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In this article, we will introduce AI agents, which have been gaining popularity since 2025, by explaining (1) what an AI agent is, (2) what Web3 AI agents are, and (3) the legal issues surrounding AI agents.

Because AI agents can take over any job, when considering the relationship between AI agents and the law, it is necessary to consider legal issues for all the jobs they perform. However, since it is difficult to cover all of this in a blog, this article first introduces the basic ideas for considering legal issues related to AI agents, and then discusses their relationship with regulation, focusing on financial regulation in particular.

However, we believe that this approach to financial regulation will also be useful to a certain extent when considering legal issues related to other AI agents.

I. Overview of AI Agents

1 What is an AI Agent?

An AI agent is generally an artificial intelligence system that autonomously performs specific tasks. It is capable of processing data from the environment, learning and making decisions as needed, and carrying out tasks without human instruction.
Generally, an AI agent has the following elements:

This allows AI agents to perform repetitive tasks and make complex decisions on behalf of humans.
AI agents are currently attracting a great deal of attention as they are expected to transform our lives and how we do business.
For example, AI agents are expected to be used in the following applications:

AI agents have the potential to enrich our lives and make businesses more efficient, thanks to their personalization and autonomy, and these applications are areas where further advancements are expected in the future.

2 Specific examples of AI agents

The following are some specific examples of AI agent use both in Japan and overseas.

3 Web3 AI Agents

AI agents are said to be compatible with Web3. The integration of Web3 and AI agents is expected to create new possibilities, such as the following:

One example of a Web3 AI agent that has attracted global attention is AI16Z (ai16z), a decentralized AI investment fund built on the Solana blockchain that utilizes AI agents to autonomously conduct investment activities.

The name ai16z is a play on Andreessen Horowitz (a16z), a well-known Silicon Valley VC, but ai16z and a16z are unrelated.However, on October 27, 2024, Marc Andreessen, one of the founders of a16z, posted “GAUNTLET THROWN” on X (formerly Twitter) and mentioned the T-shirt worn by ai16z’s main avatar, which caused the name of ai16z to spread rapidly¹.

Furthermore, in early January 2024, ai16z’s market capitalization temporarily exceeded 300 billion yen, growing more than 100 times in three months. As a result, by early January 2025, the company had become a hot topic worldwide and in the case of a personal injury accident was also a major topic of discussion on AI agents on Japan’s X (formerly Twitter).However, perhaps due to overly high expectations, the price has fallen sharply, with the market capitalization falling to around 50 billion yen, indicating extremely speculative price movements.

II. Summary of the legal part of this paper

III. Basic Concepts of AI Agents and Law

1 When considering regulations, first consider how similar actions would be handled if a person were to commit them.

The “agent” in AI agent is translated as “representative” in Japanese. Services called AI agents usually refer to entities that perform specific tasks “on behalf of” humans, even if they do not fall under the strict legal definition of a “representative.”
When considering regulations that may apply to AI agents, consider the following steps:
(i) Consider what legal issues would arise if a human were to perform a similar act.
(ii) Then, consider whether any regulations would be imposed on users if they were to perform such acts using AI.
(iii) Consider whether any regulations would be imposed on businesses that provide the AI ​​to users.

2 Regulation is directed at people and corporations, not at AI agents themselves

As mentioned above, AI agents are sometimes translated as “agents,” but since they are neither people nor corporations, under current law, AI agents themselves are not subject to regulation. Instead, the natural persons and corporations that use or provide them are.

In relation to this “natural persons and corporations are subject to regulation,” particularly in the context of DAOs, if an AI agent can be said to operate completely autonomously and without human involvement, the question arises as to whether legal regulations would not apply in the first place. However, since it is often unclear whether there are no operators who are completely subject to regulation, we believe that careful consideration is necessary².

3 There are currently no laws regulating AI agents in general.

Currently, there are no laws that generally prohibit the provision or use of AI agents, so whether or not the current regulations that apply to natural persons and legal entities apply to each individual act must be considered.

4 AI itself does not become the subject of rights and obligations

In relation to point 2 above, even if we translate “agent” as “representative,” AI is neither a natural person nor a legal entity, and AI itself cannot be the subject of rights or obligations.
Therefore, for example, when an AI agent makes a mistake, the AI ​​itself is not liable, but the user or the AI ​​agent provider is.

IV. Relationship between AI agents and users, and between AI agent providers and users

1 Relationship between AI agents and users

AI agents are automating a variety of tasks.
First, when a person delegates part of a task to another person, a contract of the following form is concluded.

On the other hand, under current law, the relationship between humans (users) and AI agents is merely that between humans and the software and hardware (that construct the AI ​​agent) and is not a contractual relationship; it is merely a relationship in which humans are effectively using the AI ​​agent.

2 Relationship between AI agent providers and users

AI agents are generally developed by companies, and many users either receive ready-made AI agents from those companies or commission the development of AI agents to those companies.
This relationship can be summarized as follows:

V. AI Agent Malfunctions and Responsibilities

1 Damages caused to users of AI agents

If a user suffers damage due to a malfunction of an AI agent, the following liability claims and defenses may be taken:

2 AI agent ordering errors (unauthorized ordering or unauthorized representation)
(i) The problem of unauthorized human representation

For example, if a person asks another person to purchase Bitcoin and gives them authority to do so, but the agent ends up purchasing Ethereum, this will be considered unauthorized agency, and in principle the effects of the contract will not belong to the principal.
The main legal issues that arise when unauthorized agency occurs are as follows:

(ii) Unauthorized ordering or unauthorized representation by AI agents
① In the case of AI agents managed by users

Since AI agents are programs that operate based on user instructions, orders placed by AI agents are generally considered to be an expression of the user’s intention, and the effects of such orders are also considered to belong to the user.
However, there are also cases where an AI agent places an order that differs from the user’s true intention, and in such cases, the question arises as to whether the effects of the order belong to the user.
In this regard, it may be necessary to consider whether the user can revoke the expression of intention as a “mistake” (Article 95 of the Civil Code). There are two cases of mistake:

(a) When the user’s instructions and the order result match
For example, if a user intends to “purchase cryptocurrency at the discretion of an AI agent” and issues such instructions, resulting in the purchase of an unexpected type and quantity of cryptocurrency, since the user’s intention to “purchase cryptocurrency at the discretion of an AI agent” and the result match, it can be said that there is a user intention corresponding to the expression of intention (the AI ​​agent’s order), and unless the other party is informed that “the user thought the AI ​​agent would operate within the user’s expectations,” it is likely to be difficult to cancel the order due to mistake (paragraph 2 of the same article).

