DeFi Franc: A Decentralized Swiss Franc Stablecoin

There are already a few Swiss Franc-backed stablecoins out there, but none have really taken off. Low liquidity and lack of visibility mean CHF stablecoins are still niche.

Right now, the most used and liquid CHF stablecoin is jCHF by Jarvis Network, a project building a suite of protocols to expand the onchain Forex market.

Jarvis' jFiats are 100% collateralized with USDC, which makes them vulnerable to USDC's censorability and, by extension, to US law. Not ideal for a CHF stablecoin. What we really want is a neutral, censorship-resistant, and reliable Swiss Franc stable.

A decentralized alternative has just appeared: DCHF. Let's take a look at its ecosystem, use cases, and potential limitations.

DeFi Franc: a Swiss fork of Liquity

If you're not familiar with Liquity, it's a borrowing protocol that allows you to mint (borrow) LUSD, a USD stablecoin, by depositing ETH as collateral.

It has several advantages over other lending systems like MakerDAO and its DAI.

⚖️ Liquity: unstoppable, efficient, and innovative

Liquity was the first borrowing protocol to operate without governance while being low-cost and efficient.

TLDR of Liquity:

• Borrow a USD stablecoin (LUSD) by depositing ETH as collateral
• No interest, only a one-time borrowing fee of 0.5%
• The loan can be repaid at any time
• You can borrow up to 90% of your collateral's value (minimum collateral ratio = 110%)
• Smart contracts are immutable
• Positions with less than 110% collateral ratio are subject to liquidation
• Liquidators receive 200 LUSD (for gas costs) plus 0.5% of the position's value in ETH
• LUSD can be redeemed directly for ETH at the oracle price minus a small fee, creating a price floor for LUSD
• A stability pool allows LUSD holders to deposit their tokens to facilitate liquidations. The pool receives ETH from liquidated positions, usually worth more than the LUSD used to cover the debt.
• The Liquity team doesn't operate any frontend. They built an SDK that lets anyone deploy their own, which strengthens decentralization and resilience.

Differences between LUSD and DCHF

Swiss Franc vs US Dollar

DCHF is pegged to the Swiss Franc. That creates major differences compared to USD-based stables.

Borrowing in the strongest currency in history carries unique risks, but it can be attractive for:

• Swiss residents who earn income in CHF, avoiding debt volatility relative to their salary
• Purchasing CHF-denominated assets, like Swiss stocks or real estate, to hedge against currency risk

For DeFi users, a CHF stablecoin offers:

• Exposure to the world's strongest fiat without a bank account or restrictions
• Yield opportunities through liquidity provision
• Instant and low-cost transfers and remittances
• Instant settlement for merchant payments in Switzerland

Collateral

DeFi Franc accepts ETH and wBTC as collateral, allowing users to borrow against Bitcoin as well.

However, wBTC isn't decentralized and can be censored since it's issued by BitGo. That's important to note, as the protocol's smart contracts have no governance — collateral types can't be changed later.

Still, having two collateral assets helps reduce insolvency risk in case of large-scale liquidations.

Frontend

Unlike Liquity, DeFi Franc runs its own frontend. Anyone could technically build another, but there's no economic incentive or SDK to encourage it.

Liquidity

DeFi Franc is still very new, so liquidity is limited. Around 6.3 million DCHF have been borrowed so far.

There are three liquidity pools available:

1. DCHF / 3CRV (Curve)
   • 97% of total volume
   • 4.5M TVL (49% DCHF)
2. DCHF / LUSD (Uniswap V3)
   • No liquidity
3. DCHF / USDC (Uniswap V3)
   • 2k TVL

Only the Curve pool has real traction, boosted by a liquidity mining program.

Launched in October 2022, DeFi Franc already ranks 15th among CDP protocols on DeFiLlama. That's promising considering the current market conditions.

Use Cases for DeFi Franc

It's cool to have a Swiss Franc onchain, but what can you really do with it? Is there actual demand for non-dollar stablecoins?

1. Credit Line

The main use case is borrowing. A user can deposit BTC or ETH, keep exposure to their assets, and borrow Swiss Francs at 0% interest.

Still, borrowing in CHF carries risk. It makes sense if you earn in CHF or plan to invest in CHF-denominated assets as a currency hedge.

2. Payments

DCHF could work as an online payment method: instant settlement, no bank fees, no chargebacks, and no intermediaries. For cross-border payments, the value proposition is even stronger compared to remittance services that charge high fees.

3. Savings and Protection

For the first time in history, DeFi gives anyone access to foreign currencies without banks. DCHF lets people from high-inflation countries like Venezuela or Turkey protect their savings by holding Swiss Franc exposure.

This onchain Swiss Franc can also earn yield by being deposited in the stability pool or lent out in DeFi money markets.

4. Onchain Forex

Alongside protocols like Jarvis, Angle, and Curve, DeFi Franc adds another layer to the onchain Forex ecosystem, giving traders more options.

Limitations of DeFi Franc

Despite its benefits, DCHF adoption might remain limited unless certain issues are solved:

Borrowing in CHF isn't attractive

Borrowing in the most stable and historically strong fiat doesn't appeal to everyone. Since DCHF supply only grows when people borrow, low borrowing activity means low liquidity by design.

The peg isn't stable

When DCHF trades below CHF, arbitrage is easy — buy DCHF, repay debt, profit. The issue is when it trades above peg.

A user could: Borrow DCHF → sell it → wait for price to return to peg → rebuy cheaper → repay → profit.

But no one knows when the price will normalize, and meanwhile the collateral could drop in value or be liquidated. The risk/reward ratio is poor, which is why DCHF often trades above CHF.

This is a common issue for decentralized, crypto-collateralized stablecoins. It's the same reason Maker introduced USDC as collateral to stabilize DAI when it traded above $1.

Liquity later introduced an innovative solution: Chicken Bonds. We'll see if DeFi Franc adopts something similar.

DCHF only exists on Ethereum mainnet

With Ethereum's high and volatile gas fees, mass adoption is unlikely unless DCHF expands to cheaper chains. But since the contracts are immutable, new DCHF cannot be minted outside mainnet.

Hopefully, the DeFi Franc team will work on a cross-chain strategy so users with smaller portfolios can interact with DCHF too.

Conclusion

In this article, we explored how DCHF works, its use cases, and its limitations as a Swiss Franc-backed stablecoin.

Everything written here is not financial advice. Always do your own research and understand what you invest in. I am not a financial advisor.

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