Brazil is a country full of innovation and has a growing crypto ecosystem. Now it has taken an action that will severely limit the economic dreams of its poorest people. A uniform 17.5% tax on all crypto gains, brought into law through Provisional Measure No. 1303, is a recipe for disaster. Skip the high level mumbo jumbo, this isn’t some blockchain boondoggle – this is about folks' livings.

Pawns Sacrificed for the Crypto Kings?

Think of a chess game. The lowly pawns—often the most undervalued pieces on the board—are key, not only to defending the valuable king, but in developing a sturdy offensive line. Picture a rule change that suddenly made those same pawns worth less than they were before, thus making them easily expendable. That’s exactly how Brazil’s new fiscal policy comes off. Removing the tax exemption for trades under 35 reais, or about $0.7, serves as a direct attack on everyday Brazilians. This modification chiefly impacts people earning less than R$35,000 (approximately $6,298 USD), thwarting their economic aspirations.

Or, before the Inflation Reduction Act—now, they don’t. They had a limited time frame to try and pursue their own DeFi and future. If they serve one meal at that price, for example, now 17.5% of their already meager profits vanishes. We know this is a bad tax because it particularly harms those who can least afford it. And, frankly, it feels like a betrayal.

What about the larger players? Those making millions? The new flat rate would be an improvement for them, even in its current imperfect form. People who were paying up to 22% won’t pay that anymore. Is this really a system intended to defend the little guy, or to concentrate power and money among elites? I think we know the answer.

DeFi: A Lifeline Cut Short?

DeFi, or Decentralized Finance, promised a revolution. It opened up a world of financial services beyond the standard banking system – a boon for the unbanked and underbanked. In a country like Brazil, where many are deprived from accessing traditional financial institutions, DeFi presented a light at the end of the tunnel. It allowed people to send remittances, access loans, and invest in small businesses – all through the power of blockchain.

At a time when this lifeline is needed most, this regressive tax threatens to strangle it. The proposed 17.5% tax would hit DeFi users the hardest. Why? That’s largely because DeFi tends to include more frequent and smaller transactions. Every trade matters, and every fractional gain is taxed as such. This new tax further erodes their narrow margins. This is a complex issue far beyond the math. It’s about withholding access to financial resources that would give people greater agency and help raise community prospects.

Now picture Maria, a single mother living in Rio de Janeiro, using DeFi to send remittances to her family back in the countryside. Each transaction is small, but crucial. Now, over 17.5% of that money disappears before it goes to her beneficiaries at all. How is she supposed to put food on the table? How’s she supposed to be creating a better future for her kids to escape to? It should be maddening to anybody that policy makers are failing to notice the unintended consequence in practice. We are discussing actual individuals, not just rows in a spreadsheet!

Is Brazil Losing Its Crypto Mind?

On a similar note, Brazil is making big news in the crypto world. Their decision to launch the world’s first XRP ETF was a pretty audacious move. Discussions about Bitcoin investments were encouraging. It appeared that Brazil was becoming a beacon of hope for the future of finance and a model to follow. So, why this sudden shift? Why this anti-populist tax seemingly intended to punish the most popular form of transportation for the average person?

According to the Administration, these government-wide measures represent a major step in a greater effort to tackle fiscal controversies. Are they really doing what regulators intended—attacking the root of the problem—or just grubbing for cash by targeting the most vulnerable among us? Speaking of proposed restrictions on Bitcoin mining… Stricter licensing requirements and higher taxes? It all points to a concerning trend: a potential disconnect between Brazil's crypto-friendly rhetoric and its actual policies.

This inconsistency is alarming. More importantly, it makes clear what the federal government really wants to achieve. A one-off blip, or a new trend altogether? We hope to see Brazil double down on its commitment to realize the promise of crypto! Otherwise, it may find itself falling victim to shortsighted policies that kill innovation and further deepen income inequality. The future of DeFi in Brazil, and the financial well-being of millions of Brazilians, is at stake. Rollback of harmful policies It’s overdue for us all to raise our voices—to call for policies that improve financial inclusion, rather than penalize it. We can't let Brazil's DeFi dreams die.