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As legislators and regulators from the US to Europe cautiously venture into the realm of cryptocurrency, Japan’s Web 3.0 collaboration remains one of its national missions. Why?
From cultural heritage to cutting-edge technological advancements, Japan is a place where ancient customs and modern marvels intersect.
The unique blend of tradition and innovation reflects Japan’s strategic positioning in the cryptocurrency space.
In recent months, the country has strategically strengthened its regulatory framework, only allowing licensed entities to issue stablecoins to ensure the stability of the fragile financial system.
Fostering a non-adversarial relationship between stakeholders and regulators makes the impact of cryptocurrency-driven financial systems and global innovation more apparent.
This cooperative regulatory framework in regions like Japan paves the way for the development and adoption of digital assets.
Implementing regulatory clarity
While cryptocurrencies have evolved from speculative investments to an asset class that helps balance investment portfolios, there are still disparities among governments worldwide on how to regulate them.
While disparities among regulatory bodies on how to regulate financial instruments are not uncommon, the handling of crypto assets still varies.
For example, India lacks a central agency to handle cryptocurrency regulation and has not provided guidelines for resolving digital asset disputes, leaving investors to bear the risks of their transactions.
The absence of regulation has allowed unregulated practices to flourish, and without proper safeguards, criminals can and do benefit from the lack of regulation, causing law-abiding citizens to suffer.
No law, no legal consequences; when people or organizations get away with loopholes in the law, cryptocurrency magnifies the problem.
Therefore, Japan is one of the few economic powerhouses that emphasizes the importance of building a non-adversarial relationship with the blockchain industry, which may seem unusual.
This cooperation allows regulators to gain insight into the actual impact from industry stakeholders, enabling the government to formulate rules that achieve regulatory goals and make it feasible for businesses to implement these rules while protecting consumers.
For example, Japan’s 2023 Web 3.0 White Paper outlines the strategic approach to NFTs and DAOs, emphasizing the importance of creating a regulatory framework that balances innovation with consumer protection and maintains market integrity.
Given this, overcoming barriers in financial regulation can bring positive results by promoting a secure economic landscape, and Japan’s stance on cryptocurrency is evidence of that.
Driving financial innovation
As financial institutions begin to embrace a new wave of finance, the relationship between regulatory bodies and stakeholders is the glue that can create an inclusive and protected financial ecosystem.
But the key distinction that sets Japan apart is that its regulatory bodies seem genuinely interested in working with cryptocurrency, rather than pretending it doesn’t exist.
For example, cryptocurrency exchanges in Japan must register with its FSA (Financial Services Agency) to ensure investor protection.
In the past few months, the UK’s Financial Services Authority has strengthened its monitoring of cryptocurrency payments after a surge in fraud cases, instructing financial institutions to put in place effective monitoring systems to prevent illicit transfers.
Similarly, while most countries have yet to consider regulating stablecoins, Japan is paving the way for a stablecoin framework to take the lead in addressing its complexity.
Compared to countries like the US, Japan’s approach is proactive, implementing a logical and economically sound stablecoin law.
The impact is already evident. For example, Binance is collaborating with MUTB (Mitsubishi UFJ Trust and Banking Corporation) to launch a stablecoin pegged to the Japanese yen and other currencies by the end of 2024, aligning with Japan’s framework of only allowing licensed organizations to issue stablecoins.
Recently, a regional bank in Ishikawa Prefecture announced the launch of a stablecoin backed by bank deposits.
Even now, Japan’s proactive stance goes beyond regulatory oversight. Its embrace of various financial movements, from Web 3.0 games to VC (venture capital) companies investing in cryptocurrency, nurtures a more secure environment.
Under the leadership of Prime Minister Fumio Kishida, the country has become a pioneer in cryptocurrency, inviting entrepreneurs, developers, and investors to explore the world of Web 3.0.
Japanese legislators have even formulated Web 3.0 policies, advocating for tax reductions for businesses and providing new opportunities for VC companies to invest in cryptocurrency, encouraging them to update the overall strategy of financial services through the adoption and implementation of new technologies.
For VC companies, this shift requires navigating a new compliance framework, balancing risks associated with digital assets while leveraging innovative opportunities.
While no framework is perfect, Japan has demonstrated that its influence in the blockchain space can provide a blueprint for global regulators to support responsible innovation in the cryptocurrency realm while prioritizing the safety of citizens.
Given the borderless nature of cryptocurrency and blockchain, international coordination and cooperation are needed to create a fair competitive environment globally, encouraging responsible innovation in the cryptocurrency space.
Coordinated efforts will prevent regulatory arbitrage, ensuring the integrity and stability of global markets.