Brazil advances a bill to ban algorithmic stablecoins and force all domestic issuers to fully collateralize tokens, tightening rules in a market where stablecoins drive 90% of crypto flows.

Bill 4.308/2024, approved this week by the Science, Technology, and Innovation Committee, “prohibits the issuance or trading of stablecoins … which aim to maintain their value through code rather than collateral,” tightening the definition of what can legally pass as a fiat‑pegged asset in Brazil. Under the proposal, all stablecoins issued domestically must be “fully backed by segregated reserve assets,” with lawmakers creating a new criminal offense for minting unbacked tokens that carries penalties of up to eight years in prison and reframes such issuance as financial fraud.

The move comes after global scrutiny of unbacked models following Terra’s 2022 collapse and amid explosive local demand for dollar‑linked tokens. Data from Brazil’s tax authority show that stablecoins already drive roughly 90% of the country’s reported crypto transaction volumes, cementing their role as the main on‑ramp for digital assets and cross‑border flows. That dominance has made Brazil a test case for regulators worldwide: earlier analysis from Chainalysis and local officials similarly highlighted that “over 90% of Brazilian crypto flows are now stablecoin‑related,” underscoring the systemic stakes.

Foreign issuers are firmly in the crosshairs. Under the bill, offshore stablecoins such as Tether’s USDT and Circle’s USDC could only be offered by entities authorized to operate in Brazil, while local exchanges would be required to verify that issuers comply with standards “similar to Brazil’s,” or else assume direct responsibility for risk management. That aligns with a broader policy push to tax and formalize crypto flows, including plans to subject stablecoin transactions to Brazil’s IOF financial operations tax and stricter reporting regimes.

The proposal still needs sign‑off from the Finance and Taxation and Constitution, Justice, and Citizenship committees before heading to the Senate, but the direction of travel is clear: Brazil is moving toward a fully collateralized, tightly supervised stablecoin stack. If passed, the law would force algorithmic projects to either abandon their core design or exit a market that processes between $6 billion and $8 billion in crypto volume every month, much of it now intermediated through stablecoins.

This regulatory pivot lands against a volatile market backdrop. Bitcoin (BTC) trades near $71,392, with a 24‑hour range between roughly $70,120 and $76,181 on about $94.1B in volume. Ethereum (ETH) changes hands around $2,114, after swinging between $2,080 and $2,294 over the past day on roughly $46.3B in turnover. Solana (SOL) sits close to $91.48, having traded between about $90.56 and $100.52 on more than $7.5B of volume as traders reassess risk across the complex.

Brazil’s tax authority and central bank have repeatedly flagged the dominance of stablecoins in local flows, with recent analyses and consultations detailing how new rules could reshape cross‑border payments, self‑custody, and foreign‑issued tokens.