Brazil plans to expand its central bank digital currency (CBDC) to encompass decentralized finance (DeFi) and tokenization, the country’s central bank has revealed.
Elsewhere, Visa (NASDAQ: V) is ramping up its tokenization efforts, recently launching a platform for tokenizing assets such as stablecoins and deposits, with Spanish giant BBVA as its first customer.
A robust CBDC: Brazil’s unique approach with Drex
Brazil was not among the first countries to launch CBDC trials, but since its first pilot last year, it has moved forward aggressively. Most recently, the governor of Banco Central do Brasil revealed that he was exploring tokenization, programmability and DeFi with CBDC Drex.
Roberto Campos Neto spoke with Professor Markus Brunnermeier of Princeton University in an interview focusing on the future of financial intermediation. According to Neto, the central bank strives to offer Brazilians cutting-edge financial and payment solutions while balancing other responsibilities, such as maintaining economic stability.
The central bank of Brazil has an integrated program with four fundamental blocks: Pix, Drex CBDC, open finance and currency internationalization.
Under Drex, the bank intended to prevent the disintermediation of commercial banks by ensuring that Drex did not alter the central bank’s balance sheet. This has given rise to tokenized deposits, which benefit from the speed, access and low cost of CBDCs without the complexity of changing an entire system.
Over time, Drex has evolved to better compete with existing payment methods, with the biggest rival being Pix, the nation’s high-performance digital payment framework. Since its launch in November 2020, Pix has facilitated 67 billion transactions for 158 million users.
One of the unique features offered by Drex is access to DeFi. However, unlike DeFi which has dominated the “crypto” world, driven by the chase for quick wins through pumps and dumps, this one would be better regulated and respect financial laws.
Although Pix has taken the lead, Neto believes CBDC can offer immense value to Brazilians. This includes reducing transaction costs and frictions, improving auditability and transparency, and strengthening financial inclusion.
Drex will also promote tokenization, which has become one of the main applications of blockchain technology by major players. Studies estimate that the tokenization of real-world assets (RWA) will unlock over $10 trillion by the end of the decade.
Visa’s new tokenization platform targets commercial banks
As tokenization takes hold, Visa aims to remain at the heart of global finance by enabling commercial banks to easily issue and manage tokens backed by on-chain fiat currencies.
The Californian giant recently announced the launch of the Visa Tokenized Asset Platform (VTAP), which it says will “help banks integrate blockchain technologies into their operations.”
Visa has a network that spans over 15,000 banks worldwide, which can now create and experiment with their own tokens in its VTAP sandbox. They can mint, burn and transfer these tokens, including token deposits and stablecoins.
VTAP supports smart contracts, allowing users to program and automate their tokens. A bank could, for example, automate credit line processes to automatically release payments to its customers when certain conditions are met.
Spanish banking giant BBVA is the first to explore the new platform. The Madrid-based lender revealed that it has been experimenting with VTAP throughout this year, including testing the issuance, transfer and redemption of a banking token on a testnet blockchain.
“This collaboration marks an important step in our exploration of the potential of blockchain technology and will ultimately allow us to expand our banking services and expand the market with new financial solutions,” commented Francisco Maroto, Head of Blockchain at the bank.
While Visa only used the term “fiat-backed tokens,” its product essentially described a stablecoin. With VTAP, this will allow any bank to issue its own stablecoin, potentially competing with “crypto-native” products like USDT and USDC.
Initially, these bank-issued stablecoins will be limited to a specific bank’s ecosystem and will be more like tokenized deposits. However, Cuy Sheffield, Visa’s head of digital assets, revealed earlier this year that the company intends to make stablecoins interoperable, creating a global network of more than 15,000 banks where users can transfer coins transparently stable.
Watch: CBDCs are more than just digital currency
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