The Rise and Rise of Japan in web3
Japan used to be the leading country for bitcoin adoption. Could it claim back this position?
Japan is probably the first country that had to deal with the crypto discussion at a national level. I remember reading a book from 2017 named “Japan: Bitcoin #1: A primer on the world's leading country for bitcoin and blockchain adoption”.
The book offered data on adoption, reasons why bitcoin had been adopted early, and reasons why regulators moved early on creating frameworks for exchanges and token listings — MtGox, the infamous exchange that dominated the market in 2014, was based in Japan.
However, Japan lost its prime position over the last cycle. It is notoriously hard to launch new projects in Japan compared to other jurisdictions, and more costly to operate exchanges — Coinbase recently announced that they’re withdrawing from Japan.
Stablecoins are still not allowed. Generative art NFT projects could fall under “gambling” because of the random nature of the drops, so Japanese generative artists that I’ve been in contact with have been really cautious of selling their work.
A new perspective
However, one flipside of the early regulatory move is that many of the discussions the western countries are starting to have now are already taking place at the highest levels of the government.
Yesterday’s piece on Coindesk details exactly this: Japan Embraces Web3 As Global Regulators Grow Wary of Crypto. With tight regulations already in place that helped insulate FTX Japan and its investors from heavy losses, Japan is working on policy and guidelines for stablecoins, NFTs and DAOs as it welcomes a crypto future.
I selected a few quotes from the article, but advise you to read to get a full perspective.
“There have been various stablecoin proposals circulating in Washington, D.C. The European Union is in the final stages of approving stablecoin rules in its Markets in Crypto Assets (MiCA) Regulation. Singapore has also proposed stablecoin rules. But for the most part, regulation has yet to take hold.
This means that Japan might end up in the lead once again.
On Stablecoins:
“Japan may be the first country to regulate permissionless stablecoins. America is still debating how to regulate stablecoins. Japan’s stablecoin law will take effect in June of 2023,” said Tetsuya Saito, product manager at the digital planning office of the Japanese bank MUFG. (…)
So while other jurisdictions are trying to rein in stablecoins, Japan is cautiously moving in the opposition direction. That’s because at present stablecoins are essentially not allowed in Japan at all.
“Tether, USDC are not listed on Japanese exchanges,” the FSA’s Ushida said. “In general because we ensure that a stablecoin is really stable, reserve assets are secure and redemption can be done on request.”
Now, thanks to the new rules, overseas stablecoins have a path forward. Starting in June, Japanese exchanges will be able to apply for a special license to trade stablecoins. This could make it possible for overseas stablecoins like tether (USDT) or USD coin (USDC) to enter the Japanese market. But that does not mean it will be easy. Saito says the dollars that would back the stablecoins circulating on Japanese exchanges will likely require a scheme in which the underlying assets are held in trust at a Japanese trust bank — an unusually strict requirement.
On NFTs and DAOs
Some LDP politicians are not only embracing the potential of DAOs and NFTs, they have gone to great lengths to provide policy guidelines for them. Last year the project team published a rather detailed NFT white paper.
“Japan has rich, high-quality intellectual property (IP) such as animation and games that are internationally competitive, and has great potential to lead the world in the NFT business and, by extension, the Web 3.0 economy,” the white paper says. The white paper includes policy recommendations on themes such as promoting NFT business development and protecting the rights of content IP holders.
A lot of Japanese content is seriously undervalued, explained Masaaki Taira from the LDP’s Web3 Project Team. Some of this has to do with deflation, but it is also because much of it is in the hands of the content holders and not available on the global market. NFTs provide a path to digitizing this content and bringing it to a wider audience, thus potentially increasing its value.
“Content holders and big companies are still very nervous about Web3 and blockchain. Because there is no clear regulation around it, they are afraid of breaking a law,” Taira said.
“These big companies have plenty of money and they have technology. But if the government does not give them a green light, they will be afraid to enter the NFT space.”
DAOs are another area where Japan is positioning itself to emerge as a leader. Japan’s digital ministry is creating its own DAO. The Web3 Project Team views DAOs as an innovation that has the potential to do everything from resolving social issues to revitalizing local communities and the Japanese economy.
"There is no nation-state that has formal DAO legislation,” said Akihisa Shiozaki, also a member of the House of Representatives and member of LDP's Web 3 Project Team.
“We are planning to introduce a DAO law to allow an option for those who want to do business in the form of a DAO, to be protected under LLC,' said Shiozaki.
The reason for this is basically to give people more peace of mind about entering this new world. "If you were running a DAO and the DAO made a mistake and caused people damage, you could be sued,” Shiozaki said. “You want a corporation-type shield that would limit your liability."
The Bottom Line
Japan is known for being an extremely conservative country, but an early adopter of new technologies (and one that crosses the chasm faster than other populations, due to the homogeneity of its society).
If crypto regulations end up being favorable and creating a safe environment for entrepreneurs and investors, this could mean Japan could rise again to #1 in web3. To be in the lead of the new paradigm for the internet would certainly be desirable for an economy that has been stagnant since the 90s.
Maybe “Satoshi Nakamoto” was not chosen randomly.
