🇧🇷BCR #93: Central Bank Unveils Digital Real Pilot Participants
Plus: Bitcoin Pizza Day goes viral in Brazil
Olá pessoal!
Welcome to 🇧🇷Brazil Crypto Report for the week of May 22-26, 2023!
The big news of this past week was the Brazilian Central Bank unveiling its 14 selections for the Digital Real pilot project that will kick off in mid-June. 14 participants were selected out of a total of 36 applications, which in turn represented more than 100 companies.
The list of selected participants includes banks (both TradFi banks and digital banks), payment processors, credit unions, financial market infrastructure operators and crypto infrastructure providers.
Marking the second stage of Digital Real testing, the pilot will begin in mid-June and is expected to last 18 months. Testing will primarily be focused on privacy and programmability features using delivery against payment (DvP), with the initial use case being a federal public bond traded between two financial institutions.
The objective is for each participant to test the redemption, issuance and transference of the asset - and the resulting financial flows - using its own respective business model, but without involving real transactions or values.
These tests will be used to evaluate the effectiveness of the Digital Real as well as ensure security and privacy on the network - which is being built on Hyperledger Besu. While limited in scope, this pilot will facilitate development of infrastructure, tokens, smart contracts on the network while ensuring programmability, privacy and integrity of the system.
Rodrigoh Henriques, director of innovation at Fenasbac, told Exame:
“If it works, it is ready to expand to the rest, it will have all the foundation of the house, it will grow very fast".
Henriques added that the submission process received a "very interesting number of projects, above the moderate forecast that the Central Bank had,” which demonstrated that companies “understood the importance of participating in a collaborative, cooperative moment, in the creation of a digital currency and the infrastructure that will be the basis of this digital society that we are creating."
He also emphasized that the key use case of this entire system will be programmability, which will provide security and efficiency benefits for large transactions and contracts while enhancing trust.
"It's the big use case. Bringing programmability to large transactions generates security between all parties. Any time it's an important, significant purchase, it can generate security. It manages to eliminate the feeling of insecurity or the need for trust from the other party.”
Crypto firms largely excluded
Notably, the Central Bank excluded in its final selection consortium applicants that did not have at least one regulated financial or payment institution with existing access to the National Financial System network. This wasn’t a total surprise as the bank had stated previously that crypto-native participants would need to form consortia with TradFi players if they wished to participate.
The institution elaborated in a note to Valor:
“There were eliminatory requirements, such as access to the National Financial System network, the need to have at least one institution authorized to operate by the BC and the demonstration of the capacity to carry out the operations proposed in the pilot.”
As a result, only a handful of the selected submissions included crypto-native or crypto-adjacent companies:
The consortium led by Banco da Amazônia and Tecban included Parfin, Foxbit and nTokens.
The Banco ABC consortium includes Hamsa, a tokenizer that works with NFTs
Digital security and cryptography company Dinamo, which created encryption system for Pix, was included in three submissions and selected for one: TecBan + Banco da Amazonia. Dinamo’s Jean-Michel Guillot told Valor:
“One of BC’s requirements for developing solutions is the use of cybersecurity standards similar to those used in the traditional financial market.”
Two banks that have crypto platforms, BTG Pactual and Nubank, were selected
Four infrastructure companies focusing on digital assets were also selected: Parfin, Hamsa, B3 Digitas, BBChain
In total, the 14 selected submissions included:
Bradesco
Itaú Unibanco
Santander, Santander Asset Management, F1RST and Toro CTVM
Banco do Brasil
BTG Pactual
Nubank
XP and Visa (the only major card provider to be selected)
Banco B3, B3 and B3 Digitas
Banco da Amazônia (Basa), TecBan (provider of the Banco 24 horas ATM network), Pinbank, Dinamo, Cresol, Banco Arbi, Ntokens, Clear Sale, Foxbit, CPqD, Amazon Web Services and Parfin
Banco Inter, Microsfot and 7Comm
BV
Banco ABC, Hamsa and LoopiPay
SFCOOP: a consortium of credit unions led by Sicoob and Sicredi
Brazilian Association of Banks (ABBC), which led a consortium of smaller banks including Banco Ribeirão Preto
Outside looking in
22 submissions did not make the cut. Several notable ones left out included:
A consortium led by Caixa Econômica Federal, Microsoft and payment processor Elo
A Mercado Bitcoin and Mastercard digital wallet submission
Capitual
Asset tokenizers like Liqi and Vórtx QR
Banco do Nordeste and startup LoveCrypto that sought to use tokenized treasury bonds as guarantees for microcredit
Both Caixa and MB indicated that they would appeal the decisions. Entities left out of the pilot will still be invited to participate in the Digital Real forums created by the Central Bank.
