Why Stablecoin Infrastructure Needs to Be Sovereign and Public-Permissioned in Japan
In the previous article, we outlined the current status and key challenges of stablecoins in Japan, and highlighted that the development of a ‘trusted shared infrastructure’ is essential for their broader adoption. In this article, we explore what such an infrastructure should look like, focusing in particular on why it needs to be both sovereign and public-permissioned.
Stablecoins Are Financial Infrastructure
In discussions around blockchain, the focus is often placed on technological advantages or decentralization. However, stablecoins are not merely applications built on top of infrastructure - they are themselves financial infrastructure through which value is transferred.
Stablecoins have the potential to support core functions of the financial system, including payments, remittances, securities transactions, and fund transfers in corporate transactions. For example, they can enable simultaneous settlement of payment and delivery in corporate transactions, Delivery versus Payment (DVP) for tokenized securities, and near-instant cross-border remittances that traditionally take several days.
As such, critical questions arise: who governs the system, which legal framework applies, and who bears responsibility in the event of issues. These considerations are fundamental when designing stablecoin infrastructure.
Why Sovereignty Is Essential
If stablecoins are to function as financial infrastructure, their underlying systems must be fully aligned with Japan’s legal and regulatory frameworks.
Global public blockchains, while open and decentralized, are characterized by distributed data locations, governance structures that may depend on entities outside Japan, and limited ability for domestic regulators to directly intervene.
In some cases, stablecoins issued on global public chains may rely on validator nodes located outside Japan, making it difficult to ensure effective regulatory oversight or enforcement by domestic authorities.
While these characteristics may be attractive from a technological standpoint, they can become constraints when applied to financial infrastructure. In Japan, strict requirements for user protection and financial stability under laws such as the Payment Services Act and Banking Act must be met.
This need for sovereignty is actually not unique to stablecoins. Japan’s existing financial infrastructure has long been built on sovereign principles to ensure resilience, regulatory enforceability, and public trust. For example, systems such as the Tokyo Stock Exchange and the Zengin System operate under domestic governance, with infrastructure, rules, and oversight anchored within Japan.
As per Japan’s 2022 Economic National Security Act designated operators in electricity, gas, telecommunications, water, oil, banking and credit card issuance must file a plan with the Japanese government before installing any "Material Facility" - defined as any facility, equipment, machines, or programs that are critical for the operator to stably provide services and that could potentially be used by an overseas party to disrupt those services.
Recently, emerging discussions around sovereign AI and data governance reflect a broader recognition that critical infrastructure, whether financial or digital, must remain aligned with national legal frameworks and policy objectives.
Stablecoin infrastructure should be understood in this same context. It must adopt a sovereign design, incorporating operation under domestic law, regulatory oversight, and locally grounded data and validation infrastructure. This is not merely a constraint, but a prerequisite for social acceptance as financial infrastructure.
Why Public-Permissioned Is the Practical Approach
However, sovereignty alone is not sufficient. At the same time, a fully closed system, similar to traditional financial infrastructure, can lead to fragmentation, lack of interoperability, and barriers to entry for new participants.
At this point, it is important to distinguish between two separate concepts: ‘public vs. private’ and ‘permissionless vs. permissioned.’
The former refers to who can access the network (openness), while the latter refers to who can participate in operating the network (governance or participation rights). When these two are conflated, it becomes difficult to clearly understand the available design choices and trade-offs.
For example, many global public blockchains adopt a ‘public and permissionless’ architecture, where anyone can freely access the network and also participate as a validator. While this structure enables a high degree of openness, it also assumes the involvement of potentially anonymous participants. This can create challenges in aligning with the requirements of financial infrastructure, particularly in terms of compliance, accountability, and regulatory oversight.
On the other hand, systems closer to traditional financial infrastructure - ‘private and permissioned’ networks - restrict both access and participation. While this makes it easier to ensure control and compliance, it can limit transparency and interoperability, potentially leading to fragmentation across systems and reduced innovation. This challenge has also been observed in practice in Japan, where a number of consortium-based and private blockchain initiatives were explored, particularly among financial institutions, but struggled to achieve broad adoption beyond specific use cases. In many cases, limited interoperability and restricted participation made it difficult to scale as shared infrastructure across institutions.
In other words, architectures that lean too far toward either openness or control struggle to simultaneously satisfy the core requirements of financial infrastructure: transparency, interoperability, and compliance.
Against this backdrop, a ‘public-permissioned’ architecture emerges as a practical solution.
In this model, the network remains publicly accessible, ensuring transparency and connectivity with external systems. At the same time, critical roles such as validators are limited to trusted, regulated entities.
By separating openness of access from control over participation, this approach enables a balance between openness and governance. It is not merely a middle-ground design, but a structural choice that meets the requirements of financial infrastructure.
Implications for Japan: Connecting with Existing Financial Systems
In Japan, this design is particularly important because integration with existing financial systems is a prerequisite.
Banks, securities firms, and payment providers are expected to play active roles in this ecosystem. To enable use cases such as real-time settlement (T+0), simultaneous settlement with tokenized securities, and cross-border payments, both trust and interoperability are required.
For example, this could include scenarios where tokenized corporate bonds or fund shares are transferred simultaneously with settlement via stablecoins.
In such cases, the issuers or backers of stablecoins and tokenized assets - such as fund managers or bond issuers - are typically regulated entities, and these roles are often performed by distinct participants within the ecosystem.
This makes it essential to design an infrastructure that can coordinate multiple trusted entities while maintaining interoperability across them.
In this context, a sovereign, public-permissioned infrastructure makes this balance possible and serves as a key enabler for advancing Japan’s financial system to the next stage.
From Ideology to Implementation
Concepts such as ‘sovereignty’ and ‘permissioned systems’ in blockchain have often been discussed at an abstract or philosophical level. However, with the emergence of stablecoins, these discussions are increasingly shifting toward practical implementation challenges.
In reality, concrete design decisions must be made, such as who operates as validators, how participation in the network is governed, and how compliance requirements are embedded into the system.
Ultimately, the design of the infrastructure through which value flows will significantly shape the future of Japan’s financial system.
Whether Japan can build an infrastructure that successfully balances sovereignty and openness will determine not only the adoption of stablecoins, but also the realization of on-chain finance in the years to come.
