Regulators Approve Startup’s Bitcoin Sidechain Trial for Exchanges

Japanese blockchain development company Crypto Garage announced it had gained regulatory permission to trial its settlement system using Blockstream’s Liquid Sidechain, Cointelegraph Japan reported Jan. 21.

Crypto Garage, which claimed to be the first such blockchain finance project to get the green light under the Japanese government’s regulatory sandbox scheme, will now conduct a one-year pilot with a group of participating cryptocurrency exchanges.

The product, dubbed Settlenet, uses Liquid as part of an arrangement allowing exchanges to issue yen-pegged stablecoins and trade against Liquid Bitcoin (L-BTC), Blockstream’s sidechain.

The feature also makes use of so-called ‘atomic swaps,’ the ability to make cross-blockchain transactions without manually converting assets.

“This will enable rapid, secure and confidential transfer of the crypto assets while eradicating counterparty risk,” Crypto Garage wrote in a press release today, Jan. 21:

“In addition, Settlenet will provide the regulatory authorities with the functionality to monitor any unlawful trade, including money laundering.”

Blockstream launched Liquid as the first public, production-ready Bitcoin sidechain in October 2018.

The implementation comes at a crucial time for Japan, which has forged a permissive yet strict regulatory environment for exchanges in particular, following several high-profile hacks over the last twelve months.

Coincheck, the platform that lost over half a billion dollars last January, recently announced it had gained full regulatory licensing from the country’s finance regulator, the Financial Services Agency (FSA).