Stablecoins Greenlit in Japan: A New Era for Digital Currency

1 June 2023

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Japanese firms are now permitted to issue stablecoins following the enactment of a revised Payment Services Act. The law, which came into effect on June 1, 2023, mandates that all token-issuing firms must demonstrate they possess the underlying assets that support their coins. Only regulated banks, fund transfer service providers, trust companies, and other financial industry firms can issue these coins. Additionally, new anti-money laundering rules require distributors to maintain records of transaction information.

The lifting of the de facto ban on the domestic issuance of stablecoins is expected to enhance the efficiency of payments between companies in Japan and overseas parties. Experts estimate the business-to-business payments market to be worth around $7.2 billion. Stablecoins could potentially be used in the international remittances and online shopping sectors.

The new law differentiates between crypto-assets and stablecoins, stating that algorithmic or crypto-asset-backed "stablecoins" cannot be classified as stablecoins. Guidelines have been established to ensure "user protection and compliance." Token issuers are required to ensure they can "suspend the transfer and redemption of" payments to "wallets that they do not manage."

This development is likely to be of significant interest to Japanese mega-banks like Mitsubishi UFJ, which began work on a stablecoin interoperability pilot in March. The head of the nation's central bank has also expressed support for stablecoins this year, suggesting that stablecoins can "co-exist" with central bank digital currencies (CBDCs). Read more here.

Stablecoins are a type of digital currency that aims to keep their value steady. They do this by tying their worth to a more stable asset, like the US dollar or gold. This makes them less likely to have big price swings, unlike other cryptocurrencies like Bitcoin. They're a bit like a digital version of the money in your bank account, but without needing a bank.

There are different types of stablecoins, depending on what they're tied to. Some are backed by traditional money (like the US dollar), others by precious metals (like gold), and some even by other cryptocurrencies. The most popular stablecoins include Tether, USD Coin, and Dai.

As of early 2023, the total value of all stablecoins is around $138.4 billion. Tether is the market leader, followed by USD Coin and Binance USD. Despite some recent drops in value, stablecoins have grown in popularity and now makeup nearly 13% of the total cryptocurrency market.

However, stablecoins aren't without their challenges. There's a risk that the assets backing them might not be enough to cover all the stablecoins in circulation. What's more, these stablecoins are centrally controlled, meaning they can stop transactions, going against the idea of cryptocurrencies being free from control. As a result, the main current use case for stablecoins is in providing a modern on-ramp into the world of crypto, bridging it to traditional finance's fiat currencies.

Binance Battles Regulatory Challenges: Bitcoin Prices Dive in Australia

On Tuesday morning, Binance, the world's biggest crypto exchange, was selling one bitcoin for about $36,000, significantly lower than local Australian exchanges BTC Markets, Independent Reserve, and Bitpay, which were selling one bitcoin for about $42,000. This price discrepancy comes amidst an increasingly challenging operating environment for Binance in Australia.

Last month, the Australian Securities and Investments Commission (ASIC) cancelled Binance Australia’s derivatives licence. The Dubai-based exchange had requested the cancellation, which ASIC's chairman, Joe Longo, suggested may have been due to further planned engagement by the regulator. Binance is also facing legal action from the US Commodity Futures Trading Commission, which alleges the exchange was operating an illegal exchange and a sham compliance program.

Despite these challenges, Brisbane-based crypto broker Swyftx, which uses Binance to facilitate liquidity for its 600,000 customers, stated that Binance's inability to facilitate Australian dollar withdrawals would not affect its operations. Local crypto exchange Independent Reserve, which sources its liquidity from its own platform, also remains unaffected.

Binance's struggles are part of a broader regulatory crackdown on cryptocurrency exchanges worldwide. This scrutiny intensified following the collapse of rival exchange FTX in 2022, which led to a significant drop in digital coin values and called for tighter guidelines on crypto company operations and customer fund handling. Read more here.

In the rapidly evolving world of digital currency, exchanges are presently facing a period of significant instability. Major platforms like Binance are grappling with regulatory challenges worldwide, causing turbulence in the cryptocurrency market. This is evident in events such as the recent plunge in Bitcoin prices in Australia, indicating the market's sensitivity to changes in the regulatory environment.

Some crypto traditionalists believe that popular cryptocurrencies have too closely tied themselves to exchanges, causing unnecessary instability due to speculation (hence one of Splitchain's missions).

Given these dynamics, it's crucial to keep a close watch on the shifts and trends in the digital currency landscape. We're committed to monitoring these developments and providing timely updates to ensure our readers are well-informed. The aim is to empower you to navigate this volatile market with the most current and comprehensive information at your disposal.

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All the best,
Peter
MyZucoins

Disclaimer: Of course, this is not advice, financial or otherwise. It’s also important to consider the risks and challenges associated with any potential benefits.