key takeaways
- The Japanese parliament has passed a new bill clarifying the legal status of stablecoins.
- The bill ensures stricter investor protections, including the right to redeem stablecoins at face value for their underlying currency.
- However, the law does not address existing asset-backed stablecoins from foreign issuers, such as Tether’s USDT.
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The Parliament of Japan has passed legislation clarifying the legal status of stablecoins. The new bill also mandates that any institution providing stable crypto assets must guarantee holders the right to redeem their tokens at face value.
Japan is the world leader on stablecoin regulation
Japan has become the first country to ensure stricter investor protections for stablecoins.
Japan’s upper parliamentary house passed new legislation on Friday morning, clarifying the legal status of stablecoins in the country and defining them as digital currencies. This bill goes beyond any measure implemented anywhere in the world in terms of protecting investors.
Under the new law, entities offering stablecoins in Japan must ensure that their tokens are pegged to the yen or another fiat currency and that their stablecoins can always be redeemed for fiat at their face value. Additionally, the new legal definition of stablecoins stipulates that they can now only be issued by licensed banks, registered money transfer agents and trust companies.
The new law does not address existing asset-backed stablecoins from foreign issuers, such as Tether’s USDT, as Japanese crypto exchanges do not currently list them for trading. However, if companies like Tether want to enter the Japanese market in the future, they will have to ensure that their stablecoins comply with the new regulations.
The new rules are due to go into effect in 2023, with Japan’s Financial Services Agency expected to clarify the details of stablecoin issuers in the coming months. Currently, Mitsubishi UFJ Trust and Banking Corp., one of the country’s leading financial services firms, are planning to issue their own “Progmat Coin” to be valued at the Japanese yen.
Japan is not the only country to focus on tightening stablecoin regulation in recent weeks. In the UK, Her Majesty’s Treasury recently confirmed plans to regulate stablecoins as a form of payment in the country as part of the government’s commitment to cryptocurrency innovation. While many details are still unconfirmed, reports indicate that UK regulators are also primarily focused on investor protection.
Recent regulatory discussions concerning stablecoins have been dominated by the collapse of the algorithmic stablecoin TeraUSD. UST began breaking its dollar peg in early May and running the bank among holders. Eventually, UST’s algorithmic stabilization mechanism crashed the network’s LUNA token by more than 99%, without the dollar to restore its peg. The incident wiped out more than $40 billion in value from the crypto market and caught the attention of legislators around the world.
Japan’s new stablecoin bill will be the first to guarantee write-to-redeeme protection for stablecoin investors. However, the current regulatory environment surrounding stablecoins and cryptocurrencies indicates that this will not be the last.
Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.
