XRP Ledger is taking a major step into the regulated Brazilian securities market as the Central Securities Depository of Brazil (CSD BR), the licensed central securities depository of the nation, adopts distributed ledger technology to replicate records of fund ownership.
Table of Contents
The CSD BR, which manages assets worth over BRL 22 trillion, began phase one of the collaboration with Ripple on September 29, starting with fund shares of BTG Pactual Investment Bank.
This development represents a transition from blockchain experimentation to applying it in a live and regulated capital markets setting. Yet, the XRP Ledger will not be used as a replacement for the systems already in place at CSD BR. Rather, it will serve as an extra layer for verification of ownership data in real time.
Also Read | MiCA Supervision: 70 CASPs Face Critical ESMA 2027 Risks
What Happened With CSD BR and XRP Ledger?
In the first phase of the Ripple collaboration, CSD BR has linked its regulated platform to the XRP Ledger. In the initial deployment, the focus is on investment fund shares, beginning with securities issued by BTG Pactual.
The system involves creating a virtual tokenized version of selected fund shares on the blockchain while retaining the current CSD BR system as the trusted register.
This implies that the project does not transfer all the assets of CSD BR worth BRL 22 trillion that are registered to the XRP Ledger. However, initially, the project is being done using selected assets to test how the distributed ledger technology system interacts with the current financial system.
The tokenized shares of the funds will be built on the Multi-Purpose Token (MPT) standard of the XRP Ledger. This implies that the participants of the project are permissioned participants and have to undergo the necessary KYC/AML checks.
How Will XRP Ledger Be Used?
The XRP Ledger will be utilized for the purpose of providing a secondary ledger system, which is not the authoritative ledger for ownership.
CSD BR will still have the responsibility of maintaining the official registration and clearing process. It will also have jurisdiction over the participants and the assets, with the ability to freeze and roll back transactions if needed.
In this regard, Ripple will be offering the infrastructure for custody services, whereas CSD BR will continue running the regulated market.
Such an arrangement enables the XRP Ledger to offer blockchain-powered transparency without compelling investors, issuers, and other market participants to alter their current systems right away.
Why Start With Mirroring?
The choice of a mirroring model for CSD BR is being made because it offers the firm an opportunity to incorporate the use of blockchain technology into its operation without necessarily modifying the existing securities market infrastructure.
According to Daniel Polano Spreafico, who is in charge of products and clients at CSD BR, the mirroring model offers an opportunity to test how well the technology works in the regulated financial industry.
The Latin American managing director of Ripple, Silvio Pegado, added that switching from blockchain pilot projects to actual recording in the national capital market was a significant development for the industry.
Regarding the XRP Ledger, the project offers a real-life application example, dealing with regulated financial assets instead of being a separate blockchain project.
What Comes Next for XRP Ledger?
The first phase would eventually culminate in broader applications for the blockchain technology in the Brazilian capital markets.
After the present implementation is tested, Ripple and CSD BR intend to look into the possibilities of issuing and trading native assets among approved participants. CSD BR and Ripple are also looking at Real Estate Receivables Certificates (CRI) and Agribusiness Receivables Certificates (CRA), two key parts of Brazil’s fixed-income market.
Other planned features include privacy functions, additional asset types, and even international expansion.
If the above plans go ahead, the XRP Ledger would find an application in the life cycle of financial instruments, beyond just mirroring.
Brazil Expands Its Blockchain Focus
The launch of CSD BR is coming amidst ongoing investigation by the Brazilian securities regulator into the applicability of DLT in the financial sector.
The Brazilian Securities and Exchange Commission (CVM) has been pursuing initiatives pertaining to DLT applications in aspects such as issuance of securities, trading, storage, registration, and settlement.
This broader regulatory perspective will give CSD BR room to test out blockchain applications without compromising the existing market regulations and investor protection measures.
For the XRP Ledger, the CSD BR application is a key practical use case in a regulated securities market environment. Further phases will reveal if the technology has the potential to move from an additional record-keeping layer to become a solution for the whole asset lifecycle.
Also Read | Coinbase Clearing Gets CFTC Approval for USDC Derivatives Settlement
