🇧🇷BCR #62: CVM Token Guidance Met With Mixed Reception
🇧🇷BCR #62: CVM Token Guidance Met With Mixed Reception
Plus: Romario NFTs outperform in launch; more crypto platforms seeking pre-emptive licensure from Banco Central
Boa tarde pessoal!
Welcome to Brazil Crypto Report for the week of October 10-14, 2022.
Today’s post focuses on a new CVM opinion that provides guidance on token issuances and when crypto tokens should be considered securities. TLDR is that while the much-anticipated report is thorough and unquestionably a step in the right direction, many market participants were less than thrilled with the final opinion given the expectations surrounding it.
This post also includes a news recap focusing on markets, adoption, NFTs and gaming, regulation and enforcement and other Latam crypto news.
Have a great week everyone,
-AWS
P.S. If you enjoy this content please consider subscribing and sharing with others who might find it informative!
CVM Releases Token Guidance to Mixed Reception
The CVM, Brazil’s securities regulator, released a long-awaited report this week outlining its views on crypto asset classification
While the report is not binding regulation in any way, it provides the first comprehensive glimpse since 2018 into the agency’s views on digital asset issuance. Namely, its priorities are include transparency, disclosure to investors, compliance with existing investor protection and anti money-laundering rules and, perhaps most importantly, an openness toward the evolving token ecosystem.
João Pedro Nascimento, the recently appointed president of the agency, said in a statement:
“The opinion is a recommendation and market orientation, with the objective of ensuring greater predictability and security for all, in addition to contributing towards the protection of investors and popular savings, as well as fostering a favorable environment for the development of the crypto economy, with integrity and adherence to relevant constitutional and legal principles.”
In an interview with Valor, Nascimento noted that the regulator decided to act now as it would inevitably have to analyze the subject in-depth at some point. He added:
“We have seen irregular public offerings taking advantage of the unknown. This is a difficult and nebulous topic, our idea is to shed light on it to prevent it from being a field for perpetuating harmful conduct”
The move to release this opinion now also appears to be a move by Nascimento to draw more funding and resources to his agency. He noted that the CVM has not had a consurso to hire new employees since 2010 and that his agency is woefully behind with regards to staffing and technology to effectively regulate this new sector. He said:
“The CVM can only work if it has [public servant] reinforcements. We are entering a new industry.”
So what is and is not a security?
The document stipulates that while crypto assets are not expressly considered securities, each asset must be examined and evaluated upon its own merits and will be considered a security if it meets the criteria outlined in existing regulation. Specifically, tokens that serve as digital representations of shares, debentures, certificates of deposit, certain types of coupons and other products are deemed to be securities.
Tokenization of a digital asset in itself does not constitute a security and does not require prior approval or registration with the CVM. However, if the tokens are issued for the purpose of public distribution, then the issuer and the offering itself fall under the CVM’s umbrella.
The report lays out a taxonomy of three separate types of tokens:
payment tokens
utility tokens - which are used to purchase certain products and services
asset-backed tokens, which could be stablecoins, NFTs or some other “real world” asset or cash flow that is digitized in token format
Disclosure of information to investors in plain, easy to understand language is also high on the priority list - particularly after the initial coin offering era when projects would raise funds off of white papers laced with technical jargon. Information about the issuers, rights of token owners, properties of the assets themselves will be expected to be disclosed.
Helpful information, but nothing really new
The document’s release was met with mixed reception from the market - with some arguing this was an in fact a step backwards, though these views may have been influenced by varied expectations ahead of the opinion’s release. Pablo Cerdeira, partner at Galdino & Coelho Advogados, told Valor Investe:
“The opinion is very important for what it says, for what it does not say and especially for what it signals…First of all, the CVM has always said that it would publish an advisory opinion and not a normative act. So, those who expected more than an opinion had their expectations misaligned.”
Felipe Medeiros, a crypto analyst at Quantzed Cryptos, wasn’t impressed, telling CoinTelegraph Brasil:
“The CVM guidelines are not conclusive at any level. They just said that there are tokens that can be securities and others that cannot. This indication has been made by the SEC (US CVM) for over a year. Most likely they will wait for the decision and the US regulatory model to do something very close or even a replica.”
Bernardo Schucman, an SVP at CleanSpark, asserted that this opinion only serves to make the situation even more unclear and could slow down development of the token ecosystem in Brazil. He told CoinTelegraph Brasil:
“Publication 40 of the CVM is very confusing regarding the rules for issuing and classifying tokens, leaving a very big question mark about the legality of issuing the vast majority of tokens. In addition, it determines that the CVM acts after the issuance of the token to punish the issuers, making the entire tokenization process dangerous and leaves a gray area for the issuers as well as the buyers of these tokens.”
