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Japan Regulates Stablecoin Issuance To Banks And Trust Companies

Kolade Elusanmi by Kolade Elusanmi
1 month ago
in News
Reading Time: 2 mins read
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In the wake of the Terra collapse, the Japanese government is rushing to implement new stablecoin laws.

Japan is moving forward with legislation to allow the issuance of stablecoins, which are digital assets whose value is pegged to fiat currencies or stabilized by an algorithm.

According to the local news agency Nikkei, Japan’s parliament passed a bill on June 3 to prohibit non-banking institutions from issuing stablecoins.

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According to the bill, the issuance of stablecoins in Japan is restricted to licensed banks, registered money transfer agents, and trust companies.

The new legislation also establishes a registration system for financial institutions that issue such digital assets, as well as anti-money laundering safeguards.

The bill, according to the report, aims to protect investors and the financial system from the risks associated with the rapid adoption of stablecoins, whose market value has risen to 20 trillion yen, or more than $150 billion.

According to reports, the new legal framework will go into effect in 2023, with Japan’s Financial Services Agency planning to implement regulations for stablecoin issuers in the coming months.

Japan’s stablecoin bill follows a massive drop in cryptocurrency markets fueled by the Terra tokens collapse, with the algorithmic stablecoin Terra USD (UST) losing its 1:1 value to the US dollar in early May.

The stablecoin market turmoil has not been limited to the Terra blockchain, as other algorithmic stablecoins such as DEI have also lost their dollar peg, falling to as low as $0.4 in late May.

The implosion harmed confidence in other stablecoins as well, with Tether slipping from its dollar peg at one point. Tether’s circulation has fallen by more than $20 billion since the event. This suggests that now may be the best time for stablecoin regulation to take effect.

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