As Japanese banks prepare to issue stablecoins under new legislation, the US’s lack of regulatory clarity within the crypto segment is creating hurdles for institutions in the country who wish to do the same. In June 2022, Japan passed a legal framework for stablecoins, which took effect recently. This law requires stablecoins to be pegged to the yen or another legal tender and guarantee redemption to the holder at face value. Additionally, only licensed financial institutions can issue stablecoins.
This move to bridge the gap between traditional finance and decentralized finance (DeFi) is expected to benefit all parties in the long run, says David Tawil, co-founder of crypto fund ProChain Capital. He notes that Japan’s initiative is a “first step” towards international frictionless, free money transfers. Jeff Embry, managing partner at crypto hedge fund Globe 3 Capital, believes that updating from decades-old payment systems to cheaper and faster distributed ledger technology will always be a win for the customer. However, he stresses that stablecoins should be based on trustless, immutable, and transparent blockchains.
Meanwhile, Tokyo-based GU Technologies has launched a public blockchain named Japan Open Chain. This allows three Japanese financial institutions to experiment with issuing stablecoins that comply with the country’s laws. These stablecoins would be compatible with Ethereum wallets via Metamask, for example. However, Embry cautions that if Japanese banks only focus on creating their own stablecoins, the stablecoin ecosystem may struggle.
In the US, regulations would need to be in place for banks to issue stablecoins, but proposed bills on this subject remain in flux. With recent hearings suggesting that crypto regulation could be two or three years away, there is a lack of movement and clarity from legislators and regulators. This is complicated further by comments from regulators that seemingly contradict one another. CFTC Chairman Rostin Behnam has stated that stablecoins such as tether (USDT) could be considered commodities, while SEC chairman Gary Gensler has claimed every crypto asset, besides bitcoin, could be a security.
Aside from regulatory hurdles, stablecoin adoption in the US might be slow for large banks that want customers to continue paying wiring fees. Embry explains that banks are slow to adopt because they are the middlemen eliminated by blockchain technology. He believes that once customers see the benefits of using stablecoins, demand for them will be so great that banks will have no choice but to adopt them. As of now, the market capitalization of stablecoins like tether and USD Coin (USDC) continues to surge.
Source: Blockworks
