Japan's 6-12 Month Crypto Approval Process Stifles Web3 Innovation, Sparks Exodus to Agile Jurisdictions

Japan’s protracted and rigid regulatory process for cryptocurrency projects is increasingly stifling innovation in the Web3 sector, according to Maksym Sakharov, CEO of decentralized finance platform WeFi. Sakharov argues that Japan’s two-step approval system—requiring prior review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA) and final approval from the Financial Services Agency (FSA)—creates bottlenecks that force startups and liquidity providers to seek more agile jurisdictions. This process, which can take 6 to 12 months or longer, exacerbates pressure on projects to launch overseas, undermining Japan’s early-mover advantage in the crypto space [1].

Sakharov highlights that regulatory delays in Japan contrast sharply with more flexible frameworks in countries like Singapore, South Korea, and the UAE. For example, Singapore offers clearer pathways for token listings, while South Korea’s VAUPA model emphasizes ongoing compliance over external pre-approvals. The UAE’s rapid regulatory environment has similarly enabled swift onboarding of blockchain projects, amplifying Japan’s lag in global adoption. These inefficiencies are pushing innovators to relocate, potentially eroding Japan’s position as a crypto hub [1].

The implications extend beyond startups, affecting Japan’s broader digital economy. Delays in approving blockchain applications—such as smart contracts and tokenized assets—hinder cross-industry use cases, from supply chain optimization to digital identity solutions. Sakharov advocates for reforms such as “time-boxed, risk-based approvals,” functional sandboxes for staking and governance experimentation, and proportional disclosure requirements. He stresses that regulatory inertia is deterring both domestic and international investment, with uncertainty around approvals pushing projects to scale abroad [1].

Experts argue that Japan’s regulatory culture must evolve to align with global trends. A study on AI and blockchain integration, for instance, demonstrates how platforms like AKI2ALL automate rule enforcement, reducing bureaucratic overhead and approval times. Such innovations could serve as a blueprint for modernizing Japan’s infrastructure, balancing regulatory rigor with operational efficiency. However, incremental changes have proven insufficient without a comprehensive overhaul of approval processes [1].

The urgency for reform is underscored by the risk of losing talent and capital to jurisdictions prioritizing innovation-friendly policies. While the FSA has shown some adaptability, systemic changes are needed to retain Japan’s relevance in the global crypto landscape. Without action, the country faces a growing threat of ceding its competitive edge to regions that foster agility in regulatory frameworks [1].

Japan’s ability to streamline compliance while maintaining oversight remains critical. Projects like AKI2ALL highlight the potential of AI-aided solutions to accelerate approvals, offering a scalable model for regulators. However, the path forward requires shifting from a “prescriptive” to a “proportionate” approach, aligning with the dynamic nature of blockchain innovation [1].

Sources:

[1] [Japan’s ‘slow’ approval culture stifles crypto adoption: Expert](https://coinmarketcap.com/community/articles/6884cef47bcc423cceef7492/)

[2] [AKI2ALL: Integrating AI and Blockchain for Circular](https://www.mdpi.com/2075-5309/15/15/2629)