tokenization

The DCC's Report on a Fully On-chain Settled, Tokenized MMF in Japan

Norbert Gehrke

06 Oct 2025 — 8 min read

The Digital Asset Co-Creation Consortium (DCC) has unveiled a detailed blueprint for launching a fully on-chain settled, tokenized Money Market Fund (MMF), aiming to bridge Japan's established financial markets with the rapidly expanding global digital asset ecosystem. The report, authored by the DCC's "On-Chain Settled Security Token (ST) Working Group", provides a candid and exhaustive analysis of the opportunities and the significant legal hurdles involved in creating a Japanese equivalent to successful global products like BlackRock's BUIDL fund.

The DCC, a 315-member organization spearheaded by digital asset platform provider Progmat, represents a formidable cross-section of Japan's financial and technology industries, including major banks, securities firms, asset managers, and tech consultants. Their report signals a concerted effort by Japan's financial incumbents to move beyond nascent, retail-focused security tokens and build institutional-grade infrastructure for what it terms "on-chain finance."

The Diagnosis: A Bifurcated Market Ripe for Integration

The report begins by painting a picture of a Japanese security token market that, while growing, remains fundamentally disconnected from the on-chain world. As of late 2025 projections, the domestic market for publicly offered security tokens is expected to reach Assets under Management (AuM) of ¥518.9 billion (approx. $3.5 billion), with a cumulative issuance value of ¥262.8 billion. However, this market is overwhelmingly dominated by a single asset class: tokenized real estate, which accounts for 73.5% of deals by number and a staggering 88.6% by value.

These products have primarily been structured for retail investors seeking alternative investments, operating within the traditional securities framework. This has created an ecosystem that is distant from the crypto-native environment of decentralized finance (DeFi), stablecoins, and non-custodial wallets. Institutional participation remains nascent, and the market for more liquid, debt-like instruments is comparatively underdeveloped.

In stark contrast, the report highlights the explosive growth of tokenized MMFs globally, with total value locked exceeding $7.2 billion—a 313% increase year-over-year. Products like BlackRock's BUIDL and Franklin Templeton's BENJI have found significant traction, not with retail investors, but with crypto-native treasuries, stablecoin issuers, and institutional players seeking a stable, yield-bearing, on-chain asset for cash management and collateral.

The core value proposition of these global tokenized MMFs is threefold:

Value Preservation & Yield: Providing a stable store of value that generates returns, unlike non-interest-bearing stablecoins.
Instantaneous Exchange: Offering seamless, 24/7 swaps with high-liquidity stablecoins.
Transparent Collateral: Serving as a highly transparent and robust backing asset for stablecoins and other on-chain products.

The DCC’s conclusion is clear: by launching a Japanese tokenized MMF, the domestic market can attract a new and substantial pool of capital from the "on-chain investor base." This would not only create a new product category but also forge a crucial link in the national investment chain, channeling on-chain capital through the MMF into core underlying assets like Japanese government bonds and bank deposits.

The Blueprint: Architecting a Japanese Tokenized MMF

The working group's report moves from diagnosis to a detailed technical and legal prescription for constructing a Japanese tokenized MMF. This involves a careful selection of a legal vehicle (SPV) and the design of an entirely new operational flow.

The Challenge of the Legal Wrapper

The choice of SPV is critical. The report analyzes several options and quickly dismisses the structures used for existing real estate security tokens, such as the "Specified Beneficiary Certificate Issuing Trust" (特定受益証券発行信託). These trusts are designed for passive management of a specific asset and are legally restricted from the kind of active trading and management of a portfolio of government bonds that an MMF requires.

The report concludes that the only viable legal structure under current Japanese law is an "Investment Trust" (投資信託), specifically a "Public and Corporate Bond Investment Trust" (公社債投資信託). This vehicle is explicitly designed for the continuous management of a securities portfolio.

However, this choice introduces the single greatest obstacle identified in the entire report: the "physical certificate requirement" (券面問題). Under Japan's Act on Investment Trusts and Investment Corporations, the transfer of a beneficial interest in an investment trust legally requires the physical delivery of a certificate. This antiquated requirement is fundamentally incompatible with the concept of a purely digital, on-chain token that can be transferred instantly between wallet addresses anywhere in the world. This legal friction point becomes the central theme of the report's problem-solving efforts.

Proposed Operational Scheme

Assuming the certificate problem can be solved, the report outlines a modern, direct-to-investor operational model.

Issuer & Onboarding: An asset management company would serve as the primary issuer (as the Settlor and Initial Beneficiary). Instead of relying on traditional securities brokerage networks, it would offer the tokenized MMF directly to investors via a dedicated "Direct Sales App/Web Portal."
Wallet Flexibility: The architecture is designed to accommodate two types of investors. Institutional or retail clients preferring a traditional setup could use a custodial wallet, where a licensed entity (like a trust bank or securities firm) manages the private keys on their behalf. More sophisticated, on-chain native users could use their own non-custodial wallets (e.g., MetaMask), giving them direct control over their assets.
Key Roles: The scheme involves several parties:
- Asset Manager (Issuer): Manages the MMF portfolio, operates the direct sales channel, and acts as the "Beneficiary Rights Handling Agent."
- Trustee (Trust Bank): Holds the underlying assets (government bonds, cash) in trust.
- Security Token Custodian: For investors choosing the custodial option, this entity safeguards the tokens (private keys).
- Transfer Agent: A functional role responsible for processing transactions and updating the beneficiary ledger, which runs parallel to the on-chain record.

