Japan Approves Stablecoin Legislation, Must Be Fully Redeemable: Report

Japan has approved legislation that provides regulation for stablecoins. According to a report in Bloomberg, a stablecoin “must be linked to the yen or another legal tender and guarantee holders the right to redeem them at face value.” The legislation became law this week.

Regulating stablecoins has long been an intense discussion for policymakers but following the collapse of TerraUSD (UST), regulators and elected officials have increased the rhetoric on the need to provide bright-line rules.

Not all stablecoins are the same. TerraUSD was (or is) an algorithmic stablecoin that was tied to another cryptocurrency LUNA that collapsed in a spectacular fashion. Holders saw their investment wiped out in days. Tether, the world’s most popular dollar-based stablecoin produces regular reports indicating that it is tied to actual dollars along with Treasuries and commercial paper. What impacts both of these stablecoins is regulation defining how these payment vehicles must be managed and what type of assets must be backing the claims. Japan has now solved that enigma as the new rules mean only banks and other regulated firms may issue stablecoins domestically.

Many jurisdictions, including the US, are working through the process of defining who and how a stablecoin can be issued. Recently, draft legislation circulated in the US Senate that seeks to provide stablecoin clarity. Many insiders expect that policymakers will require chartered banks, or a similar entity, will be able to issue stablecoins. Circle, the issuer of USDC – the second most popular stablecoin – has already applied for a bank charter. Eventually, rules will be formulated to create a regulatory perimeter to allow digital dollars to circulate but that does not solve other questions about crypto markets such as counterparty risk.

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