Japan IEO – Crypto Association Releases Draft IEO Regulations

Japan IEO ! 
Japan’s regulation of IEOs and stablecoins is in the spotlight as it leads the global market.

The Japan Cryptoasset Business Association(JCBA) released its official draft of the Initial Exchange Offering (IEO) self-regulatory reform on Saturday.


What’s in it?

The JCBA explained that the draft aims to transparentize the process of raising funds for projects through IEOs, improve token price stability, and improve the operation of the system. Specifically, the draft includes stipulating a minimum lock-up period for project stakeholders in IEOs, setting liquidity targets for listings, diversifying methods for calculating the public offering price, and preventing market manipulation.
The JCBA submitted the draft IEO regulations to make it easier for Japanese companies to conduct ICOs/IEOs.


Noteworthy points

Most notably, the draft IEO regulations state that IEO project stakeholders, including exchanges, should, in principle, be given a lock-up period of at least three months. In addition, the unvesting cycle is required to be at least one month, and the maximum number of units that can be sold per month is also limited. The reasoning behind this is that large-scale dumping by insiders after a listing can disrupt token price maintenance and harm market health.


What are the results of IEOs so far?

To date, four projects have held IEOs in Japan. Together, they have raised more than ¥4.4 billion. However, three of the four IEO projects fell below their initial public offering price within a short period of time after listing.


This is not the first attempt to improve IEOs in Japan!

In June, the Japan Crypto Exchange Association (JVCEA) proposed improvements to the current cryptocurrency IEO and leveraged trading regulations at a meeting organized by the LDP’s Web3 project team on June 6.

At the time, JVCEA said, “The number of cryptocurrency types that can be handled in the Japanese market has been expanded from 50 types in March 2022 to 91 types in May 2023. In the case of ICOs and IEOs, the accuracy and speed of the review process has also been improved, and a total of four IEOs have been conducted in the Japanese market since 2021.”

“Following the amendments to the Financial Services and Exchange Act and the Financial Instruments and Exchange Act in 2020, the maximum leverage for cryptocurrency leveraged trading was limited to 2x. As a result, cryptocurrency trading volumes declined rapidly. The proposal to expand the leverage cap by strengthening requirements for leveraged trading providers should be reconsidered.”

At the time, the following recommendations were made in the event of an immediate post-IEO asset price decline
Imposing lock-up periods on stakeholders and companies

– Establishing a method for selling assets held by the foundation that does not impact market prices
– Improving disclosure of initial asset pricing information, etc.
– Continued monitoring of issuers


Why is this newsworthy?

The cryptocurrency industry and regulatory changes in Japan are noteworthy. Currently, there are various activities in Japan, such as the establishment of active regulations at the government level, the development of the token securities market, and Web3. In addition, Japan is attempting to become a powerhouse in the crypto industry by changing perceptions in various ways. These attempts are significant because they show a market that has matured after the crisis. In 2014, Japan suffered back-to-back hacks of its largest exchanges, including MountainGox and Coincheck in 2018. They lost their status and were pushed out of the center of the crypto industry. After what seemed like a long period of stagnation, Japan is now making progressive moves to overhaul regulations and grow the market.

Compared to other countries, Japan’s most prominent feature is the increasingly clear institutional framework for the industry. Rather than outright banning crypto investments, Japan chose to create a legal framework that would allow the industry to develop safely, resulting in three rounds of revisions between 2016 and 2022, led by the Financial Services Agency (FSA).

The recent similar moves in the stablecoin space have drawn the attention of the global stablecoin industry to Japan. On June 1, the third amendment came into effect, establishing a definition of stablecoins and a legal framework for their issuance and distribution. The issuance of yen-denominated stablecoins has begun in earnest, mainly by banks, money transfer institutions, and trust companies in Japan. The amendment defines stablecoins as EPIs (Electronic Payment Instruments). This is a sign of the Japanese government’s intention to utilize stablecoins as a means of remittance and payment in various fields beyond just crypto assets.


(Last month, the Financial Services Agency of Japan announced an asset management administrative policy that will be implemented over the next year. It said it plans to establish registration review standards for stablecoin issuance and distribution. It also plans to establish a cryptocurrency-related self-regulatory organization.)

Japan’s cryptocurrency market is moving forward with IEOs and stablecoins. It will be interesting to see if Japan can come from behind and regain its leading position in the global market.


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