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Japan Seeks to Force Stablecoin issued by Companies to Register as Banks

Japan could ban companies like Tether and Circle should they not comply by registering as Banks under the new law.

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Photo by Leung Chopan / Envato

On Monday Japan’s Financial Services Agency announced its aim to limit any issuance of stablecoins to banks and wire transfers next year, as per a report by Nikkei Asia.

According to the FSA, this limit will assist in mitigating risks, since the companies are legally obligated to protect their consumer assets. Stablecoins had a total market cap of $160 billion as of Tuesday afternoon and had successfully done $80 billion in trading volume in the past day, according to CoinGecko.

Despite its dominance slowly declining over the course of this year, Tether (USDT) currently accounts for 50% of the stablecoin market, with U.S. Dollar Coin (USDC) coming in second at 27%, and Binance USD (BUSD) following suit at 9%.

Tether has been the subject of investigation by officials from the U.S. regarding its claims that their stablecoins are backed by dollar reserves. Later, the company addressed this by saying that a portion of its reserves are commercial paper or short term corporate debt. Furthermore, Evergrane, a Chinese property developer faced immense struggle in paying off its debt to 171 domestic banks and a total of 121 other financial firms. Regarding the issue, Tether said it didn’t hold any of the company’s debt.

The FSA has plans to introduce wallet providers and other intermediaries in crypto transactions, of course under its oversight, according to Nikkei Asia. Companies facilitating any transactions shall be required under this new arrangement to provide verification for their users’ identity, as well as report any suspicious activity to the FSA, in order to prevent money laundering.

There’s also been talks of a total of 70 Japanese companies, including its top banks shall begin testing their own bank deposit-backed digital currency in 2022. Stablecoin testing, also currently being referenced as DCJPY, shall begin this year.

The Digital Currency Forum is heading up the event, and is comprised of MUFG Bank, Sumitomo, Mitsui Banking Corp., Mizuho Bank and Japan post Bank. Though, the FSA and Bank of Japan have stated that they’ll be on hand as observers only during the test.

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