Frankencoin: Designing a Swiss franc stablecoin without an oracle

Stablecoins are often discussed as a single category, but their designs answer different questions. Some are liabilities issued by companies against assets held in bank accounts. Frankencoin takes another route: ZCHF is minted against onchain collateral, while protocol rules govern its peg, liquidations and loss absorption. There is no central issuer controlling the system.

That structure reflects the currency Frankencoin represents. The Swiss franc does not offer a reserve-income model comparable to the one available to dollar stablecoin issuers, according to Johannes Kern, Managing Director at Frankencoin. Swiss government bonds carry little or no interest, and Swiss regulation makes a conventional issuer model difficult to use as an open stablecoin rail. Frankencoin therefore uses overcollateralized borrowing and market incentives instead of an issuer balance sheet.

The result is a useful study in stablecoin design. Frankencoin separates the reasons people transact from the reasons they hold value, removes a price oracle from the liquidation process and assigns first-loss capital to holders of a second token. Range's view is that each choice changes what finance, risk and compliance teams need to observe when they use the asset.

Why Frankencoin starts with the Swiss franc

Kern begins with concentration. "99.7% or even more of the stablecoin world right now is denominated in dollars." He sees a clear reason for that dominance: the dollar remains the common denominator for cross-border transactions. A business sending value between markets benefits when both sides can account in the same familiar unit.

Holding money is a different use case. Kern told Paula Pettit that the dollar had lost 83% of its value against the Swiss franc over the previous 50 years. He also said large institutions have long held Swiss francs on their balance sheets as a hedge against dollar debasement. Frankencoin brings that exposure onchain for people who cannot access francs through a bank on attractive terms. As Kern put it, "And with Franken coin, we're just trying to bring this onchain because we believe that people that are in this, you know, decentralized world could also have access to the Swiss franc."

The currency also shapes the protocol's economics. Kern contrasted Frankencoin with centralized dollar stablecoins, whose issuers can place reserves in interest-bearing US government debt while paying no interest to token holders. He argued that this business model does not transfer cleanly to Switzerland because Swiss government debt offers little yield. He also described a regulatory constraint: a centralized Swiss issuer would need a bank license and could transfer only among onboarded bank clients, undermining the open transferability expected of a stablecoin.

Range's view is that asset design should be visible inside the operating model around it. For stablecoin treasury management, the denomination, source of backing, redemption route and access constraints all affect how a company classifies exposure. Range starts with regulatory and reporting requirements, translates them into operational controls, orchestrates the risk and compliance providers a company already uses, then runs monitoring, reconciliation and reporting from the same record. That sequence keeps protocol design distinct from the controls a finance team applies when it holds or moves the asset.

A peg maintained through collateral and arbitrage

Frankencoin has no company bank account holding one franc for every ZCHF in circulation. Kern described the Frankencoin Association as an arm's-length nonprofit that supports the project but does not own or control the system. Users create ZCHF by depositing collateral and borrowing against it, with the collateral value set above the amount minted.

That overcollateralization provides the lower side of the peg mechanism. If ZCHF trades below one franc, a borrower can buy it at the discounted market price, repay the loan and retrieve collateral worth more than the repayment. Repayment reduces the ZCHF supply, creating an economic path back toward the peg. The protocol does not need a central issuer to promise redemption from a reserve account for that incentive to operate.

The upper side uses a separate arbitrage route. Kern described a bridge where a user can put in one Swiss franc, mint another CHF-denominated token and exchange it for one Frankencoin. If ZCHF trades above one franc, the user can sell the newly minted ZCHF into the market, expand supply and push the premium down. Together, borrowing and arbitrage apply pressure from both directions.

Short-term stability still depends on market liquidity. Kern noted that liquidity is fragmented across networks, exchanges and decentralized pools, with no single venue netting every position. Part of Frankencoin's work is therefore maintaining tight spreads across those markets. The protocol also has an amplifier module that can mint liquidity into Uniswap pools to deepen them. Range's view is that digital asset treasury controls need to account for this market structure directly: a target peg, available liquidity and executable price are separate observations, and each belongs in the operating record.