Central Bank considering 2-3 names for Digital Real
Roberto Campos Neto, president of the Brazilian Central Bank, said that the Central Bank has narrowed down to two to three naming options for the Digital Real - similar to the name Pix for the bank’s instant payment system. Campos Neto told GloboNews:
"We already have a pilot [of digital currency] that starts with a public bond. The banks are enthusiastic about the project, we should have the process finalized by the end of next year. We are between two and three names.”
80 percent of Brazilians have a favorable view of Digital Real
Most Brazilians have heard of the Digital Real initiative but few understand its design or implications, according to a survey of 1,000 respondents conducted by Cryptum, a “blockchain as a service” infrastructure company.
As reported by Valor, 93 percent of respondents were familiar with digital currencies, while 80 percent said they welcome the Digital Real initiative. 52 percent responded that they did not have enough knowledge on the subject and thus feel confused.
A separate survey of just C-suite executives from the financial services industry found less enthusiasm for the idea of tokenized money.
35 percent saying they’d heard about Digital Real but didn’t understand how it would work in practice
Another 34 percent said financial services companies aren’t ready to embrace the Digital Real
30 percent were pessimistic and don’t believe in a favorable environment for the Digital Real anytime soon
Cryptum CEO Andre Salem compared the findings to the initial skepticism showed towards Pix by consumers and TradFi banks. The original reticence quickly gave way once the product was launched and in the hands of users. He explained:
“In the same sense of innovation, the Digital Real has been studied and elaborated in a more collaborative way with the financial ecosystem, in order to enable its more objective use and to have a gradual adoption in the market.”
Brazil is Tether’s main focus in Latin America, says Ardoino
In an exclusive interview with CoinTelegraph Brasil, Tether CTO Paulo Ardoino argued that Brazil is a critical market for USDT moving ahead. Brazilians transacted R$37.1 billion in USDT during the the first quarter of 2023, representing 80 percent of all crypto trading volume during the period.
Ardoino also reckoned that Tether will co-exist with stablecoins issued by Brazilian banks under the Digital Real system, operating as a peer-to-peer decentralized ecosystem operating in contrast to stablecoins issued by TradFi and government institutions.
🍕Bitcoin Pizza Day promotions sweep Brazil
The time-honored tradition of eating pizza on May 22 to commemorate the first-ever bitcoin transaction is alive and strong in Brazil. On May 22, 2010, programmer Laszlo Hanyecz paid 10,000 bitcoins in exchange for two pizzas to be delivered to his home. The transaction is widely acknowledged as the first non-trivial transaction involving an actual value exchange with bitcoin (ie an actual good or service being paid for with bitcoin).
At today’s prices, the bitcoins used to purchase the two pizzas would be worth US$272 million (R$1.36 billion).
The holiday took off this year in Brazil with events in more than 21 cities around the country. Seemingly every crypto exchange and Web3 community group had some sort of activation, meetup or promotion.
Mercado Bitcoin conducted a R$10,000 raffle for new customers who opened an account.
Bitso CEO Daniel Vogel was working hard hand-delivering pizzas to customers in São Paulo
My personal favorite was Binance’s pizza food truck set up in Praia Vermelha in Rio de Janeiro.
Bitget launched a promotion whereby a lucky user can earn up to two bitcoins
CoinEx hosted an event at Donna Maru pizzeria in São Paulo
Instituto Caldeira in Porto Alegre hosted a two day conference to commemorate
YouTuber and educator Rai Auad and some friends in the Web3 Brasilia community celebrated at a pizzeria in the suburb of Aguas Claras
🎙New podcast with BTG Pactual’s Andre Portilho
BTG Pactual’s head of digital assets Andre Portilho joined the show this week to discuss the bank’s new BTG Dol stablecoin and the growth of its Mynt crypto brokerage platform. Have a listen on YouTube below or on Spotify or Google Podcasts
If you missed my conversation with Fortune’s Leo Schwartz last week be sure to have a listen to that as well to get his impressions of the Brazil crypto ecosystem after his visit to Web Summit Rio earlier this month. You can have a listen on Spotify, Apple Podcasts or Google Podcasts 👊
That’s it for now. Keep scrolling to read through this week’s news recap. Have a great week everyone.
