Japan at the Forefront of the Web 30 Revolution A Global Call to Attention

As legislators and regulators from the United States to Europe cautiously step into the realm of cryptocurrencies, Japan’s collaboration on Web 3.0 remains one of its national missions. Why? From cultural heritage to cutting-edge technological advancements, Japan is where ancient customs and modern marvels converge. The unique fusion of tradition and innovation reflects Japan’s strategic positioning in the cryptocurrency domain. In recent months, the country has strategically strengthened its regulatory framework, allowing only licensed entities to issue stablecoins, ensuring the stability of its fragile financial system. This fosters a non-adversarial relationship between stakeholders and regulators, making the financial system driven by cryptocurrencies and global innovation more evident. This is particularly true in regions like Japan, where cooperative regulatory frameworks pave the way for enhanced development and adoption of digital assets. Implementing Regulatory Clarity Although cryptocurrencies have evolved from speculative investments to an asset class that helps balance investment portfolios, governments worldwide still diverge on how to regulate them. It’s not uncommon for regulatory bodies to disagree on how to regulate financial instruments, but the approach to crypto assets remains divided. For instance, India lacks a central body to handle cryptocurrency regulation and does not provide guidelines for resolving disputes over digital assets, leaving investors to bear the risks of their transactions. Due to the lack of regulation, unregulated practices prevail—criminals can and do benefit from the absence of regulation, causing law-abiding citizens to suffer. Without laws, there are no legal consequences, and when individuals or organizations act with impunity due to legal flaws, cryptocurrencies magnify this issue. Hence, it seems peculiar that Japan is one of the few economic powerhouses emphasizing the importance of establishing a non-adversarial relationship with the blockchain industry. This cooperation allows regulatory bodies to gain insights into the actual impact from industry stakeholders, enabling governments to create rules that achieve regulatory objectives and making it feasible for businesses to implement these rules while protecting consumers. For example, Japan’s 2023 Web 3.0 white paper outlined strategies for NFTs and DAOs, highlighting the importance of establishing a regulatory framework that balances innovation with consumer protection and mechanisms to maintain market integrity. With this in mind, overcoming the barriers of financial regulation can lead to positive outcomes by fostering a safe economic landscape, as evidenced by Japan’s stance on cryptocurrencies. Driving Financial Innovation As financial institutions begin to embrace a new wave of finance, the relationship between regulators and stakeholders is the glue that can create an inclusive and protected financial ecosystem. But what sets Japan apart is that its regulatory bodies seem genuinely interested in working with cryptocurrencies, rather than pretending they don’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, following a surge in fraud cases, the UK’s Financial Services Authority has intensified monitoring of cryptocurrency payments, directing financial institutions to implement effective monitoring systems to prevent illegal 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 complexities. Compared to countries like the United States, Japan’s approach is a proactive model, implementing a stablecoin law that is sound both logically and economically. The impact here is already evident. For instance, Binance is collaborating with MUTB (Mitsubishi UFJ Trust and Banking Corporation) to plan the launch of stablecoins pegged to currencies like the yen by the end of 2024, consistent with Japan’s framework that allows only licensed organizations to issue stablecoins. Recently, a regional bank in Ishikawa Prefecture, Hokkaido, announced the launch of a stablecoin backed by bank deposits. Even now, Japan’s proactive stance goes beyond institutional regulation. Its embrace of different financial movements—from Web 3.0 games to VC (venture capital) firms investing in new opportunities in cryptocurrencies—has fostered a safer environment. Under the leadership of Prime Minister Fumio Kishida, the country has become a pioneer in cryptocurrencies, inviting entrepreneurs, developers, and investors to explore the world of Web 3.0. Japan’s legislators have even formulated Web 3.0 policies, advocating for corporate tax cuts, providing new opportunities for venture capital firms to invest in cryptocurrencies, and encouraging them to update financial services through the adoption and implementation of new technologies. For venture capital firms, this shift requires navigating a new compliance framework, balancing risks associated with digital assets while capitalizing on innovative opportunities. While no framework is perfect, Japan has shown that its influence in the blockchain domain can provide a blueprint for global regulatory bodies, supporting cryptocurrencies while prioritizing citizen safety. Given the borderless nature of cryptocurrencies and blockchain, international coordination and cooperation are needed to create a level playing field globally, encouraging responsible innovation in the crypto space. Coordinated efforts will prevent regulatory arbitrage, ensuring the integrity and stability of global markets. James Wo is the founder and CEO of DFG, currently managing a portfolio of over one billion dollars. As an early investor, James has supported companies such as LedgerX, Ledger, Coinlist, Circle, and ChainSafe. Featured image: Shutterstock/Lous_studio