Mufg Token Activation
Mette Florida
MUFG believes there are benefits in setting up trusts to hold the crypto assets. Until recently, a company issuing tokens that held them at the end of the period was assessed for taxes on unrealized profits. However, the law changed recently, and that is no longer the case.
If we understand it correctly, MUFG sees advantages in setting up crypto trusts for institutional investors, some of whom (limited liability partnerships) would not be allowed to invest in crypto directly. But presumably they can via a trust, where the tokens vest over time.
In other recent MUFG news, it invested in blockchain interoperability startup DataChain, which mainly focuses on public blockchains. On the security token side, it unveiled a collaboration with Progmat and NTT Data, a major player in Japanese bond market infrastructure.
The bill, passed into law a year earlier, requires that stablecoins be pegged to the yen or other legal tender, with guaranteed redemption to the holder at face value, and that they can only be issued by banks and trust companies.
The MUFG-backed platform will support bank-backed stablecoins on Ethereum, Polygon, Avalanche and Cosmos. It has been built with technology and security partners Toki and Datachain, which are building a bridge to allow for cross-chain transactions, lending and swaps between the four underlying blockchains. Toki itself is developing liquidity pools across the four blockchains and will release its own crypto token later this year.
The token, which was first conceptualized in 2016 and experienced development in 2017, is intended for digital payments in the retail space. Users can convert their fiat funds into digital tokens which can then be used for payments at member stores, or for exchange with other users.
The token was created with the intention of reducing fees in transfers, and for use in the remittance space. Demonstrations and practical tests soon followed. The bank participated in a pilot program that put a syndicated loan of $150 million on the blockchain. UFG is expected to be implemented in the second half of 2019.
The MUFG token is a stablecoin that is fixed to the Japanese Yen on a 1:1 basis. Stablecoins are a particularly interesting niche in the cryptocurrency market and several have been launched or are being prepared for launch this year. Earlier this year IBM and Stellar announced that would partner with the intention of helping 6 banks release their own stablecoins.
Potentially this coin could have large-scale commercial potential, as well serving small-scale retail bank customers. Other than Mufg coin, Mufg is testing another untitled digital currency rewards [program] for employees who reduce their overtime hours and practice a healthy lifestyle.
Financial markets face unprecedented challenges, as well as exciting opportunities. At Fnality we will address these challenges by enabling a seamless global liquidity management ecosystem, and by empowering new digital payment models for transactions in both wholesale financial markets and emerging tokenised asset markets.
Mitsubishi UFJ Trust Bank and Ginco announced on August 31 that they have initiated a partnership to offer Japan's first-ever trust services for crypto assets. This move comes as institutional investors globally are increasingly seeking custody services for digital assets.
Mitsubishi UFJ Trust Bank had previously secured two patents related to trust services for crypto assets, aligning with the enforcement of Japan's Payment Services Act in April 2017. The bank has been a pioneer in the digital asset space, launching its digital asset issuance and management platform, "Progmat," in March 2021.
Progmat serves as an efficient and secure platform for issuing and managing digital securities. It digitizes various forms of ownership rights, including real estate, movable assets like cash and goods, intellectual property rights, and dividends.
Recent legal amendments in October 2022 have made it possible for trust banks in Japan to offer custody services for crypto assets. Additionally, tax reforms approved in December 2022 have confirmed that crypto assets meeting certain criteria will be exempt from end-of-term market valuation, potentially increasing the demand for crypto asset trust services.
Ginco, a company providing infrastructure for the safe and secure use of digital assets, will contribute technical expertise required for token management on public blockchains. The company is known for its "Ginco Enterprise Wallet," which boasts the highest adoption rate among business-use crypto wallets in Japan.
The collaboration between Mitsubishi UFJ Trust Bank and Ginco is expected to fill a significant gap in the Japanese market, where institutional investors have been keen on diversifying their portfolios with crypto assets but lacked a regulated framework for doing so.
