US stablecoin clampdown may give Japan a chance to shine

Following regulatory pressures on Binance to cease its BUSD stablecoin business, the world’s largest crypto exchange appears to have had it with the US authorities and is now exploring stablecoins in crypto-friendlier jurisdictions.

“We are exploring others, and non-USD based stablecoins,” tweeted Binance CEO Chengpeng “CZ” Zhao.

Photo credit: Tech in Asia

Paxos Trust, the issuer of BUSD, was told by the New York Department of Financial Services (NYDFS) to stop minting the coin. On Monday, Paxos said it would do so effective February 21. The company also announced that it would terminate its BUSD relationship with Binance.

Paxos also faces a potential lawsuit from the US Securities and Exchange Commission, which alleges that BUSD is an unregistered security. The firm appears to be the only stablecoin issuer to have been asked by NYDFS to halt minting stablecoins.

Prior to the crackdown, BUSD was the third-largest stablecoin by market capitalization after Tether (USDT) and USD Coin (USDC).

While CZ hasn’t announced details about his non-US dollar stablecoin plans, Asia appears to be a strong contender as several regulators across the region look to solidify their stablecoin frameworks this year.

Japan steps up

Japan’s Financial Services Agency (FSA) will allow certain stablecoins to be distributed in the country, possibly by June this year. At the moment, stablecoins aren’t allowed on Japan’s 31 registered crypto exchanges, which include bitFlyer, Coincheck, and GMO Coin.

But determined crypto users in the country can still purchase those coins on decentralized exchanges and decentralized finance (DeFi) platforms.

This marks a reversal of the government’s stablecoin ban enacted in June 2022 in the wake of the TerraUSD (UST) collapse. Under the law, only Japan-based licensed banks, registered money transfer agents, and trust companies can issue stablecoins.

The new policy will allow these exchanges to provide stablecoin trading, only if the coins are governed by equivalent Japanese regulations and are backed by deposits. The said coins include US dollar-based ones such as USDC and USDT, and even stablecoins pegged to yen such as the Gyen. Algorithmic stablecoins like UST, which collapsed last year, won’t be allowed.

GMO Trust CEO Ken Nakamura / Photo credit: Ken Nakamura

“We are looking into how we would enter the Japanese market. But that’s still to be decided,” says Ken Nakamura, CEO of New York-based GMO Trust, the issuer of Gyen and ZUSD. Both are backed by reserves in their respective fiat currencies.

High priority for Japanese lawmakers

Will yen stablecoins be a disruptor?