The "Dual-Track" Future of Japanese Yen Stablecoins: Deconstructing the Institutional Path of JPYC and the United Stablecoin

Introduction: The "Dualistic" Structure of Japanese Stablecoins

Japan's stablecoin market is exhibiting a "dual-track" or "binary" development pattern. This pattern is not an accidental market evolution, but rather the result of a "top-level design" formed by the combined effects of Japan's unique regulatory framework, deep-seated industrial needs, and drastically different technological implementation paths.

The first approach is a bottom-up development path. A prime example is JPYC. This path operates within legal boundaries and primarily serves the global, permissionless DeFi ecosystem.

The second approach is a top-down path led by traditional financial giants. Its core representative is the recent announcement by Japan's three major banks (Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho) that they will jointly promote and unify the stablecoin framework issued on the Progmat platform. The goal of this approach is to serve the regulated, institutional-grade corporate settlement and security token (ST) market.

This article will objectively and deeply dissect these two tracks, focusing on their first pillar: legal foundation and technological architecture . We will explore in detail: how do their respective legal frameworks fundamentally determine their market positioning? What "pain points" that traditional finance cannot address technologically? In particular, what are the true strategic intentions and technological considerations behind the institutional alliance of the three major banks?

By analyzing these two tracks side-by-side, we will reveal Japan's national strategy of regional management and parallel development in the crypto industry.

1. Deconstructing the Dual Track System: Legal Foundation and Technical Architecture

Track 1: The Legal Evolution of JPYC and the "Million Yen Wall"

To understand JPYC’s market positioning and technology use cases, we must first understand the fundamental evolution of its legal status that will occur in 2025.

• Compliance Upgrade from "Prepayment Instruments" to "Funds Transfer Instruments"

In its early exploratory phase, JPYC Inc., the operating entity of JPYC, adopted a flexible legal framework— a "prepaid payment instrument." Under this framework, JPYC is legally closer to a "game points" or "store prepaid card," with its core feature being that it is non-redeemable in Japanese yen .

This was a clever strategy during a regulatory vacuum at the time. It successfully circumvented the stringent regulations of complex banking and money transfer laws, allowing JPYC to function as a "yen-denominated point".

However, this "grey" phase has ended. With the revision of Japan's Funds Settlement Law in 2023, stablecoins were officially defined as " electronic payment instruments ," and the legal basis for JPYC had to be upgraded accordingly.

JPYC's prepaid products ceased issuance in June 2025. In its place, after a lengthy application process, JPYC Corporation officially obtained a "Type 2 Funds Transfer Business" license.

This "compliance upgrade" is of great significance. It fundamentally transforms JPYC's legal status: from an irredeemable "points" to a regulated, compliant "funds transfer instrument" legally redeemable for Japanese yen . This makes it a true "stablecoin" in terms of its legal attributes.

• "The 1 Million Yen Wall": The Market Ceiling Defined by the Legal Framework

However, while this compliance upgrade grants it "redemption," it also places a crucial "shackle" on it that determines its market positioning—namely, a "transaction limit of 1 million yen."

Under Japan's Funds Transfer Law, the core feature of the "Category 2 Funds Transfer Operator" license is to promote innovation while strictly preventing money laundering and protecting consumers. To this end, regulations stipulate a maximum limit of 1 million yen per transaction .

This is the core restriction commonly referred to as the "1 million yen wall" by the Japanese financial and crypto industries.

This legal restriction fundamentally determines JPYC's market positioning. It means that JPYC cannot be legally used for large-scale transactions exceeding 1 million yen per transaction. This effectively isolates it from large-scale inter-institutional clearing, B2B cross-border settlements, and (as we will discuss later) the security token market.

Therefore, JPYC's technical architecture and core use cases must be developed under the premises of "redeemability" and "a cap of 1 million yen." Its technical architecture is inherently public-chain oriented. It must be deployed on global public blockchains such as Ethereum, Polygon, and Solana to serve its core DeFi market. Its smart contracts must be designed to be permissionless to allow for free integration with global DEXs, lending protocols, and yield aggregators.

However, this open technological architecture is simultaneously constrained by the legal limitations of its "Type II" license. This creates a unique duality: JPYC is technically global, permissionless, and unlimited (smart contracts themselves do not limit transfer amounts); but legally (when used by regulated Japanese entities or individuals), it is restricted and has limits. This "misalignment" between law and technology naturally makes it a tool serving the "gray area" and the pure Web3 economy, rather than a settlement layer for mainstream Japanese finance.