Cerdeira added that the document does bring some clarity around the topic of international offerings and public token offerings, even if carried out in a closed environment.
Crypto’s Holy Grail remains elusive
Crypto has been on an elusive years-long quest for more clarity on how securities regulators will treat tokens. At the end of the day, it doesn’t seem like the CVM opinion moves the ball down the field very much, as evidenced by the lukewarm response from local market participants.
The CVM proactively diving into this area is undeniably a positive development writ large, however this particular opinion seems to largely reinforce positions that were already known or had been previously articulated without clarifying the main pain points.
Rocelo Lopes, CEO of Swapix, said that the CVM doesn’t have the manpower to handle traditional markets, let alone crypto markets, and that this opinion serves to shift the burden from agency to the issuer in making these determinations.
“There is nothing new. The document did not help the market at all and does not say exactly what the CVM's view is on existing tokens on the market. They don't give examples of what their nomenclatures are. They just said do it and if we find something wrong we will act.
It just took away their responsibility and returned it to the user who will have to analyze whether or not that type of token is a security. The CVM has not really made it clear what its position is.”
That’s not to say, however, that consolidating previously scattershot positions into a single authoritative text isn’t a bad idea. Marcelo Castro Cunha Filho, an attorney at Machado Meyer Advogados, told InfoMoney:
“The text did not surprise the market insofar as it only consolidates in a single document positions already taken by the institution….Although it does not bring any innovation, the opinion makes CVM's position clearer insofar as it coherently systematizes the institution's previous positions.”
Several areas still to be addressed
In particular, there was an expectation that the opinion would offer more clarity regards to the tokenization market, which currently sits in a grey area.
Daniel Coquieri, CEO of tokenization firm and crypto exchange Liqi - who was recently summoned by the CVM to provide more information about his company’s token products, commented:
“This is a positive opinion, but the regulator and the market still need to delve a lot into how the technology [of tokenization] will impact the capital market.”
One item that was expected by many but not included was a reversal of a January 2018 rule that prohibits the direct acquisition of crypto assets by local funds, which later was amended to allow for these assets to be acquired abroad. Rather, the opinion states that new criteria and diligence on this matter will be developed as the asset class matures. Nascimento told Valor:
“At the right time, we will expand this step. The regulation carried out in a responsible manner is gradual”
Still, the agency seems to be taking a much less restrictive and punitive approach to this subject than the US Securities and Exchange Commission, which has stubbornly refused to provide guidance on these matters and has instead opted for a regulation-by-enforcement approach.
Until recently, the CVM has been basically on the sidelines of the crypto regulation debate in Brazil - largely taking a backseat to the Banco Central. This document, however, changes that dynamic and brings the CVM back to the middle of the conversation surrounding token regulation. Cerdeira of Galdinho & Coelho commented:
With the opinion, the CVM places itself at the center of the debate, on an agenda aligned with that of the Central Bank, even though each of the bodies is responsible for their areas of competence.”.
The expectation now is that the CVM will further study the subject and craft more specific regulations once legislation is passed by Congress.
Go Deeper
If you’re looking for more perspectives on this CVM opinion, I recommend taking a look at this Portal do Bitcoin op-ed by Daniel and Eduardo da Paiva Gomes, a pair of Brazilian bitcoin tax experts, Juliana Facklmann - director of global regulation at 2TM Group, and Paloma Sevilha, director of infrastructure and market products at BEE4.
CoinTelegraph Brasil collected and published dozens of responses (positive, mixed and negative) from various players in the market, which you can read here.
I will also have a podcast episode with Isac Costa, a Brazil crypto regulation expert and former CVM staffer, on this subject coming out this coming week so please have a look out for that.
🎙Catch the latest episodes of the 🇧🇷Brazil Crypto Report podcast.
1️⃣ Marcello Mari of SingularityDAO discusses how his AI-driven asset management platform became one of the most popular crypto projects in Brazil
2️⃣ Garrett Kinsman, co-founder of Nodle, joined to discuss his smartphone-powered Internet of Things network and how he hopes to onboard one million users in Brazil by this time next year.
3️⃣ Bobby Ong, co-founder and COO of CoinGecko, joined the show to talk about meme coins, GameFi and how these types of tokens will drive mass adoption in emerging market economies.
