South Korea’s ambitious exploration into the stablecoin realm is facing formidable hurdles. Despite fervent activity amongst the nation’s fintech firms and banking giants, the country’s “onshore” won policy might just clip the wings of Korea’s stablecoin aspirations.
A Brewing Storm in the Korean Crypto Scene
Korea’s central bank has recently shelved its digital currency pilot, opting instead for the enticing allure of privately issued stablecoins. Giants like KakaoBank are contemplating roles in both issuing and custody, while collaborations such as Upbit and Naver Pay are gearing up to launch a payments-focused token. This move is seen as a strategy to mitigate the notorious “kimchi premium” — the price disparity between local and global crypto markets. As reported in KakaoBank plans to ‘actively participate’ in stablecoin market, the bank’s involvement highlights the growing interest in stablecoin solutions within Korea.
Yet, Korea’s strict foreign exchange controls, a legacy of the 1997 Asian Financial Crisis, present a daunting barrier. The won remains shackled within Korean borders, with deliverable trading confined to domestic grounds. Foreign entities are unable to transact won among themselves overseas, requiring all dealings to pass through domestic channels under the Bank of Korea’s watchful eye. This means any stablecoin would be effectively tethered to Korea, usable only by whitelisted, KYC-verified addresses with local connections.
Challenges and Doubts
The practicality of an onshore-only stablecoin raises eyebrows. Within Korea, domestic transactions are already rapid and free, occurring seamlessly 365 days a year. The lack of friction in local payments leaves little room for a KRW stablecoin to make a splash domestically. Its true potential lies in cross-border settlements, but that’s where the onshore stipulations become a formidable brick wall.
Vera Yuen, a professor at Hong Kong University, noted, “A dominant privately issued stablecoin could weaken a nation’s grip on its currency, potentially leading to unintended dollarisation and hampering central bank control over key economic levers.”
South Korea isn’t alone in this conundrum. Taiwan’s stablecoin framework, introduced in June, mirrors similar challenges despite the Taiwan dollar’s free convertibility. It’s bound by local bank issuance and stringent oversight, limiting its utility beyond domestic borders.
A Niche Future
The future of non-USD stablecoins remains shrouded in uncertainty. While a KRW or NTD stablecoin may eventually surface, their roles will likely remain niche, catering primarily to domestic needs rather than the expansive global crypto market. This contrasts starkly with a potential Hong Kong Dollar stablecoin, which, due to its link to the U.S. dollar and lack of usage restrictions abroad, could play a more significant role on the international stage.
For now, the crypto sphere watches with bated breath. The demand for non-USD stablecoins and their position within the broader crypto ecosystem is yet to be fully realized. As the market waits, the implications for Korea’s stablecoin ambitions remain an open question, with both opportunities and obstacles lying ahead.
Market Moves: A Broader Picture
Amidst this stablecoin saga, the broader crypto market is witnessing intriguing shifts. Bitcoin, riding on the coattails of broader market momentum, is trading at a staggering $123,901.58. Ethereum is eyeing its all-time high, floating above the $4700 mark. Meanwhile, gold prices have seen a modest uptick, responding to mild U.S. inflation data and speculations of potential Federal Reserve rate cuts. This surge in Ethereum activity is further explored in Ethereum Transactions Near All-Time High Amid Surging Stablecoin, Uniswap Activity.
Stock markets, both in the U.S. and Asia, are presenting a mixed narrative. The S&P 500 and Nasdaq continue their upward march, setting new records, while Japan’s Nikkei 225 has shown some volatility post its record high.
In the ever-evolving crypto landscape, regulatory developments are also making waves. Google’s app store has taken a firm stance against unregistered non-custodial crypto wallets, while MetaMask seems poised to unveil its own stablecoin imminently. These moves underscore the dynamic interplay between innovation and regulation in the crypto world.
As Korea navigates the turbulent waters of stablecoin implementation, the coming months will be pivotal. Whether the nation can successfully integrate a KRW stablecoin into its financial ecosystem without compromising its economic sovereignty remains to be seen. For now, it’s a waiting game, with the global crypto community keenly observing Korea’s next steps.
Source
This article is based on: Asia Morning Briefing: Korea’s ‘Onshore’ Won Policy Could Hinder Its Stablecoin Ambition
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
