Japan's Dual-Track Stablecoin Ecosystem: How JPYC and Progmat Are Reshaping a Trillion-Yen Market

Japan’s stablecoin landscape is developing into a fascinating study of regulatory pragmatism and market bifurcation. To put the scale in perspective, when we look at the institutional stablecoin market alone—with projects like Progmat’s SC accumulating over 560 billion yen in market value (roughly equivalent to $3.8-4 billion USD), or considering how 3 billion yen translates to approximately $20-21 million USD—we begin to see why Japan’s financial authorities and traditional finance players are making such significant strategic moves. This isn’t happening by accident; rather, it reflects a deliberate “top-level design” shaped by Japan’s unique regulatory framework, distinct market needs, and fundamentally different technological philosophies.

Two distinct paths are emerging, each optimized for different user bases and regulatory contexts. One path—represented by JPYC—bubbles up from the permissionless Web3 ecosystem. The other—led by Japan’s three megabanks on the Progmat platform—is engineered from the top down. These aren’t competing systems; they’re complementary tracks designed to solve entirely different market problems while maintaining a regulatory firewall between retail Web3 innovation and systemic financial infrastructure.

Track One: JPYC’s “On-Chain Yen” – Regulated But Limited

The Legal Evolution: From “Points” to “Funds Transfer Instrument”

Understanding JPYC’s positioning requires tracing its recent regulatory transformation. In its earliest phase, JPYC operated under a clever but precarious legal structure—it was classified as a “prepaid payment instrument,” essentially functioning like video game points or a store gift card. This allowed the project to sidestep Japan’s complex banking and money transfer regulations entirely.

However, this regulatory gray area has closed. With Japan’s 2023 Funds Settlement Act revision, stablecoins were formally defined as “electronic payment instruments,” forcing JPYC to upgrade its legal status. By June 2025, JPYC’s prepaid products ceased issuance, and after extensive regulatory review, JPYC Corporation obtained its “Type 2 Funds Transfer Business” license—a transformative development that converted it from an irredeemable point system into a regulated, truly redeemable yen stablecoin.

This “compliance upgrade” comes with a critical tradeoff: the 1 million yen transaction limit. Under Japan’s regulatory framework, “Type 2 Funds Transfer Operators” face strict transaction caps designed to prevent money laundering while promoting innovation. This regulatory ceiling fundamentally shapes JPYC’s entire market identity and use cases.

Why the 1 Million Yen Wall Matters

The 1 million yen ceiling isn’t a technical restriction—it’s a legal firewall that seals off JPYC from institutional settlement, large-scale B2B transfers, and the emerging security token market. For comparison, when you consider that 3 billion yen equals roughly $20-21 million USD, you can visualize how this 1 million yen cap ($6,700-7,000 USD equivalent) confines JPYC to retail-scale operations.

This legal constraint creates an interesting technical duality. JPYC’s smart contracts themselves are permissionless and unlimited—they operate on public blockchains like Ethereum, Polygon, and Solana with no built-in transfer caps. However, when used by regulated Japanese entities, the legal framework imposes the ceiling. This “law-technology misalignment” perfectly positions JPYC as the native asset for the global, permissionless DeFi ecosystem rather than Japan’s domestic financial infrastructure.

JPYC’s Core Use Cases: DeFi, Arbitrage, and Micropayments

DeFi Liquidity and 24/7 Forex Markets: JPYC fills a crucial gap in global decentralized exchanges. While USDC, USDT, ETH, and WBTC form the backbone of DEX liquidity, the Japanese yen—one of the world’s three major reserve currencies—was historically absent on-chain. JPYC enables JPYC/USDC and JPYC/ETH trading pairs, creating the first compliant spot forex market for the yen accessible to any global DeFi user.

Tokenizing the Yen Carry Trade: JPYC’s most sophisticated use case exploits Japan’s structural macro environment. Traditionally, institutional investors execute “yen carry trades” by borrowing yen at near-zero rates, converting to dollars, and earning the interest rate differential. JPYC democratizes this professional strategy:

A typical arbitrage path: Deposit ETH into Aave as collateral → Borrow JPYC at near-zero rates → Sell borrowed JPYC for USDC on Uniswap → Deposit USDC into Yearn Finance earning 4-8% APY → Pocket the spread between JPYC’s ~0% borrowing rate and USDC’s higher lending rates. This low-to-medium ticket, high-frequency arbitrage is precisely what the 1 million yen cap enables.