Track Two: An "Unlimited" Institutional Alliance Between the Three Major Banks and Progmat

Now, we turn to Track Two. This is a completely different narrative, not driven from the bottom up by the native forces of Web3, but rather constructed from the top down by the "top-down design" of Japanese finance.

• A new legal foundation based on "trust law"

The legal basis for Track Two completely bypasses the "funds transfer industry" framework to which JPYC belongs. It is based on the legal path of "trust-based stablecoins" tailored for banks and trust institutions in the 2023 amendment to the Funds Settlement Act.

The recent joint announcement by Japan's three major banks (Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho) is based on this new legal framework. Its core legal structure is:

1. Issuance structure : The three major banks will act as " joint trustees ", while Mitsubishi UFJ Trust Bank will act as " single trustee ".
2. Key Feature : This is the most crucial legal difference. "Electronic payment instruments" issued based on bank or trust licenses do not legally have a transaction limit of 1 million yen .

This difference in legal status directly reflects the "top-level design" of Japanese regulatory agencies. Japan is a " calculative law " country, where the behavioral logic of market participants (especially large financial institutions) is that " the 'gray area' is off-limits ." This is in stark contrast to the "gray area is permissible" principle under the "common law" system in the United States.

Therefore, prior to the enactment of the new law in 2023, Japan had no institutional-grade stablecoin market. The passage of the new law did not "regulate" the existing market, but rather "created" a completely new, compliant market that institutions could enter .

• Progmat Platform: Deconstructing the Technical Architecture of the "National Team of Digital Assets"

The participants in Track 2 chose a unified technical foundation— the Progmat platform . To understand its technical architecture, one must first understand its shareholder structure.

Progmat spun off from Mitsubishi UFJ Trust Bank in 2023 to become an independent company. Its shareholder lineup encompasses almost all of Japan's core financial and technology leaders, making it a veritable "national team" of digital assets.

1. Trust banks (issuing layer) : Mitsubishi UFJ Trust (42%), Mizuho Trust (6.5%), Sumitomo Mitsui Trust (6.5%), and Nonchu Trust (6.5%).
2. Exchange (circulation layer) : JPX (Japan Exchange Group, 4.3%).
3. Brokerage (sales level) : SBI PTS Holdings (4.3%).
4. Technology (infrastructure layer) : NTT Data (11.7%), Datachain (4.3%).

Therefore, Progmat is not a technology startup seeking disruptive innovation. It is an "infrastructure alliance" jointly funded by core Japanese financial institutions , with the strategic goal of becoming a unified, neutral, and compliant "national infrastructure" for Japan in the digital asset era (ST, SC, UT) .

In Progmat's technology roadmap, ST (Security Tokens), UT (Utility Tokens), and SC (Stablecoins) are its three core pillars. STs are tokenized "assets" (such as real estate), while SCs are the "cash" used to pay for and settle these assets. The issuance of stablecoins by the three major banks is the final and most crucial piece of the "payment and settlement puzzle" in Progmat's grand vision of the "ST (RWA) market."

• The driving force behind bank stablecoins: a technological "bypass" of the "core banking system".

A key question then arises: why would banks, which already have mature and efficient internal payment systems, go to the trouble of building a stablecoin platform on the blockchain?

The answer is that bank stablecoins are not intended to replace the existing system, but to address three core "pain points" that the existing system cannot solve, the most critical of which is the rigidity of its own IT architecture .

1. Interoperability:
2. Existing electronic currencies (such as PayPay and LINE Pay) are two independent, closed "private databases" operated by different companies. They are "non-interoperable" and have "limited availability." In contrast, blockchain-based stablecoins (SC) can be "interchangeable" and are "accessible to anyone, anywhere."
3. Cross-border payments:
4. Traditional bank transfers require a lengthy chain of intermediary banks. This process is characterized by high intermediary costs and significant delays in arrival. In contrast, stablecoin systems operate on a peer-to-peer model, transferring funds directly from one address to another, minimizing intermediary costs and enabling instant transfers.
5. Rigidity of the core system:
6. This is the key to explaining why banks "must" adopt "trust-based" stablecoins instead of directly opening their own bank accounts (i.e., "deposit tokens").

• Current situation : Bank IT systems in Japan and around the world rely on a closed, outdated but extremely stable system known as the " core banking accounting system ".
• The problem : This is a " large, cumbersome, and outdated " system. Its key flaw is that it "lacks an API to support 'write' or 'transfer' operations." All updates (such as transfers) must be initiated through the internal online banking system.
• The dilemma : Implementing 24/7 external programmable calls directly on the core banking accounting system would require a massive overhaul, which is unavoidable . This is virtually unacceptable for any bank in terms of IT costs and financial stability risks.

