Brazil’s leading cryptocurrency and fintech industry groups have warned that expanding a financial transaction tax to stablecoin operations could harm innovation and violate existing law.

In a joint statement shared with CoinDesk, industry associations ABcripto, ABFintechs, Abracam, ABToken and Zetta said recent discussions about extending a tax on financial operations (locally known as Imposto sobre Operações Financeiras, or IOF) to stablecoin transactions raise legal and economic concerns.

The organizations represent more than 850 companies across Brazil’s financial technology, virtual asset and market infrastructure sectors, the statement reads.

The debate centers on a levy applied to certain financial transactions, including foreign exchange operations. According to the associations, applying the tax to stablecoin transactions would conflict with Brazil’s current legal framework and harm the country’s crypto industry.

They argue that the Constitution defines the IOF as applying only to the settlement of currency exchange transactions involving the delivery of national or foreign fiat currency. Stablecoins, they said, do not meet that definition.

Brazil’s Virtual Assets Law, enacted as Law No. 14,478 in 2022, explicitly states that virtual assets are not considered national or foreign fiat currency, the statement says. The industry groups say this distinction means stablecoins cannot legally be treated as instruments representing foreign currency under the IOF rules.

As a result, the organizations say any attempt to extend the tax through a decree or an administrative rule would be unlawful. Under Brazil’s constitutional framework, new taxes or expanded tax triggers must be approved through the legislative process.

“In this context, any expansion of tax incidence on operations with stablecoins through a decree or administrative rule is illegal, since acts of this nature cannot create or expand a tax triggering event,” the document reads.

The groups also cautioned against conflating monitoring rules from Brazil’s central bank with taxation policy. They said oversight of digital asset transactions does not automatically justify applying the IOF tax to those activities.

Industry representatives argue that policy missteps could damage a rapidly expanding sector. Brazil has emerged as one of the world’s largest crypto markets, with an estimated 25 million people participating in the ecosystem.

Brazil’s stablecoin adoption

The associations said the country’s crypto sector has grown alongside a broader wave of financial innovation, including fintech platforms, digital payments, and blockchain infrastructure. They also noted that similar taxes on stablecoin transactions are not widely used in other major economies.

Stablecoin usage in Brazil has surged dramatically in recent years, turning the country into one of the largest markets for the assets in Latin America and globally.

Dollar-pegged tokens like Tether’s USDT and Circle’s USDC now dominate crypto activity as Brazilians use them to hedge volatility in their fiat currency, the real (BRL), move money across borders at lower cost, and provide liquidity for trading.

Brazil’s crypto market, according to an auditor at Brazil’s tax authority, Receita Federal, is moving between $6 and $8 billion per month, with 90% of that being stablecoin flows.

Not all of them are U.S. dollar stablecoins, as BRL-pegged stablecoins are gaining traction. Trading in tokens linked to the Brazilian real reached about $906 million in the first half of 2025, according to Dune data.