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This live event brought together experts to discuss the landscape of the digital assets market and financial institutions.

 

Hosted by Parfin, the "DREX Perspectives" webinar gathered a team of experts to discuss the pilot project of DREX, the "Digital Real," along with its advantages, challenges, and the impact it will have on the economy. In addition to Parfin's CEO and co-founder, Marcos Viriato, the Digital Assets Manager of BV Bank, João Gianvecchio, and the CEO of B3 Digitas, Jochen Mielke, also participated.

Here are the main insights shared:

1 - DREX will have a significant impact on the digitalization of the economy.

Like more than 80% of the world's central banks, Brazil is developing a tokenized and blockchain-based version of its sovereign currency, DREX (or "Digital Real"). Sixteen participants, including Parfin, B3, and BV, are working in partnership with the monetary authority.

The technology will bring a series of structural changes, advantages, and new opportunities to the financial asset market and, in the future, even non-financial assets. "Brazil is looking at the use of CBDC (Central Bank Digital Currency) as a way to improve market infrastructure, to have tokenized assets that can be exchanged instantly," explains Marcos Viriato, CEO and co-founder of Parfin. "This has many applications."

According to the moderator Orlando Telles, this will be "a system that will not have just one killer use case but perhaps a new paradigm for how we structure the financial market itself." This new paradigm will have a significant impact on the economy. "The big change is that you have a unique framework where all assets can circulate," adds Parfin's CEO, "a huge change for the architectures, systems, and settlement processes of institutions."

2 - The "Digital Real" will unlock value and generate a series of benefits.

The implementation of DREX has the potential to enable asset tokenization in Brazil, a promising market that could be worth 20 trillion reais worldwide by 2030, according to Citibank. This will benefit the entire economy, with the first benefit being standardization.

"The name of the game here is standardization," explains Jochen Mielke, CEO of B3 Digitas. "Without standardization, you end up with the same status quo of various islands, various platforms that require more effort from an interoperability perspective." For João Gianvecchio, Digital Assets Manager of Banco BVx, "the market will have much more liquidity since we will have all assets within the same system, interoperable twenty-four hours a day, seven days a week."

Another advantage will be the programmability of the system. Smart contracts can be used to automate transactions. "It's really about bringing different components that run on a decentralized network so that they compose different business logics," explains Mielke. This feature, according to the CEO of B3 Digitas, "is what unlocks the most value, the ability to program payments, something that is not done with PIX today." The result will be a more efficient and secure market with lower costs for end users.

DREX is also expected to bring advantages for the analysis, evaluation, and mitigation of credit risks. "With a smart contract, you can track an entire contract," explains Gianvecchio, "the process of collateralizing credit is much simpler." This applies to the trading of tokenized financial assets such as debentures, financial notes, and CDBs.

3 - More efficient and innovative business models will emerge with DREX.

In addition to unlocking value and bringing numerous advantages, DREX is expected to drive new ways of doing business. "From the moment you have the currency running on the same layer as tokenized assets," Viriato explains, "this will unlock many use cases."

An example is the vehicle financing market, which faces many frictions due to complexities and intermediaries. "In an interoperable network, you would go through BV's credit process, which would release the money directly to the dealer or dealership," illustrates Gianvecchio, "and once the money reaches the dealership, the document registration is done automatically via DETRAN, for example." Eventually, with regulation and technical foundations, vehicles themselves can be tokenized and traded in the form of NFTs (Non-Fungible Tokens), opening up even more possibilities.

Foreign trade was also mentioned as an area of innovation. Currently, "when you receive or make any transfer of goods, the money is stuck for three or four days," continues Banco BVx's Digital Assets Manager. "Once you use an interoperable CBDC on standardized networks, you can reduce the cost of this transaction and reduce the time it takes," he concludes.

"DLT and Drex are a track for these new models that can emerge from here," adds Mielke, "whether with new business models or with efficiency gains compared to the models that exist today." For Telles, "the entire financial system grows with this structure, with these new possibilities," which should emerge as DREX generates more efficient, cheaper, and secure solutions.

4 - The challenges of DREX will be overcome together.

In addition to the technical issues to make DREX viable, there are regulatory issues to be addressed. "The first major challenge is governance, not only in relation to DREX but in relation to DLTs in general," explains Mielke. "Maintaining control and rigidity of a decentralized network is not an easy challenge and often requires collaboration between different institutions." According to him, the Central Bank is working as a major catalyst for this movement.

"Some of the challenges will be simpler, others more complex, and will require regulatory changes to flow," Viriato agrees, seeing the attitude of the Central Bank in this regard as positive. In addition to regulation, other relevant issues such as privacy, scalability, and cybersecurity have been advancing on all fronts through joint efforts of the parties involved in the pilot.

5 - The next steps in the DREX journey.

"The world of digital assets is here to stay," Viriato reminds, recommending that companies should start "building the foundations" now to adapt to the new technological architecture and make the most of DREX's potential.

According to the CEO of Parfin, in addition to the work to address the mentioned challenges, there is an effort to allow financial institutions, acting as nodes of the network, to act as transaction validators. This step depends on solutions in privacy, as well as economic viability, and can bring more resilience to the Digital Real system, decentralizing the load and protecting its availability in the digital market.

The prospects for DREX are promising and should take on a more consistent form starting in 2024. "We are converging towards a very positive scenario," concludes Viriato, "with the Digital Real functioning as the link to unlock this new tokenized economy."

Report "DREX Perspectives: An Institutional View"

The discussion was moderated by influencer and crypto analyst Orlando Telles. Want to delve deeper into the topic? Access the full report "DREX Perspectives: An Institutional Analysis." The material provides in-depth insights into the current market scenario and the significant impact that DREX (Digital Real) will have on the tokenization of the Brazilian economy.

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