Japan is set to launch a groundbreaking platform for tokenized deposits and digital assets in July 2024. The platform, called DCJPY, will enable banks to issue deposit tokens on the blockchain and allow businesses to create and trade various types of digital assets. DCJPY aims to improve the efficiency, security, and transparency of the financial system and foster new business models with smart contracts.
What is DCJPY and how does it work?
DCJPY stands for Digital Currency Japanese Yen, which is a digital currency backed by bank deposits. It is not a stablecoin, as it does not rely on third-party reserves or pegs to fiat currencies. Instead, it is issued and redeemed by banks using open banking APIs and blockchain technology.
DCJPY operates on a network that consists of two zones: the Financial Zone and the Business Zone. The Financial Zone is where banks mint, burn, and transfer deposit tokens using the DCJPY protocol. The Business Zone is where various types of digital assets can be issued and traded on separate DLT networks. These include metaverse tokens, NFTs, environmental values, security tokens, and more.
The two zones are synchronized by smart contracts that enable the settlement of asset transfers with deposit tokens. For example, a user can buy an NFT with DCJPY in the Business Zone, and the corresponding amount of deposit tokens will be transferred from the buyer’s bank account to the seller’s bank account in the Financial Zone.
What are the benefits of DCJPY?
DCJPY offers several advantages over the existing payment systems and digital currencies. Some of these are:
- Instant settlement: DCJPY enables real-time settlement of transactions without intermediaries or delays.
- Traceability and transparency: DCJPY transactions are recorded on the blockchain, which provides a tamper-proof and auditable ledger of data.
- Security and compliance: DCJPY leverages the existing KYC and AML practices of banks, which reduces the risk of fraud and money laundering. It also complies with the Japanese stablecoin legislation that regulates digital currencies backed by deposits.
- Innovation and diversity: DCJPY supports various types of digital assets that can be created and traded on the Business Zone. These assets can have programmable features that enable new business models and use cases.
Who are the participants of DCJPY?
DCJPY is developed by DeCurret Holdings, a digital currency and electronic payments firm that operates a cryptocurrency exchange in Japan. DeCurret has been leading a consortium of over 100 Japanese institutions and enterprises that have been exploring the potential of tokenized deposits since 2020.
Some of the prominent members of the consortium include MUFG, SMBC, SBI Holdings, Mizuho Bank, Japan Post Bank, Nomura, Daiwa Securities, JPX, Osaka Digital Exchange, Internet Initiative Japan (IIJ), GMO Aozora Net Bank, and more.
The first concrete use case of DCJPY will be launched by IIJ and GMO Aozora Net Bank in July 2024. IIJ will join the Japan Electric Power Exchange (JEPX), which allows it to convert environmental values into digital tokens that can be settled using DCJPY. This will enable IIJ to offer clean energy solutions to its customers and contribute to the decarbonization of Japan.
How does DCJPY relate to the central bank digital currency (CBDC)?
Japan is also planning to issue its own CBDC in the future, which will be a digital version of the yen issued by the Bank of Japan (BOJ). The BOJ has been conducting experiments on CBDC since 2021 and aims to launch a pilot program by 2025.
According to the DCJPY white paper, DCJPY “has a high potential for coexistence” with the CBDC, as they have different roles and features. While CBDC is a legal tender issued by the central bank, DCJPY is a deposit token issued by commercial banks. While CBDC is expected to be used for general payments and settlements, DCJPY is designed to be used for specific transactions involving digital assets.
The white paper also suggests that DCJPY could facilitate the interoperability between CBDC and other digital currencies, as well as enhance the innovation and diversity of the digital currency ecosystem in Japan.
