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Takashi Oka, founder of Overlay, explaining his project at the Blockchain Center at the University of Zurich, where he graduated from summer school in 2020. swissinfo.ch
The next generation of the blockchain-powered internet, known as Web3, is a growth area for start-ups. In the race to attract the most attractive start-ups, Switzerland faces stiff competition from companies like Dubai and Singapore. We asked two Japanese startups why they chose Switzerland.
This content was published on December 20, 2022 – 09:00
Overlay, launched by Takashi Oka, combines privacy and responsibility. He supports the creation of Decentralized Autonomous Organizations (DAOs), a digital system that allows groups of people, spread all over the world, to control a company.
DAOs issue digital tokens, which are similar to cryptocurrencies, to finance their activities. The tokens also grant holders DAO membership and voting rights, replacing the concentrated decision-making powers of managers and boards of directors.
It is also possible to recruit new DAO members through social media channels like Twitter. But Twitter doesn’t enforce Know Your Customer (KYC) rules, which are critical in the fight against money laundering. Overlay leverages a Zug-based Concordium blockchain identity management platform to verify identities and preserve anonymity.
Oka explains why Overlay was registered in the Swiss canton of Zug at the end of August. “DAOs are characterized as borderless networks, which fits well with the Swiss characteristic of neutrality,” he said.
He also considered Singapore, where life is easier for Asians, but decided against it because “it’s a centralized state where regulations are getting tighter.”
As Oka went through the onboarding process, she noticed other benefits as well. When he explained the project to Swiss investors, they immediately understood what he was talking about and asked reasonable questions. “In Japan, I would first have to explain what blockchain is,” he said. “In Switzerland, investors are very well informed and communication with them is fluid.”
swiss neutrality
Mai Fujimoto, who founded her company Ryodan Systems in Lucerne in May 2021, reconsidered other cantons before deciding where to live in Switzerland. The best location was Lucerne, an urban center surrounded by lakes and mountains.
“There’s a lot of nature to experience and the lake or a hike in the mountains to distract yourself,” explains Mai Fujimoto, founder of Ryodan Systems, about why she chose Lucerne. swissinfo.ch
“I didn’t want to start a business just on paper, and I wanted a good place to live. There is a lot of nature to experience and the lake or a hike in the mountains to distract yourself.”
Ryodan Systems uses the technology called Zero Knowledge (ZK) Rollup that allows massive transactions of the Ethereum cryptocurrency. As the volume of transactions increases, the large amount of data gets stuck on the Ethereum blockchain, leading to delays and higher transaction fees. To solve this scalability problem, some transactions are processed outside the network and entered into the blockchain in subsequent batches.
This speed-up process is assisted by ZK Rollup technology to ensure that privacy is preserved. Transactions can be made seamlessly without posting private data such as cryptocurrency balances.
Switzerland’s neutrality is also important to Fujimoto given the uncertain geopolitical landscape, including the growing antagonism between the United States and China. Switzerland’s federal political structure and direct democracy also fit with the decentralized philosophy of blockchain. A central European location also allows easy access to a variety of neighboring countries, Fujimoto said.
Japanese challenges
Both businessmen cite two other key reasons for establishing themselves outside of Japan. Cryptocurrency transactions and their conversion to yen attract a 55% tax in Japan, and companies are also taxed annually on the market value of their tokenized assets.
Regulation is also prohibitively strict in Japan. Licensing tokens is complicated, and Japan’s crypto law, introduced in 2017, places such an emphasis on consumer protection that it’s hard for start-ups to grow.
Switzerland introduced its blockchain law in 2021 with the goal of becoming a leading global hub for the blockchain industry. This enables the tokenization of not only financial transactions, but also securities, from company shares to works of art. “It is also important that in Zug and Lugano, taxes and utility bills can be paid with cryptocurrency,” Fujimoto said.
Switzerland is fintech-ready and there are many people in the Alpine state familiar with blockchain concepts, according to Oka and Fujimoto.
‘Crypto Nation’
Switzerland can also gain by attracting new companies from different parts of the world. The Alpine state is positioning itself as a preferred global hub for the blockchain sector, calling itself a “Crypto Nation.”
Emi Lorincz, president of the Crypto Valley Association, says that “95% of blockchain companies in Switzerland are in the financial services space,” with a few gaming and esports companies and only a few specializing in Web3.
“Switzerland lacks qualified developers,” Lorincz said. “Attracting startups from developed countries like Japan will boost Switzerland’s advantage by creating more diversity in the blockchain industry.”
Edited and translated by Mathew Allen
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