🗞Brazil Crypto News Rundown
📈 Markets
More crypto platforms are seeking license from the Banco Central to act as brokers ahead of likely regulation of the market by the BC. To accomplish this, the quickest way is to buy an institution that already has a license rather than begin from scratch. Fausto Ferraz, co-founder and CEO of Xsfera - a payments consultancy, told Valor that he knows of at least six entities looking to obtain such a license quickly so as to ensure they can operate once regulation does come out. Given the amount of time it takes to get a license, he notes, time is of the essence:
“An authorization process at the BC for the approval of a license to become a broker takes 12 months. That is, if by the end of the first half of next year everything is regulated, there will still be a window of six months to adapt.”
Crypto.com’s unveiled its Grid trading feature in Brazil. It is a systematic trading strategy that involves setting predetermined prices for buy and sell orders which are then automatically executed. (CoinTelegraph Brasil)
Parfin announced a partnership with Mercurius to develop new crypto asset products. Via the partnership, the Parfin Terminal and Mercurius Enterprise products will be offered at 50% discount. Parfin CEO Marcos Viriato said in a statement:
“Staying out of the cryptocurrency revolution is no longer an option…Financial institutions must pay attention to this advance to improve their results, as well as improve the experience of their customers – whether direct or final.” (CoinTelegraph Brasil)
QR Asset, the holding company of QR Capital, and Buena Vista are launching a crypto fund managed by BNY Mellon.
The fund, called the Buena Vista QR Kenobi FIC FIM, will focus on diversification and active management and will invest in various QR Asset products such as QR Blockchain Assets and QR Crypto Factors.
The fund is aimed at retail investors and will have a minimum investment of R$100.
Renato Nobile, a portfolio manager at Buena Vista, noted that the partnership makes it possible to carry out the asset manager’s first fund with 100% crypto exposure.
The fund is available via BTG Pactual, Genial, Warren and for XP Investimentos Wealth Management clients. (Crypto Times) (CoinTelegraph Brasil)
Cryptocurrency-linked ETFs were among the top performing in September, per data released by B3 - Brazil’s stock exchange. Ethereum ETFs, however, were down relative to other ETFs tracking other cryptos. (CoinTelegraph Brasil)
Digital asset custody platform GK8 has partnered with 2ND Market, a Brazilian cryptocurrency holding company, to expand product offerings in Brazil. GK8 will license its institutional grade custody platform to 2ND Market to provide access to its services - in particular its integration with Metamask Institutional. GK8 was founded in 2018 and manages US$50bn in digital assets utilizing an air gap Cold Vault to prevent cyberattacks. (CoinTelegraph Brasil)
📱Adoption
The Rio de Janeiro City Hall began registering companies to convert their IPTU tax payments with crypto into reais beginning in 2023.
The initiative was first announced earlier this year, whereby city residents and companies will be able to pay taxes in cryptocurrency. The city will be the first in Brazil to accept cryptos for tax payments
The city will hire several companies to carry out the conversions
Mayor Eduardo Paes said in a statement: “Rio de Janeiro is a global city. Therefore, we are following the technological and economic advances in the universe of digital financial assets”.
Several cryptocurrencies will be able to be used for the payments, though none were specified.
Companies must be accredited with the city, have a CNPR and keep an updated registration of their customers.
Earlier this year, Paes floated the idea of investing part of the city’s treasury into digital assets. However, that initiative does not appear to have been advanced. (Valor Investe) (InfoMoney) (CoinTelegraph Brasil)
BlockBR launched its DeFi T-Propt fund which focuses on tokenizing luxury real estate in tourist areas. Each property is fractionalized as NFTs and sold to people who wish to use the properties. Each fraction NFT entitles the holder to a certain number of days using the property each year. (Valor)
Ripio will soon launch its Ripio Portal Web3 wallet for Brazilian customers. The wallet will connect to decentralized applications, DeFi protocols and be usable in metaverses. The solution was launched in Argentina as a beta version in July. (BlockNews)
Brazil will be one of the world’s seven largest cryptocurrency markets in the coming months, behind Thailand, Indonesia, India, Philippines, UAE and Saudi Arabia, says a new study conducted by Toluna of 10,500 participants globally. (Crypto Times)
Companies like Swapix, CoinPayments and LoopiPay are working overtime to bring more cryptocurrency payment adoption to Brazil. Rubens Neistein, business manager at CoinPayments, says that 1,500 stores in Brazil are currently using his system and that he expects to process US$250m worth of crypto payments in Brazil for 2022.
