Stablecoin overview in Korea
How the stablecoin scene is different in Korea
TL;DR
With the recent announcement of a number of stablecoin launches, including PayPal, the market is once again focusing on stablecoins.
In contrast to the international interest in stablecoins, interest from the Korean market has been lukewarm. This is majorly due to three reasons:
Stablecoins are less volatile and therefore are less attractive for the aggressive investor appetite of the Korean market.
Korea has a well-developed fiat currency exchange infrastructure, so there is less of a necessity for stablecoins to act as a base currency.
The practical utility of stablecoins is ambiguous because digital payment infrastructure such as card payment systems is well established.
Public interest in stablecoins is expected to remain low. However, institutional investors and web3 companies with high demand for cryptocurrency investment and utilization are expected to be active in stablecoin investment and use.
Stablecoins are back in the spotlight
Recently, the stablecoin space has been in the spotlight again. After the Terra-Luna incident, the interest in the stablecoin space was put into disarray by the strengthening of regulations from various governments. However, with the announcement of a stablecoin launch from the US online payment service company 'Paypal', the flame seems to have reignited. In addition, the market capitalization of Tether (USDT), the world's largest stablecoin, recently reached a record high, and many other stablecoin launches are also attracting market attention.
Lukewarm reaction of Korean market
International interest in stