With less than a month until the presidential election, won-based stablecoins have emerged as a topic of discussion. Wholesale merchants are starting to pay trade bills with stablecoins and to pay salaries to developers stationed overseas in stablecoins. For this reason, political circles are engaged in a heated debate over the need for regulations on dollar-based stablecoins and the necessity of won-based stablecoins while being wary of capital outflows.
According to political circles on the 12th, Lee Jae-myung, the Democratic Party of Korea presidential candidate, said on the 8th that 'to prevent capital outflows, we must create a won-based stablecoin market.' The following day, the Democratic Party of Korea's Future Economic Growth Strategy Committee held a seminar on the necessity and expected effects of won-based stablecoins. On the other hand, Lee Jun-seok, the Reform Party presidential candidate, emphasized the need for strategy by mentioning the past failure of won-based stablecoins, the 'Terra-Luna incident,' while Democratic Party of Korea members, including Min Byung-deok and former member Kim Byeong-wook, joined the rebuttal, escalating the debate.
A stablecoin is a virtual asset designed to minimize price volatility. It is structured to maintain stable value by being linked 1:1 to certain assets, such as the dollar or gold. Tether (USDT) or USD Coin (USDC), which are pegged to the dollar, are representative examples. Stablecoins are unaffected by price fluctuations in the virtual asset market, making them useful as payment methods or financial services. Recently, there have been actual use cases appearing overseas, where more people are using stablecoins for payments or to pay salaries.
The problem is that stablecoins could serve as a pathway for capital outflows. A typical example is Redotpay, which is based in Hong Kong. Redotpay allows users to deposit stablecoins or virtual assets like Bitcoin and Ethereum, and use them freely anywhere in the world. Redotpay can be integrated with payment systems like Apple Pay and Google Pay, and by issuing a physical card, users can pay at various places, from large domestic marts to retail stores, using the Visa payment network.
Foreign merchants receiving trade payments in stablecoins are increasing in areas such as Namdaemun. Merchants in countries with inadequate financial infrastructure have traditionally received trade payments in cash, but there is no reason not to use stablecoins, which are easier to handle and manage. In fact, in areas like Gangnam, Namdaemun, and Myeongdong, there are currency exchange shops that deal in stablecoins or illegal money changers exchanging cash for Tether. As the use of stablecoins increases domestically, experts are concerned that the sovereignty of the won may be threatened.
According to Hashed Open Research, as of the end of last year, the weekly trading volume of Tether (USDT) listed on Upbit and Bithumb exceeded $1 billion (about 1.4 trillion won), reaching the second-highest trading volume after Bitcoin. Also, the scale of capital outflow through virtual assets skyrocketed from 21.6 trillion won in the second half of 2022 to 74.8 trillion won in the first half of 2024. Hashed Open Research expressed concern that 'as the influence of stablecoins expands and their integration into the real economy increases, it may become difficult to control and pose threats to the stability of the domestic financial system and the won.'
The government, recognizing such concerns, is reportedly preparing to amend the Foreign Exchange Transaction Act to include definitions concerning virtual assets and virtual asset operators. Once virtual assets are defined in the Foreign Exchange Transaction Act, businesses such as exchanges would need to register in advance to handle cross-border virtual asset transactions and report transaction records. There may also be provisions to limit transaction purposes or restrict recipients. However, the specific framework for regulation has yet to be established.
Experts advise that discussions on the definitions and regulations of stablecoins are urgent. Professor Hyun Jeong-hwan of Dongguk University's Department of International Trade noted, 'If the influence of dollar-based stablecoins like Tether increases, our currency, the won, could be eroded. Countries with weak national currencies like Cambodia are already experiencing such erosion,' and added, 'A regulatory framework and supervisory discussion regarding stablecoin transactions is urgently needed.'
Kim Gab-rae, a senior researcher at the Capital Market Research Institute, stated, 'Overseas, economic benefits of blockchain transactions such as 24/7 trading and real-time verification have been recognized, and systems that could replace bank networks, such as BlackRock's BUIDL, have already been established.' He advised that 'there is a very high demand for stablecoins in Korea, but discussions on definitions and regulatory measures are lagging, so we need to speed up.'