Even before any other country could come out with legislation to regulate stablecoins, Japan became the first significant economy to pass such a bill for investor protection.
Bloomberg reported on Friday that the Japanese Parliament recognized stablecoins as digital money. The decision comes soon after the Terra stablecoin collapse led to a market meltdown last month. Which also led to several other countries tightening domestic laws around crypto offerings.
The South Korean government has said that it will launch a Digital Asset Committee by the end of this month in the wake of the Terra collapse.
Japan makes entry of foreign stablecoin issuers hard
Japanese crypto exchanges have reportedly refrained from listing stablecoins so far.
But, as per Japan’s new law, the legal status of stablecoins will reportedly be ‘linked to the yen or another legal tender and guarantee holders the right to redeem them at face value.’
This effectively means that only licensed banks and registered financial institutions and agents will be able to issue stablecoins from 2023 when the law comes into effect. But, so far, there is no clarity on how the legislation will treat private stablecoins issued outside Japan. Which will include reserve-backed options like Tether or even Luna’s algo-based counterparts.
However, Reeve Collins, the co-founder of digital token company BLOCKv is of the view that the Terra debacle will probably be the end of algo stablecoin. Reeve told CNBC, “And a lot of people pulled out their money in the last few months because they realized that it wasn’t sustainable. So that crash kind of had a cascade effect. And it will probably be the end of most algo stablecoins.”
Last month, Fabio Panetta, a member of the executive board of the European Central Bank had also highlighted that “stablecoins are vulnerable to runs.” He had added: “There is no guarantee that they [stablecoins] can be redeemed at par at any time – just last week the world’s biggest stablecoin temporarily lost its peg to the dollar.”
Owing to these concerns, Japan’s Financial Services Agency is expected to soon introduce new regulations for stablecoin issuers.
FTX expands to Japan
While experts have told media outlets that the law might make it difficult for foreign players to enter the market, local players like Mitsubishi UFJ Trust and Banking Corp. have expressed plans to issue their own stablecoin (Progmat Coin).
That said, crypto exchange FTX has announced that it has expanded its services in Japan. Sam Bankman-Fried, CEO of FTX and currently the Interim CEO of FTX Japan, commented, “Japan is a highly regulated market with potential market size of almost $1 trillion when it comes to cryptocurrency trading. With the launch of FTX Japan, we will be able to bring additional products to this market, such as our perpetuals and spot crypto trading. We look forward to further revolutionizing the Japanese digital asset ecosystem through FTX Japan.”
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