🇧🇷BCR #88: Brazilian authorities probe Binance over deriviatives offerings
Also: Brazil Builders Breakfast in Austin; CVM open to loosening rules for asset tokenizers; BTG Pactual acquires 20% of Lumx Studios
Welcome to 🇧🇷Brazil Crypto Report for the week of April 17-21, 2023 and greetings from Austin, Texas where I’m getting ready for Consensus and the Filecoin Network Base event which we’re hosting Monday - Wednesday. I’d encourage everyone to stop by if you’re in town!
☕️ Also Ethereum Brasil and Brazil Crypto Report are hosting a Brazil Builders Breakfast Friday, April 28th from 8am - 11am at TacoDeli in downtown Austin. Please stop by if you’re in town for Consensus! RSVP link is here
Have a great week everyone!
Binance under investigation over derivatives offerings
Federal Police, the São Paulo Public Ministry and the CVM - Brazil’s securities regulator - are expanding investigations into whether Binance illegally enabled Brazilian users to trade derivatives on its platform.
The investigation is looking into whether the world’s dominant exchange committed a crime by continuing to offer crypto derivatives to Brazilian customers even after the CVM issued a “stop order”, Valor reports.
Among the materials presented by the CVM include screenshots of interactions with Binance customer support in which a reporter from Portal do Bitcoin, posing as a trader, is instructed to change the language from Brazilian Portuguese to Portuguese from Portugal to circumvent the prohibition and access the product.
The CVM first initiated an action against Binance’s crypto derivatives offerings in 2020, which ultimately resulted in the stop order being issued as the exchange did not have the proper authorization to offer such products. There is a bit of background here that (Exame published a good piece laying out the background and history of this initial inquiry if you’re interested)
The agency then released an opinion in 2022 stating that Binance had sufficiently complied with the order.
However, the revelation of the support messages shortly thereafter prompted the CVM to review this position, and the matter has been under review by the CVM’s Market and Intermediary Relations superintendent since then.
Portal do Bitcoin reports that the CVM’s re-opened inquiry began almost one year ago and that the action “continues at full speed through the corridors of the institution”. The report lays out the following timeline:
The CVM sent Binance an inquiry on June 1, 2022 requesting information about the types of products available to Brazilian users and the means by which users access those products.
Binance did not respond to the inquiry after two weeks, prompting the CVM to send a second notification and open a sanctioning process
The second inquiry was answered two months later by Pinheiro Neto, a leading law firm, representing both B Fintech and Binance
One week later, the law firm Galdino & Coelho Advogados sent a notification explaining that there was a private meeting between Binance and the CVM and that Binance was not aware of any sanctioning procedures underway
“On 08/18/2022, Mr. Daniel Mangabeira (Senior Director for Latin America at Binance), Dr. Gustavo Borba (in the capacity of Binance's consultant for this case) and this signatory, Dr. Pablo Cerdeira, with the best intention of contributing and collaborating with the relevant services developed by this Securities and Exchange Commission, demonstrating his good background, his good faith and his best spirit of collaboration. It was on that date, however, that Binance became aware of the present Sanctioning Process.”
On August 25, Mangabeira sent an email to the CVM requesting more time to respond to the inquiry - a request which was ultimately denied
The timeline becomes murkier after that due to partial availability of documents, including several being made confidential at Binance’s request. We do know that the CVM sent a notice to the Public Prosecutor’s Office of São Paulo state in late 2022 stating that there existed “evidence of the commission of crimes subject to public criminal action”.
The last substantive update available was from February 28, in which an internal CVM letter stated that Binance had submitted a Term of Commitment to be reviewed by the agency. If the document is agreed upon, it could likely require Binance to pay a fine and agree to change the way local investors access the products in question.
As part of the CVM’s inquiry, several employees of B Fintech were summoned to give testimony - with that evidence being forwarded to the Federal Public Ministry, Portal do Bitcoin reported.
Binance declined to comment to numerous local outlets that reached out, citing that it does not comment on ongoing investigations, it does not offer derivatives in Brazil and that it is committed to compliance and dialogue with authorities.
Cláudio Rabin of Portal do Bitcoin came on my podcast last week to discuss what his team of reporters has uncovered thus far. Highly recommend listening if you’re interested in learning more.
CVM agrees to discuss relief for fixed income tokens
The Brazilian securities regulator agreed to discuss easing restrictions for issuers of digital fixed income tokens following a series of meetings with industry participants.
The CVM issued an interpretation earlier this month stating that it views most of these fixed income tokens as securities - a characterization that the local industry took issue with.
Among the relief measures being discussed is a move to wave the requirement for a bookkeeper and centralized depository - services that the blockchain can perform instead.
Also, InfoMoney reports that industry participants are optimistic that the CVM will grant an exemption from the need to obtain a license to operate a crowdfunding platform.
