- Brazil advances Bill 4.308/2024 to ban algorithmic stablecoins, require full segregated reserves, and create a crime for issuing unbacked tokens.
- Foreign stablecoins like USDT and USDC must be offered only by authorized firms that meet rules similar to brazil, as stablecoins drive 90% of local crypto volume.
Brazil is advancing new rules that would sharply restrict algorithmic stablecoins and reshape how the country regulates cryptocurrencies tied to fiat money. A congressional committee has backed legislation that sets strict backing, transparency, and criminal liability standards for issuers, while also imposing obligations on foreign stablecoin providers seeking access to the Brazilian market.
Committee Backs Ban on Algorithmic Stablecoins in Brazil
The latest step came when the Science, Technology, and Innovation Committee approved a report on Bill 4.308/2024. The text targets algorithmic designs by prohibiting the issuance and trading of stablecoins such as Ethena’s USDe and frax within Brazil. These types of tokens typically rely on code-driven mechanisms, and in some cases derivatives, to track a reference value instead of using fully collateralized reserves.
Ethena’s USDe, for example, is supported by a mix of spot assets and derivatives positions. Under the new proposal, this structure falls into a category that lawmakers want to block. The bill specifies that any use of derivatives or other financial instruments intended to mirror the price of an asset as the backing for a stablecoin is not allowed. This wording captures a wide range of models that do not hold straightforward, segregated reserves.
The push against algorithmic approaches is tied to concerns that grew after the collapse of Terra in 2022. That failure highlighted the potential systemic risks linked to unbacked or partially backed models that depend on market incentives and complex instruments to keep their peg. Lawmakers in Brazil are now seeking to close off similar vulnerabilities before they expand further in the domestic market.
New Backing, Transparency, and Criminal Rules for Stablecoin Issuers
The bill overhauls how stablecoins can be operated inside Brazil by insisting on full backing with segregated reserves. Every stablecoin issued in the country would need to be supported entirely by reserve assets that are clearly separated from the issuer’s other holdings. This structure is intended to make redemptions more secure and reduce the chance that user funds are exposed to unrelated risks on the issuer’s balance sheet.
Transparency plays a central role in the proposal. Issuers would face enhanced disclosure obligations around their reserves and operations, though the text emphasizes standards rather than promotional detail. The aim is to provide regulators and market participants with sufficient information to evaluate whether a stablecoin is properly backed and compliant with local rules.
A notable shift in the draft law is the creation of a specific criminal offense for issuing unbacked stablecoins. Under the proposed framework, anyone found guilty of releasing such tokens could receive a prison sentence of up to eight years. This aligns the treatment of unbacked issuance with serious financial misconduct and signals that regulators view these practices as a form of financial fraud rather than a minor regulatory infraction.
The combination of mandatory full backing, segregated reserves, and criminal penalties marks a significant tightening of oversight compared with earlier approaches that focused mainly on registration or reporting. It also reflects a move to treat stablecoin issuance as part of the broader financial system, subject to protections similar to those applied to traditional payment instruments.
Foreign Stablecoins Face Local Authorization and Oversight Duties
The proposed framework does not only address stablecoins created in Brazil. It also sets out rules for tokens issued abroad, including large global players such as Tether’s USDT and USDC. Under the bill, these assets may only be offered in Brazil by entities that have been authorized to operate within the country.
Exchanges and other platforms listing foreign stablecoins would need to verify that the offshore issuers adhere to regulatory requirements comparable to those established in Brazil. This verification step is central: if a foreign issuer fails to meet standards similar to the Brazilian regime, responsibility for managing the associated risks shifts to the local exchange.
In practice, this means that platforms operating in Brazil could become directly accountable for potential issues involving noncompliant foreign stablecoins they choose to list. This arrangement pushes local intermediaries to conduct thorough due diligence on overseas issuers and to monitor their ongoing adherence to equivalent rules.
The focus on stablecoins has material significance for Brazil’s digital asset market. Data from the national tax authority indicate that these tokens account for 90% of cryptocurrency trading volumes in the country. As a result, changes to their legal framework will directly influence most local crypto activity, including how users move funds and interact with exchanges.
The legislative process is not yet complete. After passing the Science, Technology, and Innovation Committee, the proposal must still receive approval from Brazil’s Finance and Taxation Committee and the Constitution, Justice, and Citizenship Committee. Only then can it proceed to the Senate for further consideration and, potentially, final adoption into law.
Key takeaways
- Bill 4.308/2024 bans the issuance and trading of algorithmic stablecoins and bars the use of derivatives as backing.
- All stablecoins issued in Brazil must be fully backed by segregated reserve assets, with stricter transparency obligations.
- Issuing unbacked stablecoins becomes a criminal offense, carrying prison terms of up to eight years.
- Foreign stablecoins like USDT and USDC can only be offered by authorized firms, and exchanges must verify comparable regulatory standards.
- Stablecoins represent 90% of cryptocurrency volumes in Brazil, making the proposed rules central to the country’s crypto market.
Conclusion
Brazil is moving toward a regulatory regime that would exclude algorithmic stablecoins, require full reserve backing, and criminalize unbacked issuance. The draft law also places new responsibilities on exchanges handling foreign stablecoins, tying market access to compliance with standards similar to those set domestically. With stablecoins dominating local crypto volumes, the outcome of this legislative process will play a decisive role in shaping how digital assets operate in the Brazilian financial landscape.
Disclaimer
The information provided in this article is for informational purposes only and should not be considered financial advice. The article does not offer sufficient information to make investment decisions, nor does it constitute an offer, recommendation, or solicitation to buy or sell any financial instrument. The content is opinion of the author and does not reflect any view or suggestion or any kind of advise from CryptoNewsBytes.com. The author declares he does not hold any of the above mentioned tokens or received any incentive from any company.
Featured image created by AI
