Chelsea have sent full-back Wallace back to his native Brazil, where he will spend the next 18 months on loan at Gremio.
The 21-year-old has failed to make a significant impact at the Stamford Bridge since signing with the club from Fluminese for £4.4million in 2012.
Wallace, who is yet to make a first team appearance for the Blues, spent the first half of the current campaign on loan at Serie A outfit Capri but will now head to Porto Alegre to continue his development with the Tricolor.