it cannot be reasonably argued that Swisscoin is a stable coin. SRC plans to allow a twofold (2x) price increase of SRC compared to the actual value of the real estate and only then will it automatically generate more tokens. This would immediately halve the value of the token, assuming a fair asset valuation.

From SwissRealCoin’s point of view, the fundamental value of SRC is expected to increase as a result of reinvestment of the collected rent into new real-estate offerings on their platform. However, the price of the token would not follow this sort of a pattern. Investors are forward-looking when pricing an asset. Therefore, the reinvestment of the collected rent should already be priced into the market price of the tokens on an exchange.

There are several issues with the token model. The first relates to the lack of plans to have the tokens traded on any exchange. This begs the question of how investors will be able to close their positions and realise their investment. A lack of liquidity would make the token thinly traded and subject to high volatility. The second issue concerns the assumption that the tokens will always trade at a premium to their Net Asset Value (‘NAV’). This is arguably an unrealistic assumption. Swissrealcoin is suggesting that potentially interested parties will be inclined to pay a premium for stable on-chain assets. However, this is not backed by any theoretical or practical foundation (even on an assumption of an imperfect market). So long as there is a counterparty that is willing to be a maker or a taker in the trade, there will not be such premium. Tether is an example of a stable on-chain asset that trades in the range of $1 USD, with no clear premium being paid for stability. This phenomenon could be theoretically possible temporarily in the presence of market panic and low liquidity of the stable on-chain asset. But this could prove to be a temporary phenomenon, only possible in extreme circumstances. Efficient markets price the tokens at fair value, which would be equal to the NAV. Basing an entire model on tokens not being priced at fair value can potentially be disastrous and even misleading to investors. Since the tokens have no legal claim on the assets, they will most likely be priced at a discount by an efficient market.

The statements made Swissrealcoin’s team strongly suggest that they do not have a proper understanding of market behaviour and game theory. Traders, knowing that the token supply will double can game the system by manipulating the token price higher to trigger a new supply of tokens. Or, traders could keep the token price low to prevent the doubling of the supply. In the presence of an efficient market, it is not apparent that the coin’s price will be predictable: It will not simply double, then halve since investors are forward-looking. Anyone buying tokens knows that the token supply will double if the token price reaches 2x NAV. Swissrealcoin claims that it will only release more SRC and that it will never remove SRC from circulation in case of the opposite value change.

The free token-printing mechanism is concerning: There is no efficient price discovery mechanism.

Team

Its CTO started dealing with crypto four months ago. A contributor to this article attended a panel discussion presented by Swissrealcoin at the C3 Crypto Conference in Berlin. It was observed that the CTO lacked specific knowledge relating to blockchain. The team currently has a CTO with no developers. Software development appears to be outsourced to a partner named ValidityLabs. No evidence of legal guidance received from qualified advisors was found.

Published code

They have a GitHub profile (https://github.com/SwissRealCoin), but only a smart contract for their SRC token included. And even that is a dummy/template.

Partners

Several partners are listed with logos on their website.

One partner is ValidityLabs which has been contracted to develop the smart contracts. They are thus outsourcing their development, despite already raising a significant amount of funds.

Asset pipeline

Building IP management and their dashboard. They want to raise 150M CHF with the intention to acquire ten 15M CHF properties.

After that no new features, just expanding to “Germany, then Europe, other continents, then world, then Moon, then Mars” — a direct quote from their website.

Roadmap

See above-mentioned asset pipeline.

No other features or promises apart from Dashboard.

Other

Although they claim that 100% of the ICO proceeds are used to buy real estate in Switzerland, they have contradicted themselves by publicly admitting to an 8% brokerage fee, which also applies to every re-issuance of tokens.