Crypto: Japan leads the way in regulating stablecoins

Stablecoins, like crypto assets, are not unanimously accepted by governments. Even though stablecoins appear to offer more security, Japan is trying to answer a crucial question: are they as reliable as they seem? And if this is not the case, how can we guarantee more security in the sector?

Crypto, Japan issues stablecoin law, a major challenge for the country

With the explosion of crypto assets and its volatility, stablecoins are positioning themselves as the appropriate solution to combat variations in the sector. However, while governments tend to regulate the crypto ecosystem, stable coins continue to gain ground.

The proof is that more and more blockchains and companies are launching their own tokens. In particular Cardano or PayPal. However, Japan demonstrated in June that it is possible to regulate them thanks to its law on stablecoins. A first, since most of the major world powers are still procrastinating.

Even if the European Union is considering issuing regulations on stablecoins next year, some gray areas still remain. And although the world’s third-largest power has led the way, the project could be much more difficult than it seems.

In fact, these assets were prohibited in the country. So the emitters have to start from zero. Additionally, the problem remains creating a secure and reliable system that protects investors. And for this case, the government seems to have the solution.

A law that should take time to come to fruition

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

Thus, all assets traded on Japanese exchanges will have to be held in a trust inside the country. A very strict rule for foreign issuers, unless they opt for a more practical means. Among other things, outsourcing the domestic custody and administration of the assets underlying the trust.

Currently, no crypto exchange has yet started 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 commercial challenge.

The assets underlying these tokens can only be invested within Japan via bank deposits. A useful requirement for investors and less so for issuers, because the return may not be there.

The regulation of stablecoins in Japan is a first in the sector. However, things are likely to be complicated given all the requirements posed by this law. Will crypto exchanges survive? Nothing is less sure.

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