🇧🇷BCR #82: Central Bank unveils Digital Real pilot
🇧🇷BCR #82: Central Bank unveils Digital Real pilot
Hyperledger Besu chosen as underlying Digital Real infrastructure; Plus: Parfin launches its own blockchain
Olá pessoal!
Huge welcome to 🇧🇷Brazil Crypto Report for the weeks of March 6 - March 10, 2023!
Gente - before we dive in this week, please know that I was SIM swapped on Friday. I’ve suspended my phone number, but the hacker was able to access my Whatsapp and Telegram. If you’ve received any weird messages from me after 4pm ET Friday asking for money please know the person you’re interacting with is a scammer and not me!
On a brighter note, I’ll be moderating a panel at an event hosted by Veirano Advogados in Sâo Paulo on Tuesday, March 14. Former US CFTC chairman Chris Giancarlo will be the special guest speaker, along with speakers from the Brazil Central Bank, CVM, Parfin, BTG Pactual and BitGo. The event goes from 8:30 - 10:45am - would love to see some of you there! You can rsvp to rsvp@veirano.com.br
As always, thanks for reading and have a great week!
-AWS
Central Bank announces Digital Real pilot on Hyperledger Besu
Brazil’s Central Bank has initiated testing of a pilot version of its Digital Real, the ambitious central bank digital currency which is expected to go fully live by the end of 2024. Testing will involve the issuance, exchange, transference and redemption of assets and focus on the infrastructure and privacy of the information that will be transmitted on the network.
The first asset to be tested on the Digital Real network will be a federal public bond.
Testing will continue throughout 2023 with the participation of mainstream financial system institutions, similar to the process used ahead of the Pix rollout in 2020. The five guidelines for the current testing phase include 1) multiactive DLT, 2) simulated transactions, 3) asset fragmentations, 4) access to services through FIs, 5) technical and business decisions.
Built on Besu
The Digital Real test platform will be developed with a “specific focus on the programmable infrastructure in DLT”, according to project coordinator Fábio Araújo. To do this, the Banco Central announced it will be using Hyperledger Besu, which allows for the creation of distributed networks that can be controlled by a centralized administrator.
For the record, Hyperledger Besu is NOT a blockchain. Rather, as a DLT (Distributed Ledger Technology) it has many of the same characteristics as a public blockchain (ie multiple nodes distributed across the network that mutually reach consensus) but offers the feature of control by a centralized administrator. Blockchain purists will argue that a DLT is no different from a regular database. They may or may not be correct, but that’s a conversation for another time. The point is that for compliance purposes the BC needed a permissioned network into which only authorized participants can access.
Why Hyperledger Besu?
Hyperledger Besu is a permissioned network - access is restricted to approved participants - that offers the functionalities of Ethereum - namely, smart contracts and composability (ie “money legos”). In theory, this Ethereum Virtual Machine compatibility with should attract a wealth of startups and developers interested in building new financial products on the Central Bank’s infrastructure.
Prior to the announcement, there had been speculation as to what platform the BC would use:, a permissioned blockchain system like Hyperledger, a more open and public platform, or nothing at all.
You can see the full press conference from the Central Bank below (in Portuguese)
Data Privacy a Concern
One of the main concerns voiced by Araújo and team is that of data privacy - notably that the data being transacted cannot be openly viewed by other participant (and competitor institutions). Araújo stated:
“Distributed technologies tend to give wide visibility to information on the network, so we need to think carefully about the strategies that can be used to guarantee the privacy that is required by law.”
“Programmable Money” is the Goal
Contrary to other CBDC models, the primary goal of the Digital Real is not necessarily to enable faster payments or create a payments database. Rather, the objective is to build a tokenized financial system based on the idea of “programmable money” - which refers to the idea of building rules directly into the currency itself about how, when, where and for what the purpose the currency can issued and used. Araújo described a potential example:
"A City Hall can give a voucher to buy milk that can be digital and be in the [citizen's digital] wallet, and have all the characteristics of money, but, at the time of payment, it will only lend itself to that purpose."
