Foreign companies' issuance of won stablecoins erupts [Hankyung Koala]

On October 30, Web3 infrastructure companies IQ and FRAX collaborated to launch the won stablecoin 'KRWQ'. Currently, the KRWQ-USDC trading pair is actively operating on Aerodrome, a decentralized exchange (DEX) built on Coinbase's Layer 2 network, Base. Just one month after launch, the 24-hour trading volume for the pair reached approximately 70 million won. Initial liquidity providers have had to continuously add liquidity to meet surging demand.

There is another noteworthy case. On Lighter, a decentralized perpetual futures exchange (Perp DEX) that has recently attracted attention, KRWUSD perpetual futures are traded. Even though only futures are traded without spot, the 24-hour trading volume of KRWUSD reaches $30–40 million (about 40–50 billion won). Lighter, which supports up to 25x leverage, is a next-generation exchange that borrows Hyperliquid's token buyback model and, as of the end of November, surpassed Hyperliquid in daily trading volume to emerge as the world's largest decentralized futures exchange.

The market has already given its answer

Proof of the won's 'product-market fit (PMF)'

What these two cases imply is clear: the product-market fit (PMF) of the won (KRW) in the blockchain world has already been demonstrated. In other words, the on-chain market has judged that the won has sufficient value as a tradable product. The market's nature — 'things that will sell are sold, things that will be bought are bought' — is cold. The blockchain market is much faster than traditional financial markets because anyone can issue tokens and open markets without permission (permissionless).

The important point is that all of this occurred without approval from our government. IQ, FRAX, Lighter, and others issued and traded won on the blockchain without seeking permission or notifying Korean financial authorities. Even if more foreign firms issue won stablecoins and open on-chain won markets in the future, they are not obliged to obtain approval or notify our government. This is the essence of a permissionless system.

Won stablecoins issued by foreign entities are more dangerous

The Bank of Korea's official stance opposing the issuance of won stablecoins includes: ① depeg risk (Depeg), ② bank run (Bank run), ③ gaps in consumer protection, ④ violation of the principle of separation between finance and industry, ⑤ capital outflows, ⑥ neutralization of monetary policy, and ⑦ contraction of financial intermediation functions. Setting aside rebuttals to each point, we must ask a more fundamental question.

What would we do if a won stablecoin issued by a foreign firm circulates in overseas markets and problems arise? If a foreign-origin won stablecoin were to collapse suddenly, as TerraUSD (UST) did overnight in 2022, the situation would become serious. Just before collapse, TerraUSD reached 21% of Tether (USDT) by market capitalization and was among the top 10 crypto assets. What if an overseas shock causes the on-chain won–dollar exchange rate to spike to 3,000 won or 5,000 won, and our government cannot even reach the issuer? This is precisely why I have warned repeatedly since last year about "won stablecoin issuance by foreign firms without government approval." And that concern is now becoming reality.

Going forward, competition in recognition and market share among new won stablecoins will intensify. Under a winner-takes-all structure, the ultimate winner will dominate the market. Tether (USDT) is the case that proves this. Despite legal uncertainties and regulatory issues, Tether still reigns as the absolute leader in the dollar stablecoin market. Although it has changed its base from Hong Kong to El Salvador, it still serves as the 'byword for dollar stablecoins' to investors worldwide. It has already become 'too big to fail' (Too Big to Fail), something even the U.S. government finds difficult to touch. The won stablecoin market is likely to follow the same trend. In fact, that process has already begun.

The U.S.-led 'on-chain finance' — where are we?

One more fact to note is the U.S.-led trend of 'on-chain finance.' With the start of the Trump administration, the attitude of U.S. financial authorities changed 180 degrees. SEC Commissioner Atkins declared, "We will improve regulations so that a super app where stocks, tokenized equities, crypto assets, and derivatives are traded on a single platform can be born." Larry Fink, chairman of BlackRock, also declared in a shareholder letter last March that "the tokenization of all assets will lead to democratization of access, voting rights, and yields." Led by the U.S., the global financial market is moving on-chain, and the core transaction medium of this market is precisely stablecoins.

So where does South Korea currently stand? Various won stablecoin bills submitted to the National Assembly face unclear prospects for passage this year due to disagreements between the Bank of Korea and financial authorities. What financial authorities need to do now is not repeat bans saying 'this cannot be done.' They need to face reality and declare 'how we will proactively respond to problems that arise.'

We must immediately create the foundation for a won stablecoin issued by a legal entity that our citizens and government can trust. And at the state level, support must be provided so that the 'legitimate coin' created on that basis can firmly capture market share. Otherwise, the depegging, coin runs, and gaps in consumer protection that the Bank of Korea fears could turn into an uncontrollable disaster.

At the end of the Joseon Dynasty, the government did not build roads, saying that paving roads would invite barbarians. But the barbarians did not come by road; they crossed the sea by ship. The same applies to regulation. Ignoring something does not stop change. Twenty years ago, former President Roh Moo-hyun said, "Power seems to have already shifted to the market," and "the source of the force that moves our society comes from the market." One cannot simply say the direction the market flows is wrong. Regulation must reflect reality as it is and solve problems within that context.

Kim Min-seung, Head of Korbit Research Center

Kim Min-seung, Research Fellow at Korbit Research Center, is...

He is a founding member and research fellow of the Korbit Research Center. He explains complex incidents and concepts occurring in the blockchain and crypto asset ecosystem in an easy-to-understand way and helps people with different perspectives understand each other. He has experience in blockchain project strategy planning and software development.

▶This article is an external contributor column introduced to provide diverse perspectives to subscribers of the cryptocurrency investment newsletter and does not represent the position of the Korea Economic Daily.

Jo Mihyeon, reporter mwise@hankyung.com