JPY Coin: Redefining stability in Japan's crypto journey

JPYC Explained

JPY Coin (JPYC) can be defined as the first Japanese-yen stablecoin. It is an ERC-20 token that operates on the Ethereum blockchain. One JPYC is always exchangeable for one yen. 

The stablecoin pegged to the Japanese Yen is a prepaid type of stablecoin created on public blockchains. As of September 2023, the JPY Coin is compatible with several networks such as Ethereum, Polygon, Avalanche, Gnosis, Astar Network and Shiden Network.

The main purpose of the JPY coin is to provide a stable payment method in the volatile crypto market which minimises the risk of exchange fluctuations. In Japan JPYC is categorised as a prepaid payment method that functions similarly to prepaid gift cards; for example, the stablecoin can be exchanged for V Preca Gift Cards and used for everyday shopping in stores that accept them.

Stablecoins can be illustrated as a bridge between cryptocurrencies and traditional finance. They combine the best of both worlds - a fusion of the stability of fiat currencies with peer-to-peer crypto transactions. To find out more about stablecoins, check out this article: 'What is a Stablecoin?'.

Who created JPYC?

Behind the JPYC is a company named JPYC Inc. founded in 2019 and headquartered in Japan. The company's CEO, Noritaka Okabe, launched the stablecoin in question back in 2021 to set out a digital currency that could efficiently respond to the growth of digital finance. Okabe believes that the Metaverse will become the platform of the next Internet generation.

JPYC Inc. has acquired several strategic partnerships including investors such as Circle Ventures and Asteria. The company aims to cooperate with public blockchains across the world and expects an extended use of JPYC with the further development of GameFi.

Why was JPYC created?

According to its white paper, the main idea behind the creation of JPYC was to extend the target audience and streamline the cryptocurrency payment in buying and selling goods. It has been noted that, since the inception of Bitcoin in 2008, blockchain technology and crypto assets have been used worldwide across industries. However, they are still deemed controversial due to their large price fluctuations. 

For example, the founding team noted that while the value of the Japanese Yen in dollars varied about 5% between 2020 and 2021, the Bitcoin value in U.S. dollars fluctuated by approximately 400% within the same period.  

To lay down a payment method for common use based on blockchain technology, the JPYC was issued as a prepaid payment tool. 

JPYC's price maintenance mechanism

JPYC is a prepaid payment tool where 1 JPYC equals 1 Yen. The price maintenance mechanism minimises the risks of traditional price fluctuations and enables users to utilise it as an ordinary payment method. Let’s explain briefly how this price maintenance mechanism works. 

What happens when 1 JPYC is under 1 Yen?

In case the price of 1 JPYC is under 1 Yen on average for a long period on decentralised exchanges (DEXs), the issuer aims to increase the secondary distribution price by depositing to the Legal Affairs Bureau more than 50% of the unused base data balance or receive a guarantee issued by a financial institution.  

According to the white paper, the issuer deposits 200% of the amount required by the relevant law and 10 million Yen to the authority.

What happens when 1 JPYC is above 1 Yen?

The white paper mentions another situation – when the secondary distribution price is over 1 Yen, the founding team is said to believe that the price will be stable approaching 1 Yen due to a continuous selling ratio of 1:1.  

If the average price remains above 1 Yen for a longer period, a portion of the deposit could be withdrawn to mitigate the decrease in capital efficiency.

What is JPY Coin's utility?

According to the stablecoin’s white paper, users can purchase items by proxy on e-commerce websites in a 1:1 ratio. They can buy the JPY Coin with, for example, BTC, ETH, or JPY.  

Since the JPY stablecoin is an ERC-20 token, it can be used for divergent decentralised applications (Dapps) on the Ethereum network; for example, users can lend it through decentralised lending protocols. 

The team behind the stablecoin added a disclaimer saying to users that they should use DeFi at their discretion and be aware of all associated risks in advance. 

What is the legal status of JPYC?

The JPYC’s white paper states that the stablecoin is one of the Prepaid Payment Instruments for Own Business issued following the Japanese legal framework. The white paper further states that the decentralised finance (DeFi) space is experiencing growth and that JPYC holders can manage their crypto assets using decentralised exchanges (DEXs). 

