Brazil is taking a tougher stance on stablecoins, with lawmakers moving forward on a bill that could effectively ban algorithmic stablecoins like Ethena’s USDe and Frax. The proposal comes as stablecoins dominate the country’s crypto market, accounting for around 90% of reported transaction volume.
The legislation, known as Bill 4.308/2024, was recently approved by Brazil’s Science, Technology, and Innovation Committee. If it becomes law, the bill would block the issuance and trading of stablecoins that rely on algorithms or code-based mechanisms instead of real collateral to hold their value. In simple terms, only fully backed stablecoins would be allowed to operate legally in Brazil.
Under the proposal, any stablecoin issued in Brazil would need to be supported by segregated reserve assets, such as cash or equivalent holdings. The bill also introduces serious criminal penalties for issuing unbacked tokens. Lawmakers have framed this as a form of financial fraud, with potential prison sentences of up to eight years for those found minting stablecoins without proper reserves.
This move reflects lingering concerns after the dramatic collapse of Terra’s algorithmic stablecoin in 2022, which wiped out billions of dollars and shook confidence in similar models worldwide. Brazilian regulators appear keen to avoid a repeat of that kind of fallout in a market where stablecoins are now central to crypto activity.
The rules wouldn’t only affect local projects. Foreign stablecoin issuers like Tether (USDT) and Circle (USDC) would also face new hurdles. To continue offering their tokens in Brazil, these companies would need official authorization to operate in the country. Brazilian crypto exchanges would be responsible for checking whether foreign issuers meet standards comparable to local requirements. If they fail to do so, the exchanges themselves could be held accountable for any resulting risks.
The bill is part of a broader effort by Brazilian authorities to bring more oversight to crypto markets. Policymakers have already discussed tighter reporting requirements and potential taxes on stablecoin transactions, aiming to better track and regulate cross-border flows and digital dollar usage.
While the proposal still needs approval from additional congressional committees and the Senate, the direction is becoming clear. Brazil is leaning toward a stablecoin framework built on full collateral backing and stricter supervision. If the law passes in its current form, algorithmic stablecoin projects may be forced to overhaul their designs or exit the Brazilian market altogether.
That could be a big deal in a country that processes an estimated $6 billion to $8 billion in crypto transactions each month, with stablecoins acting as the main gateway for users moving funds in and out of the digital asset ecosystem.
As global regulators continue to debate how stablecoins should be governed, Brazil’s approach could become a closely watched example of how emerging markets balance innovation with financial stability.
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