🇧🇷BCR #45: Consensus 2022 Highlights; Crypto Legislation Drama in Brazil
Federal Deputy Expedito Netto strips Senate language that would have effectively barred foreign exchanges like Binance from operating in the country
I always enjoy CoinDesk’s Consensus conference every year because it presents a snapshot of the entire crypto industry at a given point in time. This year was a bit frothy and overly shitcoiny at times, spiced with a bit of dread that we’re in for a rough patch (which is indeed playing out). But what I enjoyed most was the enthusiasm and breadth of the builders and the international vibe of the event - there were participants from more than 100 countries and you could feel the global vibe and excitement permeate throughout the festival.
I truly enjoyed the opportunity to meet crypto folks from the Latam region in person, and it was great to see Brazil-focused companies like Transfero, Parfin, Bitso, Mercado Bitcoin highlighted on the global stage.
The thing I don’t like about these conference is I become so focused on the moment that I lose sight of everything else that is happening. In the case of Brazil, this was a very important week and I wanted to make sure I had the time to aggregate and analyze everything properly before sending this out - hence the late delivery.
We have extremely big news regarding Brazil’s crypto legislation that looks set to pass and be signed to law shortly.
Expedito Netto, a Federal Deputy and rapporteur for the bill in the Chamber of Deputies, rejected the Senate’s additions to the bill’s text. Most notably, he rejected added language that would have effectively blocked foreign exchanges like Binance from operating in Brazil. The clause stipulated that only exchanges domiciled in the country with the CNPJ at the time of the bill’s enactment would have been entitled to a 180 day period to adapt to the new rules spelled out in the legislation.
Netto struck that provision under the argument that the rules must be the same for companies that were not previously registered in the country. This means that both domestic and foreign exchanges will be subject to the same 180 day period to comply with the new law.
“It's better if I put less pressure on brokers, with a cleaner, simpler project that makes it very clear with transition rules so that everyone can participate, so that no one is harmed.”
A provision that would require companies to make suspicious transaction reports to the COAF (financial crimes agency) was removed from the text as well. Netto went so far as to say that
“COAF does not have the capacity today, as far as I know [to receive and analyze the reports that would be sent by brokers]“.
Netto said that the combination of the CNPJ registration provision and the COAF reporting requirements “prevents international companies from coming to Brazil at this time.” The Senate text stated that only companies that had the CNPJ and COAF documentation could use the 180 day window to comply with the other provisions in the law.
There appears to be evidence that Binance and other overseas exchanges succeeded in swaying Netto on this point. Readers of Brazil Crypto Report will know that the back and forth struggle between domestic and foreign exchanges in the legislative process thus far. Domestic exchanges have argued that Binance is skirting local rules and thereby able to offer lower costs to customers, which has therefore allowed Binance to secure dominant position in the Brazil market.
Netto also struck down a provision that requires asset segregation, which could prevent exchanges from offering more sophisticated products to clients. This rulemaking would therefore fall on the regulator assigned to oversee the crypto market.
He also rejected a provision that would remove taxes on the importation of crypto mining equipment, arguing that the tax issue requires its own standalone bill. He confirmed that the Banco Central would be the regulator appointed by the Executive Branch to oversee crypto markets, a move that markets had long assumed.
The bill stands to go to a vote possibly this week in the Chamber of Deputies. If approved, it would go to President Jair Bolsonaro to be signed into law. We’ll be watching this closely here and will have an update next week.
At the Valor Crypto Summit in Rio last week, Banco Central President Roberto Campos Neto gave an extensive talk on how his agency would regulate the space and also on the Digital Real rollout. Most importantly, he indicated that his agency would regulate crypto exchanges and brokers to ensure that customer purchases are, in fact, backed by verifiable crypto assets. He said at the summit, hosted by Valor Capital Group:
“People aren't buying crypto, they're buying certificates that supposedly have a crypto [asset] behind…The BC will regulate the exchange [of crypto assets] to ensure that whoever sells something has it.”
