Brazil advances bill to prohibit algorithmic stablecoins, tightening crypto rules

Brazil's legislature has moved a significant step closer to forbidding algorithmic stablecoins, as a committee approved a draft that reclassifies how fiat-pegged digital tokens are treated under domestic law. The measure demands that any stablecoin marketed in Brazil be supported by segregated reserves, elevating prudential requirements from light-touch disclosure to enforceable asset backing. It also tightens reporting obligations and creates a criminal offense tied to issuing tokens that rely solely on code to maintain peg, with custodial or issuance failures potentially treated as financial fraud. Lawmakers attached a severe maximum custodial penalty, signaling intent to deter uncollateralized designs through criminal law remedies. For offshore issuers, the bill builds a gatekeeper model: tokens can only circulate if the issuer is authorized or if exchanges verify comparable safeguards; otherwise the platform assumes responsibility for risks. That allocation of liability shifts compliance burdens onto trading venues, increasing their legal exposure and operational due diligence costs. The timing of the proposal reflects growing unease after past algorithmic collapses overseas and domestic data showing stablecoins dominate local crypto turnover, heightening systemic concerns. If enacted, the statute would narrow the permitted architecture for stablecoins in Brazil, affecting projects that rely on algorithmic mechanisms rather than tangible backstops. Market participants should expect higher compliance costs, stricter onboarding standards for foreign issuers and potential delistings where proof-of-reserve cannot be demonstrated. The measure still requires further committee clearances and Senate review before becoming binding law, leaving a window for industry lobbying and technical amendments. Beyond immediate market shifts, the law would set a Latin American precedent that could influence how platforms and issuers structure token economics and reserve disclosures regionally. Exchanges and custodians will need to redesign risk frameworks and contractual terms to avoid downstream liabilities, while some protocol teams may reconsider where to domicile or market their tokens. The net effect is likely to strengthen investor protections at the expense of certain decentralized models and could reroute speculative stablecoin activity to less-regulated venues or jurisdictions.