🇧🇷BCR #86: BTG launches stablecoin; CVM says most fixed-income tokens are securities
🇧🇷BCR #86: BTG launches stablecoin; CVM says most fixed-income tokens are securities
Plus: digital ETFs were B3 exchange's best performing products in Q1
Olá pessoal!
Welcome to 🇧🇷Brazil Crypto Report for the week of April 3-7, 2023! Hope everyone’s doing well - I’ve been pretty sick all week and still trying to recover. Thankfully I was able to muster up enough energy to capture what was a big week in the Brazil crypto world.
If anyone is planning to be at Consensus in Austin later this month I’d encourage you to stop by the Filecoin Network Base side event, which we’re hosting April 24-26 ahead of the main Consensus event which officially runs the 27-28th. If you’re in town early feel free to ping me directly (Linkedin best at the moment) or just stop by.
-AWS
🔥BTG Pactual launches dollar-pegged stablecoin
BTG, Latin America’s largest investment bank, announced the launch of its own US dollar-pegged stablecoin last week. The BTG Dol, as it is called, will be available to users of the bank’s Mynt crypto brokerage platform for a minimum investment of R$100 (~US$20).
The BTG Dol will be the world’s first-ever retail stablecoin issued by a financial institution, the bank asserts. I haven’t fact-checked this claim, but I don’t know of any other examples of banks issuing coins targeted to retail customers.
Other banks have dabbled in the stablecoin realm for institutional clients, however. The National Australia Bank has a stablecoin pegged to the Australian dollar which is used for settlement between large corporate clients. JPMorgan has its JPM Coin, but again that’s a permissioned payment rail and account ledger solution for institutions.
BTG Dol coin will run on Polychain, the Ethereum-compatible sidechain network that has been adopted by other major brands like Nubank. Reserves are managed at a 1:1 ratio by the bank’s digital assets unit
Andre Portilho, BTG’s head of digital assets, highlighted that the stablecoin provides an easy simple way for Brazilian customers to access US dollars and "dollarize part of their equity in a simple, efficient and secure manner."
“We see a demand to create a dollar-referenced stablecoin, with all the advantages of digital currencies, but issued by a regulated financial institution, with governance and that meets the capital requirements. It is an interplay between the traditional financial system and the new digital economy.”
The announcement got some nice pickup on crypto Twitter, most notably from Caitlin Long. Substack is unable to fetch tweets right now due to their dispute with Elon Musk but you can see her tweet here.
Mynt, which launched last summer, now supports 22 cryptocurrencies, including Circle’s USDC - another dollar-pegged stablecoin.
Why a Stablecoin and Why Now?
So what advantage does the BTG Dol offer in a crowded dollar stablecoin market? BTG sees its own reputation and status as a TradFi company as providing a unique layer of trust that other stablecoin issuers cannot offer. Marcel Monteiro, head of operations at Mynt, commented:
"The fact that it is issued on blockchain by a publicly traded company, which is strictly regulated by traditional market bodies, guarantees layers of security that are unusual in the crypto market, offering investors seeking exposure to the dollar an alternative that is not only practical, but very reliable"
In his Caverna Cripto newsletter (which you should subscribe to if you read Portuguese), Mercado Bitcoin’s Lucas Pinsdorf identifies three potential reasons for why BTG decided to launch this product now:
A gap in the market given the litany problems that the three predominant stablecoins (USDC, USDT, BUSD) have faced recently
Strong demand for Brazilians seeking dollar exposure amid rising interest rates in the US and macroeconomic uncertainty in Brazil
Rising interest rates means that stablecoin issuance has become a very lucrative business model (if you’re able to manage the occasional liquidity crisis!). Taking dollar deposits, issuing stablecoins against those dollars and then parking the dollars in government bonds that pay 4-5% yield is a pretty nice hustle.
I’ll be interviewing Portilho from BTG on my podcast later this month so we’ll get a chance to hear straight from him directly
CVM says most fixed income tokens are securities
Brazil’s securities regulator characterized so-called digital fixed-income tokens as securities in a newly unveiled interpretation, leaving many market participants surprised and frustrated.
These tokens can represent anything from invoices and receivables to football players’ future earnings to crypto-asset staking products, and typically offer monthly returns of as much as 1.5 percent.
These tokens have generated interest among investors in light of increases to the benchmark Selic interest rate, which have prompted a search for products that generate monthly yields north of one percent.
These fixed-income tokens had previously occupied a regulatory grey area, but have seen a large amount of interest and experimentation particularly from platforms like Liqi and Mercado Bitcoin/2TM, which have combined to issue R$200 million (US$40 million) worth of tokenized assets since 2019. MB alone has issued 76 such products in that timeframe.
Issuers of these tokens will need to properly register them as a securities offering under penalty of a stop order.
While the letter does not lay out new specific rules or guidance, it implies that digital asset platforms and token issuers will likely need to bring securitizers into the issuance process. It does lay out several parameters for what types of token the CVM deems to be a security:
the promise of a fixed or variable income to the investor
representation of receivables or debt securities
the form of a standardized investment
involvement of an intermediary
the existence of a public offering, even if not explicitly advertised.
Bruno Gomes, superintendent of securitization supervision at the CVM, told Valor:
“We have seen fixed income tokens on platforms, which characterize a public offering, which fit the concept of security. For this reason, we made the guidance in order to mitigate possible irregularities and misconduct.”
The CVM did leave the door open for smaller offerings of less than R$15 million (US$3 million) via a crowdfunding exemption, though this option has several limitations - such as the inability to trade assets on a secondary market.
Daniel Coquieri, CEO of Liqi, told InfoMoney that his firm is still assessing the interpretation and has temporarily ceased all new token offerings.
“We are evaluating the letter, we have a technical divergence between the regulator and the market. It's time to analyze and try to better explain the arguments that we already had. We have already had several conversations with the regulator. But obviously we are going to respect the CVM's mandate. For a moment, let’s stop all offers.”
Mercado Bitcoin said it is engaging with the agency to reach a “better understanding” of the letter.
Industry Reaction: Not Thrilled 😡
ABCripto, a trade group, argued that the characterization could derail the country’s nascent tokenization market and render the business model of tokenizers unfeasible. Further, it claimed the CVM did not take into consideration the arguments presented by tokenizers nor does it provide sufficient time for service providers to adapt.
Bernardo Srur, CEO of ABCripto, told Valor:
"The rule is good for bringing security, but the way it was put, it could even make the tokenization market completely unfeasible."
But the CVM’s new position can be construed as positive in the sense that it brings clarity to an area that was previously murky.
Marcelo Shima Luize, a partner at Eick Haber Shima Pacheco Advogados, told Valor that the interpretation:
“brings reasonably clear guidelines to those who operate token offerings with regard to the need – or not – for structuring public offerings of these securities and, therefore, without doubt carries with it the desired legal certainty the activity that inspires and calls for innovation”.
But others aren’t convinced: Isac Costa of Warde Advogados said that the guidance creates a number of new hurdles for the industry by imposing the traditional public offering regime and infrastructure on digital asset issuers, most notably in the realm of new compliance costs.
Erik Oioli, partner at VBSO, said that the interpretation will “paralyze the development of this industry - since the regulation of the capital market is not yet adapted to offers of tokenized assets.”
"The solution proposed by the CVM - carrying out operations via crowdfunding - is unsatisfactory due to the limitations imposed on the platforms and will not contribute to the development of the market.”
Liqi’s Coquieri argued that the crowdfunding alternative presented by the CVM does not sufficiently address the unique requirements of tokenization:
"It's wanting to use a norm that was not created for this. We have the Central Bank with an agenda of innovation and tokenization with the digital real. The CVM has to look at this more carefully and maintain dialogue with the market."
ABCripto’s Srur also highlighted that the crowdfunding option nullifies any potential benefits unlocked by secondary market trading, noting that any company desiring this liquidity would need to apply to the CVM regulatory sandbox:
“The main point of tokenization is to allow secondary trading. If the company wants to do the secondary, it has to, necessarily, ask for a sandbox waiver, and the sandbox cycle is not open, which would require more license time.”
Counterpoint:
Nothing to see here 🤷♂️
Other observers are of the opinion that the CVM letter doesn’t, in fact, change anything.
Isadora Postal Telli of Souto Correa Advogados argues that the focus of the letter is on curbing scams and not necessarily issuing new guidance. He told InfoMoney:
“The new orientation does not innovate, but it reinforces the understanding already expressed by other CVM bodies that the mere digitization of an asset is not enough to mischaracterize the original nature of that asset.”
Marcos Rocha, partner and crypto specialist at Veirano Advogados, told BlockNews that the letter is basically a warning shot aimed at digital asset exchanges
"to ensure that the tokens traded on their platforms do not infringe the laws on the public offer and distribution of securities."
👷♂️Go deeper on asset tokenization
🤓Valor ran a helpful explainer article on asset tokenization and why financial institutions in Brazil are exploring this area.
“In general, the idea of tokenization appeals to banks because of the possibility of removing intermediaries from the process of issuing a financial asset. Instead of hiring an institution to carry out the issuance process, another for custody, another for settlement and yet another for debt distribution, the company interested in raising funds could issue tokens through a smart contract, automating all these steps.”
🗞Brazil Crypto News Rundown
📈 Markets
Cryptocurrency ETFs were the top performing ETFs on the B3 exchange in the first quarter of 2023, according to InfoMoney.
Hashdex’s BITH11 bitcoin ETF registered a 63 percent return for the quarter
QR Asset's QBTC11 and Itaú’s BITI11 bitcoin ETFs posted gains of 61 percent
The price of bitcoin registered a 70 percent increase during the quarter, though ETFs do not achieve the same level of profitability due to management fees and other factors.
Alexandre Ludolf of QR Asset Management pointed out that bitcoin outperformed all traditional asset classes on the B3 for the quarter, strengthening the “digital gold” narrative: “Bitcoin's correlation with traditional assets is falling, while the correlation with gold is increasing.”
Marcelo Sampaio, CEO of crypto asset manager Hashdex, argued that bitcoin’s resilience in the face of a banking crisis in the US has led to increased confidence among investors:
“The thesis that everyone accused did not work [in the 2022 crisis], of Bitcoin as a store of value, [this time] worked. My assessment is that the product, in general, is behaving exactly as we wanted it to behave.”
Crypto asset manager Hashdex will use rewards earned from staking offset the fund management fees it charges to clients. The operations will begin after the Ethereum network’s Shanghai upgrade, which is expected to happen April 12 and will enable withdrawals of staked ETH for the first time. Hashdex CIO Samir Kerbage said:
“Before that, it was not possible to join staking. As tokens are released for withdrawals, we can participate in this type of application. Our goal is to reduce the cost of funds for shareholders as much as possible.”
“As each asset that supports staking has specific withdrawal rules, we have developed a methodology that sets a maximum limit on how much can be blocked in staking for each of these assets in any fund. In this way, it is guaranteed that any eventual redemption requests can be honored”. (InfoMoney) (Valor) (Portal do Bitcoin)
Hashdex also celebrated the two-year anniversary of its flagship HASH11 ETF, which tracks a basket of cryptos and is currently the second largest ETF trading on the B3 exchange. (InfoMoney)
Mynt, BTG Pactual’s crypto platform, launched a recommended monthly portfolio for customers. Mynt experts will recommend which cryptos and what level of exposure based on market momentum and other factors. (Exame)
📱Adoption
Palmeiras announced the launch of its official fan token $VERDAO in partnership with Socios.com. Fans will be able to purchase the tokens start April 26th. (CoinTelegraph Brasil)
At least of six of Brazil’s top 10 billionaires have some history of cryptocurrency investments, either directly or indirectly. (CoinTelegraph Brasil)
The National Education and Research Network opened a call for research groups with blockchain studies and applications to present proposals or proofs of concept. (BlockNews)
SmartPay, the company behind Swapix, announced a new integration with Edge Wallet to allow conversions from Tether to BRL via a QR code.
