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    Japan approves bill on stablecoins – can it signal a revival for the crypto industry?

    Japan approves bill on stablecoins – can it signal a revival for the crypto industry?

    Japan approves bill on stablecoins – can it signal a revival for the crypto industry?
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    By CNBCTV18.com  IST (Published)

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    On June 3, 2022, Japan became the first developed country to recognise and legalise stablecoins, defining them as 'digital money'. The bill was initially drafted by Japan's Financial Services Agency (FSA) in December 2021. It then made its way into the Parliament by March 2022 before being backed by a majority vote on Friday. The primary focus of the bill is investor protection and it will be enforced in 2023.

    On June 3, 2022, Japan became the first developed country to recognise and legalise stablecoins, defining them as 'digital money'. The bill was initially drafted by Japan's Financial Services Agency (FSA) in December 2021. It then made its way into the Parliament by March 2022 before being backed by a majority vote on Friday. The primary focus of the bill is investor protection and it will be enforced in 2023.
    The move comes right after the Terra UST catastrophe last month that uprooted billions of dollars from the crypto market. However, it seems like the bill has been in the works for a while now, with FSA having already highlighted the need for "a higher level of regulatory discipline" in one of its papers last year.
    Stablecoins, by design, are pegged to a fiat currency such as the USD, GBP, etc., or even gold. They are inherently stable, which is why traders use them to enter or exit their positions in other cryptocurrencies on token swapping protocols like Curve or Uniswap.
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    The Terra UST was an algorithmic stablecoin, which means that complex code assisted the token in maintaining a stable peg with the US dollar. However, the UST was backed by its sister token, LUNA, instead of the USD. Hence, when new UST was minted, LUNA tokens would be burnt and vice versa. The algorithm took care of this under the hood, but it failed miserably when the system could not keep pace with overturned investor sentiment and bearish trades. The Japanese have taken this vulnerability into account.
    The bill incorporates the lessons from the Terra UST collapse and mandates that all stablecoins be backed by the Japanese yen or legal tender. They must also entitle owners to a fair exchange of tokens for fiat currency at face value.
    It also states that only registered money transfer agents, licensed banks, and trust companies will be allowed to issue these stablecoins. The FSA has revealed that regulations for stablecoin issuers will be rolled out in the coming months.
    Will the bill signal a revival for stablecoins and the crypto industry?
    The latest Japanese legislation resonates with the FSA's earlier push to recognise Bitcoin as a currency back in April 2017. Japan was also the first economy to give 11 companies licenses to operate as crypto exchanges in September 2017. Therefore, it is fair to say that the nation has led the curve before and might just be doing it now. Their move could help bolster the dwindling confidence of investors in the crypto markets.
    After the Terra crash, investors became increasingly wary of stablecoins. Conversations regarding these digital assets were shrouded in fear and speculation. However, this could change with the introduction of Japan's latest stablecoin bill.
    The bill could also pave the way for other nations to recognise and legalise stablecoins. "We see Japan's landmark law as a standard-setting example of smart policy. It fosters innovation and economic development while providing guidelines to keep stakeholders safe. This is exactly the kind of leadership and balanced approach to stablecoin legislation we hope to see from other countries," said Dante Disparte, chief strategy officer and head of Global Policy at Circle, in an interview with Decrypt.
    The bill could also support the introduction of new Japanese stablecoins. Mitsubishi UFJ and Banking Corp. are already waiting for the new legislation to come into effect before releasing their stablecoin. It has been christened the 'Progmat Coin' and will be 100 percent backed by the yen. The fiat currency will be parked in a trust account, according to the banking arm of Mitsubishi UFJ Financial Group.
    The current development also coincides with a prolonged crypto winter that eradicated billions of dollars in investment over the six months. The sheer timing has left many wondering whether Japan sees the crypto markets recovering soon.
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