The Web3 Financial

Services Ecosystem
In Brazil
Are Brazil’s financial service
providers prepared for Web3?
 INTRODUCTION

Brazil is a leading country globally in crypto adoption, ranking

7th in the world and being by far a regional leader in Latin
America.

The upcoming rollout of Real Digital, which is planned for

2024, raised a question: how is the financial services industry
keeping track of the recent developments in Web3?

This research aims to answer this question, providing useful

information about the recent web3 projects disclosed by
financial institutions through press releases and especially
the Lift program by the Brazilian Central Bank.

We also used a questionnaire to ask regular Brazilians and

workers from the financial sector about Real Digital and how
prepared financial institutions are for web3.

Some interesting findings are that most Brazilians like the

idea of 'Real Digital' (80%), while most of the financial sector
executives think that financial institutions aren’t ready to
accept it.

When financial executives were asked what is the main

reason why the financial institutions aren’t developing more
blockchain-based products or services, the main reasons
stated were: it’s still an early stage technology (33%), it
doesn’t fit our company’s culture (31%) and it’s hard to build a
blockchain development team (19%).

Despite all these challenges, we still found interesting

projects from financial institutions being developed. Most of
them are still in either proof of concept or pilot stages. We
believe that with the rollout of Real Digital and a clear
regulatory framework, more use cases will happen.

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 BRAZILIAN WEB3 ECOSYSTEM OVERVIEW

Even during the 2022 - 2023 bear market, crypto adoption in

Brazil is growing: from 2 million people in 2021 to around 16
million in 2022. It’s estimated that 7.8% of Brazil’s population
owns cryptocurrencies. Along with high adoption rates
among Brazilians, recent crypto regulations approved by the
Brazilian Government in December 2022 and the rollout of
the Real Digital are factors that will drive blockchain
development in the Financial Services industry.

Inflation and the depreciation of the Real are key factors

behind crypto adoption for Brazilians, and grassroots
adoption should continue to increase as major global
exchanges like Binance, Coinbase and Crypto.com make the
Brazilian market a priority, investing in marketing campaigns
and educational resources to onboard new users into Web3.

Regulations also play a major role: Crypto-related ETFs

debuted in Brazil in 2021, initially linked to Bitcoin and
Ethereum. They became a huge success, allowing investors
to enter crypto markets in a simple, secure, and regulated
way.

A regulatory sandbox has been in place since 2020 and has

helped financial institutions develop a proof of concepts and
pilots to experiment DLTs (Distributed Ledger Technology)
possibilities.

The first Crypto ETF - HASH 11, launched by Hashdex - became

the second-most purchased futures on the Brazilian stock
exchange just nine months after its launch and currently has
over 150.000 investors.

Other ETFs are listed on the Brazilian Stock Exchange, with

investment options ranging from carbon-neutral bitcoin to
DeFi, Metaverse, and Web3.

Traditional banks are also moving forward, exploring

blockchain capabilities and testing the technology.

© 2023 Cryptum. All rights reserved

 Itaú created its own Digital Assets unit, adding asset
tokenization to its services, and aiming to act as a middleman
between companies wanting to take their assets to the
blockchain and the market. Itau Asset Management and
Galaxy Digital joined forces to launch their own ETFs, starting
with the IT Now Bloomberg Galaxy Bitcoin ETF. Those
announcements matter because Itaú Asset is Itaú Unibanco's
investment fund management company. Founded in 1957, it
has been operating for over 60 years and is Latin America's
largest private asset manager, with approximately $165 billion
in AUM.

Itaú also participated in the Brazilian Central Bank Lift

Challenge, in association with R3 Corda and B3, with a use
case of international payments, employing a PvP (Payment
versus Payment) method in an application with Colombia.
This is an effort to improve cross-border payments and has a
large market size in Latin America, especially regarding
international trade.

Santander is another bank exploring the blockchain and DLTs

possibilities. They will launch a crypto trading feature in the
upcoming months and have participated in the Brazilian
Central Bank Lift Challenge.

The project proposed is a DvP (Delivery versus Payment)

process in which used vehicles and real estate ownership
rights would be tokenized and delivered upon payment. The
bank has been testing the platform to transfer used vehicle
ownership, developed in partnership with Parfin, since
October 2022.

Other initiatives from Santander globally include using

blockchain to provide collateralized loans to farmers in
Argentina and issuing the first end-to-end blockchain bond
in 2019. Bradesco, the third biggest bank in all of Latam, has
entered the cryptocurrency world by issuing its first
tokenized credit notes.

© 2023 Cryptum. All rights reserved

 The pilot operation carried out in partnership with Bolsa
OTC, tokenized almost $2 million in bank credit notes, which
were also distributed by the bank. Bradesco didn’t
participate in the Lift Challenge.