Web3 Micropayments: Japanese NFT marketplaces, on-chain games, and Web3 applications need native yen payment rails for small transactions. JPYC provides this critical infrastructure.

Track Two: Progmat’s Institutional Alliance – Unlimited and Exclusive

A Completely Different Legal Foundation

Progmat’s institutional stablecoin bypasses the “funds transfer” regulatory pathway entirely. Instead, it leverages a new legal structure introduced in the 2023 Funds Settlement Act specifically for banks and trust institutions: trust-based stablecoins. This legal innovation is the cornerstone of everything Progmat attempts to achieve.

The structural design is elegant: Japan’s three megabanks—Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho—operate as “joint trustees,” with Mitsubishi UFJ Trust Bank serving as “single trustee.” Critically, stablecoins issued under this trust-based framework face no transaction limit. This isn’t a minor detail; it’s the legal passport enabling Progmat to compete for the multi-billion yen institutional settlement and security token markets that JPYC can never legally access.

The “Bypass” Architecture: Modernizing Legacy Banking Without Overhaul

Why would modern banks bother with blockchain-based stablecoins when they already operate sophisticated payment systems? The answer reveals the ingenious problem-solving buried in Progmat’s design.

Traditional bank IT systems globally rely on the “core banking accounting system”—an ancient, stable, but profoundly rigid infrastructure. The critical flaw: it lacks APIs supporting external, programmable, 24/7 calls. All updates must flow through internal online banking systems. Modernizing this system directly would require massive overhauls, creating unacceptable IT costs and financial stability risks.

The trust-based structure provides a perfect workaround:

1. Bank side: The bank (settlor) transfers funds to a trust account (trustee). This is routine, existing financial practice requiring zero new development.
2. Trust side: The trust, enabled by Progmat’s blockchain infrastructure, issues equivalent stablecoins on-chain.
3. On-chain side: All 24/7 programmable smart contract calls, automated B2B settlements, and instant DVP (Delivery vs. Payment) operations occur entirely at the blockchain level, completely isolated from the bank’s legacy core system.
4. Redemption: Users redeem stablecoins through traditional channels, with the trust destroying on-chain tokens and returning fiat currency to bank accounts.

This architecture gives bank deposits something they’ve never had: 24/7 availability, cross-border capability, and programmability—without requiring any changes to legacy systems. It’s a surgical bypass that retrofits modernity onto institutional finance.

Progmat’s Ownership: A “National Team” Infrastructure

Understanding why the three competing megabanks would jointly build this infrastructure requires examining Progmat’s ownership structure. The company spun off from Mitsubishi UFJ Trust Bank in 2023, specifically to establish independence and “neutrality.”

Though Mitsubishi UFJ Trust retains the largest stake (42%), its control has been deliberately diluted. Mizuho Trust, Sumitomo Mitsui Trust, and Nonchu Trust each hold 6.5%. The platform also incorporated Japan Exchange Group (JPX) at 4.3%, SBI at 4.3%, and technology backbone NTT Data at 11.7%.

This structure sends a market signal: Progmat is not any single bank’s proprietary platform, but rather joint-owned industry infrastructure. This is the necessary foundation for institutional adoption. No financial giant willingly runs core settlement operations on systems controlled by competitors.

Progmat’s Market Position: Capturing Japan’s RWA Boom

As of fall 2025, the security token (ST) market in Japan had reached 280 billion yen in cumulative issuance, with a total residual market value exceeding 560 billion yen (approximately $3.8-4 billion USD equivalent). Over 86% of this value is concentrated in real estate STs, reflecting Japan’s decades-long real estate market complexity and the emerging opportunity to tokenize illiquid assets.

Progmat has already captured 64.6% of ST issuance share—a commanding first-mover advantage. The strategic logic becomes crystalline: issue bank-backed stablecoins as the “cash” settlement layer for this multi-billion yen asset market. When buyers hold Progmat stablecoins and sellers hold Progmat security tokens, smart contracts can execute atomic swaps—simultaneous, risk-free settlement. This is the DVP (Delivery vs. Payment) mechanism that eliminates the credit and timing risks embedded in traditional T+2 settlement cycles.

The institutional stablecoin isn’t a replacement for existing bank transfers; it’s the missing piece in Japan’s digital asset market infrastructure.

Market Positioning: Why Coexistence Works

JPYC serves crypto-native traders globally, executing retail-scale DeFi strategies under the 1 million yen legal ceiling. Progmat serves corporations, financial institutions, and the security token market with unlimited, programmable institutional-grade settlement.

