Stablecoins must be backed by Japanese Yen

Japan has become the first economic power to introduce specific regulations and requirements for stablecoins, highlighting the aspect of investor protection. The cryptocurrencies thrust into the global spotlight by last month’s collapse of the TerraUSD token.  

Japan issues regulatory framework for stablecoins

According to Bloomberg, the Japanese Parliament on the morning of June 3 passed a bill to clarify the legal status of stablecoins, in essence recognizing them as digital currencies.

The law requires stablecoins issued in the land of the rising sun to be backed by the Japanese yen or another legal settlement currency and gives holders the right to be redeemed at face value.

The law will take effect 1 year from the date of its adoption.

The above definition means that stablecoins can only be issued by licensed banks, money transmitters, and financial trust companies.

However, the law does not mention popular stablecoins in today’s cryptocurrency market, such as USDT, USDC, or algorithmic stablecoins. Current Japanese crypto exchanges also do not list these stablecoins.

The Japan Financial Services Agency, the country’s financial regulator, is also expected to introduce regulations governing stablecoin issuers in the coming months. Currently, only Japan’s largest bank, Mitsubishi UFJ, has announced its intention to create a stablecoin to promote solvency.

Governments in many countries worldwide are increasingly paying attention to the growth of the stablecoin sector, which has great potential for risks. The collapse of the algorithmic stablecoin TerraUSD (UST) in May created a symbiotic effect on many other stable coin projects and caused many investors to suffer heavy losses.

The explosion also hurt confidence in other stablecoins, with Tether at one point slipping from its dollar rate. Tether’s circulating count has dropped by over $20 billion since the event.

At the beginning of May, before the collapse of UST, the total capitalization of the stablecoin array was more than 181 billion USD, but only 155 billion USD remained as of June 2.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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