“People are looking to use crypto for purchases less than last year's bull market. Many want to invest their cryptocurrencies, especially dollar-pegged stablecoins. A lot of people want to be dollarized today.” (Valor)
A record number of Brazilian companies bought cryptocurrencies in August, according to the Receita Federal. More than 12,000 unique companies purchased crypto assets during the month. Brazilian companies collectively hold R$10.9bn (US$2.1bn) worth of crypto. (CoinDesk)
Victor Garcia, 15 year-old developer from east São Paulo who taught himself to code by watching YouTube videos, took first place in the ETHBogotá hackathon. His team of four other Brazilians competed against 900 other participants. His team built a reading incentive platform where the reader earns tokens for each page of a book read. He was able to go to Colombia thanks to financial support from NGO Instituto Educar+, which was able to raise the necessary funds to support his travel in less than 24 hours. (Portal do Bitcoin) (Valor) (x)
Mercado Bitcoin is forming a partnership with CryptoArtery to use Web3 technologies to raise funds for preserving jaguars. The Jaguar Friends project began with a Jaguar Parade which evolved into art exhibitions in São Paulo and New York. (Portal do Bitcoin)
Bitcoin Pizza Day is now on the official calendar of the city of Porto Alegre. May 22 commemorates the date when programmer Laszlo Hanyecz made what is accepted as the first ever bitcoin transaction in 2010 when he acquired two pizzas in exchange for 10,000 bitcoins - currently worth US $19.1m. (Portal do Bitcoin)
99Pay has reduced its minimum amount for crypto purchases from R$10 to R$1. The company also reported that over the last six months it has seen a 113% increase in total bitcoin transactions and an 85% increase in the number of users who bought bitcoin. (Portal do Bitcoin)
Zebedee, a gaming and payments startup c-founded by Brazilian developer André Neves, announced the launch of “No Big Deal”, a non-profit focused on promoting open source bitcoin development. Neves said in a statement:
“NBD doesn't sell anything, doesn't offer services, doesn't support products. She just writes code and lets the world do whatever she wants.” (InfoMoney)
Carrefour is installing five new cryptocurrency ATMs at stores in Curitiba, Porto Alegre, Parana, Rio Grande do Sul and Pernambuco via a partnership with Coin Cloud. The supermarket chain will have a total of nine stores in Brazil with crypto ATMs. (Portal do Bitcoin) (CoinTelegraph Brasil)
The Brazilian Micro and Small Business Support Service (Sebrae) is organizing an Entrepreneur Fair in São Paulo. that features lectures on various cryptocurrency topics, such as Web3 and metaverse. (CoinTimes)
Brazil has the fifth-most internet users of any country in the world, says a new study released by Coupon Valido. It trails only China, India, US and Indonesia. (Exame)
Sport Club International held its first experience for its SACI fan token holders ahead of a recent match. Holders were able to compete for a breakfast with former goalkeeper Clemer and were able to watch the match with him in a private suite. (BeinCrypto)
🎮 NFTs, Gaming and Metaverse
A collection of Amazon-themed photographs by Sebastião Salgado memorialized as NFTs will be auctioned off by Sotheby’s to benefit Instituto Terra, which is an environmental group formed by the famous photographer. (Valor)
FitDance, a digital dance community from Grupo SBF, is entering the world of crypto and metaverse with its first virtual dancers. FitDance has more than 35 million followers on social networks. (Crypto Times)
Rock in Rio is releasing NFT bracelets for its festival via a partnership with BlockBR. Each person who purchased a ticket to the 2022 event will be able to redeem their bracelet for one of seven NFTs, depending on what type of admission level their original ticket represented. Rock in Rio CEO Luis Justo commented:
“We have allied ourselves with the new technologies that are emerging, because we know the enormous potential and reach they have. In August, just before the festival, we announced the arrival of Rock in Rio to the metaverse with an exclusive map in Fortnite. Today, we are entering the universe of NFTs, an old desire that we had and we are very happy to fulfill.” (Crypto Times) (CoinTelegraph Brasil)
Brazilian influencer Bianca Andrade da Silva, known as Boca Rosa, announced a new metaverse-inspired makeup line called PINK. (CoinTelegraph Brasil)
Brazilian startup Autono.me is releasing an NFT series of Lula and Bolsonaro called “Helleições 2022” that portrays the presidential candidates as horses. The series is meant to be a criticism of ongoing political divisiveness. Felipe Franco, Autono.me CEO, explained:
“If there's something that saddens me in every election, it's the polarity that generates fights between friends, family and the like. In this [election] in particular the attacks are beyond violent. I want to unite the polarities for a common good, to do good.” (Crypto Times)