(b) When the user’s instructions and the order result do not match
On the other hand, if the user gives specific instructions specifying the type and quantity, and the AI ​​agent places an order for a different type and quantity, it seems theoretically possible to argue that the cancellation was due to mistake, on the grounds that the user’s intention (the AI ​​agent’s order) does not correspond to the expression of intention.

However, if such cancellations were easily permitted, it would likely seriously undermine the safety of transactions. Therefore, Article 95, Paragraph 3 of the Civil Code stipulates that cancellations cannot be made if the user is “grossly negligent.” For example, if there is a setting error or improper management of the AI ​​agent, the user could be found to be “grossly negligent” and the cancellation could be denied. In the case of orders placed by a company, it may even be considered “gross negligence” if the user does not check the specific order contents themselves after using the AI ​​agent.

(c) Special provisions for electronic consumer contracts
When consumers place orders using AI agents, Article 3 of the Electronic Consumer Contract Act (Act on Special Provisions of the Civil Code Concerning Electronic Consumer Contracts) is likely to apply. This Act, because of the high incidence of ordering errors in internet transactions, allows cancellation in the following cases in principle:

Even when using an AI agent, if a consumer conducts a transaction using a computer in accordance with the procedures displayed on a computer screen by a business operator, this will be considered an electronic consumer contract (Article 2, Paragraph 1 of the same Act), and it is considered that this article also applies to transactions using an AI agent.
However, this exception will not apply if a business takes measures to request confirmation of the consumer’s intention, as described below.

Furthermore, if a consumer uses an AI agent to conduct a transaction without taking the necessary confirmation measures, this may fall under the provision of the same article, “where the consumer expresses their intention to the business operator that they do not need to take such measures,” and the special provisions may no longer apply. In such cases, cancellation due to mistake is generally not permitted.

②In the case of an AI agent provided by another party

If an AI agent provided by another party is used and the AI ​​agent conducts a transaction that the user did not intend, the issue of unauthorized agency by the AI ​​agent provider may arise. When
the AI ​​agent provider is an unauthorized agent, the following particular issues arise regarding the success or failure of apparent agency.

Therefore, the question arises as to what constitutes a “legitimate reason” for the trading partner. If the AI ​​agent is given, for example, a password or authority to place an order and uses it to place an order, the other party will basically have no choice but to believe that a legitimate transaction has been made, and it would appear that apparent agency would be established.

3 Regarding cases where the use of AI agents causes harm to others (e.g., self-driving cars)

If another party suffers damages related to the malfunction of an AI agent, the provider of the AI ​​agent or the user of the AI ​​agent may be liable for damages.This point is particularly noteworthy as an example of the use of AI agents, and autonomous driving is a typical use case in which the use of AI agents could cause harm to others. In autonomous driving, an AI agent will be responsible for driving the car, but legal liability in the event of an accident may differ between when a human is driving and when an AI is driving.

(i) When a human is driving:
①In the case of a personal injury accident

In the event of a personal injury accident, the car owner or other operator (a person who operates a car for themselves) will be held liable under Article 3 of the Automobile Liability Insurance Act (Automobile Liability Insurance Act) in addition to tort (Article 709) of the Civil Code. When claiming damages under Article 3 of the Automobile Liability Insurance Act, the victim does not need to prove the driver’s negligence. Under Article 3 of the Automobile Liability Insurance Act, the operator can be exempt from liability if they meet all of the following three exemption requirements:

②In the case of property damage accidents

Since the Automobile Liability Act does not apply to property damage accidents, victims must file a claim for damages based on tort liability in Article 709 of the Civil Code. In this case, the victim must prove the driver’s intent or negligence.

(ii) When an AI agent is driving (assuming a socially accepted AI agent)
①In the case of a personal injury accident

Even if an accident resulting in injury or death occurs due to the autonomous driving of an AI agent, the Automobile Liability Act is generally considered to apply.³ If there is a malfunction in the system of a fully autonomous driving AI agent, the victim may be entitled to claim damages from the operator under the Automobile Liability Act, as it would not meet requirement (c) of the above exemption requirements.

We believe that operators who have paid compensation and insurance companies who have paid insurance claims due to system failures caused by AI agents will seek compensation from automobile manufacturers, AI system software providers, and others.

②In the case of property damage accidents

In the case of property damage accidents, Article 3 of the Automobile Liability Act does not apply, so claims for damages based on tort liability will be made against the driver, etc. However, with fully autonomous driving, there will be no driver error, etc., so it will be difficult to hold the driver responsible for intent or negligence, and it may be difficult to recognize the driver’s liability for damages.

In this case, if there is a problem with the AI ​​agent system, the victim may seek liability from the automobile manufacturer or software developer that provides it, as follows:

③Claims against the automobile manufacturer

Victims may file a claim for damages against the automobile manufacturer under Article 3 of the Product Liability Act (PL Act).
The PL Act imposes strict liability on manufacturers when a defect in a product causes damage to life, body, or property. However, there are also the following issues:

④Claims against software providers

Victims may seek compensation for damages against software companies that provide AI agents, citing defects in the AI ​​agents. In this case, because software is an intangible object and therefore product liability does not apply, victims may pursue tort liability under Article 709 of the Civil Code.
In this case, the victim will need to prove the software developer’s intent or negligence, so the hurdle for claiming compensation is likely to be higher than in cases where damages are claimed under Article 3 of the Automobile Liability Act or Article 3 of the Product Liability Act.

