Japan to Regulate Stablecoins to Protect Citizens Following UST Implosion

June 07, 2022, 10:30 AM AEST - 3 weeks ago

The Japanese government has agreed to pass a law that will regulate stablecoins, defining them as digital money and protecting Japanese citizens from potential losses on their crypto investments.

This follows last month’s implosion of Terra’s UST and LUNA:

Safety Net for Investors

In 2021, Japan’s Financial Services Agency prepared a bill to clarify the legal status of stablecoins. This week, that bill successfully passed through the upper house of Japan’s parliament and will come into effect in 2023. Under the legislation, stablecoins must be linked to either the yen or another legal tender, with holders guaranteed the right to redeem their stablecoins at face value.

The move will mean a safety net for investors who are currently on edge or recovering from large losses after the TerraUSD (UST) crash that saw LUNA tank. The legislation also means that stablecoins can only be issued by a licensed bank, trust company, or registered money transfer agent:

Currently, Japanese exchanges do not list stablecoins, and it is worth noting that this newly passed law will not address overseas asset-backed stablecoins and their algorithmic equivalents. The law also takes aim at money laundering.

Controversies Surround Stablecoins

Following last month’s fall of Terra, a South Korean LUNA investor attempted to take matters into his own hands after losing US$2.4 million in the collapse. The investor literally knocked on the front door of Do Kwon, founder of Terraform Labs, to speak with him about the loss. While the act was not technically deemed to be trespassing, the investor was arrested and is likely to face a fine.

Last week, the Bank of England (BoE) agreed to “rescue” collapsed stablecoins to protect holders. The announcement came from HM Treasury and suggested that the BoE is eager to amend financial legislation to pull crypto under its jurisdiction.

Closer to home, the Australian and New Zealand Banking Group (ANZ) announced plans to extend the usage of A$DC – its cash-backed stablecoin – to meet demands from institutional customers.

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