The "trust" structure provides a perfect "bypass" solution:

1. On the bank's side : The bank (as settlor) transfers funds to a "trust" (as trustee). This is a standard, mature financial operation that occurs daily. The bank's "core banking system" requires no new development .
2. Trust side : The trust (powered by the Progmat platform) issues an equivalent amount of stablecoins on the blockchain.
3. On-chain : From now on, all 24/7 programmable smart contract calls and B2B automatic settlements will occur at the trust and blockchain level , completely isolated from the bank's "core banking accounting system".
4. Redemption : When a user needs to redeem their funds, the trust destroys the stablecoins on-chain and returns the fiat currency to the bank's account through traditional channels.

This architecture, without affecting the bank's core accounting system at all , gives the bank's deposits 24/7, low cost, cross-border, and most importantly, "programmability" .

2. Market Positioning of "DeFi" and "Institutions"

We see that JPYC is defined by a "Type II Funds Transfer Business" license and a "1 million yen transaction limit"; while the Progmat Alliance, based on a "trust type" license, has built an institutional-level settlement network with "no transaction limit".

These are key to defining the market, segmenting customers, and solving specific pain points. In this chapter, we will analyze in depth which core user needs these two tracks meet and which specific "pain points" in traditional finance and the Web3 economy they solve.

JPYC: An "On-Chain Yen" Serving Global DeFi

JPYC's core user group consists of global, permissionless crypto-native economic participants with transaction volumes under 1 million yen .

The core pain point that JPYC addresses is the lack of a key asset, the " on-chain Japanese Yen ," in the global DeFi ecosystem.

Pain Point 1: DEX Liquidity and the 24/7 Japanese Yen Forex Market

In global decentralized exchanges (DEXs), USDC, USDT, ETH, and WBTC form the cornerstone of liquidity. However, the Japanese yen, one of the world's major reserve and trading currencies, has long been absent.

The emergence of JPYC marks the first compliant, redeemable on-chain Japanese yen solution. One of its core use cases is serving as the liquidity base for JPYC/USDC or JPYC/ETH trading pairs. This essentially creates an efficient spot foreign exchange market for the Japanese yen, allowing any DeFi user globally to exchange yen for mainstream crypto assets at any time. Its core users are global DeFi traders, arbitrageurs, and Web3 protocols requiring yen exposure.

Pain Point Two: Arbitrage tools that "tokenize" Japan's macroeconomic environment

JPYC's most core and unique use case in the financial sphere is its successful "tokenization" of Japan's unique macro-financial environment— its long-term low-interest-rate policy —and its introduction into DeFi.

In the traditional financial sector, this gave rise to the globally renowned "Yen Carry Trade ": institutional investors borrow Japanese yen at extremely low (almost zero) costs, exchange it for high-yielding US dollars, and invest in high-interest assets (such as US Treasury bonds), thereby consistently capturing the huge interest rate differential between the two.

However, this operation has traditionally been the domain of institutions, making it difficult for ordinary investors to participate. JPYC addresses this pain point by making this professional-grade financial strategy "decentralized" and "permissionless."

Under the legal framework of the "1 million yen cap," JPYC has become the perfect tool for DeFi players to execute such arbitrage operations. A typical "on-chain yen arbitrage trade" path is as follows:

1. Collateral : A DeFi user deposits their ETH or WBTC holdings into decentralized lending protocols such as Aave and Compound as collateral.
2. Lending : The user has chosen to lend JPYC. Due to the zero-interest-rate environment pegged to fiat currency, the on-chain borrowing rate (Borrow APY) of JPYC is extremely low, far lower than other mainstream assets.
3. Exchange : Users can immediately sell the borrowed JPYC on a DEX (such as Curve or Uniswap) and exchange it for a high-interest USD stablecoin (such as USDC or USDT).
4. Earn interest on deposits : Users can then deposit the USDC they receive into a deposit pool of a lending protocol or a yield aggregator (such as Yearn Finance) to earn deposit interest (Supply APY) that is significantly higher than the borrowing cost of JPYC, thereby capturing the interest rate spread between the two.

The act of "borrowing JPYC and exchanging it for USDC" is itself a short-selling activity executed on-chain and denominated in Japanese yen. JPYC's redeemability, the composability of the public chain, and the 1 million yen cap make it suitable for the needs of global DeFi traders to execute this type of low-to-medium amount, high-frequency arbitrage.