VI. Web3 AI Agents and Financial Regulation

In this section, we will consider how financial regulations apply to AI agents in Web3, following the ideas in Section III above. Although we will be examining this in the context of Web3, similar ideas also apply to financial AI agents, such as stock investment AI agents.

(i) Trading of crypto assets and stablecoins, and AI agents

It is conceivable that AI agents will trade crypto assets and stablecoins on behalf of users on decentralized exchanges (DEXs). Utilizing such a system is expected to bring the following benefits:

On the other hand, when conducting such transactions, it is necessary to consider whether there are any regulations regarding crypto asset exchange businesses, etc.

①When humans trade

When buying and selling cryptocurrencies and stablecoins (which are linked to the value of legal tender and redeemable at face value), it is necessary to consider the application of regulations regarding crypto asset exchange businesses (Article 2, Paragraph 15 of the Payment Services Act) and electronic payment instruments trading businesses (Article 2, Paragraph 10, Item 2 of the same Act).
Under the law, trading crypto assets as a mere investor does not constitute a “business” and is not subject to regulation. ⁵ On the other hand,
sales to the general public or acting as an agent for sales to the public are subject to regulation.

②When an AI agent trades

Even if an AI agent buys and sells cryptocurrencies or stablecoins on behalf of a user, there are no particular regulations for the user if the AI ​​agent is used for the user’s own investment purposes.
Also, even if there is a company that provides an AI agent to place buy and sell orders, there are likely to be no regulations if the agent simply assists users with the administrative procedures for buying and selling.
On the other hand, AI agents could act as intermediaries, for example, to easily connect users to DEXs.⁶ and is deemed to be managed and operated by a party other than the user, the provider of the AI ​​agent may be subject to regulations on crypto asset exchange businesses and electronic payment instrument trading businesses (intermediary regulations).

(ii) Investment Services and AI Agents

In the Web3 field, AI agents can develop investment strategies and provide investment advice and asset management services related to spot trading of crypto assets and stable coins, as well as derivative trading of crypto assets and stable coins.
In this section, we will explain the main legal issues that must be considered when AI agents provide such investment services, comparing them with when provided by humans.

①When performed by humans

When providing investment advisory and management services, different legal regulations apply.

(i) Investment advisory services

Investment advisory services refer to the business of providing advice on investment decisions regarding securities and derivative transactions by entering into a contract (investment advisory contract) for providing investment advice and receiving compensation.
The key points of regulation are as follows:

(ii) Investment management services

Investment management services are primarily considered to be (a) businesses that invest capital contributions from fund holders primarily in securities and derivative transactions (fund management businesses), and (b) businesses that invest and manage securities and derivative transactions after being entrusted with the authority to make investment decisions and manage assets by customers (discretionary investment businesses).
Key points of the regulations are as follows:

②When performed by an AI agent

When an AI agent provides investment advisory or management services, the question arises as to whether that business is subject to financial regulations. Generally, it is thought that the application of regulations to those who provide AI agents will be considered.
The key points of regulation are generally the same as when a human does the work, but the following points are particularly important in the case of AI agents.

VII. Other Laws

(i) Personal Information Protection Act, Consumer Contract Act

AI agents could potentially act as virtual assistants, assisting with sales and answering inquiries. For example, when selling products or services within the metaverse, avatars equipped with AI agents could be expected to automatically provide customer service.
In this section, we will discuss the main legal issues surrounding AI agents providing customer service, comparing them with traditional human services.

①When a human handles a customer

When humans handle customer interactions, they must comply with laws and regulations, for example, from the following perspectives:

(a) Handling of personal information

When acquiring and using personal information when dealing with customers, you must comply with the following rules of the Personal Information Protection Act.

(b) Consumer protection regulations

When explaining services or providing information to consumers, you must comply with the following regulations based on Article 4 of the Consumer Contract Act.

In the event of any of these breaches, the consumer has the right to cancel the contract, so it is important to provide accurate and sufficient information.

②When AI agents handle customer inquiries

(a) Handling of personal information

Even when AI agents deal with customers, they must handle personal information with care.

The Personal Information Protection Commission has issued a warning to OpenAI service providers, including that they must “notify or publicly announce, in Japanese, the purpose of use of personal information of users and other individuals,” and that they must not acquire sensitive personal information without the consent of the individual.¹⁰ In addition, the government has issued a warning to businesses that use generative AI to handle personal information, stating that “when a business handling personal information inputs prompts containing personal information into a generative AI service, it must fully confirm that the input is within the scope necessary to achieve the specified purpose of use of the personal information.”¹¹
When handling personal information using AI agents, it is necessary to keep these precautions in mind.

(b)Hallucination by AI agents

From the perspective of complying with Article 4 of the Consumer Contract Act, etc., there is a risk of “hallucination,” where an AI agent provides insufficient information or gives incorrect answers based on insufficient training data or outdated information.
The following measures can be considered to prevent this problem.

Reservations:

• The contents of this article have not been confirmed by the relevant authorities and merely describe arguments that are reasonably considered legally. Furthermore, the contents of this article are merely the authors’ current views and are subject to change.
• This article does not recommend the use of AI agents or Web3 AI agents.
• This article merely describes general ideas regarding AI agents and does not provide legal advice regarding specific cases.
• If you require specific legal advice, please consult a lawyer.

In recent years, quantum computers and other “quantum technologies” have rapidly been attracting attention. Specifically, quantum technology is expected to bring about high computing power and innovations in encryption technology that surpass conventional information technology, and various parties both in Japan and overseas are working on its practical application.

On the other hand, new issues are emerging, such as the risk of existing encryption being broken, and it is expected that there will be an increasing number of situations in which quantum technology will be required in national security, cybersecurity, and contract practice. This article focuses on quantum computers as a representative example of quantum technology, providing an overview of quantum computers and summarizing the main points of contention under current Japanese law.

I. Summary of Relevant Legal Frameworks

II. Overview of Quantum Computers
1. Basic Principle

Quantum computers use quantum properties such as “superposition”, “entanglement”, and “quantum tunneling” to perform calculations, which are expected to enable calculations that are significantly faster than conventional computers (known as classical computers) for certain problems.

