What Are Stablecoins? A Guide to Types, Mechanisms, and Use in Japan
Cryptocurrency is often associated with extreme price volatility, but there are certain assets designed to maintain a stable value. These are known as "stablecoins."
They are used in almost every aspect of crypto trading, including deposits, withdrawals, transfers, and as a temporary haven for assets. It is no exaggeration to say they are essential for anyone looking to use cryptocurrency effectively. This article outlines the mechanisms and types of stablecoins, as well as the latest trends in Japan.
What is a Stablecoin?
A stablecoin is a cryptocurrency whose value is pegged to fiat currencies like the US dollar or Japanese yen, or to assets like gold. As the name suggests, they are designed to minimize price fluctuations.
For example, 1 USDT is designed to always be worth 1 US dollar, meaning it does not experience the double-digit percentage price swings seen with Bitcoin. On crypto exchanges, they are widely used as a "bridge" currency when trading for Bitcoin or other assets.
4 Types of Stablecoins
Stablecoins are classified into four types based on how they maintain their price stability.
| Type | Major Examples | Mechanism | Characteristics |
| Fiat-Collateralized | USDT, USDC | Backed by cash or government bonds | Highest circulation; issuer reliability is key |
| Crypto-Collateralized | DAI | ETH collateralized via smart contracts | Decentralized, but carries collateral volatility risk |
| Algorithmic | (UST has collapsed) | Price maintained by algorithmically adjusting supply | No collateral; high risk, currently in decline |
| Commodity-Collateralized | PAXG (Gold-pegged) | Backed by physical assets like gold | Often used as an inflation hedge |
【Important Note】 In May 2022, UST (TerraUSD), a leading algorithmic stablecoin, collapsed. Its price dropped to nearly zero in a matter of days, resulting in approximately $40 billion in losses. This event remains a cautionary tale regarding the risks of uncollateralized algorithmic stablecoins.
Differences Between USDT, USDC, and DAI
| USDT (Tether) | USDC (Circle) | DAI (Maker) | |
| Issuer | Tether (Hong Kong) | Circle (USA) | MakerDAO (Decentralized) |
| Backing Assets | Cash, bonds, corporate debt, etc. | Cash, short-term US Treasuries | Cryptocurrencies like ETH |
| Transparency | Criticism regarding audits | Monthly audit reports published | Fully public via smart contracts |
| Circulation (Approx.) | ~$140 billion (largest) | ~$56 billion | ~$5 billion |
| Status in Japan | May qualify as crypto under the revised Payment Services Act | Available on SBI VC Trade (March 2025) | Limited availability on domestic exchanges |
Stablecoin Regulations in Japan and 2025 Developments
In June 2023, Japan's revised Payment Services Act came into effect, legally defining fiat-backed stablecoins as "Electronic Payment Instruments." Issuance is restricted to banks, fund transfer operators, and trust companies, and algorithmic stablecoins are not permitted.
Following this regulatory framework, significant developments have occurred domestically:
- March 2025: SBI VC Trade becomes the first in Japan to offer USDC to the general public.
- October 2025: JPYC Inc. officially issues Japan's first yen-pegged stablecoin. 1 JPYC = 1 yen, with 80% of backing assets held in government bonds.
- February 2026: Sony Bank signs an MOU with JPYC and explores circulation on LINE in collaboration with LINE NEXT.
In the US, the GENIUS Act, which regulates stablecoins, was enacted in July 2025, accelerating global regulatory efforts.
Main Uses of Stablecoins
Bridging Deposits, Withdrawals, and Exchanges
This is the most common use. A typical strategy is to hold funds as USDT after selling Bitcoin instead of converting to yen, preparing for the next buying opportunity. WEEX also offers many trading pairs based on USDT.
Hedging Against Price Volatility
During volatile market conditions, users convert assets to stablecoins to "protect value while staying within the crypto ecosystem." This can be done 24/7 without the hassle of moving funds back to a bank account.
International and Peer-to-Peer Transfers
Traditional bank transfers can be expensive and take days. Using stablecoins, you can send funds globally on the blockchain in seconds or minutes at a low cost. The issuer of JPYC claims it is possible to send money globally from 1 yen in seconds.
Start Trading with USDT on WEEX
WEEX allows deposits, withdrawals, and trading using USDT as the base currency. Start by acquiring some USDT.
Register for a free WEEX account
Deposit USDT or other supported currencies
Select your desired asset and place an order
FAQ
Q. Is USDT truly safe?
While USDT is the world's largest stablecoin by circulation, its issuer, Tether, has faced past criticism regarding the transparency of its backing assets. USDC is generally considered more transparent in terms of the frequency and content of its audit reports. Since it cannot be called "perfectly safe," it is prudent to avoid holding large amounts in one place.
Q. Can I buy JPYC on crypto exchanges?
Currently, JPYC can be issued and acquired through JPYC Inc.'s dedicated platform, "JPYC EX." While it is not yet available for trading on crypto exchanges, the number of supported services is expanding.
Q. Are stablecoins subject to taxes?
Foreign currency-pegged stablecoins like USDT may be treated as cryptocurrency (or foreign currency) under Japanese tax law, and profits from sales or exchanges may be taxable. Conversely, JPYC is classified as an "Electronic Payment Instrument," which carries different tax treatment. Please check with a tax accountant or the National Tax Agency for the latest information.
Summary
Stablecoins are essential for using cryptocurrency.
- Fiat-collateralized types (USDT, USDC) are the most widely used, with USDC being preferred for reliability and transparency.
- Algorithmic types are high-risk, as evidenced by the collapse of UST.
- Japan completed its regulatory framework with the 2023 revised Payment Services Act, and since 2025, JPYC and USDC have become available for domestic use.
- They are primarily used for bridging trades, avoiding price volatility, and international transfers.
Understanding how stablecoins work will make managing your assets much smoother when you start trading cryptocurrency.
Disclaimer
WEEX and its affiliates provide digital asset exchange services, including derivatives and margin trading, only to eligible users in legally permitted jurisdictions. This content is for general information purposes only and does not constitute investment advice. Always consult with a professional before trading. Cryptocurrency trading is high-risk, and you may lose your entire investment. By using WEEX services, you acknowledge and agree to all associated risks and terms of service. Please trade responsibly and within your means. For details, please refer to the Terms of Service and Risk Disclosure.
