The 'Dollar Invasion' Triggered by Stablecoins… What's the Next Battlefield? [Korea Economic Daily Koala]

Minseung Kim's ₿ficial

Stablecoin Issue: Focus on the Chain, Not Just the Coin

The stablecoin issue remains a hot topic. Academia, industry, legislators, and regulators are all deliberating, but in Korea, debates have not advanced much beyond basic questions, such as what a stablecoin is and who should issue them.

While we have been deliberating, the US has already passed stablecoin legislation in both the Senate and House, with the president signing it into law. Following this, not only major banks but also leading retailers such as Amazon and Walmart have formalized the issuance of dollar-based stablecoins. Existing stablecoin issuance has surged, and soon the market will be flooded with new dollar stablecoins issued by major institutions and firms.

The reason for slow discussion in Korea is the deeply entrenched negative perception of 'coins.' There is a stereotype that coins can be recklessly issued by anyone as a means of making quick money, generating many victims, and facilitating illegal activities such as money laundering. The ICO boom of 2017 and the government's strong response at the end of that year further cemented this image.

The reality is different. Stablecoins have fixed prices, so there is no profit from trading, and issuance is backed by cash-equivalent assets equal to or greater than the outstanding amount in line with international standards, which means there is little to no profit (seigniorage) for issuers. If a KRW stablecoin were to be created, the yield from collateral assets would also be less attractive than those for global stablecoins. Criticism about use in crimes is also somewhat exaggerated. In reality, cash is used for money laundering hundreds of times more than coins, and because blockchains permanently record every transaction in an immutable ledger, tracking is actually easier compared to cash.

Although these facts have been explained for a long time, they haven't helped the discussion move forward. Therefore, a change in perspective is in order: let's focus not on 'coins,' but on 'chains.'

Blockchain is often referred to as a 'distributed ledger.' At its core, it's a ledger. Whereas transactions were once recorded on paper, and later in spreadsheets or databases, blockchain distributes these records across multiple computers (nodes) without a central authority.

The debate on legalizing KRW stablecoins is not merely about whether coins can be recognized as legal assets. The essence lies in expanding the scope of trust. While previously only the databases of banks or card companies were considered trustworthy, now we need to consider whether blockchain records can also be recognized within the scope of trust.

This perspective advances the debate; rather than limiting the question to 'Who will issue the KRW stablecoin?', it shifts it to 'Under what conditions and on what kind of blockchain must issuance occur so that financial authorities and banks can trust it?' This also enables concrete discussions, such as whether a permissioned blockchain with complete control should be used, or whether, in pursuit of marketability and scalability, it should be built on a public chain like Ethereum, thereby also considering new methods of anti-money laundering and capital control.

Those preparing to issue KRW stablecoins are having similar deliberations. They are likely deeply considering why the coin needs to be issued. In Korea, where card and pay services are well established, simply issuing a coin offers little competitive edge.

As with the previous example, focus on the chain, not just the coin. The value of a KRW stablecoin lies in its role as a KRW-denominated asset on the blockchain. Demand for this asset must first arise within the blockchain economy, and it actually will. Tether (USDT) and USD Coin (USDC) also grew due to on-chain demand. To survive, it is essential to explore which chains, what markets, and what kinds of demand exist for the KRW stablecoin and determine its role accordingly. Rather than trying to find use cases for everyday payments, it's crucial to first pay attention to the on-chain ecosystem.

This change in thinking is not entirely new. In the US, where stablecoins are already widespread, regulators and institutions are beginning to consider 'Institutional DeFi.' As stablecoins have brought the dollar onto blockchains and the tokenization of assets such as stocks, bonds, insurance, and gold is increasingly becoming a reality, the key challenge is finding a balance between DeFi ecosystems where such assets are traded and the legal obligations of financial institutions.

In the US, the focus isn't on 'Who will implement institutional DeFi?', but on 'On what blockchains and under what conditions must institutional DeFi operate?' The platform Composer X, launched by the Depository Trust & Clearing Corporation (DTCC) to meet institutional DeFi demand, supports issuance, distribution, management, and reporting of digital assets, enabling institutions to comply with regulations such as AML. JPMorgan introduced the permissioned deposit token JPMD based on Base. By implementing permissioned tokens on a public chain, they are proactively satisfying both the recently enacted stablecoin law and anticipated institutional DeFi regulations.

After stablecoins comes DeFi. As US Congress and the administration actively build infrastructure, global enterprises are rushing to issue stablecoins, and these stablecoins are entering various DeFi ecosystems. Stablecoins and DeFi are inextricably linked. As institutional DeFi services continue to emerge, global economies will also come under the influence of dollar-based stablecoins and DeFi. The importance of DeFi was also strongly emphasized in the 'Crypto Report' released by the White House on July 30.

It's no longer time to be debating 'Are KRW stablecoins money?' or 'How much capital is required for issuers?' If major US banks roll out easy, convenient, and trusted DeFi services offering over 5% deposit yields, will Korea be able to compete? We must now prepare for the 'invasion' of the dollar, riding the wave of stablecoins and DeFi. There isn't much time left for us.

About Minseung Kim, Head of Korbit Research Center...

He is a founding member and head of Korbit's Research Center. He explains complex events and concepts in the blockchain and crypto asset ecosystem in an accessible way and helps people with different perspectives understand each other. He also has experience in blockchain project strategy planning and software development.