Banco do Brasil created an open innovation lab called “Lentes

BB”, in partnership with the startup GoLedger with a call for
blockchain projects. The goal of the program is to validate
and prototype opportunities that can benefit from
blockchain technology and allow the bank to participate in
the digital transformation that Brazil is going through.

Caixa Econômica Federal, one of Brazil’s largest public banks,

is using blockchain to process data from people’s CPFs
(similar to US Social Security), in a partnership with public
company Dataprev.

Democratizing access to cryptocurrencies has been a

priority for many traditional fintechs and neobanks - and has
been a driver of user adoption in Brazil.

Mercado Livre, one of Brazil’s largest marketplaces, invested

in 2TM, Mercado Bitcoin’s holding company, and has already
enabled Brazilian residents to buy, sell and hold major
cryptocurrencies like BTC and Ether (ETH) through its
subsidiary, Mercado Pago, a major payments firm in Brazil
with more than 20 million active users and 1 million crypto
customers.

Nubank, Brazil’s largest digital bank, began offering Bitcoin

and Ethereum to their customers in May 2022 and had 1.8
million customers as of late September 2022. The bank has
announced a partnership with Polygon to create its own
crypto asset - a loyalty rewards program and has been using
Remessa Online to provide remittances to its customer base.
Remessa Online uses Ripple for international transfers.

Picpay, a mobile wallet with 30 million active users and 60

million registered users, began offering crypto options to its
user base in August 2022 and now offers Bitcoin, Ethereum,
Polygon, Litecoin and USDP (Picpay’s stablecoin).

© 2023 Cryptum. All rights reserved

 BTG Pactual, one of Brazil’s leading investment banks, already
offers several crypto ETFs to its user base and created
Mynt.com.br to offer crypto to its customers. BTG also
launched BTG Dol, the first US dollar stablecoin issued by a
bank. XP Investimentos created Xtage, their proprietary
crypto trading platform. XP also distributes Hashdex crypto
ETFs.

On the insurance side, blockchain has the potential to

change how companies do business. It can help save time,
cut costs, improve transparency and comply with regulations
to build better products. But because it’s a very traditional
industry, there are also challenges with tech
implementations. One of the reasons the B3i initiative failed
was because basically “all insurers would have to change
their IT system to be able to read smart contracts”.

There are not many blockchain insurance applications in

place in Brazil, and this could be an opportunity for future
developments.

Remittances are also an important part of the financial

services industry. It is estimated that international money
transfers using crypto can provide services faster and 96%
cheaper than regular ones. Remessa Online has been using
Ripple to process international payments and has developed
a partnership with Nubank to serve its clients. Another player
using crypto in the Brazilian remittances market is the
fintech Dock.

On the development side, Cryptum is enabling fintech

businesses to enter Web3 with a blockchain-as-a-service
solution, making the transition to Web3 smoother and more
accessible in the short term. With Cryptum APIs,
organizations can easily plug into the Web3 economy without
the need to hire a team of blockchain specialists, which is
hard and costly.

© 2023 Cryptum. All rights reserved

 Brazil’s adoption is also fostering a hub for Regenerative
Finance (ReFi). ReFi Spring - an initiative to support
grassroots events - let communities all over the country
gather and discuss ReFi. Celo organized a hackathon to
tokenize all real estate properties held by the Brazilian State,
organized in partnership with the Brazilian public company
SERPRO (Federal Service of Data Management).

Many builders are using web3 to cause positive impacts, with

projects gaining traction including Cambiatus, a social
currency platform, Moss, a carbon credit platform, Ribon
DAO, which incentivizes donations, Detrash, an app to
promote recycling, and Play4Change, a DAO that promotes
education, financial inclusion and social transformation
among thousands of Brazilians using web3 tools.

REGULATION

A bill to regulate crypto operations in Brazil has been

sanctioned by Brazil's Executive branch for December 2022.
The bill attempts to create rules governing day-to-day crypto
usage in financial transactions while establishing regulation
for “virtual assets” and their service providers. It also
considers digital assets as securities and establishes that the
asset class will be regulated by the Brazilian Securities and
Exchange Commission (CVM). Companies will have 180 days
to adapt to the new rules.

A bill to regulate crypto operations in Brazil has been

sanctioned by Brazil's Executive branch for December 2022.
The bill attempts to create rules governing day-to-day crypto
usage in financial transactions while establishing regulation
for “virtual assets” and their service providers. It also
considers digital assets as securities and establishes that the
asset class will be regulated by the Brazilian Securities and
Exchange Commission (CVM). Companies will have 180 days
to adapt to the new rules.

The bill also defines crimes and fines related to fraud using
digital assets, with the overall goal of increasing investor
protection. Making Bitcoin legal tender isn’t on Congress’
agenda.

