MUFG has been quick to embrace a change in Japanese law around stablecoins.
On June 1, a new bill came into effect, setting a governing code around stablecoins – which are a form of cryptocurrency typically backed by a reserve asset.
The bill, passed into law a year earlier, requires that stablecoins be pegged to the yen or other legal tender, with guaranteed redemption to the holder at face value, and that they can only be issued by banks and trust companies.
Almost immediately after the law came into effect, MUFG said that its Progmat Coin platform – originally launched in February 2022 as a universal digital asset payment method for stablecoins, crypto and central bank digital currencies (CBDCs) – would be open to all banks in Japan that wish to launch yen-pegged stablecoins on a range of public blockchains.
The MUFG-backed platform will support bank-backed stablecoins on Ethereum, Polygon, Avalanche and Cosmos. It has been built with technology and security partners Toki and Datachain, which are building a bridge to allow for cross-chain transactions, lending and swaps between the four underlying blockchains. Toki itself is developing liquidity pools across the four blockchains and will release its own crypto token later this year.
Closely watched
What happens next will be closely watched not just in Japan but worldwide. Japan was one of the first major nations to set a regulatory framework for stablecoins after the collapse of Terra in May 2022, though the Financial Services Agency’s efforts had been under way long before that.
Will the attempt to add regulation and registration to the free-market ethos of stablecoins deter issuers, or instead encourage them? Among the many nations interested to find out the answer is the US, which has no equivalent architecture.
Progmat is an example of MUFG’s attempts to position itself for new revenue streams as its traditional ones fade in an environment of a shrinking and ageing population. It appears in the bank’s latest investor relations presentation, which says Progmat will be established as an independent company from September 2023. It also says the balance of assets managed on it has already reached Y43 billion.
Digital transformation is a key part of the bank’s medium-term business plan, up there with environmental, social and governance (ESG) and transformation of corporate culture as part of its corporate transformation ideal. The bank and its board agreed to invest around Y200 billion in digital in the 2022 financial year, and has invested in digital players across Asia, including Home Credit in Indonesia and the Philippines, Akulaku in Indonesia, and DMI Finance in India.
It also uses artificial-intelligence (AI) technology through a joint venture with Liquidity Capital, a venture called Mars.
Rivals
Rival SMBC has not yet spoken about a stablecoin, but has begun sustainable loan trials using a digital currency. Mizuho launched a yen-pegged stablecoin for payments and remittances in 2019, before the change in law. Both institutions, along with Sumitomo Mitsui Trust Bank and SBI, have become part of a joint venture with MUFG related to the Digital Asset Co-Creation Consortium it launched – then as the Security Token Research Consortium – in 2019.
Progmat is not the only game in town. Three smaller banks – digital lender Minna Bank, Tokyo Kiraboshi Financial Group and Shikoku Bank – are using another platform launched by GU Technologies, a Tokyo start-up. They plan to launch their own stablecoin.
The next question is whether anyone uses the coins. They have great potential for trade finance and settlement, but it remains to be seen if any of them will gain sufficient scale to be useful.
