Precatório token grows as a fixed income investment alternative

The offering of precatory tokens as an investment alternative has grown along with the migration of investors to fixed income products in a high interest rate scenario.

Companies that trade crypto-assets, such as Mercado Bitcoin and Coinext, began to make frequent offers of these products to individuals, with an application from R$ 100. New platforms specialized in this type of product also appear, such as Droom, which hopes to become a kind of exchange for trading these assets for individuals and corporations.

The first challenge, according to the platforms, is to make the investor understand the product. The token is the digital representation of a real-world asset. In this case, the asset is the precatory, a title issued by the Justice that represents the debt of a public entity with individuals or legal entities. The precatory token is, therefore, a digital asset that corresponds to a piece of that debt — or a set of debts, depending on the product.

By purchasing this right, investors are anticipating the money for the owner of the precatory, who sells his title at a discount. Those who invest profit from the difference in value when the government finally pays the debt. The amount applied is also corrected by the basic interest rate (Selic) until the payment date.

Among the advantages of digital assets are the reduction of transaction costs and minimum investment, in addition to risk dilution, ease of negotiation —when there is a secondary market— and tax exemption for the sale of assets up to R$ 35 thousand per month.

To calculate the return on investment, platforms and lawyers estimate the deadline for receiving the debt. The investor receives the money back when the precatory is paid by the debtor public entity. It is also possible to trade on the secondary market when this is available on the investment platform.

The investment made within a platform gives the investor the guarantee that that security has been audited by a team of lawyers that attests to its validity.

President of the Precatórios Commission of OAB-RJ, Eduardo Gouvêa is one of the founders of the Droom judicial asset negotiation platform, which aims to democratize access to this type of investment, on the one hand, and to support creditors, such as civil servants and pensioners, on the other.

Precatórios valued by the company’s legal arm are registered as digital assets and divided into R$1,000 tokens, which can be purchased by individuals and companies. The platform offers a security to buy back the shares.

Gouvêa says that today the major bottleneck in this market is the origination of reliable quality credit and its high cost of administration and management. The expectation is that the use of technology and the increase in volume will help reduce these costs.

“We are bringing the right credit closer to the right investor. We want to democratize, from an individual to a multinational company”, says Gouvêa. “And give lawyers and debtors access to a much broader market.”

The cryptocurrency platform Coinext launched its first two products related to court orders this year, both with the state of São Paulo as debtor.

In the first, R$ 400 thousand in shares of R$ 100 were sold to more than 8,000 investors, with an estimated return of 25% per year and an expected term of 24 months. The second offer, still open, is for a precatory of R$ 250,000.

José Artur Ribeiro, chief executive of Coinext, says that adherence to the product is still lower than seen, for example, in the platform’s music royalties token, which reached almost 15,000 investors. He expects, however, that demand for this type of product will reach R$1 million to R$1.5 million within his customer base within 12 to 20 months.

“The first challenge is to teach our audience what a product is. It is a base that understands bitcoin more easily than the precatory”, he says.

The Bitcoin Market has been operating since 2019 with this product. Of the BRL 200 million in tokens already launched on the platform, BRL 25 million refer to precatories – the rest includes digital assets from consortia, energy contracts and receivables.

Each R$100 token, in this case, represents a share of a set of assets, which helps to dilute the risk of delay in payment. Deposited precatories are used, those that have already been paid by the State to the Judiciary and are waiting to be released to the debtor.

Vitor Delduque, director of New Business at the platform, says that the legal and political uncertainty generated by the lack of definition of the rules for precatories led the company to suspend the launch of tokens backed by these assets this year. The expectation is to offer the product again in 2023.

It is possible, however, to purchase the product on the secondary market offered by the platform –
in which the paper is traded based on the current price –, which has registered great movement this year.

Delduque draws a parallel between digital and traditional assets, with cryptocurrencies being closer to an investment in variable income and tokens to fixed income.

“It’s easier to understand when a person makes this parallel. The investor is able to link the risks he has in the [mercado] to the token market, so as not to feel so uncomfortable in this migration to the digital economy”, he says.

“The token does not run away from what is the [investimento] traditional. The rule is to diversify. We always try to show investors how important it is to be in different risk and asset markets.”

Which is:

• Token: Digital representation of a real-world asset
• Precatórios: public debt securities issued by the Courts to individuals or legal entities
• Precatório token: digital asset that corresponds to a piece of a precatório

Negotiation

• Investors advance payment for those who need to receive the debt urgently, in exchange for a discount on the total amount
• Whoever invests profits from the difference in value when the Government finally pays that debt
• When the precatory is paid, the amounts are distributed to whoever holds the tokens.

Correction

• The precatory token is monetarily corrected and plus interest at the Selic rate

Scratchs

• Delay in payment of debt by the Public Entity
• Price fluctuations in case of early sale
• Legislative changes
• Frauds, when negotiated outside environments that guarantee the validity of the right

Benefits

• cost reduction
• Exemption from taxation up to disposal of BRL 35,000/month
• risk dilution