Brazil’s Digital Real Enters Second Phase: Focus on Smart Contracts

The Banco Central of Brazil has opened its doors for proposals in the second phase of Drex testing. Drex, the digital version of the Brazilian real, enters a crucial stage focused on smart contracts. Companies can submit their ideas from October 14 to November 29, 2024.

The central bank welcomes financial institutions capable of testing proposed business models. These tests will involve issuing, redeeming, and transferring assets. Participants must also simulate financial flows from trading events when applicable to the test case.

Smart contracts, powered by blockchain technology, automate contract terms and conditions. They streamline processes like money transfers, payments, and registrations. This automation reduces bureaucratic steps, cutting costs and boosting efficiency.

The potential applications of smart contracts are vast. They can simplify vehicle and property sales, as well as agribusiness asset negotiations. For example, a smart contract for a car sale would eliminate debates over payment and document transfer timing.

Proposals for this phase should not exceed five pages. Interested parties must email their ideas to [email protected]. Selected projects will need to sign a participation agreement and appoint a technical representative for coordination.

Brazil’s Digital Real Enters Second Phase: Focus on Smart Contracts

The central bank requires detailed business models in the proposals. These should outline expected positive impacts, privacy solution needs, and testing methodologies. Proposals should also address potential legal obstacles. There is no limit on selected proposals.

The Drex project began in March 2023 with the selection of the Hyperledger Besu platform. This open-source platform reduces costs associated with technology licenses and royalties. It allows for controlled environment testing and ensures transaction privacy.

In June 2023, the central bank chose 16 consortia for the pilot project. These groups built systems compatible with Hyperledger Besu and developed financial products and technological solutions. The digital real was officially named Drex in August 2023.

The first phase of testing started in September 2023. It involved simulated operations to test security, privacy, and agility. The testing evaluated various deposit types and operations with National Treasury securities.

Originally, Drex was set to launch in late 2024 or early 2025. However, the project faced delays due to central bank staff strikes and privacy concerns. The second phase of testing, which began in July, will now include new participants.

Testing with smart contracts will continue until the end of the first half of 2025. This extended timeline allows for thorough evaluation and refinement of the digital currency system. The Drex project represents a significant step towards modernizing Brazil’s financial infrastructure.

LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.