LUNA Tumbles 12% as Brazil Targets Algorithmic Stablecoins

On FEB 5 2026, LUNA dropped by 12.48% within 24 hours to reach $0.0583, marking a continued decline across multiple timeframes. Over the last 7 days, the token fell by 13.27%, while its performance over the past 30 days and one year was equally bearish, with drops of 13.27% and 39.66%, respectively. The sustained downward pressure reflects growing regulatory scrutiny and uncertainty in the algorithmic stablecoin space.

Brazil Moves to Ban Algorithmic Stablecoins Like USDe

Brazil has advanced legislation that seeks to prohibit the issuance of algorithmic stablecoins, including Ethena’s USDe and Frax. The proposed Bill 4308/2024 mandates that all stablecoins must be fully backed by reserve assets, effectively outlawing algorithmic models that maintain value through code rather than tangible reserves. Foreign stablecoins such as USDC and USDT will also need to comply with Brazil’s regulatory standards to operate in the country.

The bill, which recently passed the Science, Technology, and Innovation Committee, will next be reviewed by the Finance and Taxation and Constitution, Justice, and Citizenship committees before moving to the Senate. If enacted, the legislation could significantly impact the algorithmic stablecoin market, particularly in a country where stablecoins account for 90% of all cryptocurrency transactions.

Regulatory Concerns Post-Terra-Luna Collapse

The proposed Brazilian law highlights growing global regulatory concern following the collapse of the Terra-Luna ecosystem in 2022. Algorithmic stablecoins, which rely on complex economic models and token burns or mints to maintain pegs, are now under intense scrutiny for their systemic risks. The legislation treats the issuance of unbacked stablecoins as financial fraud, with potential prison sentences of up to eight years for violators.

This regulatory push aligns with broader global trends, including recent actions in the U.S., where banks have expressed concerns over yield-bearing stablecoins, and in Europe, where institutions are now developing their own stablecoin solutions to comply with evolving standards such as MiCA.

Implications for the LUNA Ecosystem

LUNA, a key token in the Terra ecosystem, has been particularly vulnerable to regulatory shifts. The token's value is closely tied to the stability of the algorithmic design that underpinned its native stablecoin, UST. The collapse of UST in 2022 led to a near-total wipeout of LUNA’s value and triggered a broader market downturn. With Brazil’s legislative developments, investors and developers are once again on high alert for regulatory actions that could impact the token’s viability and liquidity.

While the legislation will not directly impact UST—since the token is no longer operational—it sets a precedent that could influence future regulatory frameworks globally. The focus on reserve-backed stablecoins suggests that algorithmic designs may face a long-term decline in acceptance, particularly in jurisdictions with strong regulatory oversight.

Market Sentiment and Investor Response

The current drop in LUNA’s price appears to reflect heightened caution among investors, who are recalibrating their exposure to tokens perceived as high-risk in the wake of regulatory moves. Market participants are closely monitoring legislative developments in Brazil, as well as potential U.S. and European actions, for signs of broader crackdowns on algorithmic models. Analysts project that the regulatory landscape will remain fluid in the coming months, and that further volatility in algorithmic stablecoins and their associated tokens is likely.

In summary, the recent 12.48% drop in LUNA’s price is part of a larger pattern of decline driven by regulatory headwinds, particularly in Brazil. As global regulators move to tighten stablecoin frameworks, the future of algorithmic models—and the tokens tied to them—remains uncertain.