#146: Nubank to bring bitcoin Lightning Network to 100 million users
Plus: All eyes on Drex at Febraban Tech; Santander Brasil launches crypto trading
Olá pessoal!
Welcome back to 🇧🇷Brazil Crypto Report for the week of June 24-28, 2024!
I hope everyone who made it out to Febraban Tech last week found it productive. I wasn’t able to attend, regrettably, but there was important news that came out of the event about the highly-anticipated Phase 2 of the Drex project, which we cover in-depth below.
🔍What else is in this week’s BCR?
Nubank to integrate bitcoin’s Lightning Network through a new partnership with David Marcus’ Lightspark
Santander Brasil soft-launches its crypto trading platform
Binance is outside the scope of the Receita Federal’s tax probe because it is domiciled outside the country, says a letter signed by Finance Minister Fernando Haddad
Thanks for reading and have a great week!
-AWS
🙌 🇧🇷Brazil Crypto Report is a free publication; if you wish to support my work you can do so by hitting the button below👇
Brazil Crypto Report is presented by
Kaleido is the most trusted digital assets and blockchain company by enterprises. Their product suite is the ultimate business blockchain cloud and is rated #1 for tokenization and #1 for blockchain-as-a-service. Kaleido is powered by open source, supports multiple protocols, connects to permissioned and public chains, and lets you utilize any smart contract. Tokenizing assets in a scalable and interoperable way has never been easier.
Built by veterans of IBM Blockchain and Consensys, the Kaleido platform combines turnkey functionality with enterprise-grade security and scalability to power your application — whether it be in banking and financial services, supply chain, media, government & public sector, or central bank digital currencies.
Learn more and try it free at Kaleido.io
New podcast!
This week’s episode takes a slight detour to examine Brazil’s exploding sports betting and online gambling sector.
Udo Seckelmann, head of gambling and crypto at Bichara e Motta Advogados, and James Kilsby, chief analyst and VP of Americas at Vixio Regulatory Intelligence discuss how Brazil became the hottest online gambling market in the world, what will change when a licensing regime takes effect on January 1, and where this all intersects with cryptocurrency.
🎧 You can find Brazil Crypto Report content wherever you listen to podcasts: Spotify | Apple Podcasts | Amazon | Anchor | YouTube
Nubank to integrate Lightning Network via Lightspark
The unicorn digital bank is partnering with Lightspark to bring bitcoin Lightning Network functionality and Lightspark’s Universal Money Address (UMA) protocol to Nubank customers.
Lightspark is a company founded by former Paypal and Facebook executive David Marcus focusing on Lightning Network integrations and solutions. (Recall that Marcus was famously the co-creator of the Facebook Libra stablecoin project). He said in a statement:
“enabling Nubank's more than 100 million customers to access solutions that make their financial lives simpler and more efficient through Lightning is something unique and one that makes us extremely proud.”
Thomaz Fortes, executive director of Nubank Cripto, said in a statement:
"the partnership with Lightspark, which developed an excellent technical solution for the Bitcoin Lightning Network, is another step within Nubank's purpose of offering the best solutions to our customers and reinforcing our long-term relationship with all of them.”
Nubank also acquired an AI-for-banks startup called Hyperplane, just seven months after the company announced a US$6 million seed funding round.
Exame TechCrunch CriptoFacil Livecoins
Drex Updates from Febraban Tech!
Drex Phase 2 will feature call for new consortia
The second phase of the Drex pilot will have a public call for new consortia who wish to participate in the project.
There are currently 16 consortia, a group that includes most of the large banks in the country.
The call will be formally issued at the end of the third quarter, with the goal of onboarding new participants by the beginning of 2025. The bank has also created a dev kit to make it easier for new entrants to get set up on the network, explained Fabio Araujo, coordinator of the Drex project at the Central Bank.
"As we have already set up the structure and have this dev kit, it is easier to open it to more people. So, the idea is to absorb as many consortiums as possible"
The second phase is expected to last 12-14 months, Araujo explained, and will focus on identifying privacy solutions. He said that while the project is behind schedule, the privacy issue is something that nobody anywhere else has solved but that there are mature solutions coming online quickly (more on this further down).
