#159: Microsoft CEO Satya Nadella talks AI, Drex in São Paulo
#159: Microsoft CEO Satya Nadella talks AI, Drex in São Paulo
Plus: 😱 Brazilians spending US$4 billion a month on internet gambling; exchanges concerned about overly rigid regulation from Central Bank
Olá pessoal!
Welcome back to 🇧🇷Brazil Crypto Report for the week of September 23-27, 2024. There is lots going on at the moment so be sure to read the full report to stay abreast.
Before we dive in, I wanted to draw attention to a report from the Central Bank analyzing the extent of online gambling activity in Brazil, particularly among people who are on public assistance programs, sounded the alarm bells regarding the pervasiveness of this activity.
As a regulatory framework comes into place at year’s end, there will need to be some hard questions asked about whether this type of societal rot should be permitted to continue in this fashion.
We analyze in more detail below so be sure to read on.
🔍What’s in BCR this week?
Bolsa Familia recipients wager R$3 billion on online gambling platforms
Does Nubank’s Nucoin loyalty token actually exist?
2nd phase of Drex pilot to commence in October
Exchanges concerned about overly rigid regulation from Central Bank
Brazilian exchanges imported US$12 billion worth of bitcoin in 2024
Thanks for reading and have a great week!
-AWS
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😱 Bolsa Familia recipients wager R$3 billion on online gambling platforms
Bolsa Familia recipients have transferred R$3 billion (US$500 million) to online betting platforms in the last four months via Pix, according to the Central Bank of Brazil.
This news comes four months after the government prohibited crypto and credit card transfers to betting platforms. As such, Pix has become the preferred mechanism for these payments.
According to the BC’s analysis, around 5 million beneficiaries of Bolsa Familia — a social assistance program for low income families — are using these platforms. There are approximately 21 million total recipients of the program — roughly 10% of the population.
Some eye-popping statistics:
The average transfer size is R$100
70% of bettors are heads of households
The data includes both wagers on sporting events and online casino games
R$2 billion was wagered in August alone
Pix transfers to online betting sites among this demographic have increased 200% since January of this year
The total volume wagered by Bolsa Familia recipients is likely higher than R$3 billion because the BC’s data only includes Pix transfers
The figures only include transfers sent to online betting houses and don’t reflect prizes received
Banco Itaú now estimates that 0.22% of the national GDP is going to online betting
Broadening out to consider the entire population, the total monthly volume of Pix transfers to online gambling sites varies between R$18 billion (US$3.3 billion) and R$21 billion (US$3.9 billion) per month. These figures are 10x the amount spent on the official federal lottery system.
For context, Bolsa Familia paid out R$14.1 billion (US$2.6 billion) to 20.8 million beneficiaries during the month of August, with an average payment of R$681 (US$125).
Roberto Campos Neto, president of the Central Bank, said at an event in Sao Paulo that the uptick in usage of betting platforms by users on public assistance was concerning, especially as it will likely lead to more defaults in the future :
“the correlation between people who receive Bolsa Família, low-income people, and the increase in bets has been quite high. We can map what Pix has done for these platforms and the growth since January has been quite high”
“We take the average ticket and it has gone up by more than 200%. It is something that draws attention and we are beginning to realize that it will have an effect on defaults at the end.”
Earlier this month, Finance Minister Fernando Haddad commented that the country is facing a “pandemic” of online betting:
“[the regulation of betting] has to do with the pandemic [of electronic betting platforms] that is taking hold in the country and that we have to start facing, which is this issue of psychological dependence on games.”
CoinTelegraph Brasil BlockTrends
What will become of Nucoin?
Polygon revealed the second phase of the Nubank project is in development and aims to improve the use of Nucoin within the company’s loyalty programs to ensure greater transparency and personalization.
The rollout comes after Nubank shuttered purchases and sales of Nucoin earlier this month, meaning that the tokens will still exist but cannot be traded in the market.
Manu Echanove, head of Polygon Latam, said that this decision was made due to heightened compliance and risk factors posed by the success of the experimient:
"A large part of the decision is linked to regulation and the risk perceived by Nubank's legal, financial, and risk teams. It became a huge success; and this brought a lot of eyes to the program.”
Echanove added that Nucoin saw more than half a billion transactions carried out that combined to move billions of dollars in value, in addition to growing a large base of users and digital wallets.
Nubank and Polygon are now pivoting the program. Nucoin will be used exclusively to exchange for benefits within the Nubank product ecosystem
Does Nucoin actually exist?
In an interesting twist, a BeinCrypto investigation suggested that Nucoin was never actually deployed — at least not in a functional way.
Developers contacted by BeinCrypto said that they could not find the existence of the Nucoin token on the blockchain.
“I don't want to give a final verdict, but I would say that there is a great possibility that there really was nothing there,” said one of the developers who asked to remain anonymous.
Nubank responded saying it developed the coin using a Polygon Supernet, which is basically a Layer 3 blockchain that sits on top of the Polygon L2.
In statement responding to the allegations, Nubank said that all transactions have always taken place on a private, permissioned network based on Polygon Labs’ technology, and that the privacy of the blockchain is the reason behind the lack of public information.
🤷♂️ AWS’s take - without having looked at all the evidence super closely, it appears what happened here is that the developers raised red flags saying that they couldn’t find evidence of this token’s existence. Nubank and Polygon responded saying that they weren’t looking in the right place.
Since the token lives on a fully permissioned and private Layer 3 subnet, it would not be viewable by public examiners. This makes it impossible to independently verify the token’s existence and the transactional statistics cited by the companies involved. That’s not necessarily a bad thing, as probably every other loyalty points program in existence operates in this same opaque manner.
Why would it be more efficient to run this program on a fully permissioned and private Layer 3 Polygon subnet rather than a standard SAP database? I’m not sure that I’m qualified to answer that question, but this situation does highlight many of the centralization vs decentralization painpoints involved in the quest for mass adoption.
2nd phase of Drex pilot to commence in October
The Central Bank of Brazil announced that the second phase of its Drex pilot will kick off in early October.
Testing will begin with the 13 selected projects, which include assignment of receivables, credit collateralized in government bonds, international trade finance operations, and more.
Fabio Araujo, Drex coordinator at the Central Bank, said:
"To this end, we are working together with the Securities and Exchange Commission (CVM). Other regulators have also shown interest in testing operations with assets under their jurisdiction, in order to expand the usability of the platform.”
He added that the development of each theme will begin in the coming weeks, where projects and the bank will align on implementation strategy as well as testing the various privacy solutions available.
The bank also provided more detail about the 13 Drex use cases involved in the cohort, which you can read about at BlockNews here.
Participating projects must complete their testing by the end of the first half of 2025.
CoinTelegraph Brasil Portal do Bitcoin Exame
Exchanges concerned about excessively rigid regulation from Central Bank
Crypto brokerages in Brazil offering VASP services are concerned that the regulatory regime to be rolled out by the Central Bank of Brazil early next year will be excessively rigid.
In particular, the concern is that the BC will create rules analogous to traditional finance that would favor banks that already operate under a similar framework. This could make it extremely difficult for exchanges to operate in Brazil.
Recall that domestic Brazilian exchanges were among the loudest proponents for a regulatory regime to be implemented by the Central Bank
Vitor Batista, a banking and finance lawyer at Santos Neto Advogados told CoinTelegraph Brasil:
“If the institutional regulatory environment places an excessive burden on the sector and does not establish a feasible period for implementing the measures, it is possible that an immediate need for reorganization of the economic agents involved will be generated and, consequently, cause an increase in transaction costs for these actors.”
“If this is done, it is possible that small and medium-sized players, since they do not have regulatory structures prepared for immediate reorganization, will be at a disadvantage compared to others.”
Priscila Maia, head of legal at Bitybank, told Valor that the BC must be take caution given that VASPs have simpler structures than tradfi institutions.
“In our company, we have a compliance department, but not a separate AML [anti-money laundering] department.”
In the event of a regulatory tightening, exchanges would be subject to higher costs via new reporting requirements, external auditors, new accounting services and compliance staffing needs:
These extra costs become problematic in situations where customers open an account with a brokerage but do not invest or trade frequently. This would create a burdensome overhead for good actors while eliminating bad ones. Maia explained:
“We have high expectations that regulation will be able to remove bad players from the market, but we are concerned about how the cost will be for everyone else.”
Brazilian exchanges imported US$12 billion worth of bitcoin in 2024
The Central Bank’s External Statistics report showed that Brazilian exchanges “imported” more than US$12.4 billion worth of bitcoin between January and August of this year. The coins are purchased abroad by exchanges and then re-sold to domestic customers.
The figure surpasses the value imported over the entire calendar year in 2023, which was US$12.3 billion. The month of August alone saw a nearly 20% year-over-year increase.
Most of the counterparties that sell cryptos to the Brazilian exchanges are located in the US, Hong Kong, Singapore, British Virgin Islands and the UK.
CoinTelegraph Brasil CriptoFacil Valor
Satya Nadella talks AI, Drex in Sao Paulo
Microsoft CEO Satya Nadella paid a visit to Sao Paulo as part of the company’s AI tour. He commented on the company’s participation in the Drex project (it is a member of 5 of the 16 consortia) and held a conversation with Roberto Campos Neto about privacy, security and AI.
He also announced an investment of R$14.7 billion (US$2.7 billion) in AI and cloud in Brazil over the next 3 years, and committed to providing AI training to five million Brazilians by 2028. He also argued that renewable energy can make Brazil a “great protagonist of AI”.
“We are committed to supporting the transformation of AI in Brazil and ensuring that it benefits everyone. Our new investments in cloud and AI infrastructure and training in Brazil will help ensure broad access to both the technology and the skills needed for the Brazilian population and economy to thrive in this era of AI.”
🗞Brazil Crypto News Rundown
📈 Markets
Itaú and Genial will begin selling RWA tokens issued via the BEE4 platform to their customers. BEE4 is a tokenized secondary market for small and medium sized companies that operates within the CVM regulatory sandbox. (CoinTelegraph Brasil)
The BRLA stablecoin has new reached an average daily trading volume of R$820,000, approaching that of the BRZ stablecoin, and has reached a market cap of R$3 million. (CoinTelegraph Brasil)
Mercado Bitcoin launched a new fixed income RWA token in partnership with Prata Digital, a fintech specializing in granting personal credit. The project tokenizes R$50 million in loans for early withdrawals of the Workers’ Severance Pay Guarantee Fund. Alexandre Reda, head of structured products at 2TM, told Valor:
“Today, a significant volume of the early withdrawal of the FGTS is in the banks' portfolios, and we are taking it to the investors to disintermediate.” (CoinTelegraph Brasil) (Portal do Bitcoin) (BeinCrypto)
Cryptocurrencies are among the assets most present in the investment portfolios of Brazilians between the ages of 24 and 35, according to a study by Rico — a company in the XP Group. (Portal do Bitcoin)
Mercado Bitcoin has joined the Tokenized Asset Coalition, which includes other members like a16z, WisdomTree and Galaxy. CEO Reinaldo Rabelo said in a statement:
“Being included in the organization not only aligns our vision with that of other industry leaders, but reinforces our commitment to transforming global finance, promoting a more transparent and accessible system for all.” (Portal do Bitcoin)
📲 Adoption
Drex has the potential to be more innovative than Pix, Robert Campos Neto argued at the J. Safra Brazil conference.
"I think Drex will be more innovative than Pix because it will make us really ]reduce] the noise in the intermediation of financial and non-financial asset.”
In his remarks, Campos Neto also revealed that there are two other central banks globally that are building CBDC projects similar to Drex by utilizing tokenized bank deposits. He said:
"Brazil was once again a pioneer in creating a digital currency through tokenizing deposits. No other country had launched this concept. Now we have two other countries doing the same as us and this is a project that is at the cutting edge of technology.” (Exame) (Livecoins)
Public funding for AI in Brazil totals more than R$2 billion (US$400 million), according to a survey by the Brazilian Development Association. (CoinTelegraph Brasil)
Bitcoin development focused non-profit Vinteum announced its SatsHack hackathon that will award at least R$60,000 in prizes to projects that leverage bitcoin and Lightning Network for Latam-focused solutions. (Portal do Bitcoin)
Brazil’s federal government wants at least 70% of the population to use the new national identity card system, validated on blockchain, by 2027. (CoinTelegraph Brasil)
Brazil is a global leader in the use of digital wallets for non-commercial purposes, according to a study by Google. (CoinTelegraph Brasil)
Brazil came in second place behind Chile on the 2024 Latin American Artificial Intelligence Index. (CoinTelegraph Brasil)
Tokenization entering the radar of the Central Bank is a good thing, Dynasty Global CEO Eduardo Carvalho argued in a BeinCrypto op-ed
Concerns over the use of Drex programmability as a tool for state control were amplified on social media this week after video clips surfaced of Itaú executive Eric Altafim discussing how Drex payments could be used restrict how users are able to spend their funds. (CoinTelegraph Brasil)
🏛 Policy, Regulation and Enforcement
The CVM fined crypto pyramid BlueBenx and its founder Roberto Cardassi a total of R$1 for carrying out an unregistered public offering of securities. Cardassi guaranteed to pay investors 66% return per year on a product called “DeFi 360”. BlueBenx ceased payouts to customers in 2022, with an estimated loss of R$160 million (US$30 million). Cardassi fled the country but was arrested in July in Portugal. (Portal do Bitcoin) (CriptoFacil) (Livecoins) (Valor) (BeinCrypto)
None of the candidates in the Sao Paulo mayoral race responded to questions from BeinCrypto about their plans for blockchain or crypto. Candidate Pablo Marcal recently stated that he wouldn’t put R$1 into bitcoin and that 99% of the people who deal with bitcoin are “crooks”
Gustavo Diniz, known as “Engomadinho do Bitcoin” and the CEO of a crypto trading arbitrage bot called Bybot, is now believed to be in Dubai. He fled the country last year after deleting his social media accounts and defrauding investors of R$70 million. (CoinTelegraph Brasil)
Federal Police carried out Operation Rapax against a criminal group that used cryptocurrencies for human trafficking and money laundering. The gang operated in Brazil as well as European countries like Belgium and Croatia and recruited women for exploitation in Europe. (CoinTelegraph Brasil) (CriptoFacil) (Livecoins) (BeinCrypto)
Federal Police froze R$80 million worth of cryptocurrency in Operation Tebas, which targeted a criminal group operating in Rio Grande do Sul. (BeinCrypto) (Livecoins)