Brazil’s central bank, Banco Central do Brasil (BCB), has introduced a controversial proposal to prohibit stablecoin transfers to self-custodial wallets, such as MetaMask. The proposed regulation comes as the Brazilian real faces a historic decline against the US dollar, raising concerns about capital flight and financial stability.
Regulatory Proposal Targets Stablecoins
On Nov. 29, the BCB published a draft regulation aimed at tightening control over virtual asset service providers (VASPs). The key provision prohibits the transfer of stablecoins denominated in foreign currencies, such as Tether’s USDT, to self-custodial wallets. This draft will undergo public consultation until Feb. 28, 2025.
“The provider of virtual asset services is prohibited from transferring virtual assets denominated in foreign currency to a self-custodial portfolio,” the proposal states.
The initiative is part of a broader effort by the Brazilian government to enhance oversight of the foreign exchange market and curb the outflow of capital. The proposal seeks to amend existing resolutions from 2022 that regulate VASPs in Brazil’s foreign exchange market.
Expanding Oversight on Crypto Transactions
Under the proposed framework, VASPs will be required to provide detailed client information to the central bank, including user verification and transaction data. This move aims to align crypto transactions with traditional financial regulations such as Know Your Customer (KYC) and Anti-Money Laundering (AML) standards.
While centralized exchanges already comply with KYC regulations, self-custodial wallets operate outside such frameworks. These wallets, which offer users full ownership and control over their assets, do not require personal information for deposits or withdrawals.
Self-custody advocates argue that while regulators can impose restrictions on certain aspects of crypto usage, banning self-custodial wallets outright is nearly impossible. These wallets are fundamental to the ethos of cryptocurrency, emphasizing decentralization and user autonomy.
Brazil’s Currency Depreciation Sparks Stablecoin Demand
BCB’s proposal coincides with the Brazilian real’s sharp decline. Since the start of the year, the real has lost over 23% of its value against the US dollar, hitting a record low of 6.09 BRL/USD on Nov. 29, according to TradingView data.
This currency depreciation has driven many Brazilians to seek refuge in stablecoins like USDT to preserve their purchasing power. Carol Souza, co-founder of Area Bitcoin, commented on the situation, stating, “They’re closing the exits while BRL is collapsing,” highlighting concerns that the proposal aims to limit capital flight as the real weakens.
Brazil’s demand for stablecoins has surged in recent years. According to Chainalysis, Brazil ranks as the second-largest market globally for stablecoin transactions, accounting for 59.8% of its total crypto market activity. In the past year alone, the country recorded $90 billion in crypto inflows, trailing only Argentina in Latin America.
