Japan's first yen-pegged stablecoin set to launch this summer──issuance expected to reach a circulation of 10 billion yen immediately【Interview with JPYC representative Okabe】 | CoinDesk JAPAN

As the global market for stablecoins surpasses a market capitalization of 35 trillion yen, practical applications are also becoming more significant in Japan. SBI VC Trade announced that it will begin handling the US dollar-pegged stablecoin "USD Coin (USDC)" in the first quarter of 2025.

In the field of Japanese yen-denominated stablecoins, JPYC Corporation, which received investment from Circle (the issuer of USDC), the first in the world, plans to commence its issuance operations this summer.

The company aims to comply with the USDC standard and expects a circulation volume of 1 billion yen from the start of issuance, with a gradual expansion to 100 billion yen and then 1 trillion yen.

Stablecoins are gaining attention as a new financial infrastructure, such as for cross-border payments without going through banks and corporate utilization of DeFi. Before their full-fledged adoption in Japan, we spoke with Noritaka Okabe, the representative director of JPYC, about their strategy.

*In this article, for convenience, we will refer to JPYC Corporation as "JPYC Co." and the stablecoin corresponding to the electronic payment method to be issued by the company as "JPYC."

Monthly trading scale of 500 trillion yen

The globally expanding stablecoin market is reaching a monthly trading volume of 500 trillion yen. "It is traded daily at a scale equivalent to 10 times the total stock trading on the Tokyo Stock Exchange," explains Mr. Okabe (photo below).

Leading this market are Tether's issuance of "USDT" (with a market cap of approximately 22 trillion yen) and Circle's USDC (with a market cap of approximately 6.5 trillion yen).

In emerging countries, especially in Africa, South America, and Southeast Asia, stablecoins are becoming established as a new payment method. In many cases, stablecoins, which can be used with just a smartphone and internet connection in areas where banking services are insufficient, serve as an efficient remittance method.

According to a report by blockchain analysis company Chainalysis, retail and professional stablecoin remittances from July 2023 to June 2024 recorded over 40% growth year-on-year in Latin America and Sub-Saharan Africa (the region located south of the Sahara Desert in the African continent).

[Chainalysis Report Highlights on Stablecoins: Behind the Most Popular Asset in Crypto] In countries where the value of the local currency is unstable, US dollar-pegged stablecoins also serve as a means of value preservation in digital form.

In Japan, the Payment Services Act was revised in 2022 to legalize stablecoins as "electronic payment means" (effective June 2023). The issuance entities are limited to banks, fund transfer service providers, and trust companies, and intermediaries are required to register as "electronic payment means transaction businesses."

It became the first legalization in major countries, but Mr. Okabe pointed out that "Japan has created laws ahead of the world, but no companies have emerged to obtain licenses."

Regarding that background, it is analyzed that "due to the impact of the DMM Bitcoin incident, system risk management has become stricter, and at a stage where the cause of the unauthorized outflow has not been sufficiently clarified, the review may have become more cautious."

Related articles: DMM Bitcoin 48.2 billion yen leaked, identified as the act of North Korean hacker group: National Police Agency

Currently, regulations continue to require a reserve ratio of 101% for money transfer businesses and over 100% for trust-type services. However, there are signs of some easing, such as allowing short-term government bonds as backing assets for trust-type services.

[金融審議会「資金決済制度等に関するワーキング・グループ」報告より]In this context, it is expected that full-scale adoption of stablecoins will begin in Japan in 2025. SBI VC Trade has stated in an interview with CoinDesk JAPAN that it plans to start handling USDC in the first quarter.

And based on the funds transfer business license, the company JPYC aims to issue a Japanese yen-linked stablecoin as soon as possible.

Draft Review, Final Stage

JPYC Corporation was the first in the world to receive investment from Circle, the company that issues USDC. This investment was realized in 2021, and its aim was clear.

Related article: US Circle invests in the Japanese yen stablecoin JPYC - raising 500 million yen in funding round

Circle issues USDC and EURC (Euro Coin) in-house, and if Japan's stablecoin can be issued with the same standards, it could lead to the establishment of a global standard. According to Mr. Okabe, the initial JPYC was a simple ERC20 token, but version 2 is said to be fully compliant with Circle's specifications.

Currently, JPYC Corporation is in the final stage of obtaining a license for money transfer business. "On the morning of June 1, 2023, when the revised Payment Services Act was enacted, I called the Financial Services Agency and said, 'I want to create a stablecoin,'" Mr. Okabe recalls.

