Japan Classifies Stablecoins As Digital Currency: What You Need To Know

Japan’s Parliament enacted a law Friday that sheds light on the legality surrounding stablecoins, deeming them to be digital money. 

What Happened: Amid the recent crash in the cryptocurrency market, the fall of the Terra LUNA/USD algorithmic stablecoin has been most prominent. 

The crash was a result of the ecosystem’s stablecoin being de-pegged to the U.S. dollar, effectuating a sharp crash in the cryptocurrency’s value and leading to a large loss for retail investors. 

Japan has set forward legal substructures to protect retail investors from such financial dangers. The law defines stablecoins to be issued only by appointed third parties such as registered agents, companies and license-bearing banks, according to a Straits Times report. 

A key element of this law is that in order for a token to pass as a stablecoin, it must be directly bonded to a legal tender, such as the yen.

This allows investors to directly be able to cash in their stablecoins for legal tender at any point in time, thus preventing events such as that of Terra.

Japan's House of Councillors has passed this law, allowing a new and safer wave of stablecoins to emerge into the cryptocurrency markets. 

The Last Word: What happened to Terra investors led to weakened market confidence across numerous other stablecoins. Structural moves such as these enable the cryptocurrency markets to rebuild that trust effectively across all groups of investors.