Japan passes stablecoin bill that enshrines investor protection

June 3, 2022

By Anjali Kochhar

Japan has become one of the first major economies to introduce a legal framework around stablecoins.

The country’s parliament passed a bill on Friday that clarified the legal status of stablecoins and defined them essentially as digital money.

The new law states that Stablecoins, which are pegged to the U.S. dollar, must be linked to the yen or another legal tender and guarantee holders the right to redeem them at face value.

This essentially means stablecoins can only be issued by licensed banks, registered money transfer agents and trust companies.

However, the legislation doesn’t address existing asset-backed stablecoins from overseas issuers like Tether, or their algorithmic counterparts.

It should be noted that lawmakers around the world are racing to erect guardrails around stablecoins, a crucial part of the cryptocurrency industry, after TerraUSD’s implosion led to multibillion-dollar losses from a supposedly safe asset.

The new legal framework come in place in a year. Japan’s Financial Services Agency has said it will introduce regulations governing stablecoin issuers in the coming months.

TerraUSD, or UST, began slipping from its intended 1-to-1 peg to the US dollar in early May when the mix of algorithms and trader incentives meant to safeguard the link failed to work as planned.

The crash caused a steep selloff across cryptocurrencies, and the Terra blockchain backing UST and its sister Luna token effectively collapsed.

About the author

Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.

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