According to Bloomberg, Japan’s parliament enacted a legislative framework surrounding stablecoins pegged to the yen or another fiat currency on Friday. This is a historic move.
The bill makes it clear that stablecoins are digital money. They must be linked to a legal tender, like the yen, so that people can redeem them for their face value.
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Governments worldwide are working to ensure that stablecoin investors are protected after last month’s TerraUSD crash. The report also stated that it led to multibillion-dollar losses from an asset hailed as safe. As per the data gathered by CoinGecko, such tokens have a combined market value of around $161 billion.
They will implement the legal framework for stablecoins in a year. In addition, the Financial Services Agency of Japan’ will propose regulations for stablecoin issuers in the upcoming months.
The Financial Services Agency of Japan prepared a measure in late 2021. The House adopted this measure in mid-March of this year. Now, the majority in the House of Councilors has cleared it.
The report also indicates that when the government implements the legal framework, Mitsubishi UFJ Trust and Banking Corporation aims to issue its stablecoin named Progmat Coin. The bank subsidiary stated:
The token will be fully backed by yen that’s placed in a trust account, and that it will guarantee redemption at face value.
The Progmat Coin project is based on contributions and works from MUFG’s ST Research Consortium, founded in 2019 to develop security token standards. Additionally, the Digital Asset Co-creation Consortium has been renamed to broaden the scope of work beyond security tokens, including stablecoins, nonfungible tokens, crypto assets, and other areas.
Algorithmic Stablecoins Risks Shown By TerraUSD Crash
When the algorithms and trading incentives that were meant to keep the stablecoin TerraUSD pegged to the US dollar failed, TerraUSD started to drift away from its intended value.
The collapse harmed faith in other stablecoins as well, with Tether sliding from its dollar peg at one point. Since the event, the market cap of Tether has decreased by more than $20 billion. Besides, the issue sparked a significant selloff across all cryptocurrencies, virtually bringing the Terra network, which supports UST and its sister coin Luna, to a halt.
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In late May, the Terra community decided to support a plan to create a new blockchain that does not include the UST token. The stablecoin is still based on the outdated Terra Classic network. So, it has lost nearly all of its value because of the recent crash.
Featured Image from flickr.com and chart from tradingview.com