Digital fixed income versus CDBs: comparison of profitability and taxation

Source: PortaldoBitcoin Original Title: Digital fixed income yields more than bank CDBs and even the “magic product” of Master; see comparison Original Link: The case of Banco Master may serve as an example of how information about all financial products is still not properly disseminated throughout Brazil. The financial institution gained popularity by offering Certificates of Bank Deposit (CDBs) with returns well above the market standard. However, few know that digital fixed income enables even higher returns (even when compared to Banco Master’s CDBs) and with the same security as the most conservative products from major financial institutions in Brazil.

To get an idea of the profitability difference: an investment of R$ 10,000 in a CDB at 140% of the CDI would yield R$ 12,100 in one year (gain of R$ 2,100). But this profit decreases significantly with the upcoming Income Tax. The same R$ 10,000 in digital fixed income products, which offer a 20% annual return, would yield R$ 12,000 with a high chance of tax exemption.

What is CDB?

First, it’s worth noting that CDB is a security issued by banks to raise funds. In return, the institution pays interest to the investor, usually linked to the CDI. There are other traditional fixed income options, such as LCIs and LCAs, debentures, and Treasury Bonds.

What is digital fixed income?

Digital fixed income typically involves a structure where receivables and other real assets (the so-called RWAs) are “tokenized,” meaning they gain a digital representation on the blockchain, with automated rules for payments and operation records. Several platforms offer this type of product, with assets that can yield up to 20% per year with an initial investment of just R$ 100.

Why does digital fixed income offer higher returns?

The difference in yields starts with the cost of raising capital. Large banks, with a broad customer base and easier access to funds, do not need to “buy” resources at high costs, which is why CDBs typically range from 90% to 100% of the CDI.

Meanwhile, smaller banks need to compete with higher rates: to persuade investors to lend money, they offer larger premiums, such as 110% or 120% of the CDI. This premium is essentially the price of perceived risk (and the lower liquidity/attractiveness of that issuer compared to system giants).

Banco Master had CDBs promising 140% of the CDI, which was a major attraction for clients. At the end of last year, the Central Bank analyzed Master’s finances and decided to liquidate the company, with investigations indicating that there was no liquidity to honor all client CDB payments.

Now, Master’s clients will start receiving payments through the Credit Guarantee Fund (FGC). However, this mechanism does not completely eliminate risks. The fund guarantees up to R$ 250,000 per CPF/CNPJ per institution or conglomerate, which helps reduce credit risk but does not eliminate the inconvenience and time of a potential reimbursement process, nor does it cover amounts above the limit.

Practical returns

When a CDB pays “X% of the CDI,” it means it will yield a percentage of the CDI rate for the period. CDI stands for Interbank Deposit Certificate, which is a short-term interest rate for loans between banks, used as the main benchmark for fixed income investments in Brazil.

Today, the CDI is around 15% per year. Thus, a CDB at 100% of the CDI yields exactly 15% annually; a CDB at 90% of the CDI yields 0.90 × 15% = 13.5% per year; and a CDB at 140% of the CDI yields 1.40 × 15% = 21% per year.

With the annual rate in hand, we can “convert” these percentages into money. The basic calculation (excluding taxes, deadlines, or mark-to-market) is multiplying the invested amount by the annual rate: R$ 10,000 × 13.5% = R$ 1,350, for example. So, after one year, the investor would have R$ 11,350.

Digital fixed income enters this comparison in an interesting way because many offers appear with a “direct” rate, such as 20% per year, without passing through the “% of CDI.” Still, it can be translated into the same language: with a CDI of 15%, 20% per year is equivalent to 20% ÷ 15% = 133% of the CDI.

In the case of tokenized offers, other forms of remuneration are more common, such as “CDI + X% per year” or even “dollar + X% per year.”

In other words, with a R$ 10,000 investment for one year:

• CDB at 90% of CDI → 0.90 × 15% = 13.5% per year → R$ 10,000 becomes R$ 11,350 (gain of R$ 1,350)
• CDB at 100% of CDI → 1.00 × 15% = 15% per year → R$ 10,000 becomes R$ 11,500 (gain of R$ 1,500)
• CDB at 140% of CDI → 1.40 × 15% = 21% per year → R$ 10,000 becomes R$ 12,100 (gain of R$ 2,100)
• Digital fixed income at 20% per year → 133% of CDI → R$ 10,000 becomes R$ 12,000 (gain of R$ 2,000)

Taxation: a big advantage for digital fixed income

However, in terms of taxation, there is also a significant difference that can favor digital fixed income. In CDBs, individual investors pay Income Tax according to a regressive table (from 22.5% to 15%, depending on the term), always on the earnings, usually withheld at the time of redemption. If withdrawn before 30 days, there may also be a regressive IOF on gains.

For digital fixed income tokens, the logic is different because they are crypto assets: for individual investors, profit is tax-exempt when total sales in the month do not exceed R$ 35,000, including all crypto assets. If the investor exceeds this limit in a month, then gains are taxed as capital gains, with calculation and payment via DARF.

In practice, even a CDB with high returns, like the 140% promised by Banco Master before all the issues, yields a net return below that of an 18% annual digital fixed income. The CDB yields 21% gross: a R$ 2,100 gain, but when cashed out after a year, it pays 17.5% IR on the profit, i.e., R$ 367.50, leaving R$ 1,732.50 net and a final amount of R$ 11,732.50. Meanwhile, digital fixed income at 20% per year would generate a R$ 2,000 gain and total R$ 12,000, being tax-exempt.

Digital fixed income vs. traditional fixed income

The main difference is structural. In CDBs, you lend money to the issuing bank. In digital fixed income, you usually buy a token representing an economic right linked to a real-world asset, with predefined settlement rules, lending money to different types of issuers.

These digital fixed income tokens represent “goods or rights from the real world,” and at settlement, the payment of the real asset results in a credit in reais to the investor, proportional to the tokens held.

The “security” promise here is not magical: blockchain does not eliminate credit risk of the underlying asset nor market risk of the originator. What it tends to add is traceability, standardization, and automation (for example, rules recorded and executed via smart contracts), along with a more digital distribution process.

In the end, the logic is similar to that of CDBs: higher returns almost always come with more risk, only instead of risk being concentrated in the balance sheet of an issuing bank, it can be in the tokenized real asset, the structure of the offering, and the liquidity of that market. That’s why digital fixed income is being marketed as an interesting “middle ground”: trying to combine the typical predictability of fixed income with profitability premiums that, at times, surpass what investors find in the traditional over-the-counter market.