To be able to obtain regulatory compliance, it is important to track legislative changes regarding virtual assets and moves regulators make to include digital assets within financial markets. Let's briefly explain how the Japanese legal system set out new obligations regarding stablecoins.

The Japanese regulatory framework was revised in 2022 laying down regulations for stablecoins. Stablecoins are categorised as digital currency-like and crypto-asset-like. 

Japan's largest bank MUFG announced a partnership with JPYC to provide new stablecoin-based services and cross-border payments.

A stablecoin that resembles digital currencies is issued at a fixed price linked to the value of the legal tender; for example, 1 coin equals 1 Yen. The Japanese Payment Services Act considers these stablecoins as assets denominated in currency.

On the other hand, crypto assets are defined as those that indicate electronically recorded transferable rights, property value that can be used concerning unspecified persons to pay consideration for the purchase or leasing of goods or property value which can be mutually exchanged. 

The Payment Services Act further defines Prepaid Payment Instruments. It identifies three necessary elements for their acknowledgment such as description or recording of property value, issuance of a certificate or number in exchange for corresponding consideration to the amount, and exercise of rights to pay consideration to a specific person. 

There is an ongoing debate regarding the categorisation of prepaid payment instruments as currency-denominated assets. Still, considering all defined factors, the majority think they could fall into this legal description. 

As for stablecoins, the revised Payment Services Act of 2022 stipulates that stablecoins that mirror digital money will be subject to regulation under the category of electronic payment instruments. The Act differentiates between business models for issuers and intermediaries. 

Therefore, stablecoins that operate like digital currencies and provide redemption at the issue price, which refers to JPYC, are deemed electronic payment methods. 

The elephant in the room

The Japanese regulatory approach has often been associated with resilience and a safeguarding role concerning assets which is a great tool in financial crises and bubbles. This has been the case with the regulation of stablecoins as well.  

In the middle of the global debate on how to regulate stablecoins and maintain financial stability, Japan laid down a robust legal framework. Other major policymakers, such as the European Union and the United States, have been working on stablecoins’ regulations and other matters associated with blockchain technology, yet Japan emerged with its model and addressed the elephant in the room. 

The clear-cut framework imposes strict rules as it allows only banks, fund transfer services, and trust companies to issue stablecoins, along with the requirement to hold stablecoin assets in a trust within Japan which enhances security yet poses a unique challenge at the same time. 

When it comes to regulations in other countries, Japan is similar to Hong Kong and Singapore which set out a clear roadmap for cryptocurrency markets. While the rules might sound strict, a clear-cut model provides a significant increase of legal certainty for the industry and market participants.

What is expected from Japan's revised legal framework?

Regulatory compliance became an important issue to talk about with the crypto industry evolving in size and impact. Emerging markets have experienced several negative consequences over the last few years such as the FTX collapse and the Terra Luna de-pegging affair.  

The crypto regulatory path is still under development, but it became inevitable to lay down clear, transparent, and enforceable rules to prevent harm to users and investors.  

The Japanese regulatory approach regarding financial markets has always been a bit more on the conservative side which amounted to enhanced security and resilience, yet it recognised the necessity to clearly regulate stablecoins. 

The new stablecoin rules are expected to enhance the stability of the entire financial system and investor protection while at the same time fostering technological innovations. 

When a conservative financial system stands at the forefront of international regulatory trends in the crypto space, it presents a positive sentiment for the further adoption of cryptocurrencies. 

However, Japan’s defensive position can be seen as an attempt to keep stablecoins within the country. Even though the regulator said to introduce further regulations regarding issuers in the upcoming months, the legal framework doesn’t apply to foreign issuers of stablecoins. 

Additionally, new regulations are not perfect; they have been criticised for their complexity and difficulties in recognising each category due to being based on the same criteria as traditional types of assets. 

The main purpose of any novel crypto regulation is to provide clarity, transparency, and stability while not stifling innovation. This is a hard task, and there will be for sure a lot of errors along the way before establishing a balanced interpretation.  

It is yet to be seen whether Japan can resolve all these issues and provide a resilient and clear system for crypto transactions. 

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