• Wed. Jun 22nd, 2022

Japan Classifies Stablecoins as Digital Currency: What You Need to Know

ByHazel R. Lang

Jun 3, 2022

Japan’s parliament enacted a law on Friday that sheds light on the legality surrounding stablecoins, considering them digital currency.

What happened: Amid the recent cryptocurrency market crash, the fall in the Earth LUNA/USD the algorithmic stablecoin has been the most important.

The crash was the result of the ecosystem’s stablecoin pegged to the US dollar, which caused the cryptocurrency’s value to plummet sharply and resulted in a significant loss for retail investors.

Japan has put in place legal infrastructures to protect retail investors from these financial dangers. The law defines stablecoins as being issued only by designated third parties such as registered agents, companies and licensed banks, according to a report by the Straits Times.

A key part of this law is that for a token to pass as a stablecoin, it must be directly linked to a legal tender currency, such as the yen.

This allows investors to be able to directly cash in their stablecoins to be legal tender at all times, preventing events such as Terra.

Japan’s House of Councilors passed this law, allowing a new, safer wave of stablecoins to emerge in the cryptocurrency markets.

The last word: What happened to Terra investors has weakened market confidence in many other stablecoins. Structural moves such as these allow cryptocurrency markets to effectively rebuild that trust across all investor groups.

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