The Japanese yen is a relatively volatile currency at the moment. In April 2024, the yen reached a 34-year low, trading at 160.15 yen per U.S. dollar, its weakest since 1990. Despite this, GMO-Z.com Trust Company made a notable move by listing GYEN—the first fully regulated stablecoin backed by the Japanese yen—on the Bitstamp exchange on June 14, 2024.
Though it introduces new investment opportunities for local and global investors, questions loom over the viability of GYEN. Japan’s low-interest rate policies and sluggish economic growth have left the yen consistently weaker, and this raises doubts about whether a stablecoin tied to the currency can offer the same level of reliability, especially in a world where the dollar backs most stablecoins because of U.S.’s stronger economy and higher interest rates.
The Case for GYEN’s Issuance and Listing
Despite its volatility, GYEN is positioned as a promising alternative to USD-backed stablecoins in the Middle East and Asia due to its direct link to the yen. It offers a key advantage in cross-border trade by reducing reliance on volatile exchange rates and the U.S. dollar, which remains the dominant reserve currency.
Asian investors could avoid currency conversion costs that come with using USD-backed stablecoins such as ZUSD, USDT, or USDC, especially in markets where the yen is already widely accepted. This would be particularly advantageous in the ASEAN region, where local currency transactions are increasingly favoured. As these economies push for local-currency settlements, GYEN could help reduce dependency on the U.S. dollar in the region.
Meanwhile, operating as an ERC-20 token on the Ethereum network, GYEN enjoys broad compatibility with existing crypto wallets and infrastructure, enhancing its usability for investors and businesses.
This flexibility and accessibility, coupled with the stability provided by Japan’s regulatory framework, offers a compelling case for its growing adoption and use within the crypto market in that region. The country’s Financial Services Agency (FSA) imposes rigorous standards on crypto exchanges and stablecoins; it requires full backing of assets held in trust within Japan.
GMO Trust, the issuer of GYEN, has reportedly adheres with these requirements and has implemented monthly audits to ensure transparency. Aside from local regulatory compliance, the Trust is also under the oversight of the New York Department of Financial Services (NYDFS). These things bolster GYEN’s security and appeal, particularly to local investors.
Market Reality And The Case Against GYEN’s Listing
Despite its potential, the data doesn’t indicate a strong market performance and usefulness for GYEN, as we might want to believe. While USD-backed stablecoins like USDC and USDT maintained stable prices between $0.99 and $1.00 throughout 2024, GYEN has struggled with volatility.
For instance, GYEN reached a high of $0.006914 on January 1, 2024, but saw a 5.62% decline by the end of Q1, falling to $0.006525. In Q2, it dropped a further 0.835%, ending at $0.006527 on April 10. Although GYEN rebounded by 12.75% in September to reach $0.006994, these fluctuations undermine its purpose as a stable store of value when compared to USDT and USDC, which offer more consistent stability.
In terms of market capitalization, GYEN saw a decline as well. It started the year at $18.8 million but has dropped by 22.73% to $14.5 million by September.
On the other hand, the total market cap for fiat-pegged stablecoins surged by 35.4%, growing from $119.1 billion in late 2023 to $161.2 billion by mid-2024. The top three USD-backed stablecoins—USDT, USDC, and Dai—continue to dominate, accounting for 94% of the stablecoin market, with USDT leading at a 70.3% share.
Another concern is regulatory uncertainty. While Japan’s regulatory framework supports GYEN, the global regulatory landscape for cryptocurrencies is still evolving. This could complicate compliance for GYEN in international markets, potentially limiting its adoption outside Japan. Investors may hesitate to engage with a currency linked to a single economy, particularly Japan’s, which is subject to its economic challenges.
Moreover, the effectiveness of GYEN is closely tied to Japan’s economic health. Factors such as inflation or changes in monetary policy could impact GYEN’s value, causing concern for investors who may view the yen as a risky currency compared to the U.S. dollar. This single-country risk could deter investors from using GYEN for long-term stability.
Technologically, GYEN’s reliance on the Ethereum network presents additional challenges. Ethereum’s ongoing scalability issues and high transaction fees (gas fees) may limit GYEN’s usability, particularly in regions where transaction costs are a significant concern.
Future Outlook
Despite these hurdles, GYEN holds promise, particularly in Asia. Ripple CEO Brad Garlinghouse recently declared that Japan presents a promising market for stablecoins, suggesting that there will soon be a strong demand for one based on the yen. However, how soon this demand will translate into widespread adoption remains unclear.
GYEN’s success in the future will depend largely on its ability to integrate into existing payment systems and its partnerships with key financial players. Collaborations with firms like Hex Trust and Anchorage Digital are already aiding its expansion, but competition is intensifying. Ripple, for example, is reportedly developing its own yen-based stablecoin, which could challenge GYEN’s position in the market.
For now, while GYEN may not be poised to replace USD-backed stablecoins on a global scale, it could still establish itself as a key player in the Asian market, particularly as economies in the region seek alternatives to dollar-based transactions.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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