© 2023 Cryptum. All rights reserved

 The government’s current focus is on testing and launching
its Central Bank Digital Currency (CBDC), the Real Digital.
Tests are underway, and a soft launch is expected to occur in
2024. In Brazil, holders of cryptocurrency have to declare it
on their income tax application if the value exceeds 5,000
BRL.

Capital gain taxes are applied to any crypto sales. In May

2022, the Brazilian Tax Authority (RFB) clarified that investors
are required to pay capital gain taxes when converting one
cryptocurrency to another, and trading crypto pairs incurs a
tax liability regardless of whether there was an intermediary
conversion to the Brazilian real, the country's national
currency.

If monthly transactions do not exceed the threshold of

35,000 BRL, they are tax-exempt. The capital gain tax rate will
depend on the total amount. Gains of up to 5 million BRL are
taxed at a rate of 15%, while any amount of gain between 5
million BRL and 10 million BRL is taxed at 17.5%, between 10
million BRL and 30 million BRL at 20%, and profits above 30
million BRL incur a 22.5% tax.

Assets received in or from Brazil as a gift or inheritance are

subject to inheritance tax. The rate varies by location, from 2
to 8%.

KEY PLAYERS

Brazilian Central Bank, Itaú Digital Assets, Bradesco/

InovaBra, Santander, Picpay, Mercado Bitcoin,
Mercado Pago, Foxbit, OriginalMy , Cryptum, Block4,
EOS Rio, Coins wallet, Hashdex, BLP Crypto, Stratum
Blockchain, MOSS, one percent, QR Capital,
BitCapital, FlowBTC, Pods Finance, Ribon DAO, Parfin.

© 2023 Cryptum. All rights reserved

 CONCLUSIONS

As we can see, there are many Brazilian financial institutions

building blockchain projects, and the applications built for
the Lift Challenge by the Brazilian Central Bank allow us to
foresee what’s next.

It’s interesting to note that training and education might play

an important role for financial institutions.

When asked if their companies were preparing their teams

for the changes that will come with the emergence of digital
currencies, 59% of financial executives said no, and when
asked if their companies were doing their job of preparing
themselves for changes that will come from blockchain and
web3, 67% of respondents said there’s still a lack of training
and understanding the technology and its applicability into
their business.

Tools like Cryptum, that facilitate the deployment of

blockchain applications will face big opportunities: financial
executives said that they’re not building blockchain
applications because it’s hard to build a blockchain team
(19%) and it’s expensive (11%), so they’re waiting for cost-
effective tools to enter the market.

Using an approach based on education could also be good

for facilitating the development of solutions and creating
trust connections with prospective clients. 86% of financial
executives think that they need more knowledge about
blockchain and web3, and in their opinion, the best way to
learn is from tech leaders (54%), universities (34%) and
business associations (29%).

A community-building strategy focused on workshops in

universities and business associations would be a nice take.
Media relations strategy about use cases from industry peers
would be nice to make tangible examples of how the
technology would be implemented.

© 2023 Cryptum. All rights reserved

 The Brazilian population already has a good perspective on
blockchain tech. When asked how they feel about a company
that is adopting blockchain, they like it, saying that they’d
happily invest with those companies (53%), that they’ll
become more inclusive (51%) and they will offer better
products and services for their clients (49%).

As we can see, adoption is gaining momentum even in a bear

market. We understand that education in blockchain and
web3 is key for grassroots and for institutional adoption,
even for the financial sector. As the market matures and we
prepare to enter the next bull cycle, the companies that
invest in education, training and tools today, should be
rewarded in the future.

© 2023 Cryptum. All rights reserved

 CONSUMER WEB3 RESEARCH
Cryptum and Sherlock Communications partnered up to ask
Brazilians what they think about Web3 and innovation in the
financial services sector. Through an online panel, we
interviewed more than 1030 Brazilians and asked their
opinion on Real Digital, Blockchain and more. Below you can
find all the results from our survey.

© 2023 Cryptum. All rights reserved

© 2023 Cryptum. All rights reserved
© 2023 Cryptum. All rights reserved
© 2023 Cryptum. All rights reserved
 FINANCIAL SERVICES PROFESSIONALS
RESEARCH

In addition to the consumer survey, Cryptum and Sherlock

Communications also partnered up to ask Financial Services
professionals in Brazil what do they have to say about
companies in this sector and their adoption to Web3 and
Blockchain. Through an online panel, we interviewed more
than 100 decision makers (C-level, managers, directors) in
the sector to find out more about their view on innovation.
Below you can find all the results from our survey.

© 2023 Cryptum. All rights reserved

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Lead Researcher Luiz Hadad | Research Manager Maria Amelia da Costa| Marketing Manager Bianca Boucault