The combination of digitizing money and tokenizing assets can yield significant gains in operational efficiency and, of course, new business models.

This translates into improvements in the system, such as automatic financial settlement in 24/7 mode and the creation of automation for different market segments.

To delve even further into the understanding of this new scenario, Parfin has produced the report 'Drex Perspectives: An Institutional Analysis,' which you can access by clicking here.

Below, we provide a summary of the five main points covered in the document.

1- What is CBDC, and What is Its Role in the Economy

The entire Drex project is based on the concept of Central Bank Digital Currencies (CBDC), or digital currencies issued by central banks. This is a new form of money whose operation is inherently digital. The technology has the potential to revolutionize how we understand and issue money.

The relevance of CBDCs seems to have been accelerated by the emergence of blockchain technologies and digital assets, along with the socio-economic transformations in digitization imposed by the Covid-19 pandemic.

It is no coincidence that at least 80 central banks* worldwide are conducting research and tests to formulate their CBDCs. Brazil is one of the most advanced countries.

"There is room [in CBDCs] for various innovations beyond the financial aspect, such as the possibility of improving issues associated, for example, with real estate and automotive markets. I believe that in the future, there will also be better connections between financial and non-financial assets and the management of user data in these systems,"

2- The Pace of CBDC Adoption Worldwide

According to the Atlantic Council, there are currently about 130 countries* (or 98% of the global GDP) exploring CBDC solutions to varying degrees of evolution.

Within the G20, 19 are already in an advanced stage of developing their digital currencies, with notable progress in China, Russia, Japan, Australia, India, and Brazil, all of which have pilot projects.

Brazil has one of the most advanced and sophisticated CBDC projects, initially named Digital Real, later renamed Drex.

When considering cases where CBDCs are already implemented, Nigeria (e-Naira) and the Bahamas (SandDollar) stand out as two countries that have effectively launched their CBDCs.

China, on the other hand, is a protagonist in one of the most notable uses of the technology: currently, the digital Yuan (e-CNY) represents about 2 billion dollars in circulation (or 0.13% of the Chinese central bank's reserves).

3- Drex Will Enable New Business Models

One of the first aspects to highlight about Drex (Digital Real) is that the project goes beyond promoting CBDC. The Central Bank (CB) seeks a new technological, economic, and integrative approach to the currency.

"The Digital Real did not necessarily come to solve payment problems but to build a new foundation for asset tokenization. Granularization and increased market liquidity are some of the main benefits,"

In practice, Drex seeks to support the development of innovative business models and financial operations using smart contracts and programmable money, an approach commonly referred to as "tokenization."

Currently, Drex is in the testing phase for operations, operating in a simulated environment without involving transactions with real value. The CB's goal at this stage is to assess the capabilities of Distributed Ledger Technology (DLT), which provides a platform for proposing, validating, and storing transactions, supporting multiple assets and tokenized asset operations with smart contracts.

To achieve this goal, the project's Executive Management Committee (CEG) has listed 16 market proposals for participation in the program, including financial institutions such as Banco do Brasil, Bradesco, Caixa, Nubank, Banco Inter, Santander, Itaú, Banco BV, and Banco BTG, as well as technology partners such as Microsoft, AWS, and Parfin.

4- Drex Asset Tests

The current pre-operation phase of Drex includes the testing of three assets:

• Wholesale Drex (formerly Digital Real): the CB's currency for processing bank reserves and settlement accounts of financial institutions;

• Retail Drex (formerly Tokenized Real): currency for maintaining accounts of individuals with sight deposits, with the service interface being offered through financial institutions;

• Federal Public Title (FPT): a system for issuing public titles directly on the network, primarily offered by the National Treasury, with a secondary market and automated buying and selling operations.

5- Potential Impacts on the National Financial System

Brazil is one of the most friendly financial environments for the potential adoption of a CBDC. This reflects especially the population's familiarity with digital assets, as seen in the widespread adoption of an instant and digital payment system (Pix) and the existence of a pro-innovation regulatory environment.

Amid this history, the adoption of Drex in a large-scale digitization process of the Brazilian financial system should be considered a real possibility. Among the main benefits of this process are market efficiency, transparency, and programmability, cost reduction, and greater liquidity.

The impacts of Drex can already be measured: "we see in this future improvements in the internal operations of financial institutions, capable of reducing operational risks and facilitating more automated processes that can act in cost reduction throughout the operational chain, eventually reaching the end user," says Luiz Fernando Lopes, Digital Platforms Manager at TecBan.

The complete report 'Drex Perspectives: An Institutional Analysis' can be accessed at https://cloud.mkt.parfin.io/ReportDrex.