Araújo affirmed, however, that the Central Bank does not want to control citizen spending.
“It is very important to separate the voucher from the money, and leave very clear to whoever is receiving it. This needs to be very clear to people, because there is a risk of interference that requires great care. It is up to people to define how they are going to use [their money]”.
Digital Real Design
The bank also confirmed previously reported plans that the CBDC will reach the Brazilian public by means of tokenized bank deposits. The Digital Real itself will function as a hybrid wholesale/retail CBDC, in which the primary use case is to transact and settle financial transactions between commercial banks and the central bank. Commercial banks will then be able to issue their own tokenized reals (essentially real-pegged stablecoins) against bank deposits. These tokenized real stablecoins, subject to BC rules and regulations, will be used by the general population.
Araújo affirmed:
“The regulatory framework will be in force to avoid asymmetries in relation to what exists today. The digital real will serve more for interbank transactions and the tokenized real will be a kind of stablecoin issued by banks.”
For their part, banks will need to have sufficient liquidity to carry out tokenized real operations. Exactly how much liquidity? More guidance on that to come later on.
Pix for Financial Services
If all goes according to plan, the Digital Real infrastructure will function as a Pix for financial services, in which new assets issued in the form of tokens can be created, transacted and settled instantaneously - essentially creating a peer-to-peer trading model for securities with a blockchain/DLT registration.
The national CBDC will therefore allow for participants easily to buy and sell government bonds and other financial products. Araújo explained:
“You choose the product, the bank withdraws the Tokenized Real from your wallet and transfers it in Digital Real (RD) to the other bank. And then, the other bank receives the RD and makes the payment in deposits of Tokenized Reals for its client. And you would close the cycle by delivering the public title”
Mitigating harm to TradFi banks
One of the noteworthy aspects about the Central Bank’s CBDC approach is that it actively sought to minimize harm to the country’s existing TradFi banks. This approach is drastically different from the design used by China, for example.
Rodrigo Caldas de Carvalho Borges of Carvalho Borges Araújo Advogados told Valor:
“The pure use of technology, as is done in China, would result in people having wallets directly connected to the BC, no longer having accounts in private banks. Consequently, it would have a huge economic impact, with a reduction in bank deposits and even the supply of credit.”
In fact, credit rating agency Moody’s argued that the Digital Real’s design poses less of a threat to existing banks than other CBDC models being researched around the world, which pose “greater risk of disintermediation” for legacy banks. As reported by InfoMoney, only Central Bank regulated institutions would have access to the Digital Real under the proposed design, and commercial banks would be able to issue real-pegged stablecoins against tokenized bank deposits. Under the Digital Real design,
“By not allowing retail customers to have direct access to the CBDC, the Central Bank cushions the risk of bank deposit outflows that could reduce the availability of funding for the financial system.”
🚨If you’re looking for more info about the Digital Real design and implementation, I highly recommend checking out this podcast I did with Gustavo Cunha on the topic.
🗞Brazil Crypto News Rundown
📈 Markets
Digital asset infrastructure firm Parfin has created its own “layer zero” blockchain called Parchain optimized for Digital Real compatibility. Parchain will comply with privacy principles and Know Your Customer and anti-money laundering rules, while having performant speed, security and scalability.
The platform is currently being used by Santander in the Banco Central’s LIFT Lab for a project involving the tokenization and transfer of vehicles and real estate
Interoperability between others chains is enabled by bridges using zero knowledge and multi-party computation technology, making it possible to carry out transactions from one blockchain to another
According to CTO Alex Buelau, the network’s goal is to securely and privately connect different private blockchains while adapting to different use cases in the realm of CBDCs, stablecoins, tokenization and permissioned DeFi. (Valor) (CriptoFacil) (InfoMoney) (Portal do Bitcoin)
Estar, a Brazilian “digital crowdfunding” fintech participating in the CVM’s regulatory sandbox, expects to list its first equity crowdfunding tokens in late March. The platform is designed to list tokenized shares early stage companies that have been bootstrapped through crowdfunding, giving early investors the opportunity to sell their shares. (Valor)
Nu Holdings, the firm that controls Nubank, said in a statement to the Brazilian CVM that the company had no exposure to Silicon Valley Bank, which collapsed late last week. (Portal do Bitcoin)
Portal do Bitcoin reported that Nubank executed another round of layoffs last week. Laid off employees who sign a non-defamation clause received an additional salary and three months extra of health benefits.
