What Terra’s Collapse Brought For Stablecoins In Japan, New Law Passed

The collapse of the Terra (LUNA) ecosystem continues to ripple across the crypto industry. This cryptocurrency and its algorithmic stablecoin UST lost over 99% of its value in less than a week, leaving investors with billions in losses.

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A report from Arcane Research estimates that Terra’s collapsed, now dubbed Terra Classic, resulted in over $6 billion in losses for retail investors. The report claims the ecosystem served as “perfect exit liquidity” for early LUNA, now dubbed LUNA Classic, investors.

As a consequence, many high-ranking government officials and regulators asked for stricter laws to “protect investors”. Per a report from Bloomberg, Japan is the first country to pass a bill around stablecoins.

Approved by the country’s parliament, the new bill categorized stablecoins as “digital money”. These assets must be pegged to Japan’s currency, the yen, or linked to another currency deemed legal tender by national laws.

In addition, the Japanese parliament ruled that stablecoins must “guarantee holders the right to redeem them (stablecoins) at face value”. As the report claims, stablecoins in Japan have become assets that “can only be issued by licensed banks, registered money transfer agents and trust companies”.

In the coming months, the implementation of the bill into law will be accompanied by new regulations and rules. These will be enforced by Japan’s Financial Services Agency, as Bloomberg stated.

Japan has strict regulations for cryptocurrencies and digital assets. The average Japanese investor can’t purchase a token available for a majority of the world, not even Tether (USDT), or USD Coin (USDC). The two most popular stablecoins.

However, the new bill could be the start of similar actions for other countries. The Terra Classic collapse seems the result of incompetence, an unsustainable model, and euphoria. The biggest winners are LUNC whales and those governments using it as an excuse to push for stricter regulations.

The Terra Fallout Spreads

Big players in Japan have plans to leverage the introduction of a new legal framework to their benefit. As the report claims, the Mitsubishi UFJ Trust and Banking Corp. has plans to issue a stablecoin.

Called Progmat Coin it could be the first stablecoin to be legally available in this country for all investors. As per the new bill, the Progmat Coin will be redeemable at face value and will allegedly be backed by the yen.

Terra Classic’s collapse might have set a precedent that could translate into more banks issuing their own digital money, and more governments asking for control. Ultimately, retail investors might be the most affected as regulators rushed to “protect them” by limiting their capacity to make decisions.

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At the time of writing, Bitcoin (BTC) trades at $29,400 with a 2% loss in the last 24-hours.