Why Restrict Stablecoin Issuance? Decoding the Regulatory Logic Behind the Revision of Brazil's Virtual Asset Law

Written by: FinTax

In December 2025, a committee under the Brazilian House of Representatives approved the revised Virtual Assets Law (PL 4308/2024). Building on the original Virtual Assets Law (Marco Legal dos Ativos Virtuais, No.14.478/2022), the bill introduces a series of rules regulating stablecoin issuance. Currently, the bill is still under legislative review and has not yet been officially enacted. If passed, it will establish a preliminary stablecoin issuance framework within Brazil’s crypto asset regulatory system.

As Latin America’s largest cryptocurrency market, stablecoins are widely used in local trading and cross-border payments. Reports indicate that from July 2024 to June 2025, Brazil’s crypto trading volume reached $318.8 billion, a 109.9% year-over-year increase, with stablecoins accounting for over 90%, roughly one-third of Latin America’s total crypto activity. Clearly, the passage of this revision will significantly impact Brazil’s stablecoin market landscape and future development. This article reviews the current state of crypto and stablecoin regulation in Brazil, analyzes the regulatory trends reflected in the bill and its potential impacts, providing compliance guidance for industry participants.

1. Overview of Brazil’s Crypto Asset Regulation

1.1 Regulatory Framework: BCB Dominance, CVM Cooperation

Brazil has established a layered crypto regulation framework led by the Central Bank of Brazil (Banco Central do Brasil, BCB), with the Securities and Exchange Commission (Comissão de Valores Mobiliários, CVM) participating collaboratively. Specifically, the Virtual Assets Law authorizes federal agencies to designate supervisory authorities for virtual asset service providers (VASPs) via executive decree. Subsequently, Presidential Decree No. 11,563/2023 assigned the Central Bank responsibility for regulating virtual asset services, without altering CVM’s existing authority over security tokens.

In summary, the Central Bank oversees licensing, anti-money laundering (AML), foreign exchange controls, and related activities for exchanges, custodians, and crypto-based financial services; CVM regulates securities tokens when crypto assets exhibit securities attributes, including issuance and market activities.

1.2 Core Legal and Policy Framework

Brazil’s crypto regulation is based on the Virtual Assets Law and implementing resolutions No. 519, 520, and 521 issued by the Central Bank, which establish a VASP-centered supervisory regime. Additionally, CVM’s Opinion No. 40/2022 provides securities market regulation for security tokens.

Enacted in December 2022, the Virtual Assets Law is a foundational legal framework for crypto regulation. It explicitly defines crypto assets as “digital representations of value” that can be traded electronically and used for payments or investments. This clarifies that cryptocurrencies in Brazil are neither considered legal tender nor securities, but rather assets or property. The law also requires VASPs to obtain authorization, comply with AML and counter-terror financing regulations, and criminalizes virtual asset fraud.

Based on this, the Central Bank issued Resolutions Nos. 519, 520, and 521 in November 2025, which took effect on February 2, 2026, with key points including:

[Details of resolutions omitted for brevity]

1.3 Crypto Taxation and Regulatory System

Brazil does not have a dedicated crypto tax law; instead, crypto assets are integrated into existing tax systems with mandatory information disclosure. Under the legal definition in the Virtual Assets Law, crypto assets are regarded as “digital representations of value,” thus classified as assets or property rights rather than currency. The Federal Revenue Service (Receita Federal do Brasil, RFB) established a mandatory reporting system via Instruction IN RFB No. 1,888/2019, requiring market participants to report transactions monthly through electronic systems.

In 2025, Brazil updated this system with IN RFB No. 2,291/2025, introducing the new Declaração de Criptoativos (DeCripto) reporting system, with a transition period until June 30, 2026, after which the new system becomes mandatory.

Tax-wise, holding crypto within Brazil is not taxed; however, disposal activities such as sale, payment, or redemption that generate income are taxable. For individuals, domestic transactions are taxed based on capital gains, with different thresholds and rates for domestic and foreign operations. For foreign transactions, a flat 15% tax applies annually, with no monthly exemption.

For companies, crypto-related income from exchanges, custodians, or brokers is considered operational income and taxed under corporate income tax; other holdings are taxed as financial or intangible assets.

2. Overview of Stablecoin Regulation in Brazil

2.1 Legal Status and Current Regulatory Framework

In Brazil, stablecoins (ativos virtuais referenciados em moeda soberana) are classified as “digital representations of value” under the Virtual Assets Law. Resolution No. 520 defines stablecoins as “virtual assets backed by reserve assets,” emphasizing full reserves and price stability mechanisms. Besides general crypto asset regulations, Resolution No. 521 incorporates stablecoin transactions used for international payments or cross-border transfers into the foreign exchange market, treating such transactions as foreign exchange operations subject to FX regulations. Once integrated into the FX system, stablecoin transactions are considered international fund transfers, requiring authorization from licensed FX market participants and compliance with FX rules.

2.2 Government Attitudes and Phased Regulatory Changes

Brazil’s approach to stablecoins has evolved in phases, similar to its crypto regulation history.

From 2018 to 2022, the focus was on the overall crypto market, with no specific regulation for stablecoins. Between 2023 and 2024, the Virtual Assets Law included stablecoins within the broader crypto category, but regulation remained at a principle-based level without specific restrictions. Since 2024, with stablecoins accounting for over 90% of crypto trading, regulators have expressed concerns about risks. The Central Bank began discussing reserve requirements, peg mechanisms, and cross-border use, adopting a cautious stance.

In November 2025, the Central Bank issued the three resolutions formalizing stablecoins’ inclusion in FX regulations, viewing them as high-risk foreign exchange equivalents. The December 2025 amendments further prohibit algorithmic stablecoins and mandate 100% reserve backing, reflecting a cautious attitude and using reserves, criminal penalties, and local licensing to prevent market manipulation and capital flight.

3. Focus on Algorithmic Stablecoins: Impact of Proposed Amendments

3.1 Key Points of the Revision

The bill supplements the existing Virtual Assets Law, focusing on stablecoin issuance. The main changes include:

• Prohibition of Algorithmic Stablecoins: The bill explicitly bans the issuance, offering, distribution, or listing of any virtual asset that seeks to maintain a reference value solely through algorithmic mechanisms without corresponding reserves.

(Art. 13-A §2: “It is prohibited to issue, offer, distribute, or list virtual assets that aim to maintain reference value solely through algorithmic mechanisms without the corresponding reserve.”)

International bodies like the Financial Stability Board and BIS have noted that algorithmic stablecoins often lack full collateralization, relying solely on algorithms to maintain value, making them high-risk assets prone to decoupling or systemic failure—e.g., the Terra/Luna collapse in 2022. This ban appears to be a regulatory response to recent failures of unbacked stablecoins, aiming to protect retail investors and maintain systemic stability.

• Mandatory 100% Reserve Support: The bill requires stablecoins pegged to fiat currency to be fully backed by designated reference assets or currencies, prohibiting issuance without reserves.

(Art. 13-D §2: “Virtual assets referenced in fiat currency must be fully backed by the issuer’s specified reference assets or currencies, with no issuance without corresponding reserves.”)

• Segregated and Auditable Reserves: Issuers located in Brazil must maintain segregated, auditable reserves, publicly disclosed periodically per Central Bank regulations.

(Art. 13-D §4: “Domestic issuers shall maintain segregated, auditable reserves, with public disclosure at intervals and formats established by the regulatory authority.”)

• Criminalization of Unbacked Stablecoin Issuance: Issuing stablecoins without reserves will be considered fraud, punishable by up to 8 years’ imprisonment and fines. This elevates the offense from administrative violation to criminal crime.

• Restrictions on Foreign Stablecoins: Foreign-issued stablecoins circulating in Brazil must be issued via authorized VASPs. If not regulated equivalently abroad, VASPs must conduct risk assessments. The Central Bank can impose additional entry and transparency requirements on foreign stablecoins, especially those pegged to the Brazilian real.

3.2 Regulatory Signals

The bill’s core signals are: banning high-risk algorithmic stablecoins, strengthening reserve requirements, imposing criminal penalties, and tightening cross-border oversight. This reflects Brazil’s recent regulatory approach: prioritizing financial stability, investor protection, and AML, with zero tolerance for high-risk models, while leaving room for compliant innovation.

Stablecoins dominate over 90% of Brazil’s crypto trading, mainly used for cross-border payments and settlement, acting as “dollar-like” payment tools to hedge exchange rate volatility and reduce cross-border costs. Holding stablecoins is akin to holding unregulated USD accounts abroad. Over time, this could weaken the real’s store of value and payment functions, impair monetary policy transmission, and pose sovereignty risks. Full liberalization could also facilitate capital outflows, risking financial stability. Therefore, the bill aims to regulate issuance, not ban stablecoins outright.

Brazil recognizes stablecoins’ practical value but seeks to prevent systemic risks by regulating their issuance at the source, balancing innovation with stability.

3.3 Market Impact

The amendments will significantly raise the entry barriers and compliance costs for stablecoin issuance by banning algorithmic stablecoins, mandating full reserves, and criminalizing unbacked issuance. This will likely lead to:

• Market Exit of Non-compliant Issuers: Unlicensed or unbacked stablecoins will be phased out, with trading shifting to authorized local platforms. Currently, most stablecoin trading occurs OTC or via foreign platforms without local intermediaries. The new restrictions will push foreign platforms to seek local licenses or partner with authorized VASPs.

• Impact on Capital Flows: Transactions involving foreign stablecoins must go through local VASPs, which will now have reporting obligations. This increases traceability, reducing unreported cross-border flows, shifting stablecoins from a capital flight tool to a regulated cross-border payment instrument.

• Potential for Domestic Stablecoin Development: The law allows the Central Bank to impose additional entry requirements on foreign stablecoins. Given high compliance costs and regulatory hurdles abroad, local issuance of fiat-pegged stablecoins may become more attractive, creating opportunities for domestic stablecoin platforms.

3.4 Industry Response and Compliance Strategies

Although not yet law, the bill signals a strong regulatory stance. Industry participants aiming to operate in Brazil should prepare:

• Local Issuers: Financial institutions like banks can initiate fiat-pegged stablecoin projects, ensuring full reserve backing to meet legal requirements and create barriers for unregulated foreign stablecoins.

• VASP Upgrades: Local VASPs should enhance due diligence procedures—verifying issuer regulation, reserve backing, governance—to establish a whitelist for foreign stablecoins and reduce exposure to algorithmic or unbacked tokens.

• Foreign Issuers: To maintain market access, foreign stablecoin issuers should seek partnerships with local licensed VASPs or consider establishing local subsidiaries to issue compliant stablecoins. Non-localized approaches must adapt to new regulations.

4. Future Outlook for Brazil’s Stablecoin Regulation

Brazil’s evolving crypto regulation reflects a balancing act: fostering innovation while safeguarding financial stability. Future developments are likely to continue emphasizing prudence and institutionalization, with increased oversight and risk management. However, regulators will also need to accommodate market demand for digital payments and stablecoins, possibly leaving room for compliant innovation.

Internationally, as global stablecoin regulation tightens and standards converge, Brazil’s framework will be influenced by cross-border cooperation and standards. How Brazil aligns its domestic policies with international norms, and how it balances local financial sovereignty with integration into the global digital economy, remains to be seen through ongoing practice and policy adjustments.