Crypto: Japan Leads the Way in Regulating Stablecoins

Stablecoins, much like crypto assets, do not enjoy unanimous support from governments. Even though stablecoins appear to offer more security, Japan is grappling with a crucial question: are they as reliable as they seem? And in case they are not, how can greater security be ensured in the sector?

Crypto: Japan Introduces a Law on Stablecoins, a Major Challenge for the Country

With the explosion of crypto assets and their volatility, stablecoins are positioned as the appropriate solution to counter the sector’s fluctuations. However, while governments tend to regulate the crypto ecosystem, stablecoins continue to gain ground.

For proof, an increasing number of blockchains and companies are venturing into issuing their own tokens, including Cardano and PayPal. However, in June, Japan demonstrated that they can be regulated with its law on stablecoins, a first, as most major world powers are still hesitating.

Even though the European Union is considering issuing regulations on stablecoins next year, some areas of uncertainty still persist. And while the world’s third-largest economic power has set the precedent, the project could be much more challenging than it appears.

Indeed, these assets were previously banned in the country. Therefore, issuers must start from scratch. Furthermore, the challenge remains the creation of a secure and reliable system that protects investors. And for this case, the government seems to have the solution.

A Law That May Take Time to Materialize

Stablecoins are practical because they are backed by a real-world currency. However, this guarantee is not reassuring, as the country is concerned about the lack of assets. To avoid any potential risks, only fund transfer services and trust companies will be allowed to issue tokens in Japan.

Thus, all assets traded on Japanese exchanges must be held in a trust inside the country. A strict rule for foreign issuers, unless they opt for a more convenient approach. Among other things, outsourcing the custody and national administration of the underlying asset to the trust.

Currently, no crypto exchange has initiated the process, even though Circle and Binance Japan do not hide their intention to expand into this market. Indeed, despite the circumvention measure, the regulation of stablecoins poses a real business challenge.

The assets underlying these tokens can only be invested within Japan through bank deposits. A requirement useful for investors but less so for issuers, as the returns may not materialize.

The regulation of stablecoins in Japan is a first in the sector. However, things may become complicated given all the requirements set by this law. Will crypto exchanges succeed? Only time will tell.