Brazil may implement a stablecoin self-custody ban to strengthen the regulation of centralized exchanges.

The Central Bank of Brazil (BCB) issued a proposal on 11/29 to prohibit the transfer of stablecoins such as USDT to self-hosted wallets like MetaMask. This proposal is part of a regulatory draft and is open for public consultation until February 28, 2025.

Brazil moves towards stricter stablecoin trading rules

The proposed restrictions by the Brazilian government are consistent with its efforts to strengthen foreign exchange market supervision and overseas capital.

According to Cointelegraph, this measure aims to amend the existing resolution on virtual asset service providers (VASPs) in the foreign exchange market in 2022. The Central Bank of Brazil proposed expanding the scope of the foreign exchange market to include activities such as payment, sale, custody, and trading of cryptocurrencies denominated in foreign currencies. VASPs are required to provide detailed information to the Central Bank, including customer verification and value transfer.

Brazil is a major stablecoin market, and the depreciation of BRL prompts people to hedge with stablecoins.

Brazil’s legal currency BRL has depreciated significantly in recent years, with a 27% depreciation so far this year and a 52% depreciation over the past five years.

With the continuous devaluation of BRL, the local community is increasingly accustomed to hedging through the purchase of stablecoins such as USDT. According to Chainaanalysis data, Brazil has been the second largest market for stablecoin transactions globally in the past year, with stablecoin transactions accounting for 59.8% of its entire cryptocurrency market. Please provide the text to be translated. The ban may become a reality, but it will be difficult to enforce.

Carol Souza, co-founder of Area Bitcoin School, said that the Central Bank of Brazil’s restriction aims to prevent stablecoin transactions from occurring outside of Brazilian trading platforms. Since 2019, Brazilian cryptocurrency trading platforms have been implementing Know Your Customer (KYC) measures, but peer-to-peer (P2P) transactions are still not subject to such restrictions.

Souza believes that this regulation could become a reality by 2025.

However, Bitcoin analyst Lucien Bourdon of Trezor believes that it will be difficult for Brazil to enforce a potential ban on self-hosted stablecoins.

The government can regulate centralized exchanges, but P2P transactions and decentralized platforms are harder to control, which means that the ban may only affect part of the ecosystem.

Restrictions in Brazil may change the common way of accessing cryptocurrencies and make it more difficult for newcomers to get started, thereby slowing down adoption. However, existing users will still find ways to freely trade cryptocurrencies. For example, in China, the ban on centralized exchanges forces users to turn to decentralized platforms such as Uniswap.

Stablecoin issuers are still working to expand the Brazilian market

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 trading in Brazil through the national instant payment system, enabling local businesses and consumers to use USDC more quickly and affordably.

Tether CEO Paolo Ardoino stated, “Tether is committed to working with Brazilian authorities as part of their ongoing regulatory development efforts, to strike a balance between promoting innovation and ensuring strong consumer protection.”

This article may implement a stable currency self-hosted ban in Brazil, strengthening the regulation of centralized exchanges first appeared on Chain News ABMedia.