Brazil’s Potential Ban on USDT Transfers to Non-Custodial Wallets Sparks Industry Reaction

The Bank of Brazil’s proposed ban on stablecoin transfers to non-custodial wallets could drive a shift towards decentralization, according to Cointelegraph, citing industry representatives.

On November 29, the regulator proposed banning transfers of foreign currency-denominated stablecoins to non-custodial wallets.

The document is open for public consultation until February 28, 2025.

The use of stablecoins in Brazil is increasing due to the depreciation of the national currency. Since 2019, local crypto service providers have conducted KYC checks on clients, while P2P transactions remain unrestricted.

Trezor Bitcoin analyst Lucien Bourdon noted the challenges in implementing the initiative.

“Governments can regulate centralized exchanges, but P2P transactions and decentralized platforms are much harder to control, meaning the ban is likely to affect only part of the ecosystem. At the same time, the restrictions […] will complicate matters for newcomers, potentially slowing cryptocurrency adoption,” explained the specialist.

According to Bourdon, the ban could lead existing CEX clients to shift to decentralized platforms or P2P solutions.

Area Bitcoin school co-founder Carol Souza supported her colleague. She emphasized that the regulator would not be able to prevent peer-to-peer transactions through non-custodial wallets or even the creation of new forms of stablecoins.

“This is especially relevant now, as ‘stablecoins’ are issued on L2 for Bitcoin using Taproot Assets on Lightning and other solutions,” she added.

Brazil’s experience is not unique—countries like Nigeria and China are also attempting to limit crypto activity.

“In China, the ban on centralized exchanges pushed users towards decentralized platforms like Uniswap. In Nigeria, the population turned to peer-to-peer platforms and DEX,” noted Bourdon.

Tether CEO Paolo Ardoino stated that Brazil’s proposed restrictions could create practical issues and inadvertently disadvantage users, given the widespread use of stablecoins in the country.

“The company intends to work with authorities […] to find a balance between fostering innovation and ensuring consumer protection,” he concluded.

In October, Ardoino reported that the highest demand for stablecoins is concentrated not in Europe and the US, but in developing countries like Argentina, Turkey, and Vietnam, where citizens require constant access to USD.

Previously, former US House Speaker Paul Ryan stated that the use of dollar-pegged stablecoins could help maintain the appeal of the American currency and alleviate the growing national debt issue.