Banco Central do Brasil’s DREX tokenization pilots have attracted considerable attention. The first phase of trials was limited to a wholesale CBDC (wCBDC), tokenized deposits and digital treasury bonds. It is now about to start a much broader second phase, and in September announced 13 consortia selected to take part. This week it opened applications to another round of participants, with a deadline of November 29.
The primary payment tool in DREX is tokenized bank deposits. There’s a wholesale digital real issued by the central bank, which is used for interbank settlement for transactions. DREX aims to explore smart contracts to enable programmability and automation of a variety of transactions, including high value purchases and investments. It already has its successful Pix payment system for regular payments.
The consortia that were previously selected are experimenting with a range of use cases, including using tokenized deposits for the settlement of real estate transactions, buying a car, for agribusiness transactions and for trade finance. Many of the use cases are more financial in nature, including asset backed securities, certificates of deposits, FX and debentures.
DREX selection process
For new applicants and use cases, the central bank wants to know how the business case will benefit the financial system. It is also curious about how the use case will comply with existing legislation and any regulatory impediments.
We explored the rules for assessing applicants. The committee will consider the applicant’s involvement in other IT projects involving the central bank or payment systems. Experience with research, DLT and particularly Ethereum-based blockchains is another factor. Additionally, the central bank aims to be inclusive so it wants to involve diverse types of organizations such as commercial banks, savings banks, credit cooperatives, payment firms or financial market infrastructures.
Testing of additional use cases will take place in the first half of 2025.
In May the central bank delayed the timeframe for a potential DREX launch as it’s not yet convinced about the privacy solutions available for its chosen technology, Hyperledger Besu, the Ethereum based blockchain. Hence, it will continue to explore iterations of privacy solutions while the phase 2 trials are in progress.
Ledger Insights Research has published a report on bank-issued stablecoins and tokenized deposits featuring more than 70 projects. Find out more here.
