A draft law has passed the approval process of the Japanese parliament, which is aimed at regulating stablecoins in the country for offering protection to investors. It is not surprising that such legislation has been introduced, as the crypto market recently suffered a shock when TerraUSD, an algorithmic stablecoin, crashed. This prompted Japanese lawmakers to push the bill that will help in establishing a legal framework for regulating stablecoins in the country. The voting for the law took place on Friday and it was disclosed that the authors have defined stablecoins as digital money in the draft.
After passing this new legislation, Japan has become one of the world’s first cryptocurrencies to come up with a framework for stablecoins, following the collapse of the UST stablecoin in the previous month, along with that of its sister token LUNA. Due to this development, investors have lost their confidence where stablecoins are concerned and it has also brought the industry to the brink of yet another crypto winter. Legislators have approved the provision that requires all stablecoins in the industry to be pegged to the Japanese yen, or any other currency that holds the legal tender status. Moreover, the law’s provisions also require holders to be given a guarantee that their stablecoins can be redeemed at face value.
Furthermore, the law dictates that stablecoins can only be issued in Japan by trust companies, money transfer agents that are properly registered and licensed banks. The Mitsubishi UFJ Trust and Banking Corp. in Japan is planning to issue its own stablecoin. The Progmat Coin is a product of the banking arm of the Mitsubishi UFJ Financial Group Inc. and it announced that their stablecoin will be fully redeemable and pegged to the Japanese yen. However, one flaw in the new legislation is that it does not mention any rules for the existing stablecoins that are available in the market.
These include asset-backed options, such as tether (USDT), or even some other algorithmic stablecoins like TerraUSD. But, it should be noted that the crypto exchanges in Japan do not list these cryptocurrencies as of now. USDT is the top stablecoin in the market, but there are some other prominent names as well, such as Binanceusd (BUSD) and the usd coin (USDC) by Circle. The total market value of these stablecoins is around $160 million. While they are reportedly deemed to be safe for people, it should be noted that regulatory authorities all over the globe have recently shifted their focus to stablecoins.
Their goal is to come up with regulations for these stablecoins because of the significant role they have in the digital asset space. This has become quite evident after the implosion of the TerraUSDstablecoin. Another primary reason is to ensure investor protection. The Japanese law will come into effect from next year. Furthermore, the Financial Services Authority (FSA) of Japan is also working on developing regulations that will oversee the activities of stablecoin issuers in the country and they will be introduced in the next couple of months.