Check how the Central Bank of Brazil is testing Rayls to power private and atomic wholesale CBDC payments

Rayls was chosen by the Central Bank of Brazil (Bacen) to serve as the privacy solution for Drex, the Brazilian CBDC.  Also known as the Digital Real, this digital currency will enable on-chain settlement of traditional assets in digital formats, facilitating transactions via virtual wallets and incorporating the potential of smart contracts. The impact of this innovation on the economic landscape, and its global implications, is driving the development of more robust technologies for secure and efficient financial services operations.  

Drex is also expected to act as a bridge between traditional finance (TradFi) and decentralised finance (DeFi), enabling more efficient and secure financial intermediation while adhering to regulatory compliance. Its innovation may soon extend to areas like contracts and property registrations, streamlining and securing business processes.

“Many countries around the world are pursuing CBDC initiatives, some more advanced than others, but it is an extremely interesting movement that is driving tokenisation in general. For any tokenised asset process—and by tokenised asset, we mean anything that can generate value—it is essential to settle transactions. To settle, a fiat currency is needed, and for a fiat currency to be used within blockchain technology, it must also be tokenised” - CH Lopes, Chief Operational Officer at Parfin*

Privacy by Design: opportunities and challenges

According to the Fintech Notes Report Implications of Central Bank Digital Currency for Monetary Operations, issued on October 2024 by the International Monetary Fund (IMF), CBDC offers an opportunity to possibly improve the trade-off between data use and privacy protection as compared to private digital payment systems.  

“Facing a similar trade-off to private digital payment systems, central banks may have several potential advantages in striking a better balance. They have strong convening powers and are well positioned to clearly articulate principles and policies to enable privacy and coordinate the adoption of a privacy-by-design approach in the CBDC ecosystem”, highlights the document.

Phase 1: Brazil leading Latin America in CBDC development

The relevance of the Privacy by Design concept was one of the core premises to build an Ethereum Virtual Machine (EVM) based technology for blockchain operations. Rayls is the only solution that comprehends the importance of each institution having its own dedicated ledger. Our protocol was built from the beginning with a strong emphasis on privacy within a permissioned environment, providing high performance and security to all participants.

During the initial phase of testing, 16 banks collaborated successfully with the Central Bank of Brazil and Rayls teams, major players in finance and banking, such as: ABC Brasil, Banco do Brasil, BTG Pactual, banco BV, B3, Banco Bradesco, CAIXA, Nubank, Inter, Itaú Unibanco, Santander, Sicredi, TecBan, XP. The trials were concluded in September 2024.

Phase 2: More insights on Security Protocols

The second testing phase, initiated in October, brought valuable insights, guided by feedback from Bacen and participating institutions. One of the key outcomes of these findings was evolving our security protocols, such as Enygma. Enygma combines private and anonymous transactions, fully atomic token transfers on the commit chain, quantum-resistant encryption, and other transformative features, benefiting both users and institutions.  

A standout feature of Rayls is its ability to utilise permissioned networks powered by advanced EVM technology. Additionally, Rayls infrastructure will ensure that all connected wallets undergo a thorough KYC (Know Your Client) process, a critical factor for aligning blockchain technology with AML (Anti-Money Laundering) and compliance policies.  

What are the benefits of investing in CBDCs and tokenisation?  

According to Parfin’s COO, the maturity of CBDCs will bring significant advancements to the market, particularly as institutions begin to understand the value they add to business operations:  

• Operational Efficiency: CBDCs eliminate the need for intermediaries in many financial transactions, reducing complexity and speeding up processes. Payments can be executed in real time, 24/7, significantly shortening settlement times. Moreover, automation via smart contracts simplifies operations such as recurring payments and cross-border transfers, increasing agility and reducing errors.  

• Cost Reduction: With fewer intermediaries and manual processes, financial transaction costs, such as banking fees and exchange rates, are greatly reduced. The use of digital infrastructure, like blockchain, lowers maintenance and auditing expenses, while automation reduces operational costs.  

• Controls and Compliance: CBDCs can be programmed to embed compliance rules directly into the system. This allows transactions to be automatically monitored, ensuring adherence to AML and KYC. Regulators can access relevant data in real time, improving oversight and reducing the risk of fraud or irregularities.  

• Transaction Transparency: All transactions conducted with CBDCs are recorded on an immutable digital ledger. This provides a clear and accessible audit trail, enhancing transparency for financial institutions and regulators. Transparency builds trust among participants and reduces the risk of disputes or inconsistencies.  

Ultimately, CBDCs have the potential to revolutionise financial operations, creating a more agile, secure, and reliable ecosystem.  

A gradual process to increase adoption

The rise of CBDCs and tokenisation is reshaping how businesses and end-users interact with financial transactions. However, their adoption involves technological upgrades, regulatory adjustments, and a willingness to embrace disruption.  

The potential benefits - streamlined operations, reduced costs, and entirely new revenue opportunities following new business models - make this transition invaluable for businesses and end-users alike. This level of maturity requires time:

“This transition is gradual, as it requires a deep understanding of the technology and the digital transformation of legacy systems, alongside regulatory developments and solution enhancements. However, within three to five years, we are likely to see its tangible impact on everyday financial operations” - CH Lopes, Chief Operational Officer at Parfin*

Eventually, CBDCs and tokenised assets will enable direct peer-to-peer transactions, eliminating the need for traditional financial intermediaries. For example, a person with a tokenised fixed deposit or property could secure a short-term loan directly from another party, offering collateral within minutes—without going through a bank. Smart contracts ensure seamless execution, where collateral is automatically liquidated if repayment conditions aren't met. This dynamic empowers users and businesses to transact more flexibly and efficiently while reducing reliance on centralised entities.

For banks and financial institutions, CBDCs challenge traditional revenue streams derived from transaction fees and spreads. Instead of serving as intermediaries, banks might pivot to providing transaction infrastructure or liquidity bridges for tokenised assets.  

“For instance, instead of charging a 3% fee on asset trades, banks could adopt a fractional fee model applied across a larger volume of transactions. This shift requires a mindset change but offers opportunities for scalability and diversification” - says Lopes.  

New marketplaces leading to a more inclusive economy

Tokenisation extends beyond financial assets to everyday items like event tickets, travel packages, or timeshares. Imagine a scenario where someone needs to sell a vacation package at short notice due to unforeseen circumstances. Tokenised marketplaces would enable seamless resale, ensuring fair pricing, immediate transactions, and transparent ownership transfers.  

This transparency and efficiency forge trust, attracts more participants, and creates a virtuous cycle of liquidity and value in such marketplaces, that consequently, become accessible to smaller players, fostering competition and innovation. As these systems grow, they drive down transaction costs, offer fairer prices, and expand access to financial services globally.  

Phase 3: more tests and uses cases await

Soon, Bacen will continue performing tests for Drex projects and we are hoping to welcome more participants to onboard this exciting journey with us in 2025.

Rayls teams are thrilled to be part of this initiative, which is shaping the future of a tokenised economy in Brazil and on a global scale.    

*Parfin is the core-developer of Rayls.

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