In order to better protect investors, especially following the recent collapse of the UST, the Japanese Parliament has passed a bill to impose a legal framework on stablecoins issued in the country. As a result, companies wishing to offer stablecoin in Japan will have to meet specific specifications in order to register with regulatory bodies.
Japan wants to better regulate stablecoins
Japan is taking a step forward regarding the regulation of cryptocurrencies, and more specifically for stablecoins, in a context where the collapse of the UST may have very much left its mark on the minds of the crypto community, and even beyond.
This Friday, the Japanese Parliament passed a bill stipulating that stablecoins can now only be issued by licensed banks, licensed organizations or trust companies.
As such, following the passage of the bill, financial institutions able to offer stablecoins will have to register with a new service specifically dedicated to the issuance of stablecoins. Measures are also expected to prevent money laundering.
From now on, stablecoins will have full status as a digital asset in Japan. Given their nature as a hypothetically stable currency, Japanese stablecoins will be required to be backed by the yen, the country’s official currency.
Japanese cryptocurrency exchanges do not sell foreign stablecoins such as USDC issued by Circle or USDT issued by Tether, so these are not affected.
In addition, stablecoins will have to be insured in such a way that investors will always be able to resell them at their own value, i.e. a 1:1 ratio.
This new legal framework is expected to come into effect in 2023, while the Financial Services Agency of Japan issues the regulations in due form.
Stablecoins in the spotlight
Stablecoins, are, as their name suggests, stable assets. As such, their price is fixed to a fiat currency or a valuable asset such as gold. The three most important stablecoins, the USDC, USDT and Binance’s BUSD, for example, are backed by the dollar. One unit of one of them is therefore, by definition, worth one dollar.
However, recent events have shown that some stablecoins, especially the so-called “algorithmic” ones, can be subject to market fluctuations to the point of sometimes falling to their lowest point, as was proven by the UST, which used to occupy one of the top places on the stablecoin podium.
The market panicked to the point of shaking the USDT, which momentarily moved away from its benchmark value of $1. Since these events, the number of USDT has fallen drastically from 83.15 billion to 72.5 billion units at present.
This proves how imperative it is for stablecoin issuing organizations to be able to back their digital assets with a real store of value.
Following these announcements, Mitsubishi UFJ Trust and Banking Corporation, a branch of Japan’s Mitsubishi UFJ Financial Group (MUFG), said it will release its own stablecoin, which will be called “Progmat Coin.”
According to the company, it will be fully backed by a proportional reserve of yen placed in a trust account to guarantee its value. Its release date is expected to be timed to coincide with the implementation of the new legal frameworks scheduled for 2023.