The Brazilian Central Bank (BCB) released a proposal on 11/29 to prohibit transfers of stablecoins like USDT to self-custody wallets such as MetaMask. The proposal is part of a regulatory draft and is open for public consultation until February 28, 2025.
Brazil is moving towards stricter rules for stablecoin trading.
The proposed restrictions by the Brazilian government align with its efforts to strengthen regulation of the foreign exchange market and overseas capital.
According to Cointelegraph, this measure aims to revise the existing 2022 resolution regarding virtual asset service providers (VASP) in the foreign exchange market. The Brazilian Central Bank has proposed to expand the scope of the foreign exchange market to include activities such as cryptocurrency payments, sales, custody, and trading denominated in foreign currency, requiring VASPs to provide detailed information including customer verification and value transfer to the central bank.
Brazil is a major stablecoin market, and the depreciation of the BRL has prompted people to hedge with stablecoins.
Brazil's legal currency, the BRL, has significantly depreciated in recent years, having dropped 27% so far this year and 52% over the past five years.
As the BRL continues to depreciate, the local community is increasingly accustomed to hedging by buying stablecoins like USDT. According to Chainalysis data, Brazil has been the second-largest market for stablecoin trading globally over the past year, with stablecoin trading volume accounting for 59.8% of the country's entire cryptocurrency market.
The ban could come true, but it will be difficult to enforce.
Carol Souza, co-founder of Area Bitcoin School, stated that the Brazilian Central Bank's restrictions aim to prevent stablecoin trading from occurring outside Brazilian trading platforms. Since 2019, cryptocurrency trading platforms in Brazil have been adopting 'Know Your Customer' (KYC) measures, but peer-to-peer (P2P) trading remains unaffected by such restrictions.
Souza believes that this regulation could potentially become a reality by 2025.
However, Trezor Bitcoin analyst Lucien Bourdon believes that Brazil's potential ban on self-custody stablecoins will be difficult to enforce.
The government can regulate centralized exchanges, but P2P trading and decentralized platforms are harder to control, meaning the ban may only affect part of the ecosystem.
Brazil's restrictions may change the common ways of accessing cryptocurrencies and make it harder for newcomers to get started, thereby slowing down adoption. However, existing users will still find ways to trade cryptocurrencies freely. For example, in China, the ban on centralized exchanges has forced users to turn to decentralized platforms like Uniswap.
Stablecoin issuers are still working to expand their market in Brazil.
However, stablecoin issuers Tether and Circle are still working to expand their market in Brazil.
Circle announced in September that USDC is now available for transactions in Brazil through the national instant payment system, enabling local businesses and consumers to use USDC more quickly and cheaply.
Tether CEO Paolo Ardoino stated, 'Tether is committed to working with Brazilian authorities as part of its ongoing regulatory development efforts to strike a balance between fostering innovation and ensuring robust consumer protection.'
This article about Brazil potentially implementing a stablecoin self-custody ban and strengthening regulation of centralized exchanges first appeared in Chain News ABMedia.
