Japan’s parliament approved a draft law aimed at regulating the country’s stablecoins and protecting investors. The new legislation is one of the first to be introduced following the recent collapse of the algorithmic stablecoin terrausd.
Japan approves stablecoin law after UST collapse
Japanese lawmakers passed a bill aimed at determining the legal status of stablecoins. The authors of the legislation have effectively defined these cryptocurrencies as digital currencies, Bloomberg reported after Friday’s vote.
Following the collapse of the terrausd (UST) stablecoin and its sister cryptocurrency terra (LUNA) last month, Japan became one of the first major economies to develop such a framework with the introduction of new laws. This development caused the market to slump sharply and lose confidence in stablecoins.
Under the rules approved by lawmakers, stablecoins must be pegged to the yen or other fiat currencies and guarantee holders the right to redeem them at face value. Only licensed banks, registered money transfer agents and trust companies can issue in Japan.
An example is the stablecoin that Mitsubishi UFJ Trust Bank Corporation plans to circulate. The banking arm of Mitsubishi UFJ Financial Group Inc. revealed that its Progmat Coin will be fully backed and redeemable by Japanese yen.
However, Japan’s new legislation does not address existing asset-backed stablecoins from overseas issuers, such as Tether (USDT) or algorithmic stablecoins. The report states that Japanese digital asset exchanges currently do not list such cryptocurrencies.
Stablecoins, led by USDT, Circle’s USD Coin (USDC), and Binance USD (BUSD), have a combined value of over $160 million. Although they are considered safe for holders, regulators around the world have been working hard to create regulations for such cryptoassets because of the important role they play in the entire crypto market, especially in the terrausd implosion protrude. Ensuring investor protection is another major consideration.
The new legal framework passed by Japan’s parliament will take effect within a year. Meanwhile, the country’s Financial Services Authority (FSA) intends to introduce regulations governing the activities of stablecoin issuers in the coming months.
Do you expect other major economies to pass dedicated stablecoin legislation in the near future? Let us know in the comments section below.
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