🇧🇷BCR #99: Binance hires new Latam VP; CVM slams the door on fixed-income tokens

Plus: Congressional committee on crypto pyramids is inviting everyone to the party

Jul 10, 2023

Olá pessoal!

Welcome to 🇧🇷Brazil Crypto Report for the week of July 3-7, 2023. In this edition we dive into Binance’s new Latam VP, the CVM’s new opinion that most fixed-income tokens are indeed securities, and the Brazilian Congress’s ever-expanding probe into cryptocurrency pyramid schemes.

Let’s kick this thing off

-AWS

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CVM says fixed income-tokens are securities

The Brazilian SEC released an opinion letter saying that it views fixed-income tokens as securities that must abide by the same rules as other assets. This means that these tokens, which yield as much as 1.5 percent per month, can only be traded with regulatory approval.

The opinion is a blow to market participants who have been lobbying for the agency to take a more lax approach toward these assets. But the agency argues that because the assets are intermediated by a tokenization company there is no justification to exempt them from the normally applied rules.

The letter, formally known as Circular Letter 6, complements an earlier opinion released in April and does not constitute official guidance or regulation. The CVM says that it is up to the companies issuing the tokens to determine whether the products are securities. Bruno Gomes, superintendent of securitization supervision at the CVM, stated:

“This Circular Letter is the result of an extensive debate between [CVM] and the market after the first disclosure on the subject in April of this year. Our objective with these documents is to provide the necessary clarifications and not to regulate the market"

Tokens that are classified as securities must follow a strict set of specific rules regarding issuer registration, information on intermediation, bookkeeping, custody, centralized support, clearing, settlement and more.

The letter has predictably sparked disagreement among stakeholders in the digital asset space, with token issuers criticizing the designation and other stakeholders arguing that the clarity is an improvement - even if it’s not exactly what tokenizers were hoping for.

At the very minimum, asset tokenizers will be able to make more informed decisions on how to structure these products without triggering a stop order from the CVM.

Critically, the letter draws a distinction between a securitization operation and collective investment agreement, while defining what is needed for a receivable token to not be considered a security. These requirements include not having features like buybacks, co-obligations and monitoring of payments and collections in the case of default.

Lawyer Nicole Dyskant told Valor:

“The letter brought clarity on the concept that the issuer's gross revenue can be applied to the separate equity and not to the debtor. With this, uniformity is maintained in relation to the rules in force for funds and other vehicles that invest in securitization assets.”

Still, the market isn’t thrilled with what it sees as an overly restrictive and limiting interpretation of when these tokens are and are not securities. Expect the dialogue to continue. Grupo GCB CEO Gustavo Carvalho Blasco told Valor:

“There will certainly be new conversations between the sector and the CVM. In these interactions, one of the topics that must be addressed is the possibility that tokenizers ask for specific exemptions for their operations.”

The CVM again recommended that fixed income tokens be issued using a crowdfunding exemption, which allows for issuances up to R$15 million. The industry has previously argued, however, that issuing tokens under this framework is not a feasible alternative.

(Portal do Bitcoin) (InfoMoney) (Valor Investe) (CoinTelegraph Brasil) (Exame)

🎂 Crypto CPI is inviting everyone to the party

If you’re reading this, there’s a good chance you’ve been invited to testify in front of the cryptocurrency CPI as an expert witness.

The special congressional committee originally established to investigate cryptocurrency pyramids in Brazil appears to be going through some major scope creep as it is inviting pretty much everyone in the local industry as a witness - including your gringo Brazil Crypto Report correspondent.

Some of the individuals who made it onto the invitation list this week include: content creators Gustavo Cunha and Mauricio Magaldi, journalist Claudia Mancini, Lucas Pinsdorf of Mercado Bitcoin, Bankless Brasil co-founder Victor Cioffli, Pinheiro Neto’s crypto super-lawyer Bruno Balduccini, Isac Costa of Walde Advogados, investor Alex Nascimento, Block4’s Thiago Canellas, Credix’s Chaim Finizola, Alexandre Ludolf of QR Capital and Vortx, just to name a few.

