Japan recently made history by becoming the first to approve legislation governing stablecoins. The decision is an important step toward safeguarding investors, especially in light of Terra’s UST and LUNA catastrophe.
Since 2021, Japan has been wary about stablecoins, according to Edul Patel, CEO, and Co-Founder of Mudrex. “It’s the proper approach to protect investors because algorithmic-based stablecoins are still in the experimental stage, and volatility is unavoidable, putting investors at risk.”
The bill was enacted by Japan’s parliament on Friday, providing investors with a safety net after losing billions of dollars.
Japan is one of the first large economies to enact crypto legislation, particularly stablecoins. The legislation, however, will take effect after a year.
What is included in the bill?
The measure establishes a clear definition of stablecoins, which will subsequently be classified as digital money if they are linked to yen or any other legal tender, ensuring that holders have the right to redeem them at face value.
A stablecoins value depends on an external asset, such as the US dollar, another currency, or gold, to keep the price stable. Tether and USD Coin are two popular stablecoins.
Stablecoins can only be produced by a licensed bank, registered money transfer agent, or a trusted organization, and they are not listed on crypto exchanges in Japan. Asset-backed algorithmic stablecoins are not mentioned in the law.
Mudrex’s Patel, on the other hand, is critical of the decision. “It might lead to a slew of concerns with liquidity in trading pairs, inflation, and various other issues that crypto and blockchain are designed to address,” he warned.
Furthermore, Sathvik Vishwanath, Co-Founder & CEO of Unocoin, stated that an entity issuing a stablecoin should be extremely cautious about what they intend to do with the funds obtained.
“The company should be able to self-regulate. Otherwise, it should be governed by a regulator in the domicile nation, if not all countries,” he went on to say.
The measure was conceived in early 2021 and prepared by Japan’s financial service agency. It was introduced around three months ago, and the motion was passed by a large majority in the state legislature.
Cryptocurrency laws are a hotly contested topic worldwide, and the industry has been clamoring for them for quite some time. On the other hand, Japan’s approach could serve as a model for the sector and increase confidence in the long run.
According to industry analysts, Crypto is a fledgling business in which the safety of all stakeholders is paramount. They say that the regulator should be able to adapt to the ever-changing Crypto and stablecoin landscape.
“Without laws, we will see many organizations defrauding consumers, including using the money obtained for their gain,” Vishwanath of Unocoin stated.
Earlier this week, the Bank of England proposed that it should be empowered to intervene to supervise stablecoin issuers if their regulators believe the stablecoins are threatening the UK’s financial stability.
As more and more countries get on terms with cryptos being here to stay, it is better to regulate them rather than deny their existence. This will safeguard the interest of small investors, who are mostly guided by advertisements and influencers.