Brazil’s Securities and Exchange Commission, CVM, is quizzing tokenization startups about their activities, and whether they are issuing utility tokens or securities, Valor Globo reported, citing sources. However, startups view this is a mutual education exercise rather than a threat.
It turns out this is not the first time that the CVM has been in touch. The current questions are part of its Biennial Risk-Based Supervision Plan.
Portal do Bitcoin asked the CVM about the process. “The CVM has been establishing contact with institutions in the crypto ecosystem that potentially operate with securities with the aim of deepening its understanding of the role and structure of these institutions and the characteristics of the assets traded,” said the CVM.
Resolution 88 for crowdfunding
In 2022 the CVM provided an element of clarification about what amounts to a security, using the Howey Test as in the United States. However, it also introduced some crowdfunding rules, Resolution 88, which allows small firms to raise up to R$15 million ($2.65m) a year without registration. Retail investors can invest up to R$20,000 ($3,540) with well off individuals allowed to invest more.
The two publications spoke to a few startups that seemed positive about the CVM’s questions. Liqi said it has previously helped the regulator understand the impact of tokenization, with Hurst Capital making similar comments. The founder of PeerBR saw “no problem whatsoever”.
So far Hurst Capital has raised more than R$1 billion ($177m) for firms using Resolution 88, offering alternative investments to its 72,000 clients. The receivables certificates include invoice financing (some of them foreign currency), court judgments requiring payment, crypto receivable pools and music royalties. Some returns offered on its website seem high for retail investors, averaging over 20%, given that promised returns reflect risk.
PeerBR appears to be Hurst’s biggest competitor with R$195 million ($34.5m) invested and 100,000 investors. Users have to sign up before they see the investments available, so it doesn’t commit to high returns on the website. Liqi shows investment opportunities on its website, but the returns imply they may be lower risk, perhaps because they are primarily receivable financing. It has one of the smallest investment minimums at R$25.
Meanwhile, so far the CVM has taken an observer role in DREX, Brazil’s wholesale central bank digital currency (CBDC) initiative that aims to support tokenization. However, as the project enters its second phase, which expands the tokenization use cases, the CVM is joining the governance structure.
