The Japanese Diet has approved a draft law tailored to regulate domestic stablecoins and protect investors. The new law is one of the first to be introduced after the recent collapse of algorithmic stablecoin terrausd.
In the aftermath of the UST collapse, a law on stablecoins was approved in Japan
Japanese lawmakers passed a bill designed to determine the legal status of stablecoins. The bill’s authors effectively define these cryptocurrencies as digital money, Bloomberg reported after Friday’s vote.
The new law makes Japan one of the first major economies to develop such a framework after the collapse of the Terrausd (UST) stablecoin and its sister cryptocurrency Terra (LUNA) last month. This development has led to a significant downturn in the market and a loss of confidence in stablecoins.
According to provisions approved by the legislature, stablecoins must be pegged to the Japanese yen or other legal tender and guarantee the holder the right to redeem them at par value. Only licensed banks, registered money transmitters, and trust companies are allowed to issue them in Japan.
One example is the stablecoin that is planned to be distributed by Mitsubishi UFJ Trust and Banking Corp. Ltd.’s banking arm, has revealed that its progmatcoin is fully backed by yen and is redeemable.
However, Japan’s new law does not address existing asset-backed stablecoins by foreign issuers such as Tether (USDT) and algorithmic stablecoins. Japanese digital asset exchanges do not currently list such cryptocurrencies, the report notes.
stablecoins, chief among them areUSDT
, Circle’s usd coin (USDC), and Binance’s usd (BUSD), which have a combined value of more than $160 million. Although considered safe for holders, regulators around the world are working to introduce regulations for this type of crypto asset due to its role in the overall crypto market highlighted by the collapse of Terrausd. Ensuring investor protection is another major consideration.
The new legal framework adopted by the Japanese Diet is expected to take effect in one year. Meanwhile, Japan’s Financial Services Agency (FSA) intends to introduce regulations governing the activities of issuers of stablecoins in the coming months.
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