The regulatory segmentation isn’t competitive friction; it’s calculated market design. Japan’s financial authorities have essentially zoned the stablecoin ecosystem: Web3 innovation gets its sandbox (JPYC’s DeFi playground), while systemic finance gets its walled garden (Progmat’s institutional network). Each operates under different legal frameworks, serving different user bases, solving different problems.

The Deeper Strategic Calculus

Why an Alliance? The Neutrality Imperative

Payments and settlement are banking’s most competitive, most guarded domains. For Mitsubishi UFJ to build an exclusive platform and demand competitors use it would be commercially impossible. No rival megabank accepts dependence on competitors’ infrastructure for core operations.

Therefore, all three banks recognized a critical truth: institutional adoption of stablecoins requires genuine neutrality and distributed governance. Progmat’s deliberately diluted ownership structure isn’t a concession; it’s the entry fee for industry-wide adoption.

By sacrificing absolute control over a single platform, the three banks gained something vastly more valuable: collective control over Japan’s next-generation financial infrastructure and consensus from the entire financial sector that Progmat is the legitimate, neutral standard-bearer.

Why Progmat? Building a “TradFi Compliance Moat”

The coordinated action of Japan’s three megabanks also represents a strategic defense. The threat they perceive is clear: permissionless stablecoins like USDC, USDT, and even JPYC, if uncontrolled, could gradually disintermediate core banking functions—payments, settlements, and eventually capital markets operations.

The strategic logic follows the classic pattern of “embrace, expand, and incorporate”:

Embrace: Acknowledge blockchain’s genuine advantages in DVP, cross-border settlement, and programmability.

Expand: Leverage regulatory influence to shape the legal framework—specifically the 2023 Funds Settlement Act revision—to create an “unlimited transaction” pathway exclusively available to banks and trust institutions.

Incorporate: Market segmentation ensures that JPYC remains confined to retail DeFi under its 1 million yen cap, while Progmat becomes the only compliant option for institutional settlement. High-value systemic finance stays within the banks’ perimeter.

Through this structure, Japan’s financial establishment has preserved its gatekeeping function while appearing to embrace innovation. Web3 continues freely in its designated space; systemic finance remains under institutional control.

The Ultimate Prize: Monopolizing RWA Market Infrastructure

If neutrality is Progmat’s organizational form and compliance defense is its strategic buffer, then monopolizing the toll collection points of Japan’s emerging RWA economy is its ultimate offensive objective.

Progmat already controls 64.6% of ST issuance. By providing the only compliant, unlimited stablecoin for DVP settlement in this market, the three-bank consortium establishes a closed-loop infrastructure:

• Step 1 (Asset side): Preemptively monopolize ST/RWA issuance through Progmat’s platform.
• Step 2 (Cash side): Control the only compliant stablecoin for settlement.
• Result: Every transaction in Japan’s multi-hundred-billion-yen RWA market flows through infrastructure directly controlled by the three megabanks.

For context, when we consider that Progmat’s current market value is approximately 560 billion yen ($3.8-4 billion USD), with projections for significant growth as RWA adoption accelerates, the strategic value of controlling settlement infrastructure becomes apparent.

Conclusion: Japan’s “Zoning” Strategy for Digital Finance

Japan’s stablecoin ecosystem isn’t fragmenting by accident—it’s fragmenting by design. The “dual-track” structure reflects sophisticated regulatory thinking:

Track One (JPYC): Retail, permissionless, DeFi-focused innovation operates under legal guardrails that prevent systemic risk while enabling Web3 experimentation.

Track Two (Progmat): Institutional-grade, bank-controlled infrastructure captures the high-value RWA and settlement markets, keeping systemic finance within the regulated perimeter.

Over the next three to five years, this parallel development will likely accelerate. JPYC will deepen its roots in DeFi, Web3 gaming, and cross-border retail transactions. Progmat will become the backbone of Japan’s multi-trillion-yen RWA market and institutional settlement network.

What appears on the surface as market competition is actually a carefully choreographed division of labor. Japan has created a regulatory framework that permits Web3 innovation to flourish in designated spaces while ensuring that the core gears of institutional finance remain firmly within the control of established financial powers. It’s a sophisticated play—one that other nations with larger crypto markets are beginning to study as a potential model for regulatory coexistence between decentralized and traditional finance.