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New legislation mandates that all stablecoins must be fully supported by reserve assets and establishes penalties for the issuance of unbacked stablecoins.
(Rafaela Biazi/Unsplash/Modified by CoinDesk)
What to know:
- Brazil is progressing towards prohibiting algorithmic stablecoins with the endorsement of Bill 4.308/2024, which bans unbacked stablecoins such as Ethena’s USDe and Frax.
- New legislation mandates that all stablecoins must be completely backed by reserve assets and implements penalties for the issuance of unbacked stablecoins.
- International stablecoins like Tether’s USDT and USDC are required to adhere to Brazilian regulations, placing risk management duties on exchanges; stablecoins represent 90% of the country’s cryptocurrency volumes.
Brazil is taking steps to outlaw algorithmic stablecoins, as a congressional committee has approved a bill that redefines the nation’s approach to cryptocurrencies tied to fiat currencies.
The Science, Technology, and Innovation Committee has passed a report on Bill 4.308/2024 that forbids the issuance or trading of stablecoins like Ethena’s USDe and Frax, which seek to maintain their value through algorithms instead of collateral.
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The legislation comes in response to international concerns regarding the systemic risks associated with unbacked stablecoin models, especially following prominent failures like the collapse of Terra in 2022.
The bill requires that all stablecoins issued in Brazil be fully backed by segregated reserve assets. It also enhances transparency requirements and introduces a new criminal offense for the issuance of unbacked stablecoins.
Individuals found guilty of such offenses may face up to eight years in prison, marking a shift toward categorizing these actions as financial fraud.
For stablecoins created outside the country, including Tether’s USDT and USDC, the bill establishes new regulations. These assets can only be offered by companies authorized to operate in Brazil, while exchanges must ensure that foreign issuers comply with regulations akin to Brazil’s.
If they fail to do so, the exchange will be responsible for managing possible risks. According to data from Brazil’s tax authority, stablecoins account for 90% of the country’s cryptocurrency volumes.
The proposal still requires approval from Brazil’s Finance and Taxation and Constitution, Justice, and Citizenship committees before it can advance to the Senate and potentially become law.