Industry representatives argue that the CVM must clarify its position quickly. While the agency has not issued a stop order, tokenizers such as Liqi have frozen operations for the time being.
The agency is also open to loosening its crowdfunding requirements so that companies with more than R$15 million (US$8 million) in revenue can participate.
However, blockchain-based asset tokenizers argue that the technology is fundamentally incompatible with the crowdfunding regulatory framework. In particular, the current 120 day lock-up rule.
Liqi CEO Daniel Coquieri told CoinTelegraph Brasil:
“In crowdfunding there is a 120-day lock-up rule, when the issuer issues a token he has to wait 120 days to issue another token, this does not work in the tokenization market, which is very dynamic, there is a token every day, every week, the assets are originated much faster.”
Asset tokenizers are also hammering the home the point that many of these fixed income tokens don’t necessarily constitute securities. Rather, many of them represent a simple advance of funds which are to be paid back within a given period.
Vanessa Butalla, legal director at MB, told Valor:
“It is important to look at tokenization from the right perspective and not seek to fit into traditional structures that are already known. More than a new technology, it is a new business model, capable of offering access and liquidity with assets that were not available to the entire market and that are not securities or certificates of receivables. We are quite convinced of this.”
🎙Recent 🇧🇷BCR Podcast episodes
If you are a service provider/operator/investor looking to enter Brazil, a Brazilian company looking to expand your presence internationally, or an exchange operating in the Brazil market - I want to interview you!
1️⃣ Cláudio Rabin, editor-in-chief at Portal do Bitcoin, joined to help us better understand what’s happening with the ongoing probes into Binance’s derivatives offerings. Apologies the audio isn’t great on this (Spotify)
🗞Brazil Crypto News Rundown
Chinese crypto startup Galactic Holdings has raised US$10 million to bring its TruBit digital wallet to Brazil. Alexandre Lin, a Brazilian executive who previously worked at Baidu and Chinese telecom companies, will be lead operations in the country. (Valor Investe)
With regulatory crackdowns and mistreatment underway in the United States, Brazil is well positioned as an alternative for crypto businesses and investment capital, argues Iporanga Ventures partner Renato Valente. (Exame)
Imports of cryptocurrencies into Brazil registered US$1.4 billion (R$7 billion) for the first two months of 2023 - up 40% over the prior year period, according to IPEA. The total figure for 2022 was US$7.5 billion (R$38 billion). Brazil first began including cryptocurrency flows into its trade balance and balance of payments statistics in 2019. (InfoMoney) (Exame) (Portal do Bitcoin)
Brazilian Web3 music startup TuneTraders is launching a private offering of its TTDR token as it builds out a broader platform for decentralized applications called dApplayers. (BlockNews)
The CVM approved SMU to list Radix tokens as part of its regulatory sandbox. 280,000 shares priced at R$10 each will be tokenized and sold to investors. (CoinTelegraph Brasil)
The Brazil Central Bank is hosting its Digital Real Lift Day on April 25 in Brasília. The event will convene participants from the current Lift Lab cohort focusing on Digital Real use cases. The event will be live-streamed on the BC’s YouTube channel. Agenda below:
The Central Bank published a YouTube video explaining cryptocurrencies and NFTs.
Brazilian influencer Bruno Perini, partner at Grupo Primo and owner of the Você Mais Rico YouTube channel, said that the investment he recommends holding for the next 20 years is bitcoin in response to a question on Instagram. (Portal do Bitcoin)
Mercado Bitcoin is opening enrollment for a new internship program, with an emphasis on recruiting from minority groups. (Portal do Bitcoin)
InfoMoney profiled the individuals behind the Jericoacoara Praia Bitcoin experiment, where roughly 40 local establishments in the tourist town now accept bitcoin as payment
The platform P2P Catalog, an early crypto trading platform in Brazil first started in 2018, is closing down due to financial woes and regulatory difficulties associated with operating a P2P crypto marketplace. (Portal do Bitcoin) (Livecoins)
Fintech 99Pay reported 11 percent quarter-over-quarter growth in crypto users during the first quarter of 2023. Crypto transaction volumes were up 46 percent and number of transactions was up 28 percent. (Livecoins)
nTokens and Tempo France signed an agreement to create a remittance system between the EU and Brazil using the Stellar blockchain. (CoinTelegraph Brasil)
Parfin announced the addition of internationally renowned cryptographer Yevgeniy Dodis to its advisory board to help develop cryptography for Parchain. (CoinTelegraph Brasil)
The National Treasury of Brazil published an article critical of bitcoin (Livecoins)
More than R$7.4 million has been distributed to owners of so-called solidarity mechanism tokens issued by Mercado Bitcoin and Liqi. These tokens distribute part of the revenue generated by football clubs when players they’ve trained sign contracts with a new team. (CriptoFacil)
🎮 NFTs, Gaming and Metaverse
Mynt, BTG Pactual’s crypto platform, has purchased a 20 percent share of Brazilian NFT startup Lumx Studios. Lumx clients include Penta Hotels, Reserva and Crypto Angels - providing NFT loyalty and marketing solutions. Andre Portilho, head of digital assets at BTG, commented:
“The partnership allows us to accelerate our projects, while Lumx supports us in innovations related to Web3 and, mainly, to NFTs”.