There are two main types of quantum computers: Gate-Based Quantum Computers and Quantum Annealers.

The Gate-Based Quantum Computers are “general-purpose quantum computers” that can execute general-purpose quantum algorithms. Various methods are being researched, including superconductivity, semiconductors, ion traps, light, and neutral atoms. However, mainstream technology has not yet been established, and there are issues such as error correction before it can be put into practical use. In contrast, the  Quantum Annealers are specialized for combinatorial optimization problems, and D-Wave Quantum Inc. provides commercial machines. In general, when people say “quantum computer,” they are often referring to the Gate-Based Quantum Computers, but the terms are used differently depending on the application and implementation technology.

*Gate operation: A basic operation in which a quantum bit is given a certain stimulus (such as a microwave pulse or laser pulse) to change its state, and corresponds to the logical gates (AND/OR/NOT, etc.) of a classical computer. Examples include the X gate (which swaps the quantum bit’s 0 and 1) and the H (Hadamard) gate (which puts the quantum bit into a superposition state). The key to developing quantum hardware is to perform these gate operations quickly and with high precision.

On the other hand, Quantum Annealers are specialized for “combinatorial optimization” and cannot perform general-purpose calculations, but it is more advanced in practical use than Gate-Based Quantum Computers. In addition to the commercial machine provided by D-Wave, a Canadian company, “Quantum-Inspired Annealing” (Fixstars Amplify AE, Fujitsu Digital Annealer, etc.), which reproduces the behavior of classical computers in a pseudo-manner, has also been developed.

2. Current Status of Quantum Computers

In January 2025, NVIDIA CEO Jensen Huang said that it would take about 20 years to realize a practical quantum computer, causing a sharp drop in quantum-related stocks in the United States. This is thought to be a forecast referring mainly to Gate-Based Quantum Computers, and at the time of writing this article (end of May 2025), many experts believe that it will take a considerable amount of time before they can be put to practical use. The main reason is that errors (decoherence due to external noise) that occur in the process of maintaining “superposition” and “entanglement” in Gate-Based Quantum Computers are serious, and advanced “error correction” technology is essential to resolve this. However, it is still thought that a considerable amount of time will be required to establish error correction technology, which is the background to the view that it will take 10 to 20 years.

However, research and development of various Gate-Based Quantum Computer approaches are accelerating around the world, and in Japan, large companies, startups, research institutes, and universities are competing to develop actual machines. In addition, commercial machines for the Quantum Annealers are already in widespread use, and an environment for online use has been established. In this way, quantum technology is not a “Matter of the distant future”, but technology that is currently being implemented in society.

3. Applications of quantum computers and risks to existing technologies

In the fields mentioned above, there are hopes for the realization of “quantum supremacy,” which would enable calculations that would take years on classical computers to be completed in a short time. However, quantum supremacy does not necessarily come with benefits; it also comes with risks to existing technologies. A typical example is the weakening of encryption technology, and there are concerns that quantum computers may be able to crack conventional public key cryptography.

Current encryption technology is based on mathematical problems that are difficult to decrypt using classical computers, but when quantum computers become practical, they may be decrypted in a short time using techniques such as “Shor’s algorithm.” This puts public key cryptography, which is used in every aspect of business and daily life, at risk, and is also thought to affect blockchain, which is based on tamper resistance. Furthermore, a method known as the “Harvest Now, Decrypt Later attack” has been pointed out as a risk of intercepting and storing data at present, and then decrypting it all at once in the future when quantum computers become practical. For this reason, there is an urgent need to transition to “Post-Quantum Cryptography (PQC),” which is difficult to decrypt even with a quantum computer. In the United States, the National Institute of Standards and Technology (NIST) selected several PQCs as candidates for standardization in August 2024, and has continued to consider them since then. In Japan, CRYPTREC (Cryptographic Technology Evaluation Committee), which evaluates and monitors cryptographic technologies, will publish the “CRYPTREC Cryptographic Technology Guidelines (Post-Quantum Cryptography) 2024 Edition” at the end of March 2025.⁸, which provides technical explanations, evaluations, and implementation guidance for various PQCs. Since encryption technology is the foundation of all services, each business operator needs to pay close attention to the standardization trends of these PQCs and begin preparations early.

4. Trends of foreign governments regarding quantum technology

Overseas, major countries are making large-scale investments in quantum technology, and some countries are also focusing on developing legal infrastructure. Japan must also keep a close eye on these trends and strive to balance its international competitiveness with issues such as cybersecurity and national security.

III. Quantum Technology and Japanese Law

In Japan, at the time of writing this article (end of May 2025), there is no specific law targeting quantum technology. Looking at other cutting-edge technology fields, various regulations have already been imposed on blockchain (crypto assets, etc.), and in May 2025, the Act on Promotion of Research, Development and Utilization of AI-Related Technologies was passed with the aim of promoting utilization and reducing risks.^{12 13} It is possible that a dedicated law for quantum technology will be enacted in the future, but for now, it is necessary to consider the applicability of existing laws for each use case. Specifically, we will review (1) how national security-related laws relate to export control and development support for quantum equipment and technology, and (2) how cybersecurity legislation will handle the impact of quantum technology on existing cryptography. Furthermore, (3) when providing and using quantum services, new issues will arise that need to be considered, such as contractual allocation of responsibility and exemptions, and quality assurance. We will provide an overview of the legal framework regarding these issues.

1. Quantum Technology and National Security
(1) Risks of quantum technology to national security

The United States and China are investing heavily in quantum technology on a national scale, as it is directly linked to national security in terms of invalidating existing encryption technology and making communications difficult to intercept. In the United States, the National Quantum Initiative Act was enacted in 2018 with the aim of maintaining and strengthening both economic competitiveness and national security. A quantum R&D system was established through collaboration between universities, companies, and research institutes and large-scale budget investment. Japan does not have a law specifically related to quantum, but the advanced quantum field may be subject to existing security-related laws (Foreign Exchange and Foreign Trade Act, Economic Security Promotion Act, and Important Economic Security Information Protection and Utilization Act). We will consider how research and development of quantum computing and quantum sensors can be regulated and supported from a security perspective within the framework of these existing laws.