However, October 2022 saw Japan altering its regulatory stance, allowing trust banks like MUFG to offer cryptocurrency custody services. This regulation shift opened doors for MUFG to explore new opportunities within the crypto sector.
In recent times, institutional custody services have gained substantial traction globally. Japan, keen on remaining competitive in the evolving crypto landscape, initiated legislation to permit trust banks like MUFG to offer crypto custody services.
MUFG perceives several advantages in establishing crypto trusts for institutional investors. The recent change in Japanese tax laws, exempting companies issuing tokens from unrealized profit taxes, adds allure to crypto trusts as a viable means of holding and managing digital assets.
Crypto trusts serve as structured and regulated avenues for institutional investors to access the cryptocurrency market. Some entities, like limited liability partnerships, face restrictions on direct crypto investments. However, these investors may gain exposure to digital assets through crypto trusts, where tokens vest over time.
In collaboration with MUFG, these companies will explore the potential for co-designing token allocation and vesting structures tailored to institutional investors within crypto trusts. This cooperative effort aims to enhance accessibility and security for cryptocurrency investments, catering to a broader investor base.
As MUFG continues its exploration of opportunities in the crypto sector and expands its blockchain initiatives, it retains its position as a significant player in the ever-evolving blockchain and digital asset landscape. With a focus on security, compliance, and innovation, MUFG aims to provide institutional investors with a regulated and reliable path into cryptocurrencies.
Ben Regnard-Weinrabe is a partner, Heenal Vasu a senior PSL, and Hannah Pack a Trainee Solicitor at Allen & Overy UK LLP. Hazem Danny Al Nakib is Managing Partner at Sentinel Capital Group. This post is based on their Allen & Overy memorandum.
A stablecoin is generally understood to be a cryptoasset pegged in value to fiat currency or other assets. It is designed to avoid the volatility inherent in other cryptocurrencies whose price is entirely market driven. While the price fluctuations of other cryptoassets make them perhaps more attractive for speculation, the relative stability of stablecoins offers the possibility of cryptocurrencies being adopted for use in everyday transactions and of becoming a digital form of cash. This would allow a much wider pool of users access to the benefits of digital currencies, for example greater speed and certainty of settlement across a blockchain. In this way, stablecoins offer a bridge between the traditional financial markets and the emerging opportunities offered by cryptocurrency technology.
The crypto-collateralised model has the benefit of decentralisation, as the collateral is held in a smart contract which does not require trust in a central party. However, the stablecoins in this model might need to be overcollateralised in order to account for the price volatility of the cryptocurrency collateral.
Using this model, stablecoins are not backed by any outside collateral but by a type of self-sustaining economic system. The value of the stablecoins is maintained through the use of a system which, for example, expands and contracts the supply of the coin based on an algorithm. This operates in a similar manner to the way in which central banks maintain the value of fiat currencies, but can be done in a decentralised manner.
Stablecoins can also be categorised into public and private stablecoins. Private stablecoins are those issued by commercial enterprises and public stablecoins are issued by central banks. Stablecoins also offer the possibility of developing an international coin, pegged to a basket of fiat currencies or commodities. This would reduce volatility even further by hedging against fluctuations in the value of national currencies, and has the potential to dramatically increase the efficiency of cross-border settlement.
Central banks are increasingly investigating the possibility of creating digital versions of national currencies, recognising the potential of combining the opportunities offered by distributed ledger technology with the existing trust inherent in national fiat currencies. The central bank would initially issue a central bank digital currency (CBDC), which would then circulate between banks, businesses and consumers without further central bank involvement. CBDCs could be narrowly targeted, for example restricted to wholesale transactions between financial institutions, or opened up more widely to consumers as a general purpose currency. The advantages offered by a stable, digital form of cash are particularly evident in the central bank domain as an alternative to bank deposits. For example, a CBDC offers an alternative to the outdated and costly wholesale payment technology used by many central banks. It also has the potential to be used as a monetary policy tool to improve the transmission of policy rates to the real economy, allowing central banks to react more quickly and efficiently to economic challenges.
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