Japan’s Ministry of Finance held the first meeting of its “government bond on-chain study group” on Thursday and released briefing materials that sort possible tokenization models into three provisional categories, according to NADA NEWS. The first would allow beneficiary rights in money market funds (MMFs) that invest in government bonds to circulate on blockchain rails. The second would place transfer ledgers on-chain within the current book-entry settlement framework, with three possible structures: a single account management institution, coordination among multiple institutions, or a model linked to the Bank of Japan’s ledger. The third would involve issuing a new form of government bond directly on blockchain infrastructure outside the current system. The ministry said an on-chain framework could improve collateral and liquidity management efficiency and broaden the investor base, with particular appeal for overseas investors. At the same time, it flagged several issues, including market fragmentation, transmission of sharp price swings, and the cost of system upgrades. All three categories remain provisional, and the ministry plans to compile a report by January 2027.
Japan’s Ministry of Finance held the first meeting of its “government bond on-chain study group” and released briefing materials that organize possible blockchain-based government bond structures into three provisional categories, according to NADA NEWS.
Three provisional models
Type 1 would put beneficiary rights in money market funds (MMFs) that invest in government bonds into circulation on blockchain.
Type 2 would move transfer ledgers on-chain under the current transfer and settlement system. The ministry broke this category into three forms: a single account management institution, coordination among multiple institutions, and a structure linked to the Bank of Japan ledger.
Type 3 would issue a new form of government bond on blockchain outside the current system.
Benefits and issues cited by the ministry
The ministry said an on-chain structure could improve the efficiency of collateral and liquidity management and help broaden the investor base, especially for overseas investors.
It also pointed to several challenges, including market fragmentation, the transmission of sharp price volatility, and the cost of system changes.
Next step
All three categories are still provisional. The ministry plans to compile a report by January 2027.
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