Pain Point 3: Yen Micropayments within the Web3 Ecosystem

Furthermore, JPYC also serves the Japanese Web3 ecosystem. Developers of NFT marketplaces, on-chain games, and Web3 applications need a native Japanese yen payment tool for small-amount transactions. JPYC perfectly meets this need for "micro-payments" and "intra-ecosystem settlements."

Progmat: A B2B institutional settlement tool serving TradeFi

In contrast to JPYC, the core users of the Progmat Alliance on Track 2 are not global DeFi traders, but rather large corporations, institutional investors, securities firms, and banks in Japan and around the world .

What it aims to address are the systemic "pain points" within Japan's mainstream financial system that JPYC cannot reach.

Pain Point 1 (External): B2B Cross-border and Enterprise Fund Settlement (SWIFT Pain Point)

The pain points of traditional B2B cross-border payments are global. A bank transfer through the SWIFT system needs to go through a complex chain of "relay banks". This process not only generates high intermediary costs (transaction fees, exchange rate differences), but more seriously, it has extremely poor timeliness (T+N arrival) and is not limited to 7x2t operation.

For global trading companies like Mitsubishi Corporation , there are massive daily needs for global fund settlements. The stablecoins offered by the three major banks, based on the Progmat platform, provide them with the first compliant, unlimited, peer-to-peer alternative. It allows businesses to instantly transfer funds directly from one address to another, minimizing intermediary costs. Its core users are the finance departments of multinational corporations .

Pain Point Two (Internal): Modernization of the Bank's Core System

The second core user pain point that "trust-based" stablecoins address is the pain point of banks themselves.

The brilliance of the "bypass" architecture (bank → trust → blockchain) lies in its ability to give "programmability" to bank deposits (Japanese yen) without affecting the bank's core accounting system. This is a low-cost, low-risk, and highly efficient solution for modernizing the banking system.

Pain Point 3: Delivery Verification (DVP) Pain Point in the Security Token Market

If B2B settlement is its direct application, then the ultimate goal of the Progmat stablecoin is to provide a "cash pillar" for another major pillar of its ecosystem— security tokens .

The cornerstone of financial market settlement is DVP (Delivery versus Payment) .

• Traditional settlement : During the T+2 settlement cycle, there is a significant “credit risk” and “time difference” between the buyer and the seller.
• On-chain DVP : The buyer holds "money" (i.e., Progmat stablecoin), and the seller holds "assets" (i.e., Progmat security tokens). Through smart contracts, the two can be " exchanged simultaneously " (atomic swap).

This is based on a huge existing market. According to Progmat data, as of the fall of 2025, the cumulative issuance of ST cases in Japan has reached more than 280 billion yen, while the total residual market value of ST cases is as high as more than 560 billion yen (approximately US$3.8 billion) .

Of these issued STs, more than 86% are real estate STs by value.

This rapidly growing security token and RWA market, worth hundreds of billions of yen, currently lacks a compliant, efficient, and native "on-chain cash settlement tool."

Therefore, the core strategic users of the "unlimited" stablecoin jointly issued by the three major banks are this ST/RWA market, worth hundreds of billions . Its goal is to become the only compliant, institutional-grade DVP settlement tool in this emerging capital market, thereby completing the final closed loop of "asset issuance" and "fund settlement" on the Progmat platform.

3. The true strategic intentions of the three major banks

Solving "pain points" is merely a superficial "tactical objective." The deeper question we truly need to answer is:

1. Why an "alliance"? Why would Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho, three giants that are each other's biggest competitors in the traditional financial sector, choose to "join forces" in this core area?
2. Why "Progmat"? Why don't banks build their own private platforms, but instead entrust this core infrastructure of future finance to a "neutral" entity with dispersed shareholdings that was "spun off" from Mitsubishi UFJ Trust Bank?

Only by answering these two questions can we reveal the true and ultimate strategic intent behind Japan's top-level financial design.

Intention 1: "Neutral Platform"—The Only Path to Building the Industry's "Greatest Common Denominator"

The alliance of Japan's three major banks is the most thought-provoking strategic decision within the entire Progmat stablecoin framework. In the traditional financial world, payments and settlements are the core and most fiercely competitive domains for banks. It would be commercially impossible for any single bank (such as Mitsubishi UFJ) to attempt to build a private, exclusive stablecoin settlement platform and require its competitors (such as Mizuho and Sumitomo Mitsui) to join and use it.

No financial giant is willing to run its core future settlement business on infrastructure controlled by its main competitors.

Therefore, all three major banks recognize that the prerequisite for building a national-level "institutional settlement network" that can be adopted by the entire industry is "neutrality".

