Intermediary-centered regulation as a driver for stablecoin fungibility: the case of Brazil

While the United States and the EU move to regulate the issuance of stablecoins, Brazil has taken a different path, focusing instead on the intermediaries that handle these assets. The approach - shaped by the specific economic context of emerging markets - seeks to balance the need to protect local users with a simplified regime for issuers wishing to offer their assets in the Brazilian market. In other words, a framework that calls on issuers to exercise due care in developing their relationships with intermediaries operating in Brazil, while sparing them from more burdensome requirements such as setting up a local entity or maintaining dedicated domestic reserves.

Although stablecoins are the fastest-growing chapter in the crypto-assets universe, the backing of these tokens is heavily concentrated in USD and euro denominated assets, reflecting the role of these currencies as global reserves. In practice, USD-backed stablecoins correspond to approximately 99% of the overall market capitalization.

In view of the preference for pegging stablecoins to their currencies, the United States and the EU enacted laws (Genius Act and MiCAR, respectively) regulating the issuers of fiat-backed stablecoins. Such laws establish not only licensing and prudential requirements, but also rules on reserve assets and holders’ redemption safeguards.

However, this issuer-centered regulatory strategy cannot be easily replicated by emerging markets (such as Brazil), as there is reduced economic interest from international investors to hold, and from issuers to issue, stablecoins pegged to more volatile currencies in the context of international transactions. Instead, investors located in emerging markets will likely purchase USD or euro-pegged stablecoins, which may serve different purposes, such as international remittances and inflation hedge.

In Brazil, lawmakers took a different path: rather than targeting foreign issuers or obliging them to incorporate a local entity, they decided to center regulatory obligations on the intermediaries (virtual assets service providers – VASPs – as per Law No. 14,478, of 2022). VASPs will come under the supervision of the Central Bank (“BCB”), which published on November 10th a new licensing, governance, and prudential framework for them. Such a framework will enter into force on February 2nd, 2026.

The intermediary-centered regulation in emerging markets strikes a balance between acknowledging the popularity of global stablecoins among local consumers, whilst ensuring their protection by attributing gatekeeper obligations to the VASPs.

Moreover, it avoids any difficulties related to stablecoin multi-issuance, which stems from the dichotomy between the national limits of the law and the borderless reach of stablecoins. The so called multi-issuance schemes involve two or more entities incorporated in different countries jointly issuing fungible stablecoins. Such tokens should grant same rights to all holders (e.g.redemption claims), irrespective of where they were issued. And Brazilian intermediary-centered approach favors this result, because it avoids adding a new set of rules that might influence the structure of the stablecoin.

Stablecoins offered by VASPs and circulating in Brazil will thus be fungible with others from the same type, irrespective of the country of origin or destination. BCB shall not alter the legal regime applicable to the issuer or the coins, due to the lawmaker’s decision to pursue an intermediary regulatory approach. This is an important benefit to foreign issuers, exempted from regulatory requirements applicable to authorized institutions (such as e-money issuers, financial institutions and VASPs). They will not need, for example, to establish themselves in Brazil and obtain a license (as is the case in the EU), or to define specific terms and conditions, asset safeguarding schemes and liquidity policy for the tokens offered in Brazil or to Brazilian public.

Nor are the issuers required to maintain assets specifically in Brazil to meet redemption requests. Still, commercially, they are often expected to partner with local intermediaries and offer them a stablecoin liquidity line (i.e. a pre-approved stablecoin facility), allowing the local intermediaries to serve as market makers for other VASPs or to their own clients.

Apart from that, in practical terms, for their stablecoins to be traded in Brazil, foreign issuers only need to ensure that local VASPs comply with their gatekeeper obligations. For that purpose, such issuers should make available white papers or similar documents that clearly set out the rights of token holders, including redemptions procedures, the composition of the reserve assets, and evidence of compliance with the regulations of the country of origin (e.g. local regulator certificate of approval).

As a related topic, to avoid placing an excessive burden on intermediaries, the BCB will have to balance the gatekeeper duties assigned to VASPs. The published regulations in fact shall require only that VASPs provide adequate information to platform users about the conditions of the assets traded, so that investors can make informed choices. This is not be confused with the responsibility of the VASP for the quality of the assets themselves. In summary, VASP’s main role should be to provide information to the customer enabling assessment of risks related to the stablecoin and its underlying infrastructure.

In summary, by centering its crypto-asset regulation on VASP activities, Brazil could simultaneously seek customer protection and reinforce its standing as an appealing and strategic destination for international issuers of fiat-backed stablecoins.