- Brazil’s Bill 4.308/2024 bans unbacked stablecoins and criminalize issuance.
- Stablecoins like USDT and USDC must follow strict local rules.
- Violators could face up to eight years in prison.
Brazilian lawmakers are planning to crack down on algorithmic stablecoins. A congressional committee approved Bill 4.308/2024, which bans unbacked stablecoins such as Ethena’s USDe and Frax. The bill also requires that all stablecoins issued in Brazil be backed by real reserves.
The move reflects concerns about systemic risks, following events like the collapse of Terra in 2022. Thus, the government mandates stricter rules for stablecoins, including the prominent USDC and USDT. While exchanges are poised to face the responsibilities if non-compliant, issuers of unbacked tokens could see up to eight years in prison.
Brazil Tightens Stablecoin Regulation
According to Wu Blockchain’s latest X post, Brazil is tightening its hold on stablecoins, especially focusing on algorithmic tokens like USDe and Frax. Congress approved a bill that transforms the country’s stablecoin regulation.
Brazil is reportedly banning algorithmic stablecoins under Bill 4.308/2024. The bill bans the creation and trading of tokens such as USDe and Frax, which maintain their value through code instead of real assets.
The move comes amid risks of unbacked coins, especially after the collapse of Terra in 2022. The bill requires all stablecoins to be backed by segregated reserves. It increases transparency rules and makes issuing unbacked stable tokens a criminal offense.
According to the new regulation, anyone caught issuing unbacked stablecoins in Brazil will face up to eight years of imprisonment. This is because the government now sees this action as a financial fraud.
Under the new bill, even popular stablecoins like USDC and USDT will face rigid rules. The rule states that these tokens could be offered only by companies authorized to operate in the country. Exchanges are also mandated to ensure that the issuers follow the standards.
How Brazil Sees Stablecoins?
Interestingly, stablecoins are more than just a way of payment in Brazil. They are changing how, when, and under what circumstances payments happen. With their faster and more efficient payment methods, stable tokens have become an integral part of Brazil’s financial ecosystem.
However, this increasing use of stablecoins has also reduced the use of fiat currencies. Even without a financial crisis, stablecoins can slowly reduce the demand for traditional money, which may weaken the tools central banks use to manage the economy, such as interest rates.
Analyzing Global Stablecoin Regulation
Brazil’s latest regulatory move aligns with the global push for crypto regulations focusing on stablecoins. While regulators around the world are trying to integrate stablecoins into their financial systems, they are also drafting comprehensive rules. As Times of Blockchain reported, SoFi Bank issued the SoFiUSD token, the first national bank-backed stablecoin issued on a public blockchain.
In countries like the US, regulators such as the SEC and the Treasury have raised concerns about algorithmic and unbacked stablecoins. They have pushed for clearer rules on reserve backing, transparency, and investor protection.
In Europe, the EU’s Markets in Crypto Assets (MiCA) framework sets out rules for stablecoin issuance, reserve requirements, and licensing. All stablecoin issuers must hold sufficient reserves and be authorized to operate, aiming to reduce systemic risks.
