In the stablecoin revolution, the US risks losing its lead to Japan

Stablecoins have become too important to leave unregulated. With a market capitalization of US$278 billion in August 2025, they represent one of blockchain’s strongest use cases. Stablecoins enable instant payments, seamless settlement and liquidity in global crypto markets. Once niche tools for traders, they now attract policymakers and financial institutions, with governments exploring regulation or issuing their own. At the center lies a crucial question: Should stablecoins be led by governments or markets for the most sustainable outcome?

Though slower than the U.S. model, Japan’s regulatory-first approach may better support long-term adoption and integration. If successful, Japan could set the standard for turning stablecoins into secure financial instruments, while the U.S. risks losing its first-mover advantage.

Japan has a history of proactively regulating new technologies. After exchange hacks like Mt. Gox, regulators adopted a bottom-up approach to stablecoins. In 2022, Japan revised its Payment Services Act, formally authorizing stablecoins. The law, which took effect in June 2023, recognized only collateralized stablecoins as electronic payment instruments, excluding algorithmic models. Under this legislation, issuance is limited to licensed banks and money transfer services, with strict safeguards for anti-money laundering, counter-terrorist financing and consumer protection.

Several major projects were launched under this framework. MUFG’s Progmat Coin, developed with other banks, issued interoperable fiat-backed stablecoins, linking traditional banking with decentralized finance; Project Pax brought megabanks together with SWIFT APIs to lower cross-border payment costs, and Project Trinity focused on delivery-versus-payment settlement for tokenized securities.

These initiatives show Japan laying the foundation for large-scale adoption. With regulatory clarity, enterprises are building blockchains to support stablecoin issuance. The central bank, megabanks through Progmat and SWIFT-linked projects are setting the pace, creating momentum for commercial adoption.

This effort aims to modernize securities infrastructure, with the yen-pegged JPYC expected to play a central role once approved. By embedding stablecoins into payments and settlement systems, Japan is building a framework for institutional innovation at a national scale.

By contrast, the United States’ stablecoin market expanded from the top down. In the late 2010s and early 2020s, tokens such as Tether and USD surged, surpassing $100 billion in circulation. Growth came before comprehensive regulation, fueled by trading and decentralized finance. With no nationwide framework, entrepreneurs scaled quickly. Companies like Circle gained institutional traction through transparency, while others built liquidity pools, powering decentralized finance, or DeFi.

This organic growth revealed weaknesses. Oversight is fragmented across states and agencies, producing competing standards. Some banks follow state rules, while others pursue independent models, leaving adoption uneven. Without clear national standards, the government risks losing regulatory control over dollar-backed stablecoins, the key drivers of decentralized finance.

Fragmentation has slowed adoption and created uncertainty for enterprises. Japan’s unified framework, conversely, provides clarity and consistency, giving financial giants confidence to invest at scale.

Congress addressed the gap in 2025 with the GENIUS Act, the first nationwide regime for stablecoins. It requires full backing with liquid assets, monthly reserve disclosures and bans on yield payments. Oversight is divided among the Treasury, Federal Reserve and SEC. The law was welcomed by the crypto industry and financial institutions, but it comes after years of delay, with implementation uncertain amid political volatility.

The U.S. is now moving toward a coordinated model, but it is retrofitting rules onto a market long in motion. This creates inefficiencies, yet the GENIUS Act marks a turning point. Major banks, including Citi, JPMorgan and Wells Fargo, are now exploring stablecoin issuance and integration. If policymakers sustain clarity and coordination, the U.S. may narrow the gap with rivals like Japan.

The United States gained early first-mover advantages in decentralized finance. Dollar-pegged stablecoins dominate global volume and have entrenched the dollar’s role in digital finance. By August 2025, stablecoin market capitalization reached $278 billion, showing strong institutional demand. DeFi remains significant, with Total Value Locked at $123 billion, up 41% year over year. Yet, this lead is fragile. Fragmented regulation and uneven enforcement put the U.S. at risk of ceding long-term leadership to countries like Japan.

Japan has moved slowly, but its approach prioritized clarity and trust. By setting rules early, it built a framework that institutions can embrace. Its stock exchanges and banks are preparing to settle securities and bonds with yen stablecoins. The Tokyo Stock Exchange, valued at over $6 trillion, could generate trillions in annual stablecoin transactions. In cross-border payments, yen stablecoins could cut conversion costs.

Japan’s framework is stable, bipartisan and agency-driven, making it resilient to political shifts. The U.S. risks that a new administration could alter or undo the GENIUS Act, yet adoption continues, showing that flexibility, though uncoordinated, historically supports innovation.

The United States cannot assume its early lead in stablecoins will last. Dollar-pegged tokens dominate today, but Japan’s clear regulations and institutional adoption could mean yen stablecoins dominate tomorrow. By embedding them into payments, settlements and cross-border transfers, Japan is preparing to capture efficiency gains that may reshape markets.

The U.S. still has time, but the window is closing. Policymakers must move faster on the GENIUS Act, establish consistency across agencies and provide clarity to institutions. If action lags, the U.S. risks losing its advantage to a smaller but more coordinated rival.

For investors and financial institutions, the message is clear: Japan is preparing to launch regulated yen stablecoins in 2025, and the leadership race has begun. Without urgency, the U.S. could be left behind as others drive the next financial revolution.