One of several digital real central bank digital currency (CBDC) tests has demonstrated using a Brazilian CBDC on public blockchain. The pilot, jointly led by crypto exchange Mercado Bitcoin and Stellar blockchain, simulated delivery versus payment (DvP) transactions, in which the asset and the money exchanged simultaneously, as reported by Valor Econômico.
The test was part of the LIFT Challenge, the Central Bank’s CBDC trial, exploring potential use cases for the digital real with nine consortia. While most participants are institutions, two cryptocurrency organizations were selected to run these tests, including DeFi firm Aave Labs.
“Our thesis was to prove that it is possible, viable and safe to carry out transactions with digital assets using a representation of the real on public networks,” said Fulvio Xavier, responsible for special projects at Mercado Bitcoin. “The Central Bank is always concerned about understanding what happens when transactions leave its hands”,
The central bank’s digital real was used as a reserve asset to back a stablecoin in what appears to be the model for payment institutions. Around the world, most retail CBDCs are distributed via banks but are still a central bank liability. Valor Econômico stated that the design in Brazil is for merchants to use bank deposit tokens rather than CBDC. In other words, most retail users will not hold central bank-backed money. This looks like a wholesale CBDC with wider access than conventional central bank money.
Apart from Mercado Bitcoin, eight more teams are participating in Brazil’s LIFT Challenge, including G+D and Visa, who won the 2021 Global CBDC Challenge. Last year, a trial for rural financing was conducted by VERT, Digital Asset and Oliver Wyman, working on automating the lending application process and demonstrating that programmable money can ensure it is spent appropriately. According to a recent statement by Roberto Campos Neto, the Central Bank’s president, it appears Brazil will enter the pilot phase imminently.