(2) Foreign Exchange and Foreign Trade Act
(i) Overview of the Foreign Exchange and Foreign Trade Act

The Foreign Exchange and Foreign Trade Act is a law that controls the overseas provision of goods and technology and investment from abroad from the perspective of national security. Specifically, it stipulates 1) export restrictions (to prevent overseas outflow), 2) restrictions on service transactions (including the provision of intangible technology), and 3) restrictions on inward direct investment (prior notification for investment and acquisition by foreign capital).

(ii) Restrictions under the Foreign Exchange and Foreign Trade Act that apply to quantum technology

Quantum technology is one of the areas in which there is concern about the risk of goods and technology being leaked overseas. For this reason, a revision to the Cabinet Order and Ministerial Ordinance in September 2024 will make quantum computers subject to export controls, and permission will be required for exports to all regions.¹⁴ Furthermore, the amendments coming into force on May 28, 2025 will similarly add key technologies and materials essential to practical-scale quantum computers as targets for regulation.^{15 16} In addition, the transfer of technology regarding quantum computers and related items that are subject to export controls is also subject to regulations.¹⁷

Given that export and technology transfer restrictions under the Foreign Exchange and Foreign Trade Act are currently expanding, quantum-related companies will need to establish a system that allows them to constantly check whether their products and technologies are subject to restrictions.

(3) Economic Security Promotion Act
(i) Outline of the Economic Security Promotion Act

The Economic Security Promotion Act (“Act on Promoting Security through Integrated Economic Measures”) enacted in 2022 aims to support the technology and materials of domestic companies and research institutions and strengthen national security from an economic perspective. The specific mechanism is based on the following four pillars. These measures¹⁸hope to reduce risks through public support and information sharing.

1. Ensuring a stable supply of essential materials
2. Ensuring stable provision of core infrastructure services
3. Supporting the development of cutting-edge technologies
4. Non-disclosure system for patent applications

(ii) Relationship with quantum technology

In the third pillar- advanced technology support, “quantum information science” has been designated as a specific important technology.¹⁹ Research and development will be promoted and utilized through the provision of financial support, the establishment of a council to provide support through public-private partnerships, and the outsourcing of research and study work.

In addition, the fourth pillar, the patent non-disclosure system, allows for measures such as withholding the disclosure of inventions that pose security risks and prohibiting foreign applications. At the time of writing this article (end of May 2025), quantum computers and quantum cryptography communication have not been designated as “specific technology fields” that are subject to this system. However, given the intent of the law, the assumption can be made that they may be designated in the future, so it is a system that developers should be aware of.

(4) Act on Protection and Utilization of Important Economic and Security Information
(i) Overview of the Act on Protection and Utilization of Important Economic and Security Information

On May 16, 2025, the Act on Protection and Utilization of Important Economic and Security Information came into force. Previously, the Act on the Protection of Specially Designated Secrets was a security clearance system for defense, diplomacy, terrorism, and espionage-related information.²⁰, but this Act aims to expand into economic security, establishing a system for protecting and utilizing information related to important economic infrastructure.

The Act first defines the systems for providing critical infrastructure and the supply chains of important materials as “critical economic infrastructure” (Article 2, Paragraph 3). It then defines four types of information as “critical economic infrastructure protection information,” including measures to protect the critical economic infrastructure, and information on the vulnerabilities of the critical economic infrastructure and innovative technologies related to security (Article 2, Paragraph 4). Furthermore, among the information that falls under the category of critical economic infrastructure protection information, there is a mechanism by which the government may designate information that is not publicly known and meets the requirement of confidentiality as “important economic security information” (Article 3, Paragraph 1).

The purpose of this law is to both “protect” and “utilize” designated important economic and security information. Specifically, to properly handle economic information held by the government that is important for national security, the law stipulates the requirements for businesses that are permitted to provide information designated as important economic and security information, as well as the methods of evaluating the suitability of individuals who handle the information. Note that the designation is strictly limited to government-held information, and technical information independently developed by private companies is not unilaterally designated and its handling is not restricted.

(ii) Relationship with quantum technology

As mentioned in (i), the Act on the Protection and Utilization of Important Economic and Security Information covers four types of information related to the protection of important economic bases (critical infrastructure and supply chains of important materials). Specifically, it includes information directly related to national security, such as measures, plans, and research to protect infrastructure from external threats, infrastructure vulnerabilities, and innovative technologies. The infrastructure and materials covered are to be determined by reference to those stipulated in the Economic Security Promotion Act and the “Action Plan for Cybersecurity of Critical Infrastructure.”²¹This includes infrastructure such as electricity, gas, water, communications, transportation, logistics, finance, chemicals, and medicine, as well as important supplies such as semiconductors and advanced electronic components.

Quantum technology, such as quantum computers that pose a risk of breaking existing encryption, and quantum cryptography communication that increases security, is highly likely to fall under the category of information relating to the protection of critical economic infrastructure mentioned above, and it is quite possible that it will be designated as important economic and security information in the future. However, to repeat what was stated in (i), only government-held information can actually be designated as important economic and security information, and technologies developed in-house by private companies are not unilaterally designated as such.

2. Cryptography and Cybersecurity Legislation

In addition to national security, quantum technology is also an issue in Japanese law in relation to cybersecurity. As mentioned in II 3., the development of quantum computers poses the risk that conventional encryption technologies may be decrypted.

(1) Legal level

In Japan, the Basic Act on Cybersecurity imposes the responsibility to ensure security on the state and businesses, and the Personal Information Protection Act requires the appropriate management of personal data. At the time of writing this article (end of May 2025), these laws do not specifically mention quantum technology or Post-Quantum Cryptography (PQC). However, if the spread of quantum computers compromises existing cryptography and increases security risks, it is possible that necessary measures will be required to be taken based on these laws even if they are not explicitly stated in the articles.

