Stablecoins Issued By Banks And Trust Companies Licensed Under New Japanese Law

Posted on June 3, 2022 in Cryptocurrency

In a move to protect investors, Japan has passed legislation classifying stablecoins as digital currencies that must be linked to the country’s currency, the yen or other fiat currency. 

The legal framework, which is expected to come into force within one year, also stipulates that holders have the right to redeem stablecoins at par. According to the announcement:

“The legal definition means that stablecoins can only be issued by licensed banks, registered remittance agents and trust companies. This legislation does not address offshore issuers like Tether or traditional asset-backed stablecoins that correspond to their algorithms.”

It seems like it’s a race against time for global governments to install a balustrade in the stablecoin space after the shocking collapse of TerraUSD (UST), which triggered losses of around $60 billion.

 

Things started to get messy after the Terra network’s algorithmic UST stablecoin removed its peg from the US dollar benchmark.

 

Some experts, such as Ransu Salovaara, CEO of DeFi platform Likvidi, said the algorithmic nature of UST could cause conflicts. 

 

According to CoinGecko, tokens in this sector have a market value of around $161 billion, which explains why governments are looking for ways to break the whip in the stablecoin space.

 

Tether (USDT) topped the list of stablecoins, followed by Circle’s USD Coin (USDC) and Binance USD (BUSD).

 

Is this the end of the algorithmic stablecoin era?

 

Reeve Collins told CNBC at the World Economic Forum in Davos that losing money via the algorithmic UST stablecoin was unfortunate and not surprising, as smart people tried to peg it to the dollar. 

 

Tether co-founders added:

“A lot of people have withdrawn money over the past few months because they have realized that money is not sustainable. So the collision caused some sort of chain effect. And probably the end of most algorithmic stablecoins.”

Since algorithm-based stablecoins are in the experimental stage, volatility is inevitable. 

 

Anshul Dhir, Co-Founder and COO of EasyFi Network, pointed out:

“Experimental algorithmic stablecoins are highly volatile and I think it will take some time to find good algorithmic stablecoins. It should be possible to have such a programmable currency over a period of time, and this is ultimately the ultimate goal of decentralized finance.”

So, time will tell what will happen to algorithmic stablecoins in the future.

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