(There are dozens more, which you can officially track here or here in a more readable format compiled by Valor)

New invitations were also proposed this week to individuals actually involved (or suspected of being involved) in actual pyramids like football legend Ronaldinho (who is now being invited as a witness as opposed to being summoned), influencer Diego Aguilar and the former Palmeiras players involved in the Xland scandal.

The invitations still need to be confirmed by the full committee before they are official; however, no such request has been turned down by the CPI.

Of course, it’s the committee’s prerogative to call the witnesses whom it reckons will best assist in its investigation and fact-finding. That said, it does feel like there is some major mission creep and political theater happening here.

What should you do if you are “invited” as a witness? What I’ve been told is that you don’t really have a choice - as it is a bad look to refuse such an invitation, and the committee still has the power to officially summon you.

Raquel Vez of Esenca PR wrote an op-ed for Portal do Bitcoin with some tips for how you should be approaching this from a comms and messaging perspective.

(Portal do Bitcoin) (BlockTrends)

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Gisele and Tom lost US$50 million in FTX bankruptcy

Brazilian supermodel Gisele Bündchen and her ex-beau Tom Brady lost nearly $50 million worth of equity when crypto exchange FTX imploded last year, a report from the New York Times revealed.

Gisele accepted US$18 million worth of FTX stock to become a “social and environmental ambassador” for the exchange, while Brady pocketed $30 million. That equity is now worthless as the exchange is in bankruptcy proceedings.

The now-divorced couple, along with other celebrities that endorsed the exchange like Stephen Curry, Larry David and Naomi Osaka, is also facing a lawsuit from former FTX customers seeking compensation.

“None of these defendants performed any due diligence prior to marketing these FTX products to the public,” the lawsuit alleges.

🎙New 🇧🇷BCR Podcast Episodes

I had the chance to interview Renan Kruger at the Digital Finance Brazil/BlockchainSP event in late June. Renan is a digital asset specialist at Santander Brasil, one of Brazil's largest banks and one that is actively involved in the country's budding digital asset space. Have a listen on YouTube below, or on Spotify or Apple Podcasts.

🗞Brazil Crypto News Rundown

📈 Markets

Argentina-based crypto exchange Ripio cut 18 percent of its staff in a round of layoffs, Portal do Bitcoin reported. Roughly 60-70 of company’s 300 total employees worldwide were let go. The Brazil-based team was cut from 80 to 60 employees. Ripio stated that it was refocusing its efforts on corporate and institutional business lines and seeking to streamline operations internally. CEO Sebastian Serrano said in a statement:

“In 2022 we redoubled our efforts in the performance evaluations of each of Ripio's teams, paused new hires and aligned the budgets of all teams, anticipating a complex macroeconomic cycle before any other company in the sector with the aim of improving efficiency and maintain good financial metrics.”

ETFs with exposure to bitcoin were the best performing index funds on the B3 exchange during the first half of 2023, with QR Asset’s QBTC11 topping the list at 65% return and Itaú’s BITI11 and Hashdex’s BITH11 tracking slightly behind. (InfoMoney)
Binance appointed Min Lin as its new vice president for Latin America. Before joining Binance, Lin was executive director of the Global Markets Division at Goldman Sachs in Hong Kong. Lin said in a statement:

“Latin America is a fast-growing region of great importance for Binance. Cryptocurrencies and the technology that supports them, the blockchain, are democratic, inclusive and can generate numerous benefits for people who today do not have access to the traditional financial system. We see a great opportunity to contribute to the development of platforms, products and services for different sectors, both in the physical and virtual world, across the region.”