The entire primary issuance and secondary transaction flow is envisioned to occur on-chain, settled using a stablecoin (SC) for payments, enabling 24/7, near-instantaneous Delivery versus Payment (DvP).

Navigating the Regulatory Labyrinth: From Workarounds to Reform

The most substantive section of the report delves into the myriad regulatory challenges and proposes specific solutions, categorizing them into short-term workarounds and a long-term call for fundamental legal reform.

Solving the "Physical Certificate" Conundrum

The report presents three potential legal frameworks to overcome the physical certificate requirement for investment trusts, each with its own trade-offs:

Option A: The "Jumbo Certificate" with Transfer by Instruction. In this model, a single, large "master" certificate representing all issued MMF units is created and held by a central custodian. On-chain token transfers between investors are then legally characterized as "instructions to the custodian to transfer possession" (指図による占有移転). This maintains the legal fiction of a physical instrument while allowing for digital transactions. While considered viable, it requires complex agreements between all parties.
Option B: On-Demand Certificate Issuance. This approach leverages a "non-possession" clause in the law. By default, no certificate is issued. However, for a secondary market transfer to occur, the seller must first formally request the issuer to print a physical certificate, legally transfer it to the buyer, who would then likely deposit it back into the non-possession system. The report deems this process far too cumbersome and impractical for a liquid market.
Option C: The "Redemption/Creation" Model. This is the most innovative but legally untested solution. An on-chain transfer from Investor A to Investor B is legally re-characterized as two simultaneous but separate events: an instantaneous redemption of units by Investor A (paid out in stablecoin) and an instantaneous new subscription by Investor B (paid for with that same stablecoin). By avoiding the legal concept of a "transfer" (譲渡), the certificate delivery requirement is sidestepped entirely. The report notes this model is conceptually similar to a patented system for "extinction/acquisition type" tokenized beneficiary rights.

Licensing, AML, and Other Hurdles

Beyond the certificate issue, the report meticulously details other regulatory checkpoints:

Licensing: The asset manager, for acting as a direct issuer, would require a Type 2 Financial Instruments Business Operator license. If the platform facilitates secondary trading (acting as a DEX), a more stringent Type 1 license and potentially a Proprietary Trading System (PTS) authorization would be necessary.
Non-Custodial Wallet Compliance: Interacting with self-hosted wallets triggers significant AML/CFT obligations. The service provider must collect user information, screen wallet addresses against blacklists using blockchain analytics firms (like Chainalysis or Elliptic), and adhere to the Travel Rule. The report suggests a phased approach, starting with a strict whitelist of approved addresses and potentially evolving to a more sophisticated system using Soul-Bound Tokens (SBTs) as a form of on-chain KYC passport.
Basel Regulations for Stablecoins: The report raises a red flag for financial institutions. Under the Basel Committee's finalized crypto-asset standards, assets held on permissionless blockchains could be classified as "Group 2" assets, attracting a prohibitive 1250% risk-weighting. This would make it economically unfeasible for regulated banks to hold such stablecoins on their balance sheets, potentially limiting institutional adoption.
Tax Payments with Stablecoins: To enhance utility, the report explores enabling tax payments with stablecoins. It concludes that while currently not explicitly permitted, a path exists by treating it similarly to e-money payments, where a "designated payment agent" receives the stablecoin, redeems it for JPY, and remits the yen to the government. This requires clarification and cooperation from the Digital Agency and tax authorities.

The Path Forward: A Call to Action for Industry and Regulators

The report concludes with a clear, two-pronged action plan.

Short-Term Actions

The immediate goal is to launch a viable product, even with initial limitations. This would likely mean starting with a "transfer-restricted" tokenized MMF, where investors can only subscribe and redeem directly with the issuer. This neatly avoids the secondary market transfer issue and the certificate problem. Concurrently, the consortium will work with legal experts and regulators to validate one of the proposed legal workarounds (likely Option A or C) to enable secondary trading in a subsequent phase.

Long-Term Vision: A "Tokenization Law"

The report's ultimate message is that legal workarounds are insufficient. The true, sustainable solution is legislative reform. The DCC advocates for the creation of a new, "overlay law" (上乗せ法)—tentatively called a "Tokenization Law."

This new law would not replace existing financial legislation but would supplement it, establishing the legal finality of transfers recorded on a digital ledger for specific types of assets. The report draws a parallel to the creation of the "Act on Book-Entry Transfer of Corporate Bonds, etc." (社債等振替法), which was instrumental in dematerializing Japan's traditional securities markets decades ago. Just as that law made book-entry records legally equivalent to physical certificates, a new Tokenization Law would do the same for blockchain records, finally resolving the core friction point.

The report also looks to international precedent, citing the U.S. "GENIUS Act" as a model for how legislation can formally recognize high-quality tokenized assets (like tokenized T-bills or MMFs) as permissible reserves for stablecoin issuers.

In conclusion, the DCC's report is far more than a product proposal. It is a comprehensive and pragmatic roadmap for the maturation of Japan's digital asset market. It represents a powerful consensus among major financial players that the future requires integrating with the on-chain economy. While the technological challenges are significant, the report makes it unequivocally clear that the primary obstacle is legal and regulatory inertia. Its success will ultimately hinge on the ability of Japan's private sector and its government to collaborate on forging a legal framework fit for the 21st-century financial system.