He emphasized that Drex would not be opened up to end users until the privacy problems encountered in the first phase are resolved.
Focus on use cases
There was also lots of discussion about Phase 2’s focus on use cases and demonstrating concrete real world applications of the Drex project. Araujo said:
“In this second phase, to take advantage and not break the development of Drex, the consortia have already been able to present use cases and we will carry out an open selection process so that other participants can propose more use cases and enter, further increasing the complexity of the ecosystem at the beginning of 2025.”
"The consortia have already presented use cases for implementation in the second half of the year, and in the second half of the year we will make an open selection for other participants to further increase the complexity of the ecosystem and validate governance rules in early 2025.
Further development of these use cases will hopefully help to demystify the project, as most of the general public still have little idea what Drex is or how it would benefit them.
Solange Parisoto, business development consultant at Sicredi, said during a Febraban Tech panel at the Accenture stand:
“We still have the challenge of improving the general understanding of this technology, in parallel with advances in Drex tests. This is the moment for society to understand the difference caused by this new system.”
Among the use cases of interest on the Central Bank side are those that involve digital identity and credentials, Araújo explained:
“I will be very happy if someone brings a use case that needs digital identity, even though it is not a case of financial settlement. We look for business use cases. If you present one that talks about using ID to greatly improve business execution, we go from the specific to the general.”
He did add that those proposing new use cases should first check with their respective regulator before bringing the idea to the central bank
Clarissa Souza, technology coordinator for Drex at the Central Bank, said there is no expected delivery date for Drex as of yet:
“The digital real is a long-term project, which brings the innovation of decentralized finance to the regulated environment. There is anxiety, but we need to materialize what can really bring gains.”
Valor Valor BlockNews Portal do Bitcoin Exame BlockNews CoinTelegraph Brasil
Campos Neto departure won’t impact Drex, says Araújo
Roberto Campos Neto’s term as Central Bank president expires at the end of this year, but the transition won’t impact Drex. Araújo explained:
“The innovation agenda is very consolidated at the Central Bank. The president can give direction, but I don't think it will end. There may be others products, discussions depending on what the next president thinks, but the programs being implemented continue.”
The successor will be appointed by Brazil’s president Lula — with whom Campos Neto has butted heads. Gabriel Galipolo, who is expected to be nominated as successor in 2025, has publicly questioned the merits and progress of Drex.
EY to begin testing Starlight privacy solution for Drex
EY’s tool has been tested by the Central Bank’s technical team for transfering tokenized bank deposits, and will now be tested on delivery versus payment for tokenized government bonds.
The EY solution differs from others currently being tested in that the privacy is built directly into the smart contracts themselves. Thamila Talarico, blockchain and crypto lead partner at EY, told Valor:
“Privacy, in this case, comes from cryptographic techniques in smart contracts. Starlight is a tool that generates applications with privacy, called zapps (zero knowledge apps).”
BlockNews CoinTelegraph Brasil
Binance is outside the reach of Receita Federal’s tax probe, says Haddad
A document signed by Brazil’s Finance Minister Fernando Haddad states that Binance is beyond the reach of the country’s tax authority because it is a foreign-domiciled company with no local headquarters in Brazil.
Recall that the Receita Federal in June announced that it would be probing overseas exchanges on tax compliance matters.
A request was made to the Ministry of Finance to comment on Binance’s positioning vis-a-vis this probe by Federal Deputy Alfredo Gaspar.
The response stated that the tax authority has no possible means of investigating Binance’s operations in Brazil:
“It is noted that the exchange mentioned in the request refers to a company domiciled abroad for tax purposes, and, as such, not reached by the jurisdiction of inspection by the Special Secretariat of the Federal Revenue of Brazil”.
It should be noted that Guilherme Nazar, Binance’s director general for Brazil, is the nephew of Fernando Haddad, but there is no evidence to suggest that this relationship had any influence here.
Santander Brasil launches crypto trading for customers
The bank enabled crypto purchases via its Toro investment platform after three years of internal studies and market analyses.
Santander Brasil joins Itaú, BTG Pactual, Inter and Nubank among major Brazilian banks that now offer crypto trading to retail clients.
