How Japan Is Leading the Race to Regulate Stablecoins

Most major countries have yet to regulate stablecoins. One exception is Japan, a trailblazer in this area.
A stablecoin law took effect in the world’s third-largest economy in June. Japan’s example is important because it shows that stablecoin regulation is indeed possible. This would seem obvious, but it’s not. In the United States, for example, Congress is still fighting over this issue and no stablecoin bill has made it into law. The European Union’s stablecoin regulations take hold next year, but gray areas remain.

But Japan also shows that regulating stablecoins is not easy. Until recently this flavor of cryptocurrencies, which are designed to hold their value against a real-world asset like the U.S. dollar or the yen, were essentially banned in Japan. Now issuers are starting from scratch. On top of the regulatory hurdles, there is also a business challenge: How do you create a system that allows for stablecoins that are both secure and profitable to issue?
The stakes are high. Total stablecoin market cap is estimated to be over $124 billion. Big players are involved: PayPal recently issued its own stablecoin. There are various use cases. Investors in countries struggling with currency devaluation and high inflation use dollar stablecoins as a store of value. Other investors simply use them to trade for other cryptocurrencies.