Mercado Bitcoin listed the BLUR token, the native token of the Blur NFT marketplace which has emerged as the top competitor to OpenSea. (Portal do Bitcoin)
MB also paid out more than R$1 million to holders of 12 different consortium tokens issued in the last year. It also launched a new token in partnership with Bolt Energy to track a supply of energy market receivables. The token holds an estimated annual return of 17%. (CoinTelegraph Brasil) (Portal do Bitcoin)
Mynt, BTG Pactual’s digital asset platform, listed eight new cryptocurrencies for trading - bringing its total to 22. Among these tokens are Cosmos, Avalanche, Algorand and Stellar. (Exame) (Portal do Bitcoin)
Polygon (MATIC), Dogecoin, Solana (SOL) and Cardano (ADA) were among the most traded cryptocurrencies by Brazilians in January 2023, according to Receita Federal data. (CoinTelegraph Brasil)
📱Adoption
Nubank announced the appointment of David Marcus to its board of directors. Marcus is a veteran of PayPal and head of Facebook’s Libra (turned Diem) cryptocurrency project. (CriptoFacil)
Only 5 percent of Brazilian men and 1 percent of Brazilian women have invested in cryptocurrency, according to a new survey by Anbima and Datafolha. (Portal do Bitcoin)
Nicole Dyskant, head of legal and compliance at Hashdex, is leaving to lead the digital assets practice of her own firm, Dyskant Advogados. Julia Castelo Branco will take over the position internally, while Dyskant will continue to work with Hashdex in an external consultant role. (Valor)
Brazil may be the third largest country in the world for crypto adoption, according to a study by HedgewithCrypto. (CoinTelegraph Brasil)
Travel agency Decolar (Despagar in Spanish) has begun accepting crypto payments through a new partnership with Binance Pay and Inswitch. The service will be available only to users in Argentina initially, with plans of expanding to the other 20 countries where Decolar operates, including Brazil. (CoinDesk)
Rispar, a Brazilian fintech that offers credit against crypto collateral, launched its mobile application. The app functions as a crypto wallet and a flexible line of credit against crypto holdings such as bitcoin, ethereum, litecoin, Uniswap and USDT. Users will be able to take out personal loans ranging from R$500 to $2 million depending on the value of the collateral. (BlockNews) (CriptoFacil)
Red Bull launched a competition for Brazilian artists that involves NFT prizes. (Livecoins)
The Praia Bitcoin event held in February in Jericoacoara set the world record for bitcoin transactions through the lightning network with 71 transactions conducted in 3 minutes and 33 seconds, or one every 3 seconds. (CoinTelegraph Brasil)
Numerous Brazil crypto outlets highlighted impactful Brazilian women in the Web3 space in honor of International Women’s Day:
BlockNews spotlighted Daniela von Hertwig Meyer of eNor Assets, Danielle Teixeira of Fenasbac, Caroline Nunes of InspireIP, among others.
