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 on the regulation of cryptocurrencies, and more specifically for stablecoins, in a context where the collapse of the UST may have largely left its mark on 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 organisations 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 necessary regulations.
Stablecoins in the spotlight
Stablecoins, as the name suggests, are stable assets. As such, their price is fixed to a fiat currency or a valuable asset such as gold. The three largest 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 extent that they sometimes fall to the bottom, as was proven by the UST, which was one of the top stablecoin coins.
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 USDTs has fallen drastically from 83.15 billion to 72.5 billion units at present.
USDT units in circulation over 12 months
This demonstrates how imperative it is for stablecoin issuing organizations to be able to insure 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 would be bringing its own stablecoin to market, which will be called “Progmat Coin”.
According to the company, the coin 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 planned for 2023.
