Japan has taken its place as one of the first countries to institute a legal process around stablecoins. That aspect of crypto assets took center stage in global financial circles last month. This was a result of the collapse of Terra’s ecosystem and its de-pegging from the US Dollar.
Japan Takes the Lead Amidst Chaos
The parliament of Japan passed the bill on Friday which stated the legal position of stablecoins. The bill properly defiled stablecoins basically as digital money. Stablecoins now have to be linked with the Japanese Yen or other fiat monies, according to the latest law.
The law further states that stablecoin holders must be able to redeem their holding at their face value. The new legal definition means stablecoins can now be issued only by licensed platforms. Those platforms include trust companies, registered financial transfer agents, as well as crypto-licensed banks.
The law is silent about existing stablecoins that are already backed by assets from abroad. There are such examples as Tether and its algorithmic mates. Japanese exchanges do not have stablecoins listed.
Several governments are trying to come up with regulations to guide the usage of stablecoins. The fear intensified after Terra collapsed and led to losses of billions of Dollars. Stablecoins are an essential part of the crypto industry.
Stablecoins have a combined value in the vicinity of $161 billion. The pack, according to reports on CoinGecko, is led by Tether. It is then followed almost close by others such as Circle USD Coin and Binance USD.
The new Japanese law will come into effect one year from now. The country’s Financial Services Agency stated that it will pass guidelines to govern issuers in months to come.
The Coming New Player
One of Japan’s leading companies is planning to launch its own stablecoin. The “Progmat Coin” planned by Mitsubishi UFJ Trust and Banking Corp is to roll out when the law kicks off. The bank further said that the Progmat Coin will be absolutely backed by the Japanese Yen.
The bank also said it is going to guarantee redemption to users at face value.
The Terra USD and UST began to slide from the US Dollar to which it was pegged on a 1:1 basis in May. It was a result of a failure of trader incentives and algorithms to work together as scheduled.
The system collapse caused a sharp sell-off in the crypto market. Then Terra’s blockchain UST and LUNA token consequently took the fall.
The collapse put a dent in the market’s confidence in stablecoins generally. And Tether, for once, began to lose touch with its Dollar peg. Tether’s circulation has fallen by over $20 billion since last month.
Towards the end of May, Terra’s community agreed to a plan to set up a new blockchain. The blockchain does not include the UST asset. The stablecoin is still on the old platform now known as Terra Classic having lost nearly all its value.