Japan’s Financial Giants Unite for ‘Native’ Security Token Pilot
The Financial Services Agency (FSA) has authorized a landmark pilot program involving the country’s top five financial institutions. The initiative, part of the FSA's "Payment Innovation Project" (PIP), aims to test the viability of blockchain technology for the settlement of traditional book-entry securities, including government bonds and listed stocks.
The Consortium
The pilot brings together a coalition of Japan’s financial heavyweights: Nomura Securities and Daiwa Securities, alongside the three megabanks—Mizuho Financial Group, Mitsubishi UFJ Financial Group (MUFG), and Sumitomo Mitsui Financial Group (SMFG). The collaboration marks a rare unified effort to address the structural inefficiencies of the legacy financial system.
From Niche Products to Market Infrastructure
According to industry analysis, this experiment represents a pivotal shift in Japan's approach to digital assets. Until now, the domestic security token (ST) market—valued at over 300 billion yen—has been driven largely by "custody-type" retail products, such as tokenized real estate or rights to movie revenues, which offer perks to individual investors.
However, Kazuhiro Sudo, Chief Operating Officer of blockchain infrastructure firm BOOSTRY, notes that this pilot aims to bridge the gap with the United States, where the focus has been on "wholesale" efficiency.
"While Japan has focused on product value, the U.S. market has utilized tokenization to achieve transactional sophistication—such as 24/7 trading, real-time settlement, and automated collateral management," Sudo wrote in a commentary on the project.
Testing "Native" Tokenization
The core objective of the FSA pilot is to verify the "Native" model of tokenization (referred to by the U.S. SEC as "Issuer-Sponsored"). Unlike previous schemes that wrapped existing securities in trust structures, this experiment targets the underlying transfer securities themselves.
The participating firms will attempt to synchronize the legal transfer of rights—currently recorded in the book-entry transfer account book (Hofuri)—with data on a blockchain.
The Stablecoin Component
Crucially, the experiment will also integrate settlement via "digital money," specifically stablecoins potentially issued jointly by the participating banks. This aims to test the feasibility of Delivery versus Payment (DvP) on the blockchain, linking the transfer of the security directly with the transfer of funds.
Legal and Structural Hurdles
The road ahead remains complex. Japan’s current book-entry transfer system involves a tiered holding structure that is difficult to replicate on a decentralized ledger. The pilot is expected to identify the specific legal and technical friction points between current regulations and blockchain capabilities.
"The current transfer system is extremely complex," Sudo noted. "This project is expected to unravel these complexities to see what is possible... If it proves difficult under current mechanisms, we may look toward legal reforms to facilitate the change."
The experiment is scheduled to commence immediately, with results regarding regulatory compliance and user protection to be published by the FSA upon conclusion.
Norbert Gehrke
