First Yen-to-Bitcoin Stablecoin Approved for ‘Sandbox’ by Japanese Regulators

A Japanese yen-backed stablecoin has been approved for test usage and licensing by the Japanese Financial Services Agency (FSA), in Japan’s so-called “sandbox” legal regime. The license will last for one year, and has the stated 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.

Only cryptoasset exchanges possessing a Japanese Virtual Currency Exchange License will have access to the stablecoin product.

The stablecoin is the work of Japanese fintech firm Crypto Garage, a subsidiary of tech company Digital Garage, Inc, who today issued a press release on the project.

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

SETTLENET also deploys atomic swaps for those connected on the new network and claim that the suite will succeed in “eradicating counterparty risk.” SETTLENET will be monitored by the FSA, and thus “will provide the regulatory authorities with the functionality to monitor any unlawful trade, including money laundering.”

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

Regulatory Sandbox

In late 2017, the FSA outlined a liberal policy on innovation in the cryptoasset industry, launching its so-called fintech Proof-of-Concept (PoC) Hub. Firms wanting to experiment with crypto are allowed under the scheme to submit proposals to the FSA and perhaps receive some leeway on what they could build.

Japan, adopting a similar approach to Hong Kong, has taken the "wait-and-see" legislative position with cryptoassets. The so-called “sandbox” offered by regulators is seen by many as mutually beneficial: It allows firms and developers to see what they can come up with, while at the same time providing regulators with some real life examples of what the cryptoasset industry could be capable of delivering.