Brazil Moves to Ban Algorithmic Stablecoins With Prison Terms

Brazil’s lawmakers have advanced legislation that would ban algorithmic stablecoins and impose prison sentences of up to eight years for issuing unbacked digital assets. The bill represents one of the most aggressive regulatory moves against crypto in Latin America.

Brazil moves closer to banning algorithmic stablecoins as a congressional committee approved Bill 4,308/2024, requiring all stablecoins to be fully backed by segregated reserves and prohibiting unbacked models such as Ethena’s USDe and Frax. The bill introduces criminal penalties…

— Wu Blockchain (@WuBlockchain) February 5, 2026

A congressional committee approved Bill 4.308/2024, which prohibits the issuance and trading of stablecoins that maintain value through code rather than collateral. Assets like Ethena’s USDe and Frax would face outright bans under the proposed framework.

The legislation requires all stablecoins issued in Brazil to hold segregated reserve assets as full backing. Violators would face criminal prosecution for financial fraud, marking a significant escalation in enforcement measures.

Stablecoins currently drive 90% of cryptocurrency trading volumes in Brazil, according to the country’s tax authority. The bill now awaits approval from the Finance and Taxation and Constitution, Justice, and Citizenship committees before Senate consideration.

Brazil Imposes New Authorization Rules for Foreign Stablecoins

The proposed legislation establishes strict rules for stablecoins issued outside Brazil, including dominant market players Tether’s USDT and Circle’s USDC.

Under the new framework, foreign stablecoins can only be offered by firms authorized to operate within Brazilian jurisdiction. Crypto exchanges must verify that foreign issuers comply with regulatory standards equivalent to Brazil’s requirements.

Exchanges that fail to confirm compliance will assume responsibility for managing potential risks associated with those assets. This provision effectively makes platforms liable for the stablecoins they list.

The bill follows global concerns about systemic risks posed by unbacked stablecoin models. Terra’s collapse in 2022 triggered widespread losses and intensified regulatory scrutiny worldwide.

Lawmakers crafted the legislation to increase transparency requirements across the stablecoin sector. The new criminal offense provision treats unbacked stablecoin issuance as equivalent to financial fraud.

Central Bank Finalizes Comprehensive Crypto Oversight Rules

Meanwhile, Brazil’s central bank has published regulations that classify stablecoin transactions as foreign-exchange operations. The Banco Central do Brasil released three resolutions establishing operational standards for crypto firms.

🚀 LATEST: BRAZIL’S CENTRAL BANK WILL NOW REQUIRE CRYPTO SERVICE PROVIDERS TO OBTAIN FORMAL AUTHORIZATION BEFORE OPERATING. THE RULES BEGIN IN FEBRUARY 2026 AND INCLUDE A 9-MONTH GRACE PERIOD. pic.twitter.com/5ZBGFaRzqN

— Coinwaft (@coinwaft) November 11, 2025

Resolutions 519, 520, and 521 create a new category of licensed entities called Sociedades Prestadoras de Serviços de Ativos Virtuais. These virtual-asset service providers must operate under banking-style oversight.

The framework imposes consumer protection, transparency, and anti-money laundering requirements similar to traditional financial institutions. Crypto brokers, custodians, and intermediaries operating in Brazil fall under the new rules.

Following this regulatory push, the rules will take effect on February 2, 2026. Mandatory reporting for capital-market and cross-border operations begins on May 4, 2026.

The central bank’s move officially recognizes stablecoin payments as foreign currency transactions. This classification subjects crypto transactions to existing foreign-exchange regulations.

In contrast to the congressional bill still pending approval, the central bank’s resolutions represent finalized rules. Together, these measures create a comprehensive regulatory framework for Brazil’s crypto sector.

Brazil joins a growing list of nations implementing strict stablecoin regulations. The country’s approach combines legislative bans on algorithmic models with central bank oversight of compliant assets.

The dual-track regulatory strategy addresses both the technology underlying stablecoins and the operational practices of service providers. Market participants will need to adapt to both sets of requirements.

Industry observers note that Brazil’s 90% stablecoin trading volume makes the market particularly significant for global crypto firms. Compliance with the new framework will be essential for continued market access.