Sota Watanabe, CEO of Startale Group and board member of the Japan Blockchain Association (JBA), urged Japan to cut the 55% tax rate on DeFi yields to prevent local liquidity from moving offshore. In a recent discussion, Watanabe warned that capital flight remains an active risk if regulators fail to understand on-chain mechanics and continue taxing staking and DeFi yields as progressive miscellaneous income. Japan applies a 20% flat capital-gains tax to spot crypto assets under the Financial Instruments and Exchange Act (FIEA), but DeFi yields and staking rewards remain subject to progressive taxation rising as high as 55%. Watanabe argued that this disparity penalizes participants for providing essential network infrastructure and creates structural friction that drives capital offshore. The JBA seeks to extend separate taxation to staking and on-chain yields, building on the 20% spot crypto tax milestone. Startale aims to unify competing yen stablecoins on its Soneium infrastructure to power enterprise Web3 execution by 2026, addressing fragmentation risks as major financial groups including MUFG, SMBC, and SBI move toward issuing commercial yen stablecoins under Japan's updated regulatory framework.
Watanabe Urges Japan to Cut 55% DeFi Tax Rate
Watanabe stated that Japan's current tax structure creates a primary friction point by taxing decentralized finance (DeFi) yields, staking rewards, and other yield-generating on-chain activities as progressive miscellaneous income, rising as high as 55%. He warned that lawmakers must recognize that DeFi yields and staking are not merely speculative but serve as the underlying machinery for consensus, attack resistance, and basic market depth in proof-of-stake systems and decentralized liquidity pools. Watanabe said, "If users and builders face uncertainty or very high tax burdens on normal on-chain activity, liquidity will move offshore. That is not good for users, not good for startups, and not good for Japan's position in the global digital economy." He argued that taxing network validation at rates up to 55% penalizes participants for providing essential infrastructure utility and creates a structural drain on Japan's ecosystem.
JBA Seeks Separate Taxation for Staking and On-Chain Yields
The JBA's approach is a step-by-step evolution grounded in evidence, according to Watanabe. The association seeks to build on Japan's 20% spot crypto tax by extending separate taxation to staking and on-chain yields. Watanabe outlined that the policy challenge is conceptual, as regulators unfamiliar with crypto often interpret "yield" through conventional financial categories, framing high returns as speculative trading or passive income rather than essential network functions. The JBA advocates for fair tax rules that recognize staking and DeFi yields as infrastructure contributions rather than passive income subject to progressive rates.
Startale Plans to Unify Competing Yen Stablecoins on Soneium
Startale aims to unify competing yen stablecoins on Soneium to power enterprise Web3 execution by 2026. Major financial groups including MUFG, SMBC, and SBI are moving toward issuing commercial, fiat-backed yen stablecoins under Japan's updated regulatory framework. Watanabe stated, "Regulated yen stablecoins can become very important settlement infrastructure, but only if they are usable beyond a closed environment. The opportunity isn't just to issue digital yen. The opportunity is to make yen liquidity programmable, interoperable, and available for real use cases—payments, treasury operations, remittances, creator monetization, and tokenized assets." Startale's approach relies on a specialized, modular architecture where each layer in the stack fulfills a targeted operational mandate, handling the split between consumer engagement and institutional compliance.
Watanabe Warns Against Yen Stablecoin Fragmentation Risk
Watanabe rejected the notion that a single corporate stablecoin will eliminate all competitors in a winner-take-all monopoly. He said, "I do not think yen stablecoins will necessarily be winner-take-all. Different issuers may serve different use cases. Some may be stronger in banking. Some may be better for enterprise settlement. Some may focus on consumer payments, capital markets, or cross-border flows. That diversity is not automatically bad." However, he warned that diversity without connective infrastructure risks replicating the silos of legacy banking systems. Watanabe explained, "The risk is fragmentation. If each stablecoin becomes a closed pool of liquidity, then we recreate the same problem that blockchain is supposed to solve. Users and businesses do not want to manage 10 different versions of digital yen with different integrations, liquidity venues, and redemption pathways. So the important layer will be interoperability."
Soneium to Provide Regulated Access to Open Infrastructure
Watanabe advocates for "regulated access to open infrastructure"—building compliance checks directly into smart contract boundaries rather than locking assets inside walled gardens. He stated, "For Soneium, the goal is to provide infrastructure where enterprises and developers can build applications that are compliant at the edges but still benefit from public blockchain rails. Highly regulated assets do not have to mean completely closed systems. You can have identity, compliance, custody, and issuance controls while still allowing broader interoperability." The rollout of this hybrid framework will be phased and methodical, with compliance standards, identity primitives, and cross-chain messaging maturing to allow regulated assets to expand safely into broader global liquidity networks. Watanabe also addressed the role of spot crypto exchange-traded funds (ETFs) under the FIEA, noting, "ETFs are an important step because they make crypto exposure easier for traditional investors to understand. They create a regulated wrapper, familiar custody arrangements, and clearer access for institutions. But ETFs alone do not build the next generation of Web3 companies."
FAQ
Why does Watanabe urge Japan to cut the 55% DeFi tax rate?
Watanabe urged Japan to cut the 55% tax rate on DeFi yields because he warned that capital flight remains an active risk if regulators continue taxing staking and DeFi yields as progressive miscellaneous income. He argued that this disparity penalizes participants for providing essential network infrastructure and creates structural friction that drives local liquidity offshore, which is not good for users, startups, or Japan's position in the global digital economy.
What is Startale's strategy to address yen stablecoin fragmentation?
Startale aims to unify competing yen stablecoins on its Soneium infrastructure to power enterprise Web3 execution by 2026. Watanabe stated that the goal is to provide infrastructure where enterprises and developers can build applications that are compliant at the edges but still benefit from public blockchain rails, allowing identity, compliance, custody, and issuance controls while enabling broader interoperability. He advocates for "regulated access to open infrastructure" to prevent fragmentation where each stablecoin becomes a closed pool of liquidity.
How does the JBA plan to reform Japan's crypto tax policy?
The JBA seeks to build on Japan's 20% spot crypto tax by extending separate taxation to staking and on-chain yields. Watanabe outlined that the JBA's approach is a step-by-step evolution grounded in evidence, advocating for fair tax rules that recognize staking and DeFi yields as infrastructure contributions rather than passive income subject to progressive rates up to 55%.
