KRW stablecoins will ‘accelerate’ capital outflows from South Korea – Analyst

South Korea’s plan to exclude U.S dollar-based stablecoins from corporate trading continues to elicit mixed views from experts. 

Instead, the country’s watchdog, the Financial Services Commission (FSC), seeks to encourage the adoption of Won (KRW)-based stablecoins to ensure monetary sovereignty and prevent capital outflows. 

However, the country could, in the end, get the opposite results from the move. This, according to Jinsol Bok, a Research Lead at the South Korea-based blockchain research firm Four Pillars. 

Bok, who goes by the username ‘100y’ on X (formerly Twitter), cautioned, 

KRW stablecoins are actually quite likely to accelerate capital outflows, which is exactly what regulators are concerned about.

Stressing that the problem isn’t unique to South Korea, Bok added, 

Unfortunately, for most countries, almost everywhere outside the U.S., removing FX (foreign exchange) controls and opening the financial system on-chain would likely lead to more capital outflow than inflow.

Bok’s argument mirrors the Standard Chartered Bank’s projection, with the same estimating that about $1 trillion could exit emerging markets into stablecoins by 2028 to hedge against local currency by holding dollar-pegged assets. 

Besides, the research analyst argued that most South Korean players, such as Kakao Pay, are already offering users yield on their digital balances. As such, there could be little incentive to suddenly embrace the KRW stablecoin. 

For Bok, the only viable opportunity for the KRW stablecoin is faster cross-border settlement and fee optimization for service providers. In other words, retail and broader adoption of the products may be limited. 

This was a contrarian view of venture firm DWF Ventures, with the latter seeing the KRW stablecoin as a massive opportunity. 

DWF bets on KRW stablecoins

To some extent, Bok’s arguments are plausible though. So far, most countries with record USD-based stablecoin adoption either have volatile local currencies or face significant currency devaluation. Nigeria and Iran are clear examples. 

Even so, some countries with developed banking and digital infrastructures have also seen strong adoption of the products. Especially for cross-border transfers. 

In particular, Asia leads global stablecoin activity, accounting for 60% of the $30 trillion annual volume, primarily through the China/Hong Kong/Singapore corridor. 

For DWF Ventures, South Korea’s 18 million crypto holders and tech-savvy population would lead to natural adoption of the KRW stablecoin. 

The firm added that USDT premium, and the so-called ‘Kimchi Premium,’ in which crypto assets trade relatively higher across South Korean exchanges, is another reason to hold the KRW stablecoin. 

This (Kimchi Premium) reflects a need for a KRW stablecoin that could potentially provide deeper liquidity on KRW pairs, while countering the dominance of USD stablecoins to stem capital outflows.

The FSC is expected to finalize and publish the corporate crypto rules soon. It remains to be seen whether KRW stablecoins will reduce the usage of USDT and USDC in the country. 

Final Summary 

• Analyst Jinsol Bok downplayed demand for the KRW stablecoin, citing South Korea’s well-established digital payment platforms and limited incentives. 
• For DWF Ventures, however, the products could help reduce USD dominance and curb capital flight.