Oracle-free liquidation changes the risk model

Most collateralized lending designs use an external price feed to decide when a position must be liquidated. Frankencoin removes that dependency. Kern's concern is direct: "Oracles are a massive vector of centralization". He also argued that an oracle restricts collateral to assets with deep markets and dependable price feeds, because the system expects to sell quickly when collateral values fall.

Frankencoin instead separates solvency testing from price discovery. A challenger offers collateral of the same type to a borrower at the liquidation price the borrower selected when opening the position. If someone accepts the offer, the position has demonstrated that it remains sufficiently collateralized. "If it's sufficiently collateralized, it doesn't need to know the price." Kern's explanation shows how the protocol uses market participation to answer a binary question without reading an external market price.

If nobody accepts the challenge, the borrower's collateral enters a Dutch auction. The auction price declines over the liquidation period until a buyer steps in. Kern summarized the design principle in five words: "Liquidations destroy economic value." Frankencoin delays price discovery until the system has evidence that a position cannot support its stated liquidation price, rather than triggering an immediate sale whenever an oracle crosses a threshold.

The timing and reserve rate vary by collateral. Kern said Bitcoin liquidations typically run for 24 hours, with a 20% reserve rate representing expected volatility over that period. He contrasted that with a tokenized Swiss company whose reserve rate is 60%. He also said the model can admit tokenized funds with little onchain liquidity when buyers can redeem the asset offchain. For teams using Range, that expands the control surface: collateral type, liquidation window, reserve rate, auction progress and offchain redemption route all become relevant inputs for cross-chain monitoring and portfolio risk.

Governance capital connects decisions to losses

Frankencoin uses two tokens. ZCHF is the franc-pegged stablecoin. Frankencoin Pool Shares, or FPS, supply governance rights and a pool of capital that Kern compared with the tier-one equity of a bank. This division gives stablecoin holders a medium of exchange and store of value, while FPS holders govern parameters and stand behind losses.

The governance process is optimistic. Anyone can propose a new collateral type, interest-rate change or module after paying the required fee. For a collateral proposal, Kern described a five-day veto period. Holders representing 2% of voting power can block the change, and voting power depends on both the number of FPS held and the holding duration. The design makes preserving the current system easier than changing it, because a proposal must avoid a veto from the threshold minority.

Protocol income and losses meet in the FPS pool. Borrowing interest and proposal fees add to it, increasing the value represented by each pool share. Losses from undercollateralized positions reduce it. "So they have a very strong incentive to keep the system healthy because they will pay for it." Kern was referring to FPS holders, whose governance role is linked to financial exposure rather than operating as a separate voting layer.

Demand is currently led by holding rather than payments. Frankencoin can be used through merchant acceptance, card infrastructure and Swiss QR-bill payments, and Kern said the association itself operates without a bank account. He does not expect domestic payments to become a major use case in Switzerland because of the network effects behind Visa and Mastercard. The larger opportunity, in his view, is access to Swiss franc savings for people outside Switzerland. He described current users as a mix of retail participants and long-standing high-net-worth crypto holders shifting part of their dollar stablecoin allocation into francs, while institutions often already have direct franc access. On the supply side, he expects more tokenized real-world assets to become eligible collateral.

What Frankencoin means for stablecoin operations

Frankencoin shows how collateral policy, liquidity, governance and loss absorption can maintain a stablecoin without a central issuer or price oracle. Range's view is that companies using assets with different control models need one operating layer that makes those differences visible across stablecoins and fiat. See how Range supports stablecoin operations.

About Frankencoin

Frankencoin is a decentralized, overcollateralized stablecoin designed to track the Swiss franc. The protocol lets users mint ZCHF against crypto collateral and use it for payments, borrowing, saving and application integrations. Learn more at frankencoin.com.

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