-AWS
🗞Brazil Crypto News Rundown
📈 Markets
Revolut announced that it has received authorization from the Brazilian Central Bank to act as a Direct Credit Society - meaning that it can offer products such as credit, local accounts and other payments and financial management tools to Brazilian customers.
Revolut announced its launch in the Brazil market at Web Summit Rio earlier this month
Glauber Mota, Revolut’s Brazil CEO, said:
"The fact that we are a regulated institution in Brazil reinforces our commitment to bringing innovative technological financial products more securely to our clients. It is a great opportunity for us to expand the value proposition of our global account to now include local products and services. We want to go further and help our customers use their money across borders, in a more efficient and secure way.” (CoinTelegraph Brasil)
Crypto trading infrastructure company Átris will begin offering its solution to the broader market, with its first client being environmental management company Ambipar. Previously, the stack was only available to companies inside Átris’s group - including Digitra.com and Estar, a platform for trading startup equity tokens. Founder Rodrigo Batista said the idea to bring the product to market came about after seeing demand for tokenized assets like carbon credits, receivables and private debt. He told Valor:
“We launched a technology infrastructure and saw the opportunity to become a kind of Amazon Web Services, only for the world of tokens.”
QR Capital founder and president Fernando Carvalho has assumed leadership over Vórtx QR Tokenizadora, replacing former CEO Carlos Ratto who has now left the company. Carvalho is now tasked with accelerating the development of Vórtx’s asset tokenization business as the company looks to raise a round from venture investors. Herminio Sotero assumes the helm of QR Capital.
Vórtx QR, which issued the first-ever security token in the Brazil market, has capacity to issue 12 tokens in the CVM’s regulatory sandbox but has only used four of these to date. Carvalho told Valor:
“We want to make the most of this period that we still have in the CVM sandbox to make all the issues that we were authorized to do.” (BlockNews) (CoinTelegraph Brasil)
DeFi protocol Num Finance raised US$1.5 million and will expand its stablecoin offerings pegged to the Brazilian real, among others. (CoinDesk)
Binance delisted its Santos/BRL trading pair along with 20 other pairs. The move comes despite Binance being a sponsor of Santos Futebol Clube. (Portal do Bitcoin)
A new study by Wipro suggests that digital banks like Nubank could surpass exchanges like Binance as the preferred trading crypto broker among clients. (CoinTelegraph Brasil)
Mercado Pago, a digital bank that is part of Mercado Livre, has enabled crypto purchases via credit card on its platform. It also announced that more than 2 million customers have purchased crypto on its platform since launch in 2021. (CoinTelegraph Brasil)
Brazilian investors allocated US$1.3 million into crypto funds during the week of May 14-21st, according to CoinShares data. These inflows came despite investors globally withdrawing US$32 million during the same time period. (CoinTelegraph Brasil)
📱Adoption
ABCripto and Fenasbac are hosting Criptorama and Money Monster Brazil, a two-day event in Brasilia June 6-7 focused on Digital Real implementation and regulatory debates. Confirmed speakers include representatives from the Central Bank, CVM and Congress. Click here to register and here to learn more about the event.
Crypto Times reports that Lula, Brazil’s president, is expected to sign a formal decree during the Criptorama event that defines the regulatory body tasked with overseeing the crypto market in Brazil.
Mauricio and Gustavo Chamati, co-founders of Mercado Bitcoin, are now advisors to Alboom - a Brazilian startup offering digital solutions for photographers. (Portal do Bitcoin)
CoinTelegraph Brasil will begin hosting a weekly Twitter Space called the Satoshi Room featuring Rafaela Romano as host.