Me Poupe!, the financial education platform founded by Nathalie Arcuri, announced a restructuring of the company’s branding and content strategy. Arcuri will take a more behind the scenes role at the company as Chief Visionary Officer. (Portal do Bitcoin)
New research from Swedish firm Divly suggests that only 0.1% of Brazilian crypto investors report their taxes, though Receita Federal data suggests that figure to be around 7 percent. (Portal do Bitcoin)
The Banco Central will hold a virtual workshop on April 10 focused on clarifying the guidelines of the Digital Real and the ongoing pilot project. The event will be streamed on the bank’s YouTube channel. (CoinTelegraph Brasil)
The government of Tocantins approved the use of blockchain-based smart contracts on Hyperledger for car loans. (CoinTelegraph Brasil)
NFT Brasil will host its next event June 2-4 at the Ciccillo Matarazzo Pavilion in São Paulo. (BeinCrypto)
A few writeups from the Ethereum Rio and ETHSamba events last week:
ETHSamba organizer Luca Cosivi talked about the hackathon’s beginnings and core values in a Portal do Bitcoin interview
The team Happay took first prize in the hackathon with a smart contract on the Fuel blockchain that allows salespeople to be paid commission immediately following a sale with a stablecoin. (Portal do Bitcoin)
BeinCrypto highlighted many of the social impact projects present at the event.
Ethereum Rio kicked off with a successful women in Web3 event that generated a lot of buzz on social networks. (BeinCrypto)
Representatives from the Ethereum Foundation attended both Eth Rio and Eth Samba to promote its “Next Billion Fellowship). (BeinCrypto)
Ethereum Brasil announced that its next event will be June 20-23 in São Paulo in partnership with Sci Biz, the University of São Paulo’s largest innovation event. (BeinCrypto)
🏛 Public Policy, Regulation and Enforcement
The CVM issued 493 warning letters, 14 stop orders and R$44 million against capital market actors in 2022, according to the agency’s annual report. (Portal do Bitcoin)
Digital asset discussion and regulation will be a top priority of the Central Bank, director of regulation Otávio Damaso stated at an event organized by Bradesco.
“It is an agenda that will occupy the regulatory area in 2023, 2024 onwards, which is very much in line with the issue of the CBDC, of the digital real.” (InfoMoney)
The CVM issued a R$4.4 million in fines to two companies and their partners that allegedly offered cryptocurrency investment products promising profits of up to 10 percent. The companies assessed were Soluções Exponencials Training and Administration Ltda and Skoben Capital Participações Ltda. (CoinTelegraph Brasil) (InfoMoney) (Portal do Bitcoin)
Civil Police in Santa Catarina carried out an operation against an unnamed cryptocurrency pyramid scheme accused of promising 40 percent profits to investors. The operation, known as ‘Operation X’, was a result of customer complaints after the company stopped making payments and closed its office in Florianopolis. (Portal do Bitcoin)
The Public Ministry of Paraíba filed an action against Fiji Solutions, another suspected cryptocurrency pyramid that has not allowed customer withdrawals since February. The agency has requested the blocking of R$399 million worth of Fiji’s assets. Sócrates da Costa Agra, a representative of the agency, wrote in the complaint:
“In fact, the business model developed by Fiji is extremely muddy, from the objective of the enterprise itself (the management of crypto assets), as well as its practices or even its history of operations.”
“There is no explanation about how Fiji will generate the profit that will make up the remuneration on top of the leased value, so the client ends up not really knowing how the cryptocurrency market works, and how the high return that awaits.” (InfoMoney)
Amid some confusion, the Receita Federal, Brazil’s tax authority, released new information about who should declare cryptocurrencies on their income tax filings and how to do so. It also re-emphasized that investors are obliged to declare their crypto assets and will be subject to a fine if they do not. (BlockNews) (Livecoins) (CoinTelegraph Brasil)
Crypto tax expert Ana Paula Rabello published responses to 34 frequently asked questions about crypto tax filing in Brazil. (Portal do Bitcoin)
An alleged Russian spy arrested at Guarulhos airport last year received bitcoin payments from a Russian intelligence agency. Vladimirovich Cherkasov, who had been using the false Brazilianthename Victor Müller Ferreira, reportedly used the funds to purchase a house in Cotia and make other purchases. (Portal do Bitcoin)
Senator Soraya Thronicke introduced a complementary bill to establish guidelines authorizing the Central Bank to issue the Digital Real. (CoinTelegraph Brasil)
The Central Bank is spending R$23,000 to register an employee in a blockchain course in London. (Portal do Bitcoin)
Brazilian deputies and senators formed the Joint Parliamentary Front in Defense of International Trade and Investment (FrenCOMEX), which has among its objectives a mandate to study how crypto, blockchain and smart contracts can expand foreign trade. (CoinTelegraph Brasil)