Yen-Backed Stablecoin Approved For Testing and Licensing in Japan

Japan’s financial regulatory body, the Financial Services Agency (FSA) has approved the test usage and licensing of a new Yen-backed stablecoin.

The license has a term of one year and is part of Japan’s “sandbox” approach to regulation for cryptocurrencies. The license has stated the objectives of,

“[testing] and [validating] i) the secure transfer of crypto assets on a sidechain network and ii) the possibility of building a stable and healthy OTC market by improving transparency for the price-making process.”

However, state laws mandate that the stablecoin will only be accessible to crypto asset exchanges possessing a Japanese Virtual Currency Exchange License.

The news of the license being granted was announced in a press release by the company that created the stablecoin – Crypto Garage, a Japanese fintech firm which is a subsidiary of the tech company Digital Garage, Inc.

In launching their stablecoin offering, Crypto Garage are partnered with Blockstream to offer a Yen-Bitcoin trading pair. This joint product is called SETTLENET, the Crypto Garage defined as “a suite of products to enhance application development on the ‘Liquid Network.’”

The company additionally claims that SETTLENET will be able to eradicate “counterparty risk” by deploying tomic swaps for those connected on the new network. The FSA will be monitoring every step of the new network, and “will provide the regulatory authorities with the functionality to monitor any unlawful trade, including money laundering.”

Founded by Bitcoin veterans and originally intended as a sidechain to Bitcoin, Blockstream “enables rapid, confidential, secure transfers of bitcoin between members of the network.” Bitcoins that are traded on the Liquid Network are, unsurprisingly, called Liquid Bitcoins (LBTC), which are internally pegged to main net bitcoin locked into the Liquid chain. It is this LBTC that will trade with Crypto Garage’s yen stablecoin, dubbed the “JPY-Token.”

In late 2017, the Japanese administration decided to relax its regulations on the cryptocurrency industry and adopted a liberal policy on innovation in the crypto asset industry. They even launched Proof-of-Concept Hubs (PoCs). Under this scheme, firms were allowed to submit proposals to the FSA and perhaps receive some leeway on what they could build.

Japan’s “wait-and-see” attitude towards the new industry, also called the “sandbox” approach by some, is being observed as being mutually beneficial, allowing firms and developers to innovate further on new designs, while simultaneously allowing governments to observe the potential real-world applications of the new technology.