There have been arguments that capital regulations should be applied not only to issuers of won stablecoins but also strict capital ratio regulations at the level of banks. This is because excessive competition due to low entry barriers could increase the risk of a 'coin run.'
Choi Jae-won, a professor at Seoul National University (Director of the Financial Economics Institute), argued this on the 13th at the symposium titled 'The Future of Stablecoins and Financial Markets: Regulation, Stability, and Innovation' held at Seoul National University. The symposium was co-hosted by the Financial Economics Institute of Seoul National University, the Korean Finance Association, and the Korean Securities Association.
Professor Choi stated that stablecoins should be introduced as essential infrastructure for building a blockchain ecosystem, while noting that a different approach is needed compared to the United States. He mentioned, 'The United States already has a $300 trillion market for dollar stablecoins due to excess demand for dollars,' adding, 'However, it can be safely assumed that there is almost no demand for won stablecoins.'
According to Professor Choi, 99.75% of the stablecoin market consists of dollar-based coins, while the remaining 0.25% is euro-based. Existing won stablecoins like BKRW (Binance) and TerraKRW (Terraform Labs) are not being traded much due to sluggish demand.
Professor Choi noted, 'There is no demand for won stablecoins, yet suppliers are already prepared for market entry, which will inevitably lead to excessive interest competition.' He added, 'To generate revenue, suppliers are likely to structure their assets with high-risk, long-term bonds that offer the highest interest.' He further stated, 'Even if month-end audits are conducted like in the United States, there is a high possibility of evading regulations by holding low-risk assets only just before the audit, while rapidly shifting to high-risk, short-term assets after the audit is completed.'
He argued that capital regulations should be strengthened to raise entry barriers. Looking at the capital requirements of proposed legislation on won stablecoins in the National Assembly, the thresholds are much lower than the requirements for internet banks (25 billion won): ▲Min Byung-deok's proposal (500 million won) ▲Kang Jun-hyun's proposal (1 billion won) ▲Kim Eun-hye's proposal (5 billion won) ▲An Do-geol's proposal (5 billion won). Professor Choi said, 'If capital requirements are low, the run risk will be amplified,' insisting, 'Currently, much discussion is focused on capital regulations, but regulations on the minimum capital ratios are also necessary.'
The minimum capital ratio regulation refers to a system designed to ensure financial soundness by requiring financial institutions to maintain a certain level of capital. The Bank for International Settlements (BIS) recommends that the capital of banks should be at least 8% of their total operating funds.
The role of the Bank of Korea was also emphasized. Professor Choi mentioned that if market funds flow into stablecoins instead of bank deposits, the lending capacity of banks may decrease, and demand for government bonds may increase, potentially limiting the effectiveness of monetary policy. He stated, 'The Bank of Korea needs to monitor the stablecoin market.' He also noted that the involvement of the Bank of Korea is necessary because stablecoins could dilute the effect of open market operations in the exchange of bonds and currency in the market.
Professor Choi emphasized the need to consider the structure in which private issuers will share seigniorage (profit from issuing currency) rather than public institutions. He said, 'Currently, seigniorage is shared between the Bank of Korea and commercial banks, but with the entry of stablecoin issuers, it will be distributed among the three parties.' He added, 'If stablecoins become popular, some large companies might take all the seigniorage.' He urged, 'We need to consider whether it is acceptable for private enterprises to take the monopoly profits gained from issuing legal currency.'