João Resende, founder and executive vice president of Toro, said that the platform will initially offer bitcoin and ether to select customers with an appropriate (aggressive) risk profile. The product will then be gradually extended to Toro’s entire base of 1 million active clients.
Valor CriptoFacil Portal do Bitcoin CoinTelegraph Brasil
🗞Brazil Crypto News Rundown
📈 Markets
31% of Brazilians hold more than 10% of their investment portfolio in cryptocurrencies, according to a new survey commissioned by Coinbase.
The survey also found that 55% of Brazilians intend to increase their crypto investments over the next 12 months.
66% of respondents believe that crypto can increase economic freedom and be an alternative to traditional financial market investments
Fabio Plein, Coinbase’s regional director for the Americas, said that events like ETF approvals in the US and expected interest rate reductions helped to drive the optimism:
"These events add to the maturation of the sector, with more people knowing and becoming familiar with it, and this then encourages the intention of increasing exposure to this asset class. It is a sum of elements helping to demystify this investment environment, increasing the willingness to allocate more or enter the sector.” (Exame) (Portal do Bitcoin)
Cryptocurrency imports into Brazil from January through May totaled US$7.9 billion, according to new data from the Central Bank. That’s nearly double the US$3.86 billion figure recorded during the prior year period. (Valor)
The Central Bank modified its treatment of crypto assets and will no longer register them in the country’s trade balance, in response to changes enacted by the International Monetary Fund. These changes will cause Brazil’s current account deficit to fall significantly starting in July. (Valor) (Livecoins) (InfoMoney)
The B3 Exchange is looking at launching ether futures contracts, Felipe Goncalves, superintendent of interest and currency products at B3, disclosed at an event hosted by B3 and QR Asset.
B3 commenced trading of bitcoin futures in April and is working to evolve the product as a means to attract institutional investors
Daily trading volume on bitcoin and crypto ETFs is around R$50 million (US$10 million) per day, with a peak of R$200 million in a single day. These products have 180,000 total investors and R$5 billion in total assets. Goncalves stated:
"Here at B3, it is clear that the cryptoasset market has developed significantly and is now well structured, with a strong demand for capital market products. We are attentive to the next steps and what we can evolve." (Valor) (CoinTelegraph Brasil) (Portal do Bitcoin) (InfoMoney) (BlockTrends)
St. Joseph Group, a multi-family office that manages US$1.3 billion in assets, reached an agreement to acquire ByeBnk - a fintech created in 2020 in Belo Horizonte as a platform for managing. (Valor)
Bybit has added several new BRL-linked trading pairs, including USDT/BRL, USDC/BRL, BTC/BRL, ETH/BRL and SOL/BRL. (BlockTrends)
Transfero invested R$1.25m in Notus Labs, a startup that aims to become the “Nubank of decentralized finance.” (Startups.com)
The real is the second-worst performing fiat currency in 2024, but Brazilians still seem to prefer dollar pegged stablecoins over bitcoin. (CoinTelegraph Brasil)
BlockBR announced an internationalization initiative to allow Brazilian investors to access RWA tokens linked to the US real estate market. CEO Cassio Krupinsk explained:
“The expansion of BlockBR to the United States marks a significant step in our mission to, through infrastructure, offer new roles to market agents and solutions via tokenization that facilitate access to global real estate investments.” (CoinTelegraph Brasil)
📲 Adoption
Football legend turned cryptocurrency pyramid promoter Ronaldinho Gaucho suggested his return to the crypto market with a post on X stating “It’s time for crypto to go mainstream, who’s with me?” Crypto detective ZachXBT followed up with a post highlighting many of his controversial projects:
“Is this a translation of you’re broke again? In case you forgot, here are all the cryptocurrency projects you've pumped and abandoned over the years.” (BlockTrends) (Livecoins)
Drex’s first use cases will be focused on the tokenization of non-physical assets, concludes a new report by ClearSale and CPQD that surveyed 12 financial institutions involved in the Drex project. These non-physical assets will likely include things like bank deposit certificates and other regulated securities. (BlockNews)
The Drex delays present a “unique moment” to accelerate innovation in Brazil, Fuse Capital and Brx Finane co-founder Dan Yamamura told CoinTelegraph Brasil:
“We are taking this time to develop and test use cases that will be critical in the future.”