This is precisely the core reason why the Progmat platform was brought to the forefront. Progmat's equity structure perfectly embodies this strategic consideration of "neutrality." It separated from Mitsubishi UFJ Trust Bank in 2023, although the latter remains the largest shareholder (42%), its control has been deliberately diluted .

More importantly, Mizuho Trust , Sumitomo Mitsui Trust , SMBC , and even Nongchu Trust all became core shareholders with a 6.5% stake. The alliance also introduced JPX (Japan Exchange Group) representing "distribution," SBI representing "sales," and NTT Data representing "technology."

This "all-star" equity structure is intended to send a clear signal to the market: Progmat is not Mitsubishi UFJ's "private property," but rather an "industry public infrastructure" jointly funded and recognized by the core forces of Japanese finance .

By sacrificing absolute control over a single entity, Mitsubishi UFJ gained something far more valuable than control itself— industry-wide adoption and consensus . This is the necessary "price" to pay for building a unified "national team" infrastructure, and it is also the only path to its success.

Intent Two: Defense and Counterattack – Building a “TradFi Compliance Moat”

The joint action of the three major banks is not only an offensive to "build a new continent," but also a crucial defensive counterattack. Their target is precisely global, permissionless cryptocurrencies (such as USDC and USDT) and emerging forces like JPYC.

From the perspective of traditional financial giants, if these "non-sovereign" and "non-bank" issued stablecoins are allowed to penetrate into the B2B payment and securities settlement fields, the consequences will be disastrous: the core settlement business of banks will be completely "disintermediated" .

Therefore, the three major banks must take the initiative before Web3 becomes too powerful to be controlled. Their strategic logic is the classic "embrace, expand, and incorporate":

1. Embrace : Proactively embrace blockchain technology and acknowledge its advantages in DVP and cross-border payments.
2. Extended : Leveraging its most powerful weapons— regulatory trust and legal resources —to push for revisions to the 2023 Funds Relief Act, creating a legal framework for "uncapped" "trust-based" stablecoins exclusively for banks and trust institutions.
3. Incorporation : Through this "top-level design," the market was successfully "divided into two."

• JPYC : Permanently "curbed" in the DeFi and retail micro-payment "sandbox" by the legal framework of the "1 million yen wall," preventing it from getting involved in institutional-level systemic financial business.
• Progmat : Becoming the only compliant, unlimited "institutional channel" jointly endorsed by the three major banks and exchanges.

Through this strategy, Japan's financial giants have successfully built a strong "TradFi compliance moat" without stifling Web3 innovation. They have used the legal framework to ensure that, in the foreseeable future, all high-value, systemic financial activities must and can only operate on "Trade 2" under their control.

Intention Three: To monopolize the "toll collection point" of the "RWA economy"

If "neutrality" is its organizational form and "compliance moat" is its defensive measure, then its ultimate and most core strategic intention is to "attack"—that is, to fully control the "core tollbooth" of Japan's next-generation digital finance.

In the emerging "asset side" of security tokens, the Progmat platform has already captured 64.6% of the issuance share , achieving a near-monopoly first-mover advantage.

The strategic closed loop of the three-bank alliance is now completely clear:

1. Step 1 (Asset side) : Through the Progmat platform, preemptively monopolize the "asset issuance" of Japanese ST/RWA (real estate and bonds).
2. Step 2 (Cash Side) : Through a consortium of three major banks, issue a unified, unlimited Progmat stablecoin (SC) to become the only compliant "cash settlement" tool in this multi-billion dollar ST market.

Conclusion: Japan's "Zoning and Development" Digital Asset Strategy

Based on the above analysis, we can draw an objective conclusion regarding the "dual-track" structure of Japanese stablecoins and their future. JPYC and Co-Stablecoin are not direct competitors at the current market stage, but rather parallel tracks serving entirely different markets . They serve distinctly different user groups and solve fundamentally different market problems.

The development of Japanese yen stablecoins has entered a phase of "regional regulation" and "top-level construction." On the one hand, regulators are bringing bottom-up Web3 retail innovations like JPYC under regulatory oversight; simultaneously, they have established a "regulatory sandbox" for them. This acts like a legal firewall, isolating the potential systemic financial risks of these innovations from the core domestic financial system. On the other hand, regulators have designed a completely new compliance path for banks and trust institutions, directly targeting the core of the Japanese financial system: corporate settlement and capital markets.

Looking ahead to the next three years, these two tracks will most likely continue to develop in parallel . Track one will continue to explore innovations in DeFi, Web3 games, and retail payments. Track two will focus on tokenizing Japan's multi-trillion dollar RWA (Real Money Market Fund) and facilitating its efficient circulation through bank stablecoins (SC).

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