The representative stablecoin (a virtual asset linked to the value of a legal currency), Tether (USDT), recently surpassed 1,500 won on domestic exchanges. Analysts suggest that Tether's price can be seen as a sort of offshore exchange rate. Unlike the foreign exchange market, where authorities intervene to control exchange rate fluctuations, in the virtual asset market, prices are determined purely by the laws of supply and demand, and Tether is recognized in the 1,500 won range. In other words, if there were no intervention from the authorities, the current exchange rate between the won and the dollar would be conjectured to be in the 1,500 won range.
According to the virtual asset transaction company Upbit, Tether surged to 1,519 won at 8:26 a.m. on the 20th. At that time, the exchange rate of the won against the U.S. dollar (won-dollar exchange rate) was 1,456.84 won, meaning it was approximately 4.27% more expensive. As of the 24th, it is currently trading in the low 1,500 won range.
Tether is a representative stablecoin that has its value pegged to existing currencies such as the dollar. Therefore, the value of 1 dollar and 1 USDT is the same. However, in rare cases when demand for Tether exceeds supply, its price may exceed 1 dollar. Given that Tether's value is fixed, it is used more for buying virtual assets like Bitcoin rather than for investment purposes.
The operator of Tether holds dollar reserves to maintain trust in Tether. As of the end of June, it had $118.4 billion, most of which is invested in U.S. Government Bonds. The amount of U.S. Government Bonds held by Tether is $97.6 billion, exceeding Germany ($88 billion) and Mexico ($95.8 billion).
Some analysts suggest that the price of Tether can be considered as the actual won-dollar exchange rate. The price of Tether is determined purely by the laws of supply and demand among market participants without potential government intervention, while the real exchange rate can be controlled through verbal or direct interventions by authorities such as the Bank of Korea. In essence, the current difference between Tether's price and the won-dollar exchange rate could be interpreted as an artificial difference due to government intervention.
In fact, as high exchange rates continue recently, authorities are putting all their efforts into defending the exchange rate. The foreign exchange reserves used for this purpose by the Bank of Korea have consistently decreased, nearing the $400 billion threshold. As of the end of November, foreign exchange reserves stood at $415.39 billion, down about $300 million from the end of the previous month. Additionally, the Bank of Korea decided to increase the scale and duration of foreign exchange transactions with the National Pension Service, which was initially planned to be conducted by the end of this year. This implies that when the 'big player,' the National Pension Service, purchases dollars in the market, the authorities will supply won to mitigate the potential drop in the value of the won.
Lee Sang-min, head of Pluto Research, noted, “In Argentina, for example, the exchange rate on the black market is nearly double the actual rate.” He added, “While it's not that extreme here, I wonder if we could use the Tether market, which operates without government intervention, to gauge the real won-dollar exchange rate.”
However, some counter that the price difference should simply be interpreted as a 'Kimchi premium.' The Kimchi premium refers to the phenomenon where the domestic prices of the same virtual asset are higher than those abroad. Currently, Tether and the won-dollar exchange rate show a price difference of around 4%. According to the cryptocurrency investment information site Kim-P, other cryptocurrencies like Bitcoin and Ethereum are also enjoying a Kimchi premium of about 4%.
Kim Min-seung, head of the research center at the Korbit exchange, stated, “If the citizens do not trust their currency, as is the case in some countries, then demand for Tether will increase, thereby causing only Tether's price to rise among virtual assets,” and added, “However, such a significant price discrepancy has not yet occurred in Korea.”
A source from the virtual asset industry explained, “Even though it’s a stablecoin, it’s not possible to accurately know the price since it varies by region or exchange,” but added, “Given the significant fluctuations in the exchange rate, demand from virtual asset investors seeking to invest in dollars through stablecoins may be reflected.