Withdrawals of stablecoins to self-custodial wallets, such as MetaMask, may soon be banned in Brazil, the country with the second-largest stablecoin market.
In conjunction with the Brazilian real reaching all-time highs against the United States dollar, Brazil is contemplating the implementation of a potential prohibition on stablecoin withdrawals to self-custodial wallets.
Brazil’s central bank, Banco Central do Brasil (BCB), proposed on November 29 to prohibit the transmission of stablecoins, such as USDt from Tether, to self-custodial wallets, such as MetaMask.
The proposed restrictions are consistent with the Brazilian government’s efforts to enhance supervision of the foreign exchange market and regulate Brazilian capital abroad.
The initiative’s objective is to modify the current 2022 resolutions regarding virtual asset service providers (VASPs) in the foreign exchange market, as stated in the BCB’s consultation document.
Brazilian central bank specifically proposed the expansion of the foreign exchange market to encompass activities such as crypto payments, sales, custody, and transactions denominated in foreign currency.
The proposal would necessitate that VASPs furnish BCB with information, such as client verification, transfer values, and other pertinent details.
Self-custodial wallets do not necessitate any user information to deposit or withdraw funds, whereas cryptocurrency and stablecoin transactions are subject to Know Your Customer (KYC) checks and surveillance by centralized cryptocurrency exchanges.
Self-custodial or non-custodial wallets, by definition, offer a method of interacting with cryptocurrency that corresponds with full accountability and ownership of owned assets.
Some self-custody advocates believe that regulators have the ability to restrict the use of self-custodial wallets in a few ways, but it is impossible to completely prohibit their use.
The Brazilian real has experienced a substantial decline in value in relation to the US dollar, prompting BCB to propose a restriction on stablecoin transactions in Brazil.
According to TradingView data, the Brazilian real has lost at least 23% of its value against the dollar since January 1, with the dollar attaining an all-time high of 6.09 reals on November 29.
Many members of the cryptocurrency community have associated Brazil’s proposal to limit stablecoin transactions to self-custody wallets.
A report indicates that Ripple’s RLUSD stablecoin is on the brink of approval by a New York regulator. Carol Souza, co-founder of Area Bitcoin, stated on X, “They are barring the exits while BRL is collapsing.”
By layering stablecoins such as USDt, the local community has increasingly mitigated the depreciation of the local currency as the real has declined in value relative to the dollar.
Brazil’s stablecoin transaction volumes accounted for 59.8% of its entire crypto market, making it the second-largest market in the world in terms of stablecoin transactions over the past year, according to Chainalysis. Brazil experienced $90 billion in crypto inflows over the past year, trailing Argentina by only $1 billion.
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