 Brazil’s self-custodial stablecoin ban to catalyze decentralization 
2024-12-26
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Brazil’s potential decision to ban stablecoin transfers to self-custodial wallets would only trigger a further shift to decentralization, industry executives say.
Banco Central do Brasil (BCB), the central bank of Brazil, on Nov. 29 officially proposed to ban transactions of stablecoins like Tether’s USDt USDTUSD to self-custodial wallets like MetaMask or Trezor.
Stablecoin use has been on the rise in Brazil as citizens have been increasingly hedging against plummeting national currency, the Brazilian real, by purchasing US dollar-pegged stablecoins.
As Brazil’s central bank is expected to finish public consultations regarding the potential ban in February next year, several execs have assessed its potential impact on the local market.
How likely is the ban to pass?
BCB’s potential stablecoin restrictions aim to prevent stablecoin transactions from occurring outside Brazilian trading platforms, Area Bitcoin school co-founder Carol Souza told Cointelegraph.
Crypto trading platforms in Brazil have been applying KYC measures since 2019, Souza noted, referring to the fact that peer-to-peer (P2P) transactions remain free of such restrictions.
Brazil has been a pioneer in regulation, enforcing strict KYC rules and creating Pix — a system introduced in response to the rising popularity of Bitcoin, she said.
Souza suggested that BCB’s proposal will likely become a reality in 2025 as BCB appears to be preparing regulations to prevent individuals from P2P stablecoin transactions. She stated:
The ban would be a tough one to enforce
While it’s hard to say whether Brazil will eventually enforce BCB-proposed stablecoin restrictions, such proposals tend to face a lot of debate before implementation, Trezor’s Bitcoin analyst Lucien Bourdon told Cointelegraph.
Brazil’s potential ban on self-custodial stablecoins would be a tough one to enforce, Bourdon suggested, stating:
On the other hand, Brazil’s restrictions could potentially change common ways of accessing crypto and make it harder for newcomers to get started, potentially slowing down adoption, Bourdon noted.
Even with a potential adoption slowdown, existing users will find ways to transact cryptocurrencies freely, the exec suggested, stating:
Area Bitcoin’s Souza echoed Bourdon’s remarks, stressing that BCB is not able to prevent people from conducting P2P transactions through their own wallets or even creating new forms of stablecoins.
“This is especially relevant now that stablecoins are being created on Bitcoin L2 through Taproot Assets on Lighting and other layer 2 solutions, such as USDT on the Liquid network,” she added.
P2P shift seen in countries with similar bans
Brazilian authorities are not alone in trying to limit P2P cryptocurrency transactions, as other countries like Nigeria and China have been trying to restrict crypto activity.
Referring to regulatory developments and their outcomes in countries like Nigeria and China, Trezor’s Bourdon highlighted a pattern of crypto users flocking to decentralized solutions once other options are limited.
“In China, the ban on centralized exchanges pushed users toward decentralized platforms like Uniswap,” Trezor’s Bourdon said.
“In Nigeria, where banks can’t facilitate crypto transactions, people turned to peer-to-peer platforms and decentralized exchanges to trade and access crypto,” he added.
Tether is committed to collaborating with Brazil
Tether CEO Paolo Ardoino told Cointelegraph that Brazil’s proposed stablecoin restrictions may present significant practical challenges and could unintentionally disadvantage Brazilian consumers, given the widespread adoption of stablecoins domestically and globally.
He mentioned that Brazil is one of the most active markets for USDt in Latin America, reflecting strong demand from users who value USDt’s stability in a dynamic economic environment.
“Tether is committed to working collaboratively with Brazilian authorities as part of their ongoing regulatory development work to strike a balance that fosters innovation while ensuring robust consumer protection,” Ardoino said, adding: