DREX: A New Era for the Global financial market

With the emergence of DREX, the BCB's digital currency, several clauses will be established in its Smart Contract to ensure the security of transactions. The article presents a compilation of technical information on the applicability of DREX.

We already know that CBDC (Central Bank digital currency) is a tokenized representation of a country's money. And DREX will be the name of Brazil's CBDC.

But what would be the more detailed functioning of DREX?

Ramon Welmans Oliveira (CEA, undergraduate student in economics at ibmec) recently detailed the functioning of DREX in a more technical way:

"There are three forms of money in an economy: bank reserves, which are transacted only between central banks and accredited commercial banks; bank deposits, which are issued by central banks based on the bank reserves they hold; and fiat currency, which is the money used by people in their daily lives.

The initial plan for DREX is to tokenize bank reserves and bank deposits, called interbank DREX and tokenized DREX. Although this does not directly affect individuals in the short term, DREX will work alongside other forms of money such as M0 and M1, M2 (short-term deposits), and M3 (long-term deposits).

This will lead to competition between these forms of money, being used for settlement in smart contracts. The CBDC may compete with commercial bank deposits in managing the payment system, which will reduce costs. Currently, the cost of managing a country's money supply and cross-border transactions is high."

Although some of the clauses in the DREX (Real Digital) contract raise concerns, such as unauthorized transaction reversals and wallet balance movements, it is important to note that these actions are not much different from what the government can already do with traditional money.

Speaking of wallets... The use of external wallets, such as "Metamask," will not be compatible with DREX, as these wallets do not meet the Know Your Customer (KYC) and Know Your Transaction (KYT) requirements set by the Central Bank. This situation opens up a range of opportunities for Brazilian entrepreneurs to develop wallets that meet these specific demands.

One of the great advantages of DREX will also be the possibility of creating on-chain financial instruments, such as Certificates of Deposit (CDBs), National Treasury Letters (LTNs), and other similar assets.

This new approach will allow the settlement of these assets through a secondary market, bringing greater liquidity and reducing exclusive dependence on financial institutions. As a result, assets become more accessible and portable for investors.

In addition, the introduction of DREX will also bring the creation of new professions in the financial market. With the tokenization of assets, we will have two categories: on-chain assets and off-chain assets.

Assets such as Precatórios and Debentures, which already exist in electronic format, will be digitized. However, it will be necessary to have "guarantee agents" to ensure the fulfillment of these securities, as Tokens are digital representations. This evolution will open up new job opportunities in various sectors of the economy.

Another consequence of DREX is the possibility of compulsory taxation and lending. With this digital currency, the government will be able to collect taxes more efficiently and implement compulsory loans when necessary.

As a result, various other applications may also emerge or evolve, as recently mentioned in a publication by Roberto C. Durscki (Senior Director of tokenization, stablecoins, and CBDC at Stellar):

1. 💰 Standardize the reserve process for real-backed stablecoins (they will use DREX as a reserve); Or other digital assets that have R$ in their composition (multi-currency stablecoins or "basket of currencies," exchange-traded funds, NDFs)
2. 🌐 Enable access to DeFi products in R$ that will use assets from item 1 on open networks like Stellar, Ethereum, etc.
3. 🇧🇷 Enable SFN/CVM/BACEN/B3 themselves to launch DeFi-powered products (as already observed in the US with fixed-income funds with daily interest and 24/7 trading like Franklin Templeton's FOBXX issued on Stellar)
4. 💱 Improve liquidity, pricing, and accessibility to FX and international remittances through AMMs, LPs, and DeFi between DREX (or DREX-powered stablecoins - item 1) and other CBDCs/stablecoins, for example (DREX:USDC on Uniswap or DREX:GYEN on Stellar DEX, for example)
5. Automate the payment of contracts that are intermediated by official bodies and involve the flow of reais in at least one of the parties (real estate sales, inheritance payments, tax collection, etc.)."

Just like a series of opportunities for entrepreneurs, liquidity of assets, the creation of new professions, and improvement in the collection of taxes and compulsory loans.

Thus, I come to the end of a more detailed and technical explanation of how DREX will work. It is important to be aware of these changes and closely monitor the development of this new financial scenario.