Digital Real and the Tokenization of Assets

The Digital Real is getting closer and closer to becoming a reality. The expectation is that by the end of 2024 Real Digital will be available to part of the population and that access will gradually be extended to everyone.

What is this digital currency anyway? The purpose of the Real Digital is to be a CBDC (Central Bank-issued Digital Currency), that is, a digital currency recognized as legal tender just like traditional money.

It is important to note that CBDC is not a cryptocurrency. Cryptocurrencies are digital assets without state interference and are extremely volatile, whereas digital currency issued by a Central Bank enjoys the reliability of ballast impacting the stability of its monetary value.

In practice, in general, banking will be as it is today. After all, we rarely carry out transactions with paper money, mostly using cards or bank transfers.

According to the Central Bank, only 3% of the money used in transactions in Brazil is in banknotes, so the issue of the Digital Real is a new step towards innovation.

One of the tangible innovations will be the possibility of expanding the use of smart contracts in many different types of business, from loans to real estate transactions.

Smart Contracts are self-executing, predictable contracts that considerably reduce the operational cost of contract management.

Smart contracts are, small computer programs in which conditions are laid out and what should happen when a certain condition is fulfilled. That is, in the case of a loan, it is possible to modulate the contract so that automatically every two months – at which point the client will have x amount in his/her account – the due installment will be debited.

If it is not possible to debit the amount, it is automatically possible to sue the debtor or even arrange for protest of the title.

Another application would be in the case of buying and selling a tokenized property following the example of real estate development using blockchain technology, carried out by MRV still in 2019. However, with the advent of the Real Digital, this type of transaction will be possible and more accessible to individuals.

It is worth clarifying that a tokenized property is nothing more than a digital representation of a property through an NFT (non-fungible token). In other words, the property (and its deed) are now connected to an encrypted token, which represents something unique, such as your registration number at the Land Registry.

In the current scenario, in order to secure the sale, it is common for a Promise of Sale and Purchase contract to be signed, conditioned to the payment of an amount previously agreed upon between buyer and seller, and later the contract is registered at a notary’s office.

In addition, the Promise of Sale and Purchase Agreement usually has clauses about the payment of a fine in case the seller or buyer gives up on the sale.

On the other hand, these measures aim to ensure that the transfer of ownership of the property takes place as soon as possible after the full payment of the amount agreed upon by the interested parties.

All these steps generate costs, whether to provide the registration in the notary’s office or to collect the payment of the agreed fine, in addition to the time spent on the bureaucracies to formalize the sale.

With the use of the Real Digital and the smart contract, it will be possible to make possible that the act of payment and the transfer of ownership of the tokenized property occur simultaneously and automatically. That is, as soon as the payment is identified and validated automatically the ownership of the tokenized property is transferred to the buyer.

Besides the reduction of costs related to financial transactions, optimization of contract management, and speed of doing business, Real Digital will impact on the reduction of the cost involved in issuing paper money, transporting cash, collecting damaged banknotes, and replacing them.

Consequently, the carbon footprint generated by the emission of paper money and its distribution logistics will be reduced, also contributing to sustainable development.

To keep on the radar:

  1. Intensification of the debate with CVM about the Digital Real and tokenization;
  2. Global tokenized carbon credit trading;
  3. Innovation in the real estate market.

Want to know more? Contact our team of experts!