The collapse of the UST stablecoin has caused ripple effects in the crypto regulatory space. Several jurisdictions have raised the alarm over the risky nature of stablecoins because the collapse of UST left investors in billions worth of losses.
Japan has become the latest country to turn its attention towards stablecoin to protect investors from a similar occurrence to UST. The country has passed legislation about stablecoins and their issuance.
Japan’s new stablecoin laws
The Japanese parliament passed the legislation on June 3, imposing a ban on the issuance of these tokens by non-banking firms. Stablecoins are digital currencies whose value is pegged to fiat currencies through collateralizations or an algorithm.
A report by Nikkei, a local news publication, said that the bill passed by the Japanese parliament would limit the issuance of stablecoins to licensed banking institutions, registered money transfer platforms, and trust companies based in Japan.
Your capital is at risk.
With this bill, Japan will also launch a registration system to be used by financial institutions. The legislation will support the issuance of these digital assets and offer a method by which these digital assets will not be used for money laundering purposes.
The Nikkei report further added that the bill would protect investors and the financial sector against risks posed by the increased adoption of stablecoins. Stablecoins have witnessed a massive increase in value over the years. It is estimated that the stablecoin market has surged in value over the years to hit a valuation of 20 trillion yen, or over $150 billion.
The bill proposed by the Japanese parliament will be implemented in 2023. The Financial Services Agency (FSA) of Japan plans to launch these regulations for stablecoin issuers over the coming months.
Stablecoins suffer a massive crash
Stablecoins have been under pressure over the past few weeks following the UST collapse. UST is a stablecoin of the old Terra network, and after it depegged from $1, it triggered massive losses for investors.
The declining value of this algorithmic stablecoin caused a crash of the LUNA token. As the two tokens continued to plunge, Terraform Labs announced that it would launch a new blockchain dubbed Terra 2.0. The blockchain went live on May 28, and many investors have continued buying the new LUNA token.
UST is not the only stablecoin that has collapsed in recent weeks. Other algorithmic stablecoins such as DEI have also lost their dollar peg.
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