Other Bolsonaro and Lula NFTs haven’t fared so well on the market. (CoinTelegraph Brasil)
Futster, a Brazilian NFT-based football management game, is set to be released to the public on October 27 ahead of the World Cup in Qatar. Players create their own teams using NFTs of players and earn tokens for winning matches and competitions. The tokens will be publicly listed on various exchanges, and the NFTs will be available for trading on OpenSea and other NFT marketplaces. Ivan Duffles, executive producer of Futster, commented:
“Players will receive 'gFUT' and 'gBOL' (the game tokens) when winning matches and competitions. After a certain period of time, these in-game currencies will be able to be “claimed/tokenized” by users and converted into FUT and BOL”. (InfoMoney)
Travessia, a new Globo primetime telenovela, will explore a series of metaverse themes. (Crypto Times) (Exame)
Daniel Mendonca, director of marketing at SNACKCLUB, highlighted six ways users can earn money with play-to-earn games. (CoinTelegraph Brasil)
An NFT issued by former Brazilian football star and current senator Romário rose more than 714% in an auction in Florianopolis promoted by Cripto Sports. The NFT sold for roughly R$50,000 after an initial bid of R$7,000. Several images representing his personal life and career were digitized into NFT format. Romario commented:
“Actually, this project started almost two years ago, and for us to be immortalized through an NFT is a really gratifying, honorable thing, and I am very happy with that.” (CoinTelegraph Brasil) (Crypto Times)
🏛 Public Policy, Regulation and Enforcement
PL 4.401/21, the bill that would regulate crypto, was back on the agenda of the Chamber of Deputies this week, though it did not receive a vote. (Valor Investe) (CoinTelegraph Brasil)
This CoinTelegraph op-ed by Gino Matos assesses the current state of the bill and argues why it’s passage is necessary. Lobbyists from Bitso and Mercado Bitcoin also remain optimistic that the bill we passed this year despite rapporteur Expedito Netto’s unexpected loss in the general elections earlier this month. (Crypto Times)
“Bitcoin Sheik” Francisley Valdevino da Silva moved at least R$4bn (US$751m) of customer funds through at least nine different crypto exchanges, according to reporting by Portal do Bitcoin. These exchanges included Binance, Coinbase, Huobi, Crypto.com, NovaDax, BitPreço and others. These movements came after he blocked withdrawals from Rental Coins, a pyramid scheme he originated that impacted thousands of Brazilian customers, including celebrities like model Sasha Meneghel.
Banco Central President Robert Campos Neto traveled to Washington to discuss regulatory questions surrounding global stablecoin and crypto regulation, among other things, at the G20 and Financial Stability Board meetings. (CoinTelegraph Brasil)
Cryptocurrency and Digital Real proponents are somewhat concerned that a Lula victory in the presidential election could derail the progress made by the Banco Central on these matters, particularly the crypto-forward approach taken by Campos Neto - who has two years remaining in his term. (Crypto Times)
Alex Braga, a Brazilian entrepreneur and known figure in the world of cryptocurrency pyramid schemes, passed away on October 6. He was known as the right-hand man of Philip Han, the creator of FX Trading. FX was ultimately banned from operating in Brazil by the CVM in light of pyramid scheme allegations. (Portal do Bitcoin)
Brazilian human trafficking victims are being taken to Cambodia and forced to work in cryptocurrency scams and related cyber crimes, according to the Ministry of Justice and Public Security. (Livecoins)
💣Elsewhere in Latam
The government of Portugal is proposing a 28% income tax on cryptocurrencies in its 2023 draft budget. The tax would only apply to cryptos owned for less than a year. Crypto transactions would also be taxed, with a 4% rate applied to commissions charged by intermediaries. The proposal threatens to undo the country’s current status as a “friendly” country on crypto tax matters. (The Block)
VC funding in Latam fell for the fifth consecutive quarter, US$1.1bn in funding allocated across 226 deals. (Bloomberg Linea)
Ripio opened its Teatro Ripio in Bogota. The space is designed to be a permanent collaborative hub in the city for individuals in the Web3 space. (Livecoins)
Bitcoin mining firm Pow.re announced that it will use energy from the Itaipu power plant to mine out of two new data centers with 3,600 new ASIC machines near Asunción, Paraguay. The facilities will use 12 megawatts of hydropower. (CoinTelegraph Brasil)
El Salvador is still looking to attract companies to invest in its “Bitcoin City”, despite holdups stemming from the delayed issuance of US$1bn worth of “volcano bonds” to finance the project. (CoinTelegraph Brasil)
The Central Bank of Argentina is imposing a tax on the importation of bitcoin mining hardware. (Livecoins)
El Salvador President Nayib Bukele remains the most popular leader in Latin America despite his US$107m bitcoin gambit, according to a poll by CID Gallup. (Decrypt)