Japan approves stablecoins as digital currency, but there’s a catch

Japan has become the first country to pass a stablecoin bill as the world’s major economies seek to introduce regulation following the TerraUSD (UST) crash. Japan’s parliament on Friday signed a stablecoin bill recognizing stablecoins as digital currency. It allows holders the right to redeem stablecoins at face value.

Additionally, the law only recognizes stablecoins backed by yen or another legal currency. However, the law fails to mention existing asset-backed stablecoins such as Tether (USDT) and algorithmic stablecoins.

Japan Passes Stablecoin Law Amid Growing Crypto Adoption

Japan is one of the most crypto-friendly countries, witnessing the growing adoption of crypto by retail and institutional investors. Japan’s parliament has passed a stablecoin bill clarifying the legal status of stablecoins in the country, while defining them as digital currency, Bloomberg reported on June 3.

The new law only recognizes stablecoins issued by licensed banks, registered money transfer agents, and trust companies. In fact, the law does not recognize stablecoins backed by assets from foreign issuers like Tether, or algorithmic stablecoins. Also, Japanese crypto exchanges do not list stablecoins.

The new law will be in force from next year. Additionally, the Japan Financial Services Agency will soon introduce rules and regulations allowing stablecoin issuers to approve stablecoins only from authorized banks and companies.

Mitsubishi UFJ Trust and Banking Corp. plans to issue its stablecoin, Progmat Coin, once the law takes effect next year. The Progmat Coin will be fully collateralized by yen reserved in a trust account. In addition, it will guarantee repayment at its face value.

Japan seeks to shield investors from crypto market volatility as crypto adoption grows in the country. The crash of UST and LUNA caused a massive sell-off in the crypto market. The crash even caused the largest stablecoin Tether to temporarily lose its peg to the US dollar. This has caused investors around the world to lose billions and has prompted governments to adopt regulations regarding stablecoins.

Other Countries Aim to Adopt Stablecoin Regulations

After the collapse of UST and LUNA, government around the world is looking to pass stablecoin regulations to protect investors. The US and UK are actively pursuing stablecoin regulations. US Treasury Secretary Janet Yellen has urged the government to adopt a regulatory framework for stablecoins. Meanwhile, the UK Treasury plans to introduce stablecoin regulations to protect investors.

Varinder is a technical writer and editor, technology enthusiast, and analytical thinker. Fascinated by disruptive technologies, he shared his knowledge on blockchain, crypto-currencies, artificial intelligence and the Internet of Things. He has been associated with the blockchain and cryptocurrency industry for a substantial period of time and currently covers all the latest updates and developments in the crypto industry.

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