The rising interest in stablecoins in Latam, and the recent reports of Itau, the largest Brazilian bank, about the possibility of issuing its own stablecoin, open the doors for innovation in these markets.

Read more: Largest Bank in Brazil Mulls Stablecoin, Awaits Regulation

Nonetheless, regulation always gets in the way. Itau stated that it was still waiting for a regulatory framework to define the treatment of these assets and the rules behind its operation. In particular, an element of a proposal that would ban Brazilians from using stablecoins from a self-hosted wallet.

If passed, this determination would achieve the opposite of what it is set to do: it will not bring stablecoin usage under the supervision of government authorities, but it will certainly push these users underground, enabling a shadow economy around the use of these assets.

Exchanges would also be affected by these measures, forced to implement stiffer compliance measures that would increase the cost of operating in the country. What’s even more sinister is that, by passing this into law, Brazilians would be banned from using any decentralized finance protocol, including stablecoins as operational assets.

However, given the size and scope of the Brazilian cryptocurrency market, implementing such a measure has been deemed impossible by market actors. Companies and the Brazilian government would have to proactively monitor all of the users’ wallets moving stablecoins and link them to their real identities, a feat that might not be attainable with today’s tech.

Even monster exchanges like Coinbase have pushed back against this measure, calling for another implementation of less intrusive measures. “I think the Central Bank could reconsider this issue. Stablecoins will be fundamental to the development of the future internet and decentralized finance,” said Coinbase VP Tom Duff Gordon in a recent interview.

Read more: Coinbase Opposes Market-Breaking Stablecoin Regulation Proposal in Brazil

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