Institutional Whitepaper
Executive Summary
This whitepaper introduces the Crown Digital ecosystem, a fully collateralized stablecoin architecture designed to bring the Brazilian Real (BRL) onto the blockchain with unparalleled security, transparency, and regulatory compliance. Built on Ethereum Layer 2 (Base), the ecosystem addresses the unique challenges of the Brazilian market by prioritizing capital preservation and institutional-grade security structures. The ecosystem comprises three primary tokens: BRLY (the foundational, collateralized base token), BRLV (a non-rebasing token optimized for payments and transactions), and wBRLY (an ERC-4626 compliant vault token designed for streamlined institutional custody). The Crown architecture utilizes a bankruptcy-remote structure, ensuring that stablecoin reserves—composed exclusively of Brazilian sovereign debt—are legally segregated and protected for the exclusive benefit of the token holders through a fiduciary assignment mechanism.1. Introduction: The Evolution of On-Chain Finance in Brazil
The migration of core financial infrastructure from traditional rails to blockchain technology is an irreversible trend. In Brazil, this transition is complicated by a historically high-interest-rate environment (the Selic rate), which creates significant opportunity costs for holding non-remunerated assets, including traditional stablecoins. Consequently, developing a BRL-pegged digital asset that passes through the remuneration from its underlying reserves—without being classified as a security—has been a persistent structural and regulatory challenge. Crown Digital recognizes that the primary requirement for a successful stablecoin ecosystem—particularly for institutional adoption—is not remuneration, but uncompromising safety, security, and trust. Crown Digital provides the infrastructure for a secure on-chain BRL, enabling efficient treasury management, 24/7 liquidity, and seamless integration with the decentralized finance (DeFi) ecosystem, while ensuring compliance with the evolving Brazilian regulatory framework for Virtual Asset Service Providers (VASPs).2. The Crown Ecosystem: BRLY, BRLV, and wBRLY
The Crown ecosystem is designed to cater to diverse use cases through a multi-token architecture, all underpinned by the same secure reserve structure.2.1 BRLY (BRL Yield)
BRLY is the foundational token of the ecosystem, directly backed 1:1 by Brazilian sovereign debt. It is not held directly by end-users but serves as the base layer of infrastructure that is wrapped into BRLV or wBRLY.- Remuneration Mechanism: BRLY is designed to programmatically pass through a portion of the remuneration generated by the underlying Reserve Assets. This is achieved via a daily on-chain rebasing mechanism, where the total supply of BRLY is adjusted based on a predefined rate, known as the Threshold, which is pegged to a percentage of the CDI rate. This automated mechanism is a core piece of infrastructure, demonstrating how smart contracts can be programmed to align with specific regulatory frameworks by creating a clear distinction between the full return of the underlying asset and the rate passed on to the token layer.
2.2 BRLV (BRL Velocity)
BRLV is designed for transactional simplicity, payments, and integration with DeFi protocols. It is a non-rebasing token created by wrapping BRLY 1:1. It is our main stablecoin token.- Reward Mechanism: BRLV itself does not rebase. The additional value generated by the underlying BRLY rebases is held by the contract with the purpose of storing potential claims for institutional partners. They may have rights over some portion of BRLV accumulated as BRLV Rewards, ensuring transactional stability for BRLV while offering treasury benefits to key partners. This redemption flow also ensures regulatory and fiscal compliance with Brazilian Regulations.
- Purpose: Provides a stable, non-rebasing token suitable for merchants, payment providers, and high-frequency trading.
2.3 wBRLY (Wrapped BRLY)
wBRLY is an ERC-4626 compliant token vault designed specifically for institutional investors and custodians who require streamlined accounting for value accrual.- Value Accrual Mechanism: wBRLY does not rebase. The value generated by the underlying BRLY is reflected in the gradual increase of wBRLY’s share price relative to BRLY.
- Purpose: Simplifies custody and daily accounting by embedding the accrued value in the token price, ideal for institutional treasury management.