Caio Barbosa, co-CEO of Lumx Studios, said in a statement:
“We believe that the partnership with BTG brings great credibility to what we are building and shows that Web3 goes beyond hype and speculation, offering concrete utilities for organizations and individuals.” (BlockNews) (Livecoins) (CriptoFacil) (CoinTelegraph Brasil) (Valor)
A former Netflix executive is promoting the city of Salvador’s heritage as the home of Afro-Brazilian culture in a new NFT project. (BeinCrypto)
🏛 Public Policy, Regulation and Enforcement
Receita Federal, Brazil’s tax authority, says that it can generate R$500 million in tax revenue by targeting crypto assets traded on foreign exchanges. Only small percentage of trades made on these platforms by Brazilian investors are declared to the agency. The numbers come from a study by LCA Consulting.
The issue is being pushed heavily by ABCripto, a trade group that represents the local industry, on the grounds that overseas exchanges like Binance are not subject to the same reporting rules as domestic exchanges - thus creating a significant competitive disadvantage. ABCripto CEO Bernardo Srur told Valor:
“We are talking about a collection of around BRL 500 million in 2023. We want equality in the competition. Our competitors do not declare or pay taxes.” (Livecoins)
Card issuer and payments giant Mastercard joined the ABCripto association as it dives deeper into crypto and blockchain. The trade group now has 23 members. CEO Bernardo Srur commented:
“The crypto market has a lot to gain from Mastercard, and ABCripto is proud to welcome the new partner, who will bring all its experience to help us in the development of the sector.” (Exame) (CoinTelegraph Brasil)
An American association called VCDF is attempting to create a way for Brazilian investors harmed by the collapse of FTX to recoup funds. The group created a channel, in partnership with Paschoalotto, to provide legal advice to creditors. An estimated 135,000 Brazilians lost money on the bankrupt exchange. (Valor) (InfoMoney)
The Lula government included the Digital Real launch on its list of 13 proposed measures aimed at the banking and capital markets sectors. The plan states:
“Establish the legal basis for the creation of Real Digital (BC's cryptocurrency) and make the process of authorization and operation of financial institutions more flexible". (CoinTelegraph Brasil) (Livecoins)
The CVM issued more specifics on how influencers should disclose disclose paid content. The recommendations come in response to a study by Anbima and B3 showing that 73% of new investors make decisions based on recommendations from YouTubers and other social media influencers. (Portal do Bitcoin)
“The market as a whole would gain in health, by mitigating potential conflicts of interest in the consumption of regulated sponsored content; for participants, greater legal certainty and the correct establishment of responsibilities prevents future financial and image risks; for influencers, the transparency of their relationships with market participants can also be a sign of the credibility of their work”. (CoinTelegraph Brasil)
A judge in São Paulo ordered the seizure of passports for nine leaders of MSK Invest, an alleged cryptocurrency pyramid that collapsed in December 2021. The individuals impacted are considered a threat to flee the country before the case is fully processed in court. (Portal do Bitcoin)
The Public Ministry of Paraíba received 3,364 complaints from Braiscompany customers alleging total damage of R$260 million (US$51 million). The alleged crypto pyramid scheme collapsed late last year. (InfoMoney)
Federal Police and the Federal Public Ministry launched a new operation against Braiscompany called Select. In the operation, which is part of the broader Operation Halving, carried out six search and seizure warrants in Campina Grande, Assunção and São Paulo against Braiscompany executives and high-ranking managers. (Portal do Bitcoin) (InfoMoney) (Livecoins)
Mirelis Zerpa, the wife of “Pharaoh of Bitcoins” Glaidson Acácio dos Santos, owned numerous companies abroad for laundering money out of GAS Consultoria - a US$1.5 billion crypto pyramid scheme. (Portal do Bitcoin)
The government has a “technical obligation” to let Federal Police participate in the creation of a regulatory framework for cryptocurrencies, argue sources heard by CoinTelegraph Brasil. The government has reportedly excluded the law enforcement agency from the discussions.
Diego Zacarias dos Santos, head of internal audit and regulatory affairs at Contabilizei, gives 10 tips for crypto investors to avoid running into trouble with the Receita Federal. (CoinTelegraph Brasil)
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