Brazil Moves to Ban Algorithmic Stablecoins; Ethena’s USDe Singled Out in Bill
A legislative committee has approved strict new rules criminalizing non-fiat backed stablecoins, with prison terms of up to eight years for violators.
Brazil’s Chamber of Deputies Committee on Science, Technology and Innovation (CCTI) has approved a legislative report that would effectively outlaw algorithmic stablecoins within the country. The bill, PL 4.308/2024, mandates that all stablecoins issued or circulated in Brazil must possess fully segregated, 1:1 fiat reserves, explicitly targeting models like Ethena’s USDe.
Markets reacted swiftly to the threat of losing Latin America’s largest crypto jurisdiction. Ethena’s governance token (ENA) slid nearly 5% to trade around $0.13, hovering near its all-time low as traders priced in the exclusion of USDe from Brazilian exchanges.
The "Zero-Algo" Mandate
The approved text, drafted by rapporteur Lucas Ramos, introduces a strict prohibition on the issuance, offering, or distribution of tokens that attempt to maintain a reference value solely through algorithms. According to the committee’s report, protocols lacking full fiat backing, specifically naming Ethena (USDe), Frax (FRAX), and Ampleforth (AMPL), would be illegal to list on local platforms.
Violating this provision is not merely a regulatory infraction; the bill proposes amending the Penal Code to classify the issuance of unbacked stablecoins as a crime against the popular economy. Penalties for executives and issuers could reach up to eight years in prison.
Overruling the Central Bank
In a significant jurisdictional pivot, the bill removes stablecoins from Brazil’s foreign exchange (FX) framework. While the Central Bank previously moved to treat stablecoin flows as FX transactions, subject to tax (IOF) and strict capital controls, PL 4.308/2024 reclassifies them as virtual assets. This explicitly annuls recent Central Bank guidelines that sought to encompass crypto-dollar flows under traditional forex rules.
However, the bill tightens the leash on foreign fiat-backed issuers like Tether (USDT) and Circle (USDC). These tokens can only be offered by Brazilian Virtual Asset Service Providers (VASPs) that certify the issuer is under "compatible" prudential supervision abroad. If the issuer lacks transparency, the local exchange must assume full liability for the backing, a risk few domestic platforms are likely to take.
Institutional Context
This legislative move signals a hardening of the "fiat-only" stablecoin consensus globally. By criminalizing algorithmic models, Brazil is aligning with jurisdictions like Dubai and the EU (MiCA), which view non-custodial stability mechanisms as systemic risks rather than innovations. For DeFi protocols like Ethena, which rely on hedging strategies rather than cash reserves, the loss of direct access to the Brazilian retail market, one of the most active in the world, represents a critical blow to adoption.
The bill now advances to the Finance and Taxation Committee before a final constitutional review.
