Brazilian lawmakers are advancing groundbreaking legislation that could fundamentally reshape the nation's cryptocurrency landscape. Bill 4.308/2024, approved by the Science, Technology, and Innovation Committee, proposes a complete prohibition on the issuance and trading of algorithmic stablecoins within the country while imposing strict reserve requirements on all other digital currencies pegged to traditional assets.
The bill specifically targets algorithmic stablecoins for prohibition, defining them as assets that "aim to maintain their value through code rather than collateral." This move comes after global scrutiny of unbacked models following Terra's 2022 collapse, which erased approximately $40 billion in market value within days. For all other stablecoins operating in Brazil, the legislation mandates 100% backing by segregated reserve assets, aiming to prevent systemic risks associated with algorithmic models.
The proposed legislation introduces severe penalties for violations. Individuals or entities found issuing unbacked stablecoins could face prison sentences extending up to eight years, with such issuance being reframed as financial fraud. The bill also establishes a licensing framework for foreign-issued stablecoins like Tether's USDT and Circle's USDC. Only companies licensed to operate within Brazil would receive permission to offer these international stablecoins to Brazilian users.
This development represents one of Latin America's most significant regulatory interventions in digital finance to date and occurs within a broader international trend toward stablecoin regulation. The European Union implemented its Markets in Crypto-Assets (MiCA) regulation in 2024, while the United States continues debating multiple stablecoin bills in Congress. Brazil's approach appears particularly stringent compared to these other jurisdictions, especially regarding its outright prohibition of algorithmic models.
The legislation could significantly affect Brazil's rapidly growing cryptocurrency sector, where approximately 10% of the population reportedly holds digital assets. Data from Brazil's tax authority shows that stablecoins already drive roughly 90% of the country's reported crypto transaction volumes, processing between $6 billion and $8 billion in monthly crypto volume. This dominance has made Brazil a test case for regulators worldwide.
If passed, the law would force algorithmic projects to either abandon their core design or exit the Brazilian market. Existing algorithmic stablecoin projects would need to either shut down operations or completely redesign their tokenomics. Major global stablecoin providers would need to establish Brazilian subsidiaries or partnerships with licensed local entities.
The bill still needs sign-off from the Finance and Taxation and Constitution, Justice, and Citizenship committees before heading to the Senate. If approved without major delays, implementation could begin in late 2025 or early 2026, with transition periods likely for existing market participants.