(2) Guideline level

In response to this, quantum technology has already been mentioned at the guideline level. The Financial Services Agency has published the “Guidelines on Cybersecurity in the Financial Sector” for financial institutions.²²” (published on October 4, 2024). It clearly states that when collecting and analyzing threat and vulnerability information, “collect information while paying attention to the circumstances surrounding the organization, such as new technologies (AI, quantum computers , etc.), geopolitical trends, disinformation, and industry trends” as “matters that it is desirable to address.”

Furthermore,  according to the Nihon Keizai Shimbun (dated May 14, 2025)²³, the Financial Services Agency is calling on major and regional banks to immediately begin preparations to transition to PQC. It appears that the agency is calling for an immediate response, as PQC compliance will require years of system modifications and other costs.

3. Contractual Issues Regarding the Use of Quantum Computers

When users use quantum computers, the question of how to deal with possible errors and fluctuations in the quantum computing results in a contract may arise. Such questions may arise due to the challenges and characteristics unique to quantum computing.

(1) Issues and characteristics specific to quantum computing (errors, algorithm-level probability, difficulty in verifying calculation results)

As mentioned above, errors that occur during calculations are a major issue with Gate-Based Quantum Computers. In addition, some quantum algorithms are run repeatedly to extract the statistically best solution, meaning that the same input does not always produce the same output. The Quantum Annealers may also produce different solutions each time it is executed due to the nature of its principle (probabilistically searching for solutions with low energy), hardware noise, thermal noise, etc. In addition, large-scale calculations that involve quantum supremacy are difficult to reproduce and verify on classical computers.²⁴, meaning one cannot fully guarantee the correctness of the output.

For these reasons, there is a risk that the results of quantum computing will contain errors and fluctuations, which will affect subsequent predictions and simulations. As the number of services using quantum computers increases, it may become necessary to clarify the scope of responsibility for hardware (quantum processors), software (algorithms), user circuits and data, and to introduce clauses that differ from traditional IT contracts, such as disclaimer clauses that assume that results are probabilistic and that there are potential errors.

(2) Contractual considerations regarding cloud-based quantum computing

Because the actual equipment for both the Gate-Based Quantum Computers and the Quantum Annealers are large-scale and expensive, cloud-based quantum computing, in which equipment provided by hardware vendors is used via the cloud, is expected to become the standard method of use for the time being.

In conventional cloud computing, a certain level of uptime is guaranteed under a service level agreement (SLA), but in the case of cloud-based quantum computing, the question of what kind of quality guarantees (error rate, uptime, etc.) should be made can become an issue. For example, IBM Quantum Platform (Gate-Based Quantum Computer), D-Wave Leap (Quantum Annealer), and Amazon Braket (which handles multiple external Gate-Based Quantum Computers and Quantum Annealers via API) each publish various indicators (gate error rate, coherence time, time required to process a job, etc.), but it seems that a standard approach has not yet been established.

Disclaimer
The contents of this document have not been verified by the relevant authorities and are merely a description of arguments that are reasonably considered in accordance with the law. In addition, they represent only our current views and may be subject to change.
This is just a summary for the blog. If you need legal advice for a specific case, please consult a lawyer.

This article describes the structure of and applicable Japanese law to liquid staking, which has been expanding rapidly in recent years, and its most significant protocol, LIDO.

I. A Summary of Legal Analysis

II Basic Overview of Liquid Staking, ETH Staking, and LIDO

1 Liquid Staking

Liquid staking is a DeFi (decentralized finance) mechanism whereby a person receives a staking fee for a crypto asset while receiving an additional alternative asset (a staking-proof token) and can invest said alternative asset in another DeFi.

2 Proof of Stake and Staking

Proof of Stake (POS) is the authentication mechanism of the blockchain by a person who has a certain level of involvement (stake) in the crypto asset.

Unlike the Proof of Work (POW) mechanism used in Bitcoin and other cryptocurrencies, authentication can be performed without requiring a large amount of calculations, thus reducing electricity consumption and making it more environmentally friendly.

3 ETH Staking

Ethereum has been structured using POS instead of POW from ETH 2.0. In Ethereum staking, (1) you can become a validator by depositing 32 ETH, (2) the validator authenticates each transaction on Ethereum and thereby receives a certain amount of ETH as a reward, and (3) if the validator intentionally provides false information, he/she will be penalized by forfeiting a part of the deposited ETH (thrashing), (4) a validator is always required to be online, and if they are down, they will also be penalized to a certain extent.

4 How LIDO Works

LIDO is the world’s largest protocol for Liquid Staking. At present, it is estimated that more than 30% of the staking volume of Ethereum is done via LIDO. LIDO is supposed to work as follows:²⁵

Prepared by So&Sato Law Offices from published materials

①LIDO allows users to stake ETH without maintaining their staking infrastructure and without economically locking up their assets.

②When a user wants to stake ETH to LIDO, the user should send ETH to LIDO’s smart contract. In response, the user receives a 1:1 token called stETH.

③stETH is a token that represents the deposit of ETH to LIDO for staking, and when a user sends stETH to LIDO to burn stETH, the user will receive ETH. stETH can be freely bought and sold, and if there is another DeFi that accepts stETH, the user can earn double rewards by using stETH on another DeFi (however, DeFi protocols that accept stETH still seem to be limited).

④LIDO will use ETH received through the smart contract to perform staking. LIDO will receive 10% of the reward obtained from staking, which will be distributed to the person in charge of the staking (node operator) and the LIDO DAO. The remaining 90% will be distributed to the users. The distribution to the users is made by adding the number of stETH in the address of stETH, and the number of ETH managed by LIDO is always the same as the number of stETH.

⑤LIDO uses multiple node operators. Node operator candidates apply to LIDO, stating that they wish to become node operators, their experience and technical capabilities, etc., and are then voted on by the DAO, which is composed of LIDO token holders, the LIDO’s governance tokens, to determine whether they are eligible to become node operators.

