Brazil Moves to Ban Algorithmic Stablecoins, Mandate Full-Reserve Backing and Penalize Issuers
Brazil’s Science, Technology and Innovation Committee advanced Bill 4.308/2024, proposing strict stablecoin rules that would ban unbacked algorithmic designs and require all stablecoins issued in Brazil to be fully backed by segregated reserve assets. The draft tightens disclosure and transparency standards and — for the first time — introduces criminal penalties, including up to eight years in prison for issuing unbacked (algorithmic) stablecoins. Foreign-issued fiat-pegged stablecoins (for example USDT and USDC) would only be allowed in Brazil through locally authorized firms; exchanges must verify issuer compliance and may face liability for inadequate due diligence. Stablecoins account for roughly 90% of Brazil’s crypto trading volume, so the proposal could push some projects out of the market and increase compliance costs for international issuers. The bill still requires review by fiscal/tax and constitutional committees and a Senate vote before becoming law. The news also notes parallel debate in the U.S. over stablecoin design and yield-bearing features (e.g., the GENIUS Act), highlighting regulatory risk globally for yield-bearing or unbacked stablecoin models.
Bearish
Short-term: Bearish for algorithmic and some foreign stablecoins because the bill would outlaw algorithmic designs and impose strict onboarding, disclosure and liability rules for foreign issuers and exchanges. That raises immediate regulatory uncertainty and potential delistings or withdrawal of liquidity in Brazil, which can reduce trading volumes and arbitrage flows tied to those stablecoins. Exchanges may temporarily suspend deposits/withdrawals or restrict certain stablecoins while compliance checks are implemented, adding market friction. Long-term: Neutral-to-bearish depending on outcome — if the bill becomes law with full-reserve requirements, it could increase trust in Brazilian-issued stablecoins and reduce systemic risk, which may stabilize markets over time. However, higher compliance costs and platform liability will likely deter some projects and limit availability of certain stablecoin products in Brazil, keeping downward pressure on adoption and on the market share of algorithmic and less-regulated stablecoins. The concurrent U.S. debate on yield-bearing stablecoins adds global regulatory risk, reinforcing caution among traders and institutions.