Mercado Bitcoin, Latin America’s largest crypto exchange, has announced a partnership with the Stellar Development Foundation (SDF) to create a project that will explore use cases for a central bank digital currency (CBDC). 

The SDF is “a non-profit organization founded in 2014 to support the development and growth of the open-source Stellar network.” The SDF and Stellar aim to “unlock the world’s economic potential by making money more fluid, markets more open, and people more empowered.” The SDF helps maintain Stellar’s codebase, supports the technical and business communities around Stellar, and is a speaking partner to regulators and institutions.”

Stellar is “an open-source network for currencies and payments”, and it “makes it possible to create, send and trade digital representations of all forms of money—dollars, pesos, bitcoin, pretty much anything.” Stellar “relies on blockchain to keep the network in sync, but the end-user experience is more like cash—Stellar is much faster, cheaper, and more energy-efficient than typical blockchain-based systems.”

Stellar network, which was launched in 2014, has “a native digital currency, the lumen, that’s required in small amounts for initializing accounts and making transactions.”

Here is one use case for Stellar:

“You can create a digital representation of a U.S. dollar—on Stellar you’d call this a “dollar token”—and you can tell the world that whenever someone deposits a traditional dollar with you, you’ll issue them one of your new tokens. When someone brings that “dollar token” back to you, you promise to redeem it in turn for one of the regular dollars in that deposit account.

“Essentially, you set up a 1:1 relationship between your digital token and a traditional dollar. Every one of your tokens out in the world is backed by an equivalent deposit. So while people hold the tokens, they can treat them just like traditional money, because they know that they’re exchangeable for traditional money in the end.“

According to the SDF’s press release, the purpose of this new collaboration is to “develop one of the nine projects selected for the LIFT Challenge Real Digital, a collaborative environment carried out by the Central Bank of Brazil (Bacen), in partnership with National Federation of Associations of Central Bank Servers (Fenasbac),  to explore use cases for a Central Bank Digital Currency (CBDC).”

The Bacen initiative “aims to identify the fundamental characteristics of an infrastructure for Real Digital that will be able to support the use cases presented by the participants of the LIFT Challenge.” Brazil’s central bank “anticipates that the Real Digital will be launched in the second half of 2022 and, in its first phase, will be piloted for a restricted audience.”

Mercado Bitcoin chose the Stellar network because “it is the network of choice for other CDBC projects, stablecoin issuance, and financial asset tokenization due to its unique combination of speed, efficiency, security, and compliance.”

Reinaldo Rabelo, CEO of Mercado Bitcoin, said of the partnership: 

We are in a consortium of companies that have the structure and ambition to build robust solutions for the financial market through blockchain technology. Utilizing the Stellar network will allow us to deliver a complete case for evaluation by the Central Bank. 

And the SDF CEO Denelle Dixon had this to say:

Stellar’s network is prepared to support Mercado Bitcoin and the Central Bank of Brazil as they explore use cases for the Real Digital’s future. Stellar was designed for asset issuance, and its built-in compliance tools give Mercado Bitcoin a strong foundation to develop a solution with the features that Bacen expects to see.

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The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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