Portal do Bitcoin spotlighted Fedi’s Renata Rodrigues, Carol Santos of Educar+ and Ethereum Brasil, Heloisa Passos of Trexx, Camila Rioja of Celo and more
CoinTelegraph Brasil highlighted Amanda Marques of Lumx Studios, Carolina Mello of Nodle and Inaiara Florencio of MB
Mercado Bitcoin launched an “MB Women’s Month” campaign for March aimed at onboarding new female users
Binance opened up applications for its Binance x Women in Tech program in Rio de Janeiro, which will train women aged 18-35 with Web3 skills
Basf do Brasil is launching the reciChain token linked to recyclable solid waste, with the goal of creating a reverse supply chain for companies looking to source recycled materials. Hyperledger Besu will be the underlying platform used for the project, which is being conducted in partnership with Solví Group. (CoinTelegraph Brasil) (Valor)
The government of Ceará entered into a partnership to invest R$790,000 into an animal tracking system based on blockchain and internet-of-things. (Portal do Bitcoin)
Blockchain One, a Brazilian startup, launched on March 6 its platform that allows companies to use the technology for free. It provides an API that allows an integration of traditional business networks with other blockchain networks on the market. (Exame)
Unicamp computer science professor Jorge Stolfi referred to bitcoin as the “Paypal of crime” and “the biggest Ponzi scheme in history” in a Twitter rant.
🏛 Public Policy, Regulation and Enforcement
Palmeiras players Mayke and Gustavo Scarpa reportedly lost R$11 million (US$2.11 million) in a cryptocurrency pyramid scheme targeted at athletes. They players have sought aid from the Justiça do São Paulo.
The brokerage involved, known as Xland Gestora de Investimentos, which had operations in Brasilia and Acre. It has a similar operation to other popular bitcoin pyramid schemes such as Rental Coins and Braiscompany, offering lofty monthly returns of up to 5 percent.
Fluminense player Willian Bigode is one of the founding partners of Xland
Willian’s legal team subsequently put out a statement saying he was also injured in the scam:
“Willian also feels like a victim of Xland, since, adding the income with the capital contributed, he had a loss of approximately BRL 17.5 million with Xland, since he requested the redemption of the amounts in November 2022 to today did not receive any amount”. CoinTelegraph Brasil) (Portal do Bitcoin) (InfoMoney)
Central Bank inspection director Paulo Souza met with representatives from ABCripto on Monday, March 6 to discuss regulatory implementation, according to the bank’s public agenda. Bernardo Srur and Tiago Severo of Caputo, Bastos and Serra Advogados represented ABCripto, which is a lobby group representing the crypto industry in Brazil. (Portal do Bitcoin)
One of Braiscompany’s main consultants or “brokers”, Clelio Cabral, is suing an Instagram profile called “Braiscompany Victims”. He claims he’s become a target of slander, defamation and injury because of the account. He also expressed his intent to sue Braiscompany owners Antonio Neto Ais and Fabricia Campos. (Portal do Bitcoin)
Several leaders of Airbit Club, a multi-level marketing scheme founded by Brazilian Gutemberg dos Santos, pleaded guilty to having committed financial crimes in a case brought by the US Department of Justice. (Portal do Bitcoin)
Civil Police in Rio Grande do Sul dismantled a bitcoin pyramid scheme, executing six search and seizure warrants in the cities of Passo Fundo and Santo Angelo. One particular investor reportedly lost R$1.2 million investing in the scheme. (Portal do Bitcoin) (Livecoins)
Federal Deputy Reginaldo Veras introduced legislation that would require the use of blockchain technology in the fight against illegal gold mining. (CoinTelegraph Brasil)
Bitso’s Karen Duque will now lead public policy efforts in Colombia as well as Brazil. (CoinTelegraph Brasil)
The Public Ministry of Rio Grande do Norte entered into a non-criminal prosecution agreement with Bitcompras, an investment company that promised to double its customers’ bitcoin investments. (Livecoins)
Civil Police in Santa Catarina launched “Operation Embryo” to find two find two suspects accused of carrying out a cryptocurrency scam in Rio Grande do Sul, in the cities of Porto Alegre and Viamão. (Livecoins)
The US Securities and Exchange Commission has subpoened Francisley Valdevino da Silva, aka Brazil’s “Sheik of Bitcoins”, in regards to fraud accusations against Spanish speaking investors in the US. (Livecoins)