Brazil is considering a ban on stablecoin withdrawals to self-custodial wallets, coinciding with the Brazilian real hitting all-time lows against the United States dollar.
On Nov. 29, Banco Central do Brasil (BCB), the central bank of Brazil, issued a proposal to ban transfers of stablecoins like Tether’s USDt (USDT) to self-custodial wallets like MetaMask. The proposal is part of a draft regulation and is subject to 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.
Brazil seeks stricter rules for stablecoin transactions
The proposed restrictions align with the Brazilian government’s push to increase oversight of the foreign exchange market and regulate Brazilian capital abroad.
According to the BCB’s consultation document, the initiative aims to amend existing 2022 resolutions concerning virtual asset service providers (VASPs) in the foreign exchange market.
Details from the BCB’s public consultation number 111. Source: Gov.br
The Brazilian central bank specifically proposed to expand the scope of the foreign exchange market with activities including crypto payments, sales, custody and transactions denominated in foreign currency.
Under the proposal, VASPs would be required to provide BCB with information, including client verification, transfer values and other details.
Why self-custody?
While cryptocurrency and stablecoin transactions are subject to Know Your Customer (KYC) checks and monitoring by centralized cryptocurrency exchanges, self-custodial wallets do not require any user information to deposit or withdraw funds.
By definition, self-custodial or non-custodial wallets provide a method of interacting with cryptocurrency that is associated with full accountability and ownership of owned assets.
According to some self-custody advocates, there are a few ways for regulators to limit the usage of self-custodial wallets, but there is no way to ban such wallets completely.
“Brazilian real is collapsing”
BCB’s proposal to limit stablecoin transactions in Brazil comes amid the Brazilian real significantly dropping in value against the US dollar.
Since Jan. 1, the Brazilian real has lost at least 23% of value against the dollar, with the dollar reaching an all-time high of 6.09 reals on Nov. 29, according to TradingView data.
USD/BRL chart. Source: TradingView
Many in the cryptocurrency community have linked Brazil’s proposal to restrict stablecoin transactions to self-custody wallets.
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“They’re closing the exits while BRL is collapsing,” Area Bitcoin co-founder Carol Souza said on X.
Brazil is one of the key stablecoin markets
As the real dropped against the dollar, the local community has increasingly hedged the local currency’s price depreciation by stacking stablecoins like USDt (USDT).
According to Chainalysis, Brazil was the second-largest market globally in terms of stablecoin transactions in the past year, with the country’s stablecoin transaction volumes accounting for 59.8% of its entire crypto market.
Brazil saw $90 billion in crypto inflows in the past year, lagging behind Argentina by just $1 billion.
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