"Up to $5 Billion Outflow via Dollar Stablecoins... Immediate Reshoring Needed"

An analysis has revealed that up to $5 billion (about ₩7 trillion) in domestic funds have flowed out through dollar stablecoins.

Professor Jo Jae-woo of Hansung University attended the seminar 'Stop the Outflow of ₩131 Trillion in National Wealth: Digital Asset Basic Act and Capital Reshoring Strategy within the Institutional Framework' held at the National Assembly Members' Office Building in Seoul on the 26th, stating, "It is an undeniable fact that the influence of dollar stablecoins is increasing." He said, "With the absence of a won-based stablecoin, dollar stablecoins are rapidly taking over the domestic digital asset market," adding, "South Korea is in a lagging state where reshoring (return of funds) is a must-discuss topic."

According to Professor Jo, domestic investors are estimated to hold between $2 billion and $5 billion in dollar stablecoins. This estimation utilizes the ratio of stablecoins held by exchanges to their issuance, and the ratio of overseas to domestic holdings on exchanges. Professor Jo said, "Not only the United States but also the European Union (EU) and Japan have, for several years, expanded their influence on the digital economy using their own currency-based stablecoins," adding, "The longer the institutionalization of a won-based stablecoin is delayed, the more entrenched the market dominance of dollar stablecoins will become, possibly reaching an irrecoverable level."

He also pointed out issues with the domestic regulatory environment. Professor Jo explained, "The current monopoly structure for dollar stablecoins is a product of an artificially created (domestic) regulatory environment," and "The won-based stablecoin, which formed naturally in the market in 2019, disappeared for unclear reasons." He added, "The market was prepared for (stablecoin business), but the policy direction was misguided,” and emphasized, “Some claim there is no demand for a won-based stablecoin, but initially, there was also no demand for dollar stablecoins—private enterprises pioneered the market."

Professor Jo believes that the introduction of a won-based stablecoin could enable capital reshoring and expansion of the digital asset industry. He stated, "(Through a won-based stablecoin) funds that have flowed out overseas via dollar stablecoins could be brought back via a won-based stablecoin," adding, "It could also prevent further outflow of funds through dollar stablecoins." He went on to say, "A won-based stablecoin could facilitate the consumption of tourism and K-Content, thereby attracting overseas funds," and "Won-based digital asset investment on overseas exchanges would also expand."

There was also a suggestion to systematize how to absorb reshored funds. Professor Jo stated, "Even if funds are brought in through the institutionalization of a won-based stablecoin, there is insufficient discussion of their allocation," adding, "Without a response strategy, the reshoring effect could be halved." He also commented, "It is necessary to consider increasing the supply of short-term government bonds to bolster short-term safe assets," and that, "Policy measures should be established to ensure funds can be returned stably even during rapid redemption situations."