In an interview with CoinTelegraph Brasil’s Cassio Gusson, Lin highlighted that the embattled exchange is keeping a close eye on Digital Real and tokenization developments in the country:

"The tokenization and CBDCs sector is growing all over the world. Especially in Brazil there is a very interesting and different model which is a wholesale CBDC that should allow the population to access a tokenization ecosystem… Real Digital, as well as other CBDCs, are part of a great innovation that has been developing and we are observing all of this trying to understand how these innovations fit into our business profile..”

Hashdex Head of Growth Roberta Antunes is leaving the firm after nearly four years, she stated in a Linkedin post. She will continue in an advisory role. (Portal do Bitcoin)
The Central Bank’s balance of payments data shows an inflow of US$3.8 billion worth of bitcoin into Brazil during the first five months of the year - a 19 percent increase from 2022 and 51 percent increase over the same period for 2021. If the purchasing momentum continues, total purchases for the calendar year 2023 could reach US$9 billion. (CoinTelegraph Brasil)
Bipa, a fintech that offers a bitcoin account, raised R$8 million (US$1.6 million) in seed funding from New Form Capital and Hivemind Ventures. Bipa founder Luiz Parreira commented:

"The use of bitcoin is still extremely niche. We've already conquered our space in the Brazilian community. Now it's time to expand borders and reach more people. Our mission is to make people use the Bipa app to pay for everyone's coffee mornings.” (Valor)

A new survey carried out by Mercado Bitcoin of just over 1,000 respondents estimates that around 10 million Brazilians, roughly 5 percent of the country’s population, are invested in cryptocurrencies.
Another survey by Bitget found that 33 percent of Brazilians dedicate up to 15 percent of their income to investing in cryptocurrencies - a significantly higher figure than found in countries like Mexico or Argentina. The figures are based on a survey sent to roughly 600 customers in each market. (CoinTelegraph Brasil) (Exame)
Valor’s Toni Sciarretta wrote a profile on B3 Digitas, which is a separate “crypto-as-a-service” operator created by the B3- Brazil’s primary stock exchange.
- B3 Digitas offers a white label service to brokerages looking to offer digital assets to their clients.
- The entity was spun out from the B3 exchange due to operational and regulatory reasons, meaning that the assets will not be traded in the exchange’s environment
- Crypto ETFs, such as those offered by Hashdex, and bitcoin futures and other regulated products will continue to be traded in the official B3 exchange environment.
BTG Pactual’s Mynt listed three new tokens: Ethereum Name Service (ENS), Illuvium (ILV) and Tether (USDT). (Portal do Bitcoin) (Valor) (Exame)
BEE4, a marketplace operating in the CVM regulatory sandbox focusing, executed its second IPO of tokenized shares. Food and beverage startup Mais Mu raised R$4.1 million through an offering of tokenized shares on the platform. (Valor)
Valor ran a pair of good features exploring the real-world benefits of asset tokenization and looking at how Brazilian financial institutions like Visa and Itaú are adopting tokenization
Gremio will begin selling its $IMORTAL fan token in partnership with Win the Game - a firm owned by BTG Pactual, Mynt and Lumx Studios. As with similar fan tokens, token holders will have access to unique experiences. The coin can be purchased for R$2 each during the pre-sale. Henrique Gutterres, executive director of marketing at Gremio commented:

“The idea is to make $IMORTAL the “official currency”, with the possibility of, in the future, being accepted as a form of payment in our stores, box office and any financial transaction in which Grêmio is involved.” (Portal do Bitcoin)

📱Adoption + Digital Real

The Brazilian Central Bank published the guidelines for the Digital Real pilot project in a public Github repository and revealed that the test tokens within the system were creating using the ERC-20 standard with the addition of specific access control functions and the ability for the administrators to make certain changes. (Portal do Bitcoin) (CoinTelegraph Brasil)
The Central Bank’s Digital Real pilot is not adequately addressing the question of privacy, argues Ernst & Young’s Thamilla Talarico. (Exame)
TecBan, owner of the Banco24Horas ATM network, has developed its own sandbox testnet for 150 banks and institutions to test Digital Real functionalities and integrations. Luiz Fernando Lopes, manager of digital platforms at TecBan, said:

“Our objective is to offer partner companies a virtual test environment so that they can develop their own use cases, evolve in their proof of concepts and develop product and service pilots.” (Valor) (CoinTelegraph Brasil)

Zebedee, the bitcoin payments startup founded by Brazilians, now allows users to earn bitcoin by playing more than 100 Android-based games. (Decrypt)
There still exist a number of practical barriers to scaling the use of blockchain and cryptocurrencies in foreign trade, writes Valor’s Ricardo Bomfim.
Payments company Elo launched an update to its Elo Conecta innovation program to incentivize more solutions aimed at the cryptocurrency market. (CoinTelegraph Brasil)
Fenasbac opened registration for the third cohort of its Next accelerator program for fintechs. (CoinTelegraph Brasil)
BlockTrends and Unifecaf teamed up to launch Brazil’s first blockchain developer postgraduate course, with aims of filling the estimated deficit of 70,000 Web3 and tokenization professionals in Brazil. The online program, which was developed internally at QR Asset in partnership with B3, will feature 360 hours of coursework and will be certified by the Ministry of Education. QR Capital co-founder and BlockTrends CEO João Paulo Mayall said:

"We learned with B3 that there is a genuine interest in studying the subject. The initial prejudice is gone. The new generations, and even the older generations, understood that this is no longer a niche business, but something that can collaborate, and a lot, to improve productivity and processes in traditional sectors." (Valor) (Portal do Bitcoin)

Binance is supporting Father Julio Lancellotti’s charity Instituto Ruas, which is looking to build a digital center with free internet access for homeless people in São Paulo. (Portal do Bitcoin) (Valor)
BitPad, a crypto project endorsed by Brazilin Glauber Contessoto, aka “SlumDoge Millionaire”, executed an apparent rug pull ahead of its launch. (Portal do Bitcoin)

NFTs, Metaverse and Games

Buddha Spa is launching an NFT loyalty program for customers in September. (Valor Investe)
Brazilian reggae band Planta & Raiz announced a new NFT collection minted on the Algorand blockchain. (CoinTelegraph Brasil)

🏛 Policy, Regulation and Enforcement

Cainvest Banking Group, Cayman Islands based banking and financial services provider, has joined ABCripto. The bank acts as a market maker and liquidity provider for exchanges like Foxbit and Mercado Bitcoin and acts as a “bank of banks” for institutional brands. (Valor) (Portal do Bitcoin)
Mercado Bitcoin and 2TM executives reiterated that they will continue fighting for mandatory asset segregation in the forthcoming crypto regulatory framework. (Exame)
Assets seized from leaders of the Trust Investing cryptocurrency pyramid scheme, including seven luxury cars valued at R$1.4 million, will be auctioned off in August. Patrick Abrahão, husband of the singer Perlla, is among the leaders of the scheme. The assets were seized by Federal Police in October 2022. (Portal do Bitcoin)
Grow Up, a cryptocurrency pyramid operating near Cabo Frio, has not paid out its promised 10% monthly returns to investors since January. The company was created by Gleidson da Costa. (Portal do Bitcoin)
InfoMoney’s Lucas Gabriel Marins interviewed several retail investors who lost significant money investing in some cryptocurrency pyramids. “My biggest learning from all of this is to think three times before trusting someone,” said one of the victims.
No bids were offered in a July 6th auction of cars and other luxury items belonging to Braiscompany founders Antonio Neto Ais and Fabricia Campos, even after the minimum bids were lowered by 20 percent after an unsuccessful auction in June. (Portal do Bitcoin)
A São Paulo court ruled that former Palmeiras footballer Willian Gomes de Siqueira - aka Willian Bigode - is a defendant in the Xland case, an alleged pyramid that resulted in the loss of R$6.3 million for fellow player Gustavo Henrique Furtado Scarpa. Scarpa is requesting that 30% of Bigode’s salary be garnished to pay back the debt. (InfoMoney)

Brazil Crypto Report