Brazil Moves to Outlaw Algorithmic Stablecoins With Strict Reserve Mandate

Brazil is moving toward one of the world’s toughest stablecoin regimes after lawmakers advanced legislation that would ban algorithmic stablecoins outright and impose full-reserve requirements on all fiat-pegged digital assets.

The Science, Technology, and Innovation Committee of the Brazilian Congress approved Bill 4.308/2024, a proposal that targets unbacked stablecoins while tightening oversight of both domestic and foreign issuers operating in the country.

Algorithmic Stablecoins Explicitly Banned

Under the bill, the issuance and trading of algorithmic or “unbacked” stablecoins would be prohibited. The legislation defines these assets as tokens that attempt to maintain a price peg through algorithms or market incentives rather than collateralized reserves.

The text explicitly references projects such as Ethena (USDe) and Frax, signaling lawmakers’ intent to eliminate models that rely on code-based stabilization mechanisms.

Violations would be treated as financial fraud, carrying criminal penalties of up to eight years in prison, a notable escalation compared to civil or administrative enforcement frameworks seen in many other jurisdictions.

100% Reserve Requirement for Fiat-Pegged Tokens

The bill also establishes a strict 100% reserve requirement for all fiat-backed stablecoins issued in Brazil. Issuers would be required to maintain fully segregated reserve assets sufficient to guarantee redemption at face value at all times.

This provision aims to eliminate partial backing, rehypothecation, or opaque reserve structures, aligning stablecoin issuance more closely with traditional banking and payment standards.

New Rules for Foreign Stablecoins

Foreign-issued stablecoins such as Tether (USDT) and USD Coin would not be banned, but their distribution would be tightly controlled.

Under the proposal:

• Only institutions authorized to operate in Brazil could offer foreign stablecoins.
• Local exchanges would be required to verify that foreign issuers comply with regulatory standards equivalent to Brazil’s national framework.

This effectively extends Brazil’s regulatory reach beyond its borders, forcing global stablecoin issuers to align with domestic rules if they want market access.

Alignment With Central Bank’s New Crypto Framework

The bill complements a broader regulatory overhaul led by the Central Bank of Brazil (BCB). New rules under Resolutions 519, 520, and 521 officially came into force on February 2, 2026, creating a unified framework for digital asset activity.

A key shift under the new regime is the classification of stablecoin transactions as foreign exchange (FX) operations, subjecting them to the same transparency, reporting, and compliance obligations as traditional cross-border currency transfers.

Existing Virtual Asset Service Providers (VASPs) have a 270-day transition period starting February 2. Mandatory reporting for cross-border operations begins on May 4, 2026, with full compliance required by November 2026.

What Comes Next

Before becoming law, Bill 4.308/2024 must still pass through the Finance and Taxation Committee and the Constitution, Justice, and Citizenship Committee. If approved, it would then move to the Senate for a final vote.

Market Takeaway

Brazil’s approach signals a clear regulatory philosophy: stablecoins are to be treated as critical financial infrastructure, not experimental financial products.

By banning algorithmic models and enforcing full backing, the country is positioning itself firmly on the side of conservative, bank-style oversight, setting a precedent that could influence other emerging markets watching how global stablecoin regulation unfolds.

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