Unbacked Stablecoins Face Ban in Brazil as New Bill Moves Forward

TLDR:

• Bill 4.308/2024 bans unbacked stablecoins like Ethena’s USDe and Frax in Brazil. 
• Domestic stablecoins must maintain full reserves and report backing transparently. 
• Exchanges offering USDT and USDC must verify foreign issuers meet Brazilian standards. 
• Stablecoins now drive 90% of Brazil’s crypto volume, reaching $6–8B monthly flows.

Brazil stablecoin ban advances as Congress approves Bill 4.308/2024, mandating full reserve backing for stablecoins.

Foreign digital currencies like USDT and USDC must comply, while unbacked models face criminal penalties.

Brazil Approves Bill to Restrict Algorithmic Stablecoins

According to a report by CoinDesk, Brazil’s Science, Technology, and Innovation Committee has approved Bill 4.308/2024. The legislation targets the issuance and circulation of unbacked stablecoins such as Ethena’s USDe and Frax.

All stablecoins issued domestically must be fully backed by segregated reserve assets. Issuers are required to maintain transparency in reporting the reserves supporting these digital currencies, ensuring full traceability.

The bill classified it as a financial offense with penalties of up to eight years for issuing unbacked stablecoins. This measure establishes accountability and protects the integrity of Brazil’s financial system.

Domestic exchanges are tasked with monitoring compliance for all local stablecoin issuers. They must ensure that backing requirements are continuously met, preventing any uncollateralized tokens from entering circulation.

These rules are aligned with global concerns over the systemic risks posed by unbacked stablecoins, such as the Terra failure in 2022. Brazil aims to mitigate potential financial instability by enforcing strict regulatory oversight.

Compliance and Oversight for Foreign Stablecoins

Foreign stablecoins, including Tether’s USDT and USDC, must comply with Brazil’s regulatory framework. Exchanges offering these assets are required to verify issuers’ reserves and follow local compliance standards.

If foreign stablecoin providers fail to meet the requirements, exchanges assume responsibility for potential risks. 

Custody, auditing, and reporting obligations are imposed on platforms offering foreign digital currencies to Brazilian users.

The Receita Federal categorizes trades, swaps, large retail payments, and wallet transfers, providing comprehensive oversight for billions in monthly flows.

In the meantime, Stablecoins represent around 90% of Brazil’s crypto volume, with monthly transactions of $6–8 billion. Analysts have projected that the total could rise to $9 billion by 2030.

Foreign firms serving Brazilian clients must establish local entities, hold the required capital, and comply with operational standards. All these are aimed at strengthening overall market oversight.

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