The preliminary consultation ended after three months, and since then, preparations have been underway for about a year and a half. We are currently in the final stage of the draft review, and once we clear this, we will proceed to the formal application.

The company aims to start the issuance by the end of July, which is the fiscal period. At the time of the issuance, they expect a circulation amount of 10 billion yen, and afterward, Mr. Okabe explained that they are looking at it in terms of digits. They are considering a gradual expansion from 100 billion yen to 1 trillion yen.

Regarding the licenses for electronic payment means and other transaction businesses, the policy is to start after acquiring the money transfer business. "I actually wanted to obtain them at the same time, but now we have decided to do it one by one."

Existing exchanges such as SBI VC Trade and Coincheck are already preparing to handle USDC, and JPYC is also considering entering this field.

Related Article: SBI to Launch Stablecoin "USDC" Services Between January and March - Considering Inclusion Fund for Bitcoin ETF 【2025 New Year Special】

Regarding the revenue model, we envision two main pillars. One is the revenue generated from managing backed assets as a money transfer business. "If we issue 1 trillion yen and the average interest rate on government bonds is 1 percent, a gross profit of 10 billion yen can be expected," it is estimated.

It is possible to manage a portion of the backing assets with government bonds, and the current rise in long-term interest rates is evaluated as a "tailwind for the entire industry."

However, it is also anticipated that "competitors may think that this is an entry opportunity because interest rates are rising," leading to intensified competition. Another pillar is the exchange fee, with an expected fee income of around 0.5% for exchanges between USDC and Japanese yen. "If we were to exchange an amount equivalent to 1 trillion yen, it would result in 5 billion yen coming in for one way," it was stated. Additionally, the policy is to completely eliminate payment fees.

In addition, there are plans to operate both the issued JPYC prepaid and the new JPYC in parallel. While the prepaid has looser regulations, refunds to Japanese yen are restricted.

Related article: Name changed from 'JPYC' to 'JPYC Prepaid' - Clarifying distinction for fund transfer type stablecoin preparation.

On the other hand, while the new JPYC requires identity verification, it has a nature close to bank deposits and can be exchanged for yen. "In terms of finance, I believe that it is only when it can be converted back to Japanese yen that it is truly JPYC," emphasized Mr. Okabe.

Development cost less than one-hundredth

The goal of JPYC is to create a new form of payment that goes beyond traditional financial infrastructure. "We aim to realize transaction and payment forms that companies have been unable to achieve until now. For example, most companies are currently unable to automate remittances overseas," explains Mr. Okabe.

The company, which has the slogan "Breaking Through the Social Dilemma," is trying to build a new payment system that does not go through banks.

Specifically, it is possible to implement a process in the program that automatically transfers funds to the headquarters when sales exceed a certain amount.

The company provides programs with an SDK (Software Development Kit), and if it is a program that operates with USDC, it can be adapted with just a few lines of rewrites.

Compared to bank APIs, the development cost is less than 1/100, and with one engineer or by utilizing ChatGPT, it is possible to implement a prototype-level solution without any engineers.

The stablecoin denominated in Japanese yen has its own value proposition. For Japanese companies and investors, tax payments and accounting processes need to be conducted in Japanese yen.

"If we keep doing market valuations one by one, it becomes too complicated to even discuss," said Mr. Okabe. He also mentioned that since the interest rates of the yen are lower compared to the dollar, "Foreigners can also use it to raise funds in JPYC and invest globally."

On the other hand, measures against money laundering have become an important issue for the spread of stablecoins. JPYC Corporation has started a demonstration experiment in collaboration with 13 companies, including Hitachi, aimed at detecting fraudulent transfers and halting transactions.

Related Article: Anti-Money Laundering Measures for Cryptocurrency Assets, Collaborative Demonstration Experiment by Industry - 13 Companies including Hitachi Collaborate

"The attacks from organized crime have become more sophisticated, and money laundering has become quite clever; therefore, it is limited for a single company to confront this," Okabe points out. They are also considering information sharing with financial institutions and are promoting cross-industry measures, such as stopping deposits from senders that banks are wary of.

Against the backdrop of efforts to enhance the credibility of the industry, JPYC is looking towards a future IPO. There has never been a case of a Web3 company going public in Japan, and Mr. Okabe states, "We aim for gradual growth."

The countdown to the birth of Japan's first genuine stablecoin has begun.