Sometimes, while taxation seems like the right step to take, more so when adopting the “same activity, same risk, same regulation” approach, the feasibility and the possible downsides of a tax outweigh its benefits. This might be the case with the stablecoin remittance taxation proposal recently floated by the Central Bank of Brazil to industry stakeholders.

While this could bring the Brazilian state a cut of all the billions transacted in stablecoins in Brazil, being these tokens the ones leading the local market, this kind of discretional tax presents two problems: the feasibility of its application and the effect it might have on the current exchange industry.

The first relates to the user monitoring shenanigans that exchanges would adopt to comply with this directive. While this decision and its rules have not been finalized yet and are still a proposal, there are already concerns about the level and extent of the technology needed to follow this future guideline. For example, industry stakeholders are already worried about whether this would only apply to users making these transactions using exchange rails or if the exchange would have to monitor the users’ movements after the funds leave its custody.

This tax would also incentivize users to leave exchanges and use self-custody wallets to move these funds, making applying such a rule unfeasible, and reducing the remittance earnings for exchanges, which can collect a fee from these transactions. Industry insiders are aware of this, with an unidentified one stating the market would “find alternatives,” and that users would “not want to pay a spread imposed by the Central Bank.”

Read more: Brazilian Central Bank Considers Taxing Stablecoin Remittances

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