⑥Note that ETH has thrashing risks and penalties. LIDO hedges against such risks by using a large number of node operators. LIDO also manages some ETH separately and uses it as insurance against thrashing risk.

⑦LIDO is an open-source, peer-to-peer protocol and is not operated by a single operator, etc., as the LIDO DAO makes the decision on its operation.

III Liquid Staking and Japanese Law

When offering liquid staking like LIDO, it is necessary to consider whether the trading and custody regulations of the Crypto Assets Act apply and whether the fund regulations of the FIEA apply.

1 Regulation of the Issuance of Crypto Assets

When a user contributes ETH to LIDO, the user will receive stETH, and conversely, when a user sends stETH to LIDO, the user will receive ETH.

The question arises as to whether this action constitutes an exchange of ETH for stETH. If it is considered an exchange of crypto assets, the regulations of the crypto asset exchange services might apply.

StETH, however, is issued to prove the deposit of ETH, and we believe the issuance of such stETH does not constitute a sale or exchange under civil law and thus does not constitute an exchange of crypto assets (and vice versa).

2 Custody Regulation of Crypto Assets

The contribution of ETH to LIDO might be considered a deposit of crypto assets to LIDO and raises the issue of whether the custody regulations of the Crypto Assets Act apply to LIDO.

However, it appears that the contribution to LIDO is a contribution to a smart contract, and LIDO cannot use said ETH except for staking (i.e., it does not control the private key) due to the structure of the smart contract.

Under the Japanese custody regulations, “If a business operator does not possess any of the private keys necessary to transfer the crypto assets of a user, the business operator is not considered to be in a position to proactively transfer the crypto assets of the user. In such case, the business operator is basically not considered to fall under the category of “managing crypto assets for others” as defined in Article 2.7.4 of the Payment Services Act. (Result of Public Comment No. 9 on the Draft Cabinet Order and Cabinet Office Ordinance Concerning Amendment to the Payment Services Act, etc. of 2019). If the smart contracts can technically prevent the free transfer of ETH by people related to LIDO, we believe LIDO is not considered to be subject to the custody regulations under the Crypto Assets Act.

3 FIEA Regulations

The question arises whether LIDO or liquid staking is considered a fund (collective investment scheme), given the mechanism of receiving ETH contributions, the node operator managing it, distributing a portion of staking fees to users, and users bearing the risk of thrashing and other penalty risks.

The definition of a fund under Japanese law is generally as follows (Article 2, Paragraph 2, Items 5 and 6 of the FIEA). If a fund investor’s right is tokenized, the tokens are considered electronically recorded transferable rights (Article 2, Paragraph 3, Pillar 1 of the same law).

If the issuer itself is offering or private offering the tokens, registration as a Type 2 Financial Instruments Business is required (Article 2, Paragraph 8, Item 7, (g), Article 28, Paragraph 2, Item 1, and Article 29 of the same law, Article 1-9-2, Item 2 of the Order for Enforcement of the FIEA), and if the third party is offering or private offering the tokens, registration as a Type 1 Financial Instruments Business is required (Article 28, Paragraph 1, Item 1 and Article 29 of the FIEA).

The concept of “other rights” in (A) above is very broad, and it is said that (i) through (v) are merely an enumeration of examples, regardless of the legal form. It can be argued that tokens issued in fully decentralized finance are not “rights” because they are not considered “rights” in the usual legal interpretation, but there is currently a prevailing view that some rights are recognized for Bitcoin, etc.²⁶, and in relation to this article, we assume that some kind of right is recognized even for smart contracts.

Nor does it fall under any of the exceptions in (C) above.

The main issue is the interpretation of (B) above, which states “dividends of income or distribution of properties that arise from a business conducted by using money” and “invested or contributed.” If we simply take the point that ETH is sent to the smart contract, it is used in the business of the POS, and the award from staking ETH is distributed to users, it would seem to satisfy both the “dividends of income or distribution of properties that arise from a business conducted by using money,” and “invested or contributed” requirement.

However, liquid staking is very different from ordinary funds in the following respects, and, arguably, liquid staking is not a fund to which the FIEA applies.

(1)In the case of a regular fund, the money and other assets contributed are fully owned by the fund operator, and the fund operator can technically use them in various ways, although they are contractually bound. In the case of liquid staking, the ETH contribution is made to the smart contract, and LIDO or node operators are not free to use it; ownership (ownership-like rights) over ETH is always considered to be held by the user,

(2)In the case of a regular fund, the money received is used to purchase shares, fund a business, etc., and changes from money to shares, etc. In LIDO staking, the ETH sent to the smart contract is not specifically changed into anything else but is maintained as it is.

(3)The only reason ETH is locked is to ensure that there is no thrashing in the event of fraudulent reporting in the validation process or penalties if a node goes offline.

(4)Based on (1) through (3) above, if we compare the legal nature of staking to a traditional economic act, it can be thought that the user is merely locking ETH into a smart contract as a kind of collateral to secure default liability and is merely receiving compensation for providing third party collateral. The provision of such collateral and the receipt of compensation do not satisfy the requirements of “dividends of income or distribution of properties that arise from a business conducted by using money” and “invested or contributed,” as referred to in the fund.

4 Argument that the Operator Does Not Exist and Therefore Is Not Subject to Regulation

In the case of DeFi, it could be argued that the operator does not exist in the first place and is not subject to regulation. Japanese law is a legal system that regulates persons and legal entities, such as operators. A completely decentralized financing scheme would not be subject to regulation. However, we need to carefully consider whether there really is no operator for DeFi. In general, DeFi aims for the operator to be non-existent, but even so, it is unclear whether many DeFi are truly completely operatorless.

Further, if the scheme is subject to financial regulations under the law, assuming there is an operator, the intermediary for the scheme could be subject to regulations even if there is no operator for DeFi itself. It would prevent, for example, an unlicensed Japanese company from sending customers to the DeFi.

Therefore, when examining the legal issues of DeFi, it is necessary to consider two issues: (i) if there is an operator, whether it is subject to legal regulation, and (ii) whether an operator exists.

However, it is unclear from the published documents whether the LIDO DAO is truly decentralized, so this article mainly discusses (i) above.

Disclaimer
The content of this article has not been confirmed by the relevant authorities or organizations mentioned in the article but merely reflects a reasonable interpretation of their statements. The interpretation of the laws and regulations reflects our current understanding and may, therefore, change in the future. This article does not recommend the investment in LIDO or liquid staking. This article provides merely a summary for discussion purposes. If you need legal advice on a specific topic, please feel free to contact us.

Ⅰ Introduction

Recently, Web3 companies often ask us whether they can issue and sell tokens linked to ownership or value of real world assets (“RWA tokens”) in Japan. The types of linked real assets include artwork, real estate, whiskey, vintage cars, government bonds, securities, gold, etc.

Applicable Japanese regulations to RWA tokens vary depending on the types of tokenized assets and the scheme. We will provide an overview of the applicable regulations to RWA tokens and then substantive legal issues of RWA tokens.

Ⅱ Crypto Regulation

Japanese law differentiates crypto assets, which are regulated, and NFTs, which are not regulated, and most RWA tokens are structured as NFTs.

If RWA tokens fall under the category of crypto assets, selling and purchasing the tokens as a business requires a crypto asset exchange license. For example, Zipang Coins, which are RWA tokens representing gold and issued by a Japanese major trading company group, are structured as crypto assets, and only licensed exchanges can sell them as a business.

On the other hand, most RWA tokens are structured as NFTs. From the legal viewpoint, the difference between crypto assets and NFTs is whether they can be used as a payment method. FSA has submitted a guideline and answers to public comments and stated that if tokens satisfy the following requirements, they are not crypto assets and are not regulated under the Payment Service Act.

Ⅲ Fund Regulation

If RWA tokens are considered securities, to sell and purchase the tokens as a business requires a financial instruments business operator license. If the token holder has the right to receive a dividend or more than 100% principal redemption, they are generally considered securities. The definition of the collective investment scheme (fund) in Japan is as follows. As the definition covers “all rights” that can receive a dividend or more than 100% principal redemption, you should carefully analyze whether the tokens are considered securities when its structure includes a profit distribution element.

Ⅳ Goods Deposit Transaction Regulation

Another regulation that is related to RWA tokens is the Goods Deposit Transaction regulation. In Japan, there have been some controversial transactions in which (i) a merchant sells some goods to buyers, (ii) the merchant accepts deposits of the sold goods from the buyers for more than 3 months, and (iii) the merchant promises to pay some fee such as a rental fee to the buyers or promises to buy-back the sold products more than the sales price. These kinds of transactions were often used as financial investments without regulation. The Goods Deposit Transaction regulation now regulates these kinds of transactions. The regulation requires an explanation to buyers if the transaction involves the above (ii) and (iii) elements and requires approval from the government if the transaction involves the above (i), (ii), and (iii) elements. Please note that there has been no case the approval was obtained yet, and, thus, no one knows the difficulty of obtaining the approval.

We are often asked the way to give economic benefit to RWA token holders. Simply giving the economic in principle causes the issues of both or either of fund regulations and goods deposit transaction regulation and makes token issuance not feasible.

Ⅴ Prepaid Payment Instruments

There are RWA tokens that give a right to acquire products or use products such as hotel rooms, etc. Issuance of tokens linked to the right to acquire or use real assets is, in principle, subject to prepaid payment instrument regulation under the Payment Services Act. Some RWA tokens give those rights to holders and are subject to the regulation. For example, Not A Hotel NFT, which gives a holder to stay in a luxury residence, is subject to the regulation.

There are two types of prepaid payment instruments. The first type is the private-type prepaid payment instrument, which can be used only against the issuer or its closely related persons. The issuer of the private prepaid instrument shall file a notification to the Finance Bureau and deposit half amount of the unused amount, except for the case when the issuer only issues instruments that have less than 6 months’ expiration date or the unused balance at a certain reference date is 10 million yen or less.

The second type is the third-party type prepaid payment instrument, which can be used against other than the issuer or its closely related persons. The issuer of the third-party type prepaid payment instruments shall register with the Finance Bureau, except for the case when the issuer only issues instruments that have less than 6 months’ expiration date.

Ⅵ Secondhand Goods Business Regulation

A business that sells, purchases, or exchanges once-used goods such as used cars, used bags, used jewelry, and published artwork is, in principle, subject to the secondhand goods business regulation. A person who conducts the secondhand goods sales and purchase business shall file a notification to the police agency and shall conduct KYC of its customers. It is conceivable, however, that this regulation would not apply to the division and sale of the right of secondhand goods, and thus RWA tokens, which related to the divided right of real goods, are exempted from the regulation.

Ⅶ Other Regulation

In addition to the above, sales, etc., of assets might require consideration of asset-specific regulations. For example, to sell alcohol needs an alcohol sale license, and the seller of RWA tokens UniCask, which relates to a barrel of whiskey, takes the alcohol sale license.

Ⅷ Substantive Legal Issues

Compared to a simple sale of real world assets, RWA tokens require more careful consideration of what rights will be transferred and how to perfect the transfer. Holding RWA tokens does not necessarily mean having ownership of real assets, and transferring RWA tokens does not necessarily mean automatically transferring the ownership of the real assets.

For example, when you transfer real estate, you need to file a real estate transfer registration, and without it, you cannot insist that you are the owner of the real estate to third parties, and just transferring tokens on a blockchain may not suffice this requirement. To transfer tangible property in Japan might be possible just by transferring tokens, but careful consideration is necessary. The law regarding the transfer and perfection of real assets may vary in different jurisdictions, and generally, the laws in the country where the real asset is located apply.

Disclaimer
The content of this article has not been confirmed by the relevant authorities or organizations mentioned in the article but merely reflects a reasonable interpretation of their statements. The interpretation of the laws and regulations reflects our current understanding and may, therefore, change in the future. This article does not recommend investment in RWA tokens. This article provides merely a summary for discussion purposes. If you need legal advice on a specific topic, please feel free to contact us.