The importance of Smart Contracts in a tokenised economy

Smart contracts, also known as intelligent contracts, are programs that execute pre-agreed orders between two parties. In practice, the system enables a purchase and sale contract, for example, to be securely established within a blockchain network.

As a result, the tokenisation or digitisation of financial assets can be carried out in an integral, consistent, and predictable manner.

"This is why we say that smart contracts are the bridge between the world of finance and the crypto ecosystem," says Raphael Conrado, Engineering Manager at Parfin, core developer of Rayls.

The technology has the potential to revolutionise the way financial transactions are conducted. Below, we highlight the use cases where it has the potential to implement significant advancements.

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Tokenised Investment Products

Today, major financial institutions are already studying the additional revenue gains or cost reduction that the digitisation of assets can generate. This reality reflects the ability of smart contracts to handle different logics and factors within the same contract.

The technology can record all stages of negotiation of financial assets consistently and securely. This enables the tokenisation of public and private securities—such as debentures, Real Estate Receivables Certificates (CRIs), or Agricultural Receivables Certificates (CRAs), for example.

In addition to this predictability, smart contracts promote system agility, calculating in milliseconds how much return the investor should receive for a specific asset. Then, the purchase and sale of the security are automatically executed on the network.

"When the parties agree, the negotiation can take place at any time during the investment, even before the maturity date. It is no coincidence that smart contracts have the potential to expand the secondary market," says Conrado.

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Advantages of Smart Contracts

The automation of these processes and increased security can bring significant gains in operational efficiency. Some of the key advancements include continuous automatic financial settlement, in 24/7 mode, and the creation of specific automations for different market segments.

Another point is the ease of tracking contracts with tokenised assets. When gathered on the same network, financial institutions can evaluate data in a panoramic manner, optimising credit analysis and simplifying, for example, the collateralisation process.

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Pilot Project of Banco BV

Banco BV, one of the largest bank in Brazil., whose main business is vehicle financing, is already exploring ways to use smart contracts to streamline various stages of this process. Rayls provides the entire infrastructure for the project.

"We are fitting the bank's operation into the blockchain to promote agility and cut costs. The goal is to create an autonomous system capable of approving credit and packaging these debts for negotiation in the secondary market." explains Conrado.

The expert emphasises that although the technology has the ability to create solutions automatically, its use is centered on issues involving predictability.

"It is not possible, for example, to use smart contracts to manage and organise databases. The system must receive already analysed parameters to run efficiently," he says.

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Brazil at the Forefront of Technology

The Brazilian market is one of the most advanced globally when it comes to asset tokenisation. This is because the Central Bank follows global changes and promotes an innovation agenda that has already resulted in significant progress, such as Pix and Open Finance.

Now, by placing tokenisation at the centre of innovation efforts with Drex (CBDC), the financial authority encourages the entire sector to follow the same path.

Legislation supports this movement. Today, discussions on Law No. 14,478/2022 - known as the "crypto law" - are progressing in congress. In parallel, the CVM (Brazilian Securities and Exchange Commission) stays close to the topic to formulate parameters that enable the regulation of digital and tokenised assets.

"The market should take a leap with the implementation of Drex. We project that in five years, the majority of financial market assets will already be tokenised in Brazil," says Conrado.

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