Vivalá Turismo Sustentável became the first Brazilian business focused on sustainable tourism expeditions to accept crypto as a form of payment. (CoinTelegraph Brasil)
🎮 NFTs, Gaming and Metaverse
Trexx, a Brazilian blockchain gaming startup, is partnering with Asian wallet and infrastructure provider AAG Ventures to expand its geographic scope to Southeast Asia. CEO Heloisa Passos said in a statement:
“We entered with our know-how of creating communities in Brazil and Latin America and with our network of builders and studios looking for good technologies to develop. And we benefit from the possibility of expanding our operations to communities in Southeast Asia. Countries like the Philippines were the great cradle of blockchain games and being positioned in this next cycle is a great opportunity for Trexx.” (Valor)
São Paulo FC will become part of “Futebol no Alphaverse” - an area devoted to sports in the Alphaverse metaverse to be built for the 2023-24 European football season. The club’s space in the metaverse will include a 3D version of Morumbí stadium with a variety of digital goods and experiences available for purchase. (BlockNews) (CoinTelegraph Brasil)
Marcello Serpa, noted Brazilian advertiser and art director, will speak on the main stage of NFT.Brasil, which takes place June 2-4 at Bienal Pavilion in São Paulo. (CoinTelegraph Brasil)
🏛 Policy, Regulation and Enforcement
The CVM, Brazil’s securities regulator, entered into a technical cooperation agreement with ABCripto involving “strategic collaboration with CVM’s Sandbox Committee. The partnership will include development of educational materials related to decentralized finance, security tokens, cryptoeconomics and regulatory requirements for crowdfunding and other types of offerings.
Nathalie Vidual, superintendent of protection and guidance to investors at CVM, said in a statement:
“This partnership will strengthen the training of teachers, promoting understanding of the digital economy and providing learning opportunities for young people in vulnerable situations.” (Valor) (BlockNews) (InfoMoney) (Portal do Bitcoin)
Itaú stressed the importance of strong regulation and accounting standards for tokenized assets. (BlockNews)
May 31 is the deadline for filing income tax returns in Brazil. These filings must account for crypto trades and operations - leaving many investors confused and panicked still. (Valor)
Reuters ran another big investigation into Binance claiming that the exchange commingled customer funds and company revenue in 2020 and 2021. Binance pushed back against the claims arguing that the article was a hit piece.
Deputy Aureo Ribeiro will likely be the rapporteur for the newly approved Parliamentary Commission of Inquiry examining cryptocurrency pyramids. He CPI will discuss legislative remedies to help prevent scams and protect consumers. One of the ideas being considered is a guarantee fund to reimburse impacted consumers. Ribeiro said that such a fund would a preferable alternative to mandating asset segregation rules. He told InfoMoney:
“A guarantee fund can give peace of mind about segregation. Banks do not have segregation, but they do have a guarantee fund. We can have the same operation, only for the crypto economy…I don't believe [segregation] is necessary.”
Ribeiro also indicated that the Brazilian national fan token, launched by the Brazilian Football Confederation in 2021, will be investigated by the commission. The BFT fan token raised R$90 million (US$18 million) in an initial offering but has since collapsed. It's unclear what happened to the funds raised. Ribeiro told InfoMoney:
“We are going to expand [the scope of the CPI] to tokens offered to the market that were not successful, such as the one offered by the CBF. We are going to check if there was any criminal offer.”
Genbit, formerly known as Zero10 Club, is another crypto pyramid that will be eyed by the CPI. The firm is accused of deceiving at least 45,000 people with promises of 15 percent monthly returns, generating a loss of R$1 billion (US$200 million). (InfoMoney)
The CVM issued a stop order against XTB International Limited, a Belize headquartered company that had been offering forex and cryptocurrency trading in Brazil without authorization. The CVM said in a statement:
“Evidence was identified that the company seeks to capture customers residing in Brazil, through the website https://www.xtb.com/int-pt and by hiring publicists for its activities in the country, to carry out operations with values securities." (CriptoFacil)
The CVM issued another stop order against Ontega, a forex broker based in Seychelles that offers leveraged trading for bitcoin and Ethereum. The CVM said in a statement:
“It remains evident that there are indications that the broker Ontega, through the worldwide computer network, seeks to capture customers residing in Brazil to carry out operations with securities.” (Portal do Bitcoin) (CoinTelegraph Brasil)