Maximum penalty for violations is 8 years! Brazil plans to ban algorithmic stablecoins, and offshore stablecoins will be mandatorily issued by local companies.

Brazil is accelerating its crackdown on stablecoin regulation. The Congress is pushing new legislation that proposes to ban algorithmic stablecoins and requires offshore stablecoins to be provided through authorized local companies, adding significant variables to the domestic crypto market.
(Background: The Central Bank of the United Arab Emirates approved the US dollar stablecoin USDU, the first settlement token compliant with regulatory frameworks)
(Additional context: Fidelity announced the launch of the US dollar stablecoin FIDD! Compliant with GENIUS Act regulatory standards, deployed on Ethereum…)

Table of Contents

• Legislative Highlights: Algorithmic Stablecoins Listed as Prohibited
• Full Reserve as a Mandatory Threshold, Violators May Face Criminal Penalties
• Offshore Stablecoins Under Regulation, Exchange Responsibilities Simultaneously Increased
• Stablecoin Trading Volume Accounts for 90%, Regulatory Impact Is Profound

Brazil’s cryptocurrency regulation takes another crucial step. With the passage of the latest bill report by the Congressional Committee, the Brazilian government is moving to prohibit the issuance and trading of algorithmic stablecoins, while requiring all offshore stablecoins to be provided through authorized companies operating in Brazil, indicating a clear shift towards a tougher stance on stablecoin risk management.

Legislative Highlights: Algorithmic Stablecoins Listed as Prohibited

According to the report of Law No. 4,308/2024 passed by the Brazilian Congress “Science, Technology, and Innovation Committee,” the issuance or trading of stablecoins maintained by algorithmic mechanisms within Brazil will be banned in the future, such as Ethena’s USDe and Frax.

These stablecoins are not backed by fiat currency or other physical assets but rely on code design and market mechanisms to maintain a peg to fiat currencies like the US dollar. The legislative body believes this model could quickly fail under extreme market conditions, causing chain reactions in the financial system.

Full Reserve as a Mandatory Threshold, Violators May Face Criminal Penalties

The bill also explicitly states that all stablecoins issued in Brazil must be fully backed by independent reserve assets, with enhanced disclosure and transparency requirements. Furthermore, the bill introduces criminal liability for the first time, classifying the issuance of unbacked stablecoins as a criminal offense.

Violators could face up to eight years in prison, demonstrating that Brazil views uncollateralized stablecoins as potentially high-risk behaviors that could constitute financial fraud.

Offshore Stablecoins Under Regulation, Exchange Responsibilities Simultaneously Increased

For stablecoins issued overseas but circulating in the Brazilian market, such as USDT and USDC, the bill proposes stricter regulations. In the future, these stablecoins can only be provided by companies authorized to operate in Brazil, and exchanges must verify that their issuers comply with comparable regulatory and compliance standards.

If exchanges fail to fulfill due diligence obligations, they will bear the associated risks themselves. This move is seen as extending regulatory responsibility from a single issuer to the entire market intermediary.

Stablecoin Trading Volume Accounts for 90%, Regulatory Impact Is Profound

According to statistics from Brazil’s tax authorities, stablecoins currently account for up to 90% of the country’s cryptocurrency trading volume, making this legislation particularly impactful on the overall crypto market. Analysts suggest that if the new regulation is officially enacted, some stablecoin projects may exit the Brazilian market, and international issuers will face higher compliance costs to enter locally.

The bill still needs to be reviewed by the “Finance and Taxation Committee” and the “Constitution, Justice, and Citizen Rights Committee” of Congress before being sent to the Senate for a vote. Its final passage into law remains to be seen.

However, based on the current legislative direction, Brazil is clearly moving toward a “high-reserve, high-transparency, strong-regulation” stablecoin system, aiming to promote financial innovation while reducing systemic risks.