Japan’s New Stablecoin Bill Sets High Bar For Investor Protection

Key points to remember

  • The Japanese parliament has passed a new bill clarifying the legal status of stablecoins.
  • The bill guarantees stringent investor protections, including the right to redeem stablecoins at face value for their underlying currency.
  • However, the legislation does not address stablecoins backed by existing assets from foreign issuers, such as Tether’s USDT.

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The Japanese parliament has passed legislation clarifying the legal status of stablecoins. The new bill also stipulates that any entity providing stablecoin assets must guarantee holders the right to redeem their tokens at face value.

Japan Leads the World in Stablecoin Regulation

Japan has become the first country to provide strict investor protections for stablecoins.

Japan’s upper house of parliament passed new legislation early Friday morning, clarifying the legal status of stablecoins in the country and defining them as a form of digital currency. The bill goes beyond any measures adopted elsewhere in the world in terms of investor protection.

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Under the new law, entities offering stablecoins in Japan must ensure that their tokens are tied to either yen or another legal tender currency and that their stablecoins are still redeemable for fiat at face value. Additionally, the new legal definition of stablecoins states that they can now only be issued by licensed banks, registered money transfer agents, and trust companies.

The new legislation does not address existing stablecoins backed by assets 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 need to ensure that their stablecoins comply with the new regulations.

The new rules are expected to go into effect in 2023, with Japan’s Financial Services Agency set to clarify details for stablecoin issuers over the coming months. Currently, Mitsubishi UFJ Trust and Banking Corp, one of the country’s leading financial services companies, plans to issue its own “Progmat Coin” pegged to the value of the Japanese yen.

Japan is not the only country focusing on tightening stablecoin regulations in recent weeks. In the UK, Her Majesty’s Treasury recently confirmed its intention to regulate stablecoins as a form of payment in the country as part of the government’s commitment to cryptocurrency innovation. Although many details are yet to be confirmed, reports indicate that UK regulators are also primarily focused on protecting investors.

Recent regulatory discussions regarding stablecoins have been dominated by the collapse of the algorithmic stablecoin TerraUSD. The UST began to break down in early May, breaking its peg to the dollar and triggering a bank run among holders. Eventually, UST’s algorithmic stabilization mechanism crashed the network’s LUNA token by more than 99% without managing to reestablish its peg to the dollar. The incident wiped over $40 billion in value from the crypto market and caught the attention of lawmakers around the world.

Japan’s new stablecoin bill will be the first to ensure redemption right protection for stablecoin investors. However, the current regulatory climate surrounding stablecoins and cryptocurrencies indicates that this is unlikely to be the last.

Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.

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Japan’s New Stablecoin Bill Sets High Bar For Investor Protection


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