Table: Comparative Overview of Crown Stablecoins
| Feature | BRLY | BRLV | wBRLY |
|---|---|---|---|
| Primary Purpose | Store of value, base layer for remuneration | Payments, transactional simplicity | Institutional custody, streamlined value accrual |
| Remuneration Mechanism | Daily on-chain rebase | No rebase; BRLV Rewards captured separately | Value accrual via increasing share price |
| Target Users | Only other contracts should hold BRLY | Merchants, payment providers, retail | Institutional investors, custodians |
| Technical Standard | ERC-20 (modified) | ERC-20 | ERC-4626 Vault |
3. Technical Architecture and Smart Contract Design
The Crown ecosystem is deployed on Base, an Ethereum Layer 2 (L2) solution, balancing the security of the Ethereum mainnet with the scalability and lower transaction costs required for efficient financial operations.3.1 Smart Contract Standards
The tokens adhere to established Ethereum standards:- BRLY and BRLV: Based on the ERC-20 standard, modified to incorporate the rebasing mechanism (BRLY) and the wrapping/reward redirection mechanism (BRLV).
- wBRLY: Fully compliant with the ERC-4626 Tokenized Vault Standard, ensuring interoperability with institutional custody solutions and DeFi aggregators.
3.2 Remuneration Mechanisms Explained
It is crucial to understand that the remuneration passed through to token holders is an incidental benefit derived from the highly secure nature of the collateral, not the result of active investment strategies by the Issuer. The system’s integrity is maintained by the interplay of three core components:- Reserve Assets: The foundation of the ecosystem’s stability. The reserves are exclusively composed of high-quality, BRL-denominated instruments with direct or indirect exposure to Brazilian sovereign credit risk. This includes cash, directly-issued Treasury securities like Letras Financeiras do Tesouro (LFTs), and fully collateralized repurchase agreements.
- Guarantee Ratio: The protocol strictly maintains a 1:1 Guarantee Ratio. This means the fair market value of the Reserve Assets held by the Guarantor must always be equal to or greater than the total value of all issued BRLY, ensuring full backing at all times.
- Threshold and Automated Safeguard: The daily remuneration passed to the BRLY token is determined by a predefined rate called the Threshold, initially set at 97% of the CDI rate. This mechanism is governed by a critical, non-discretionary Automated Safeguard: the daily rebase will only execute if an automated check confirms the protocol’s total collateralization ratio is above a safety buffer of 100.25%. This ensures the 1:1 backing is never compromised for the sake of distributing remuneration.
- Reward Redirection (BRLV): When BRLY is wrapped into BRLV, the rebase rewards are programmatically redirected to a separate omnibus wallet, ensuring BRLV remains a stable 1:1 representation. These can then be claimed as BRLV Rewards by eligible users.
- Share Price Accrual (wBRLY): The wBRLY vault accounts for the rebase rewards of deposited BRLY by adjusting the exchange rate (share price) between wBRLY and BRLY.
3.3 Security and Audits
Security is paramount. To ensure the integrity of the ecosystem, Crown Digital engages world-class security firms like OpenZeppelin to conduct comprehensive audits of its smart contract suite. This is a continuous process involving a meticulous line-by-line code review by a team of at least two senior security researchers who assess the system for a broad spectrum of potential vulnerabilities. Any identified issues are rigorously tracked until resolved, ensuring the smart contracts meet the highest standards of security and resilience required for institutional-grade financial infrastructure. In addition to smart contract security, the protocol provides radical transparency for its reserve assets. Daily, real-time attestation reports verifying the 1:1 backing of the stablecoins are publicly available at https://fact.finance/reserves/crown.3.4 Smart Contract Addresses (Base)
| Token | Contract Address |
|---|---|
| BRLY | 0x57323Db6d883811C17877d075e05AD9E2ED41519 |
| BRLV | 0xd2047ebdb205Ee6862b69ae9fB3501652cC97d36 |
| wBRLY | 0xe1f72919DF7b523919DD49c7B5ADc6002f983453 |
4. Reserves Management and Structural Security
Crown Digital’s core value proposition is the robust security and bankruptcy-remote structure safeguarding user funds. This structure is designed to ensure that reserves are always available for redemption, even in the event of issuer insolvency.4.1 Bankruptcy-Remote Structure
The reserve structure utilizes a multi-entity framework to segregate assets and mitigate counterparty risk:- The Issuer: The Brazilian entity responsible for onboarding users, minting/burning tokens, and regulatory compliance as a VASP.
- The Guarantor: A segregated, special-purpose entity in Luxembourg that holds the Reserve Assets and issues a professional payment guarantee.
