Brazil Shifts Drex CBDC Away from Blockchain Amid Scalability and Privacy Challenges

Brazil’s Central Bank has announced the removal of blockchain from its flagship Central Bank Digital Currency (CBDC) project, Drex, marking a significant pivot in the initiative’s strategy. The decision, revealed at the Blockchain Rio conference in Rio de Janeiro, shifts the project’s focus from a decentralized, blockchain-based system to a more centralized approach aimed at streamlining collateral management and credit guarantee processes. The move comes after years of development and pilot testing, during which the project faced persistent challenges in balancing privacy, scalability, and programmability within a permissioned blockchain framework [1].

Fabio Araujo, the project’s coordinator, stated that the blockchain component would be discontinued due to scaling and privacy limitations. Instead, Drex will now prioritize a narrower scope, with a target launch of a public-facing product by mid-2026. Araujo did not rule out the potential future use of blockchain if specific use cases emerge that require decentralized technology. However, the current shift reflects a pragmatic approach to delivering tangible results in a timely manner [1].

Originally launched in 2021, Drex was envisioned as a two-tiered CBDC ecosystem that would integrate both wholesale and retail digital currencies. The project aimed to tokenize Brazil’s financial system using smart contracts and tokenized assets, with plans to build on Hyperledger Besu to create an environment compatible with decentralized finance (DeFi) protocols like Aave and Uniswap. The ultimate goal was to develop a “super app” that would unify users’ financial lives, including bank deposits, property holdings, and other assets [1].

Despite high-profile participation from major financial institutions and tech firms, the project encountered the so-called “Drex Trilemma”—the challenge of ensuring privacy, scalability, and programmability within a decentralized but regulated environment. Several privacy solutions, including Rayls, Anonymous Zether, and Starlight, were tested but deemed too expensive and complex for production deployment. A 2024 pilot phase concluded that the project required “major adaptation” to become viable as core financial infrastructure [1].

The decision to abandon blockchain appears to be influenced by multiple factors, including the July 2024 hack of Central Bank reserve accounts, the transition in leadership from Roberto Campos Neto to Gabriel Galipolo, and the U.S. model, which has opted against building a government-run blockchain network in favor of enabling private-sector tokenization [1].

Galipolo has led a gradual shift in Drex’s messaging, emphasizing the need for technology-agnostic solutions that focus on solving Brazil’s credit facilitation challenges rather than implementing complex blockchain systems. During his keynote at Blockchain Rio, he stressed that Drex should be viewed as a broader financial infrastructure project, not a blockchain-first initiative. The Central Bank aims to use Drex to complement existing systems like the Pix instant payment platform, with the goal of reducing friction in credit transactions and asset collateralization [1].

Industry reactions have been mixed. Regina Pedrosa of ABToken expressed “concern and surprise” at the announcement and called for a reconsideration of blockchain with a focus on privacy, interoperability, and standardization. Others were more critical, with one unnamed industry executive accusing the project of diverting attention and resources from the private sector without delivering a viable solution. The executive noted that Brazil’s banks had invested millions in the pilot without clear benefits, describing it as a “wild goose chase” [1].

Marcos Sarres of GoLedger suggested that the problem lay not with blockchain itself but with the choice of Hyperledger Besu as the platform. He proposed that privacy-focused alternatives like Hyperledger Fabric might have better met the project’s needs [1].

The Drex pivot raises broader questions about the feasibility of blockchain as a tool for state-backed financial infrastructure. However, some analysts argue that the experiment has already yielded positive outcomes by pushing Brazil’s financial sector to explore tokenization. Gustavo Cunha, a former banking executive and fintech commentator, noted that the Central Bank’s early interest in blockchain helped position Brazil as a leader in the field and encouraged private-sector investment in related technologies [1].

While the removal of blockchain from Drex signals a departure from its original ambition, it also highlights the importance of adapting technology to meet real-world needs. The Central Bank’s new direction reflects a shift toward practical, scalable solutions that align with Brazil’s broader financial objectives [1].

Source: [1] Brazil Abandons Blockchain For Its Drex CBDC Project (https://www.forbes.com/sites/digital-assets/2025/08/13/brazil-abandons-blockchain-for-its-drex-cbdc-project/)