What are Stablecoins? An Easy-to-Understand Guide to Their Mechanisms and Benefits for Beginners

On October 24, fintech company JPYC announced that it would officially launch "JPYC," a stablecoin pegged to the Japanese yen, starting at 1:00 PM on October 27. As Japan's first yen-denominated stablecoin, it is expected to bring a new transformation to the domestic electronic payment market.

1. Introduction: The Emergence of "Stablecoins," Cryptocurrencies with Stable Prices

Cryptocurrencies, such as Bitcoin, are attracting significant attention as a new technology, but they face one major challenge: "extreme price volatility." Something worth 1 million yen yesterday might be worth 800,000 yen or 1.2 million yen today... This makes it a bit unsettling to use for daily shopping or remittances.

To solve this problem, "stablecoins" were created.

In this article, we will explain the world of stablecoins in an easy-to-understand way, focusing on the following three points, so that even those who are not familiar with cryptocurrencies can understand them.

• The basic mechanism of stablecoins: Why is the price stable?

• The decisive difference from Bitcoin: What are the benefits?

• Japan's first stablecoin, "JPYC": How will it affect our lives?

By reading this article to the end, you will have a clear understanding of the basic knowledge of stablecoins and how they have the potential to change the future of our finance.

2. Basics of Stablecoins: Why are they "stable"?

In this section, we will explain the core concepts of stablecoins and the major benefits they provide.

2.1. The biggest difference from Bitcoin is "price stability"

As the name suggests, a stablecoin is a "cryptocurrency with a stable price."

The price of Bitcoin is constantly fluctuating based on supply and demand. You often see news headlines like "Bitcoin crashes" or "Bitcoin hits a new high." While this price volatility may be attractive for investment purposes, it is a major weakness as a means of payment.

For example, the moment you try to pay for a 10,000 yen item with Bitcoin, its value might drop to 9,000 yen or rise to 11,000 yen. This makes it difficult for both merchants and users to transact with peace of mind.

On the other hand, stablecoins are designed so that their value is pegged to fiat currencies like the Japanese yen or the US dollar, such as "1 coin = 1 yen" or "1 coin = 1 US dollar." This is technically called a "peg." This allows them to achieve price stability similar to fiat currency while still being a cryptocurrency.

2.2. Two major benefits brought by stablecoins

Stablecoins are truly hybrid assets that "get the best of both worlds" by combining the technical advantages of cryptocurrencies with the stability of fiat currencies. Here are two of their main benefits.

• Benefit 1: Value stability that makes payments easy Because the price does not fluctuate, you can use it for daily shopping with peace of mind. For example, it becomes standard practice to "pay for a 10,000 yen product with a stablecoin whose value is fixed at 10,000 yen." A key feature is that it is easy to adopt as a payment method because merchants can accept it without worrying about value fluctuations.

• Benefit 2: High-speed transfers completed in seconds Stablecoins are based on blockchain technology that allows for direct (P2P) transfers between individuals without going through financial institutions like banks. This makes transfers dramatically faster. This is especially effective for international remittances. While sending money overseas through a Japanese bank can sometimes take weeks, using stablecoins allows you tocomplete transfers anywhere in the world in seconds to minutes.

2.3. Comparison of Features: Stablecoins vs. Bitcoin vs. Japanese Yen

Comparing the characteristics of these three assets makes the positioning of stablecoins clearer.

Feature

Stablecoin

Bitcoin

Japanese Yen (Bank Transfer)

Price Stability

Very high (pegged to fiat currency)

Low (constantly fluctuating)

Very high

Main Use Cases

Payments, remittances

Investment, store of value

Payments, remittances, savings

Transfer Speed

High speed (seconds to minutes)

Somewhat slow

Slow (especially international remittances)

While stablecoins are convenient, how much are they actually being used around the world?

3. Global Usage: A Market Where 4,000 Trillion Yen Is Already Moving

Stablecoins have already formed a massive market globally. In particular, those pegged to the US dollar, such as Tether (USDT) and USDC, are widely used, and their transaction volume is staggering.

The total annual transaction volume in 2024 is expected to reachapproximately 4,000 trillion yen in Japanese currency—a staggering amount equivalent to about 40 times Japan's national budget, indicating that stablecoins are no longer just experimental technology but are beginning to function as practical financial infrastructure.

To get a sense of the market size, let's look at the market capitalization of Tether (USDT), a representative stablecoin. Its value is approximately 24 trillion yen, which is about one-tenth of Bitcoin's market capitalization (approximately 300 trillion yen). It is clear that it has grown to a scale that cannot be ignored.

As they rapidly gain popularity worldwide, full-scale stablecoins are finally set to appear in Japan as well.

4. What is Japan's First Stablecoin, 'JPYC'?

As a concrete example, I will explain the mechanism and background of 'JPYC,' the first full-scale stablecoin in Japan.

4.1. Overview of JPYC: Japan's Challenge Starting in the Autumn of 2025

JPYC is a Japanese yen-pegged stablecoin with its value fixed at **'1 JPYC = 1 yen.'**

The background that made this JPYC possible is the **'Revised Payment Services Act'** enacted in June 2023. This law established rules for the issuance and management of stablecoins, which had previously been difficult in Japan.

Then, on August 28, 2024, the developer, JPYC Inc., completed its registration as a funds transfer service provider. It isscheduled to launch services sequentially starting in the autumn of 2025.

4.2. How JPYC Works: 'Issuance' and 'Redemption'

The basic operations performed by JPYC Inc. are very simple: 'Issuance' and 'Redemption'.

• Issuance When a user deposits Japanese yen with JPYC Inc., an exactly equal amount of JPYC is issued and given to the user. (Example: If you deposit 10,000 yen, 10,000 JPYC is issued.)

• Redemption This is the reverse process of issuance. When a user returns the JPYC they hold to JPYC Inc., an equal amount of Japanese yen is returned. (Example: If you return 10,000 JPYC, 10,000 yen is returned.)

4.3. JPYC Inc.'s Business Model: How They Generate Profit from Deposited Yen

If they only exchange at '1 JPYC = 1 yen,' how does JPYC Inc. make a profit? Their business model demonstrates the ingenuity of this system. Because the value is stable, it is not a business that charges fees to users. Therefore, another source of revenue is required.

The answer lies in the 'management' of the Japanese yen deposited by users to issue JPYC.

1. To issue JPYC, users deposit Japanese yen with JPYC Inc.

2. JPYC Inc. invests these deposited Japanese yen into highly safe assets such as "short-term government bonds."

3. The interest income earned from these government bond investments becomes the primary profit for JPYC Inc.

JPYC Inc. chooses highly safe assets like "short-term government bonds" for its investments because it prioritizes the safety of the deposited funds, ensuring that users can convert them back into Japanese yen whenever they make a "redemption" request. This prudent management is the backbone that supports the stability of the "1 JPYC = 1 yen" value.

This mechanism holds potential that goes beyond the business model of a single company. If stablecoins like JPYC become widely adopted in the future, the issuing companies will become new buyers of government bonds. This is a very interesting development that could even influence national fiscal management.

While stablecoins hold much potential, there are also risks unique to this new technology.

5. Risks You Should Know

Although stablecoins are designed to have a "stable" price, they are not 100% safe. It is important to understand the following risks.

• Risks of Issuer Reliability and Transparency In the past, there have been cases of stablecoins crashing due to insufficient backing for their value. In the 2022 "Terra (UST)" incident, many investors suffered significant losses. While models backed by fiat currency like JPYC are considered relatively safe, the reliability of the issuer—specifically whether they might go bankrupt or engage in fraudulent activities—is always a concern.

• Technical Risks as Crypto Assets Since stablecoins are a type of crypto asset, the risks of theft via hacking or system failures are not zero. Because stablecoins are also programs, any flaws in their design could be exploited. Additionally, if you neglect the management of your own digital wallet, you could become a victim of theft through hacking.

• These risks can be considered higher than those associated with traditional fiat currencies like the Japanese yen or the US dollar.

Including this risk management, how are countries around the world approaching stablecoins?

6. Conclusion: The Future Stablecoins Will Change

In this article, we have explained everything from the basic mechanisms of stablecoins to specific examples and risks. Finally, here are three important points summarized.

• Combining Technology and Stability Stablecoins are a groundbreaking technology that combines the "high-speed remittance technology" of crypto assets with the "price stability" of fiat currencies.

• The Arrival of "JPYC" and Its Unique Business Model Japan's first "JPYC" will launch in the fall of 2025. Its unique model of generating profit by investing user-deposited yen into government bonds could have a new impact on the financial market.

• Global Rule Development and Future Potential Rules are being rapidly developed in Japan, the US, the EU, and other countries around the world, which could lead to a sudden surge in their use for global payments and remittances.

JPYC is starting this month, but
it's unclear whether it will actually become widespread.

Many Japanese people have an allergy to cryptocurrencies,
and unless it has an easy-to-use app or system like PayPay,
it seems difficult to cross the chasm.