The Central Bank of Brazil (BCB) has proposed prohibiting stablecoin transfers from centralized exchanges to self-custodial wallets like MetaMask. Announced on November 29, the rule aims to both adapt the nation’s financial system to the growing prominence of digital assets and maintain the integrity of foreign capital flows. The public consultation on this draft regulation will be open until February 28, 2025.
The proposed law aims to strengthen monitoring of Brazil’s foreign currency market and impose stronger controls on virtual asset service providers (VASP). It requires VASPs to provide precise information to the central bank, such as client verification data and transfer amounts. This project makes bitcoin transactions consistent with existing rules governing foreign investments and currency trades.
Self-custodial wallets, which provide users complete control and ownership over their digital assets, do not follow the same Know Your Customer (KYC) protocols as centralized platforms. While skeptics say that it is difficult to entirely outlaw self-custodial wallets, regulators can put restrictions on their use.
The move comes as the Brazilian real has lost more than 23% of its value against the US dollar this year. As a result of the devaluation, many Brazilians have turned to stablecoins such as Tether (USDT) to protect themselves from inflation. Stablecoins now account for approximately 60% of cryptocurrency transactions in Brazil, making it one of the world’s major stablecoin markets.
With $90 billion in crypto inflows over the last year, the proposed law represents Brazil’s efforts to govern the booming digital asset market while tackling financial issues caused by economic volatility. However, restricting stablecoin transactions to self-custodial wallets has raised worries among the cryptocurrency community, since it may impede financial autonomy and access to decentralized financial instruments.
The central bank’s decision is expected to have a huge impact on Brazil’s digital asset ecosystem, influencing how cryptocurrencies are used in one of the world’s most active crypto marketplaces.
