Brazil’s central bank, Banco Central do Brasil (BCB), has proposed a ban on transferring stablecoins to self-custodial wallets, coinciding with the Brazilian real hitting all-time lows against the U.S. dollar. On Nov. 29, the BCB issued a proposal that would prohibit transfers of stablecoins like Tether’s USDt (USDT) to wallets like MetaMask, which are self-custodial in nature. This proposal is part of a draft regulation currently open for public consultation until Feb. 28, 2025.
According to the draft, the regulation states, “The provider of virtual asset services is prohibited from transferring virtual assets denominated in foreign currency to a self-custodial portfolio.” The proposed restrictions are aligned with the Brazilian government’s broader agenda to enhance oversight of the foreign exchange market and tighten regulation over Brazilian capital abroad.
The initiative also aims to amend the existing resolutions from 2022 related to Virtual Asset Service Providers (VASPs) in the foreign exchange market. If implemented, the regulation would expand the scope of oversight to activities involving crypto payments, sales, custody, and transactions in foreign currency. VASPs would be required to provide detailed information to the BCB, including client verification and details of fund transfers.
Self-custodial wallets, unlike centralized exchanges, do not require user identification, offering users full control and accountability over their assets. However, this feature also presents challenges for regulators aiming to ensure compliance with financial laws. Some advocates of self-custody argue that while governments can place limits on the usage of these wallets, banning them entirely is not feasible.
The timing of this proposal is notable, as it comes amid a significant decline in the value of the Brazilian real against the dollar. Since the beginning of the year, the real has depreciated by at least 23% against the U.S. dollar, reaching a record low of 6.09 reals per dollar on Nov. 29, as per TradingView data. Many in the crypto community, including Area Bitcoin co-founder Carol Souza, have linked the proposal to concerns over limiting access to stablecoins while the real faces severe devaluation.
Brazil remains a major stablecoin market, with local investors increasingly turning to stablecoins to hedge against the declining value of their national currency. In the past year, stablecoin transactions accounted for 59.8% of Brazil’s entire crypto market, making it the second-largest market globally for stablecoin use, as per Chainalysis data. Brazil’s total crypto inflows reached $90 billion, trailing just behind Argentina by $1 billion.