The Central Bank of Brazil left the blockchain component of Drex, its ambitious digital currency project for central bank.
The surprise decision was announced last week at the Blockchain Rio conference in Rio de Janeiro, which made an important course correct for the project established in Hyperledger Besu that was once announced as the vehicle for the tokenizing of the country’s financial system.
In comments to Valor, Drex coordinator Fabio Araujo confirmed that the Blockchain component of the project would be stopped due to the challenges of scaling and privacy. Instead, the project will limit its focus for streamlining collateral management and coordinating lien for credit guarantees in an attempt to send a product to the public in mid -2026.
ARAUJO does not exclude the use of blockchain for the project on a future date that you develop Cases that require decentralized technology.
Drex’s ambitious origin
Drex, originally known as the Digital Real, has been developing since 2021, when the first research and working groups were taken into use. The concept was inspired by a 2020 paper written by the Swiss academic Fabian Schar who investigated the application of blockchain and smart contract-based financial markets outside niche-decentralized financial environments.
The original vision of the project was a dual structure that tried to melt both wholesalers and retail CBDC concepts. The first monetary layer was to be a wholesaler environment that is exclusive to transactions between authorized participants – specifically regulated financial institutions with junctions on the central bank -controlled network. The second is said to have been issued by regulated institutions to terminate customers.
The end product would be an environment that would make it possible to access new products and services through smart contracts and tokenized assets in the financial system of Brazil. Built on Hyperledger Besu, this environment would be Ethereum Virtual Machine-Compatible, so that the door is opened for decentralized financing procedures such as Aave or Uniswap to be performed in its regulated limits.
During an interview from 2024 with the Podcast of Brazil Crypto Report, Araujo explained that Drex had to be:
“Not only a digital currency, but a complete ecosystem of services built around programmable digital money and tokenized assets.”
Drex would then be layered on other innovations developed by the Central Bank of Brazil, such as the PIX Instant Payment System, to create a “Super app” that would offer a consolidated picture of users’ financial life – including bank deposits, real estate interests and other assets.
“Drex trilemma” too much to overcome
In the midst of Much Fanfare, the first phase of the Drex pilot was launched in March 2023 with 14 consortia running nodes, with another two together with the following months. Members of these consortia include the largest financial institutions in the country, such as ITAU, BTG Pactual, Santander and Bradeco, together with major technology suppliers such as Microsoft, AWS and Google.
Provisional Use cases aimed at token the government debt, and would ultimately include trade financing, interbancial regulation, tokenization of claims and more.
But the project soon came across the so -called “Drex trilemma” – solving for privacy, scalability and programmability within a decentralized, albeit permission, environment. In particular, the challenge was to guarantee a sufficient level of privacy to comply with the data protection of Brazil’s data protection, while at the same time gave the full visibility of the central bank the supervisory junction – all without composability breaking
Various solutions were tested, including Rayls, developed by infrastructure company Parfin, Anonymous Zether developed by JPMorgan and Consensys and EY’s Starlight. Although some of these solutions met the minimum requirements in testing, they turned out to be too expensive and time -consuming, noted Gustavo Cunha – a former Brazilian bank manager and host of the Fintrender Podcast, in his newsletter.
Phase 1 of the pilot concluded with a report that articulated that the project would need a “big adjustment” to eventually become the core infrastructure.
Phase 2 of the pilot started earlier this year and continued to test for privacy, but even with ‘good privacy solutions’, Araujo explained, the team concluded that they were not robust enough to implement in production without further testing.
Other factors seem to have played a role in the bank that decides to draw blockchain plug, Cunha notes. These include a huge hack in July with $ 200 million from the central bank reserve accounts, a change in the presidency of the Bank of Roberto Campos Neto (who had been the champion of the project) to Gabriel Galipolo, and the example of the United States not to choose to create its own network, but rather to open the door for the door.
“The decision was probably stemmed by a combination of factors: the change in the presidency of the BCB, internal discussions after the recent massive hack, the potential costs for running and maintaining such a network, and even the example of the United States, which chose not to create its own network and instead provide the legal sector for the private sector.”
Messaging shift
The central bank has slowly declined the CBDC messages on Drex since Galipolo took over the presidency of the institution in the early 2025. The aim is to move the project as an underlying piece of financial infrastructure that will help to unlock credit instead of a complicated blockchain system.
Galípolo underlined this change in his opening keynote at Blockchain Rio last week. He emphasized that Drex should be seen as a technology-agent financial infrastructure project, not as a blockchain-first initiative.
“Why am I not talking about DLT? Because we are increasingly getting clarity and are on our way to the idea that technology should be agnostic. We want to solve a problem. What is the problem that we have to solve? And what is the available and most suitable technology to solve this problem?”
Galípolo also went to the length to emphasize that Drex is drastically different from CBDC models from the manual that deposits deposits for Commercial Bank by liabilities in the central bank. On the contrary, he said, Drex was designed as a supplement to the existing monetary framework of Brazil with the aim of facilitating the credit stream – a challenge in the high -cost credit environment of Brazil.
“Drex is increasingly a solution, regardless of the technology used, which is intended to facilitate assets for credit and transactions with less friction by the tokenization of smart contract assets.”
Response industry
Given the challenges of the project and the change in messages, the switch to Sloot Blockchain with mixed reactions became.
Regina Pedrosa, executive director of Abtoken, said Blocknews that she viewed the announcement with “concern and surprise” and hoped that it could be reconsidered with a new network “Although the pillars of privacy, interoperability and standardization are considering”. “
Others were not so charitable. An industry director who spoke in the background said that the project effectively sent the country’s banking sector to a wild goose yacht.
“This proof-of-concept was not free. Several deals were closed. The central bank has emptied the attention of the market, forced banks in compulsory participation, and the banks paid the invoice millions of investment … Brazil has lost years.”
The executing power accused the Drex team of it to be naive that it could tackle some of the nauseous problems in blockchain.
“If Ethereum, with a decade of research, countless ZK teams and billions of stimuli, the balance between strong privacy and regulatory compliance has not fully resolved, it is unrealistic to think a pilot in the central bank – with a narrow supplier pool and a closed network – it would be magical cracking in a few years.”
Marcos Sarres, CEO of Golder, argued that the real problem in itself was not a blockchain, but the choice of Besu. He suggested that privacy-oriented alternatives such as hyperledger fabric may have better met the needs of Drex.
Catalyst of the public sector
The Drex-Pivot raises major questions about the role of blockchain as a viability technology for the state-supported financial infrastructure, in particular as sentiment from the United States against CBDCs under the Trump administration far from positive.
Yet there are positive external effects in the Drex blockchain experiment that we are just starting to understand. Cunha argued in his newsletter that the central bank has been the driving force that pushes the country’s banking sector to explore the technology – an exercise that should deliver fruit in the coming years.
“Without the [Central Bank’s] Push on this agenda in recent years, Brazil would be far behind in this discussion. It was the proactive attitude of the central bank that placed tokenization on the radar of the financial sector and encouraged banks, fintechs and startups to invest time and resources in this area. “