Banco do Brasil announced that it has started a new phase in Drex testing through the issuance of an RWA token linked to Brazilian treasury bonds. (CoinTelegraph Brasil)
Dinamo Networks launched two new security solution modules focused on Drex. These include the Hyperledger Besu Plugin, which protects nodes integrated into the Drex network, and the Safe Keeping which allows safe custody digital assets with division of responsibility. (CoinTelegraph Brasil)
Brazil has 24,000 ATM machines that allow for cryptocurrencies to be converted and withdrawn into Brazilian reals. (BeinCrypto)
InfoMoney has a good article explaining the mechanics behind football fan tokens that have transferred R$19 million to token holders. (InfoMoney)
Banco Bradesco’s digital assets team is working on a project to tokenize personal identity and customer credentials. Renata Petrovic, superintendent of innovation, explained:
“For example, your CPF, address, date of birth, your documents in general. It is important for the customer's journey, as they can leave their current account and take out insurance more easily, without having to give their credentials several times.” (Valor)
Blockchain firm C9 Tech has developed a crypto card that uses a stablecoin to pay out benefits in the city of Santo Antonio da Alegria. 500 city hall employees will receive meal vouchers via the card; the vouchers can be redeemed in establishments around the city. The currency was developed using Tanssi’s appchain platform and will run on the Polkadot blockchain. (Valor) (CoinTelegraph Brasil)
Binance and Bybit both announced new educational initiatives aimed at the Brazilian market. (CoinTelegraph Brasil)
Portal do Bitcoin has created an artificial intelligence agent called TOSHI to help readers find relevant information based on keywords, topics and basic commands.
Juno is entering Brazil with a product called Velo that functions as a crypto-native digital bank.
It will offer Brazilians an account in dollars via USDC stablecoin and a bank routing number, thereby competing with products like Wise, Nomad and C6.
Juno has 400,000 customers in the US and has raised US$21 million in venture funding from Polychain and others.
CEO Varun Dashpande told BlockNews that he’s confident the product will be well-received in a competitive marketplace:
“Velo is the only stablecoin account with a dollar behind it available in the Brazilian market. By providing users with the ability to save their money in USD equivalents, we offer the industry's lowest IOF rate of 0.38% on conversions combined with instant deposit or transfer methods.” (CoinTelegraph Brazil)
🏛 Policy, Regulation and Enforcement
Financial pyramid schemes were the crime most reported to the CVM during the first quarter of 2024. (Portal do Bitcoin)
Crypto data services provider Lukka has joined ABCripto. (Portal do Bitcoin)
Rodrigo Faria da Silva, a director at Grupo Lotus/Amazon Bank, was sentenced to 20 years in prison for operating a cryptocurrency pyramid that promised investors gains of up to 300%. (Portal do Bitcoin) (Livecoins)
The Central Bank updated its internal regulations to define the Department of Financial Services Regulation (Denor) as responsible for regulating “the provision of virtual asset services, as well as virtual asset service providers.” (Portal do Bitcoin) (Livecoins)
Former CVM director Alexandre Rangel said in his three years at the agency he only interacted with Gary Gensler one time, and the conversation didn’t touch on cryptocurrencies:
“I only met Gary Gensler once and we talked about various subjects, except subjects related to the crypto universe. We talk about important things, like Flamengo, caipirinha, football and Carnival. But the more technical and regulatory parts, we didn’t deal with.” (Portal do Bitcoin)
A businesswoman from Minas Gerais was arrested, accused of embezzling money from the credit card company she worked for in order to purchase R$35 million (US$7 million) worth of luxury items and cryptocurrencies. (Portal do Bitcoin)
The Receita Federal stated that operations generating income with cryptocurrencies are subject to tax collection at the source. These apply to cryptocurrency savings accounts that generate interest via lending programs. (CriptoFacil) (Livecoins)
Federal Police in Ceará executed eight search and seizure warrants against 20 suspects allegedly involved in a bank fraud scheme using bitcoin. (Livecoins)