Campos Neto also shared that he believes systems that enable tokenization with verified ownership and value transfer are the true innovation of these technologies:
“What is at the center of the debate is not cryptocurrencies or CBDCs, but the tokenization of the economy. You add value and trade things in the form of tokens.”
🎙 Be sure to check out the most recent BCR podcasts with Conor Brady, founder of Ethereum Brasil, about his upcoming Ethereum São Paulo event (which is now happening Sept 27-29) and Ze Paulo, president of Crypto Jr. in Brazil, about building a crypto talent pipeline in the country. You can listen to the episodes in your browser and on Spotify.
🙏 Thanks to our partners at HBAR Foundation for supporting 🇧🇷 Brazil Crypto Report! If you're a Latam entrepreneur or developer with an up-and-coming project or idea and need some support, take a look at the HBAR grant program. They're seeding projects focused on DeFi, fintech, NFTs, sustainability and so much more. They also offer a plethora of other resources to help builders bootstrap. Do yourself a favor and check them out! 👊
🗞Brazil Crypto News Rundown
Valor Capital Group, one of the largest venture capital firms operating in Brazil, says it will deploy US$100m in new funding to seed investments in the blockchain and crypto ecosystem. (Valor Investe)
A quantitative crypto fund run by Titanium, a Brazilian crypto asset manager, was up nearly 7% from January to May of this year, even as the price of bitcoin fell by 31% over that same time frame and many other passively managed crypto funds such as the HASH11 ETF have incurred heavy losses. (Valor Investe)
MB Digital Assets, the asset tokenization arm of Mercado Bitcoin, is listing a new consortium quota token CSCONS03, which have an estimated annual yield of 18%. More than 17,000 tokens will be available with a unit value of 100 BRL. It’s the 8th such batch of tokens released by MBDA. (CoinTelegraph Brasil) (Portal do Bitcoin)
Mercado Bitcoin listed OP, the native token of the Layer 2 Ethereum scaling solution Optimism. (Portal do Bitcoin)
In an interview with Valor, Nubank CEO David Vélez said his company has several teams working on blockchain and cryptocurrency projects, and that Nubank will continue to invest in these technologies in the coming years. (CoinTelegraph Brasil)
Coinbase reaffirmed plans to commence formal operations in Brazil later this year despite a hiring freeze and layoffs of more than 1000 employees. “Brazil remains a priority market for us and we are on track for our launch in the country,” the company stated. (CoinTelegraph Brasil) (Exame)
Binance has staffed up in Brazil with a pair of former executives from Uber and Airbnb. Daniel Mangabeira Mantas, who spent 7 years at Uber and a brief stint with Bitso, will serve as the main spokesperson for the exchange in Brazil with the title Director of Institutional Relations. Carolina Matos joins as Binance’s head of Public Relations in Latam after stints at Twitter and Airbnb. (Portal do Bitcoin)
The number of crypto trading reports made by Brazilian investors trading on foreign exchanges halved in just one month, per data from the Receita Federal. Brazilians declared R$178m (US$35m) worth of foreign trades in March, versus just R$75.5m (US$15m) in April. This reporting is pursuant to Normative Instruction No. 1,888 which requires Brazilians who move more than R$30,000 per month on an overseas exchange to declare to the RF. (Portal do Bitcoin)
Mercado Bitcoin is rebranding to simply “MB”, with the goal of improving the overall customer experience and making it easier to understand that it offers other services beyond crypto trading. The rebrand is accompanied by a restructuring of the businesses in 2TM’s portfolio. (Portal do Bitcoin)
Fabio Araújo, the Digital Real lead at the Banco Central, sought to clarify reports from earlier this month that the CBDC would have the ability to freeze and block withdrawals. Rather, he emphasized that the Digital Real will have a “circuit breaker” in the same way that the B3 does, and asserted that the concepts in a paper he authored for Bank for International Settlements on the topic were misinterpreted. In remarks to Exame, he explained that the idea is to ensure the protection and security of the system using mechanisms like withdrawal limits - particularly in the event of a virtual or physical attack.
"You won't be able to freeze any CBDC. What the system can do is freeze a stablecoin in crisis. It's the same mechanism used by the exchange during a crisis." (CoinTelegraph Brasil)
Stablecoins issued by Brazilian banks against Digital Real deposits will not need to be 100% backed. Rather banks will be able to abide by current reserve ratio requirements in issuing stablecoins against Digital Real deposits from customers. This means that banks will be able to lend and create new money in the same manner as they do with non-CBDC currency, as well as be subject to the same minimum capital requirements. The full requirement of 1:1 backing will be only required for payment institutions. (Valor Economico)
This would mean that the Digital Real will be primarily aimed at wholesale use by financial institutions and companies, rather than retail use by individual consumers.
The objective is create a way to implement the Digital Real without harming the ability of banks to provide credit
The BC’s Campos Neto also highlighted this point at the Valor Crypto Summit, indicating that the bank will encourage banks to monetize customer deposits by issuing stablecoins. He stated:
"By monetizing deposits, you inherit the pre-existing regulation on bank deposits, and that makes it much easier. And banks can develop a system with the same structure that they already use for deposits. So, the way we are creating our CBDC has several advantages over what I've seen out there." (CoinTelegraph Brasil)
The number of cryptocurrency investors in Brazil doubled in 2021, though savings are still the preferred investment vehicle Brazilians across all generations, according to a survey by Anbima - a trade association representing financial and capital markets entities. The report found that roughly 2% of the Brazilian population, 4.2 million people, invest their money in crypto assets. (CoinTelegraph Brasil) (Portal do Bitcoin)
Mastercard announced a new partnership with Mercado Pago, the payments arm of Mercado Livre, in which Ciphertrace will provide security infrastructure services to all crypto purchases and payment operations involving retail investors in Brazil. Mastercard acquired blockchain analytics firm Ciphertrace last year for providing risk assessment and analysis on blockchain transactions. (Valor Investe) (CoinTelegraph Brasil) (Portal do Bitcoin)
Daniel Coquieri, CEO of Liqi, has a useful column on how tokenizing the FIFA Solidarity Mechanism works.
Fluminense, the Rio-based football club, will launch its own fan token via a partnership with Socios.com. It will be the ninth Brazilian club to do so. (CoinTelegraph Brasil)
La Casa de Bitcoin, the first crypto reality show in Brazil, announced its schedule and participants. It will run up until the LaBitConf event in November, hosted in Argentina. (CoinTelegraph Brasil)
Orla Rio is launching an exclusive kiosk for holders of its fan token. The company manages 309 kiosks along Rio de Janeiro beaches. (CoinTelegraph Brasil)
Brianna Kernan, a Latam director at Chainalysis, argues in an op-ed for Exame that impending regulation and the current market conditions will be a boost for crypto adoption in Brazil
Airline GOL Linhas Aéreas and travel company CVC made their first 100% carbon neutral corporate flight by using tokenized carbon credits made by the Moss platform. The CO2 compensation funds will be reverted to various Amazon conservation projects. (CoinTelegraph Brasil)
Binance announced that is now the exclusive crypto sponsor of the Campeonato Brasileiro Feminino, the women’s soccer tournament organized by the Brazilian Football Confederation (CBF). The deal lasts for three years. (Money Times)
Startups like ImpactMarket that use blockchain and crypto for use cases to fight hunger, such as universal basic income, can play a role in fighting food insecurity in Brazil, according to a new research report by Vox Populi Institute. (CoinTelegraph Brasil)
Tero Labs is launching an NFT series aimed to track the careers of individual players from the Seleção Brasileira, the Brazilian national team. The first phase of “Rough Diamonds” collection features 11 players from the national team. (CoinTelegraph Brasil)
The fall in the price of bitcoin is delaying the expansion of crypto miners in Latin America. (Portal do Bitcoin)
Primo Rico, the company owned by Thiago Nigro - the largest financial influencer in Brazil and a cryptocurrency endorser, laid off 20% of its workforce in a “restructuring”. (Portal do Bitcoin)
Research and investment house Empiricus laid off 12% of its staff, roughly 70 people, amid the bear market downturn. (Livecoins)
🎮 NFTs, Gaming and Metaverse
Mari Moon, one of the first Brazilian digital influencers and former MTV VJ, is launching a crypto, Web3 and NFT educational series on Instagram, where she has 703,000 followers. (CoinTelegraph Brasil)
Gaming startup Snackclub announced a Brazilian version of the Axie Infinity Origin Championship with a prize pool of R$30,000 (US$5,800). The competition comes via a partnership with Axie Infinity developer Sky Mavis. Snackclub was created in April by the founders LOUD, an e-sports organization. It raised R$50m (US$10m) in funding from Mechanism Capital, Animoca, Jump Capital and others. (CoinTelegraph Brasil)
Brazilian engineer Wanderley Abreu Júnior, who previously worked for NASA, is launching his own cryptocurrency and blockchain gaming platform. (CoinTelegraph Brasil)
Saori Honorato from Portal do Bitcoin profiles an Axie Infinity gamer who was able to use his play-to-earn winnings to leave the Cidade Alta favela, though the difficult times have returned with the market crash.
Brazilian gaming startup Prota Games raised R$14m (US$2.75m) to launch its Heroes of the Metaverse game, which is based on blockchain and features a tokenized economy. (Exame)
🏛 Public Policy, Regulation and Enforcement
The Federal District Public Ministry will launch the country’s first special law enforcement unit focusing on crypto assets. The order was signed by the district’s Attorney General Fabiano Costa. According to the Public Ministry, the unit’s responsibility will be to:
“To prepare training and manuals for members of the Public Ministry, the Judiciary and the police, to promote informative actions that guide the population of the [Federal District] and the rest of the country on the safe use of crypto-assets, and provide support to [Public Ministry] prosecutors in claims involving cryptocurrencies.” (Valor Investe) (CoinTelegraph Brasil) (Portal do Bitcoin)
Glaidson Acácio dos Santos, the now detained founder of GAS Consultoria, announced his pre-candidacy for Federal Deputy from Rio de Janeiro with the Christian Democracy Party. He made the announcement on his Instagram feed (Livecoins)
Brazilians and Mexicans are the favorite targets of cybercriminals who use so-called Trojan applications to steal login credentials from victims’ crypto wallets, according to a new threat report released by ESET Research. (CoinTelegraph Brasil)
A São Paulo real estate tokenization initiative is considering doing its R$50m - R$70m (US$10 - US$14m) fundraise abroad due to concerns that the CVM will deem it an irregular securities offering. (CoinTelegraph Brasil)
Brazilian crypto exchanges and wallet providers have become the target of a US investigation into the 2015 hacking and extortion of adult social networking site Ashley Madison. (CoinTelegraph Brasil)
Authorities in Minas Gerais confiscated R$1.5m (US$293k) worth of crypto from a criminal group accused of operating a pyramid scheme in what was named the “Merchants of the Temple” operation. (Portal do Bitcoin) (Livecoins)
Johann Steynberg, a South African accused of operating a bitcoin pyramid scheme in the country but who was hiding out in Brazil before being arrested in Goiania last year, will remain in custody per an order from the Brazilian Supreme Court. (Portal do Bitcoin)
The uncle of the alleged “Bitcoin Sheik” Gabriel Rodrigues was kidnapped in São José dos Campos over an alleged debt of R$600k. The kidnappers demanded a ransom of R$1m from Rodrigues’ family. (Portal do Bitcoin)
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