- The Security Agent: An independent, regulated Brazilian financial institution acting on behalf of the token holders.
4.2 Fiduciary Assignment and Asset Protection
To achieve bankruptcy remoteness, the Reserve Assets and associated accounts are subject to a Fiduciary Assignment (Cessão Fiduciária) under Brazilian law.- Mechanism: The ownership of the reserves is legally transferred to the Independent Security Agent, which holds these assets in trust for the exclusive benefit of the Stablecoin holders.
- Protection: This legal structure ensures that the Reserve Assets are not part of the Issuer’s or Guarantor’s estate and cannot be claimed by their creditors.
4.3 Reserve Composition
The reserves are exclusively composed of high-quality, BRL-denominated instruments with direct exposure to Brazilian sovereign credit risk:- Letras Financeiras do Tesouro (LFTs).
- Tesouro Selic.
- Cash held in segregated Reserve Accounts at approved financial institutions.
4.4 Guarantee Ratio and Transparency
The ecosystem strictly maintains a Guarantee Ratio of 1:1, ensuring the fair market value of the Reserve Assets is always equal to or greater than the value of all issued BRLY. This ratio is monitored continuously by the Security Agent and verified by independent auditors.5. Operational Lifecycle: Minting and Redemption
Crown Digital services institutional clients exclusively. All participants must complete rigorous onboarding procedures before engaging in minting or redemption activities.5.1 Minting (Primary Issuance)
- Onboarding: The client completes the KYC/AML process and executes the Stablecoin Subscription Agreement.
- Deposit: The client transfers BRL to the Issuer that directs the funds to the Guarantor’s Non-Resident Account (NRA) in Brazil.
- Asset Acquisition: Funds are used to acquire Brazilian sovereign debt (Reserve Assets) within one business day.
- Collateralization: The new assets are immediately placed under the Fiduciary Assignment structure.
- Issuance & Delivery: The equivalent amount of BRLY is minted, automatically wrapped into BRLV or wBRLY, and delivered to the client’s wallet.
5.2 Redemption (Burning)
- Request: The client initiates a redemption request.
- Transfer and Unwrap: The client transfers BRLV or wBRLY to the Issuer’s burn address, where they are unwrapped into BRLY.
- Burning: The BRLY tokens are permanently removed from circulation.
- Asset Liquidation: The Guarantor liquidates the equivalent value of Reserve Assets.
- Fiat Transfer: Proceeds are transferred to the client’s bank account, typically on a T+1 basis.
6. Compliance and Risk Management Framework
Crown Digital maintains a comprehensive Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) program, adhering to Brazilian law and international FATF standards. The program utilizes a risk-based approach, mandatory institutional due diligence (KYC/KYB), and advanced on-chain transaction monitoring to prevent illicit activities.7. Regulatory Landscape
Crown Digital operates within the evolving regulatory framework in Brazil.- VASP Status: The Issuer should be classified as a Virtual Asset Service Provider (VASP) under Law 14,478/22 and will seek full authorization from the Brazilian Central Bank (BCB) once norms are enacted.
- Non-Security Classification: The ecosystem has been structured to ensure the stablecoins are not classified as securities under Brazilian law. The remuneration mechanism is structured as incidental to the secure collateralization, rather than being driven by the Issuer’s efforts.
8. Risk Factors
Participation in the Crown Digital ecosystem involves inherent risks. This is not an exhaustive list, and users should conduct their own due diligence.- Technical & Protocol Risks: Smart contracts may have undiscovered bugs or vulnerabilities. The protocol is also dependent on the underlying Base network and external price oracles, which could be subject to outages, congestion, or manipulation.
- Market & Asset Risks: De-pegging risk may occur if the market value of the stablecoins deviates from 1:1 with the BRL. This could be caused by severe illiquidity in the underlying sovereign debt market or a mass redemption event forcing the sale of Reserve Assets at a loss.
- Counterparty & Custody Risks: Reserve Assets are held by third-party financial institutions. While the bankruptcy-remote structure is designed to mitigate this risk, the insolvency or operational failure of a custodian could result in delays or loss of funds.
- Regulatory & Legal Risks: The regulatory framework for digital assets is still evolving. Future changes in laws or their interpretation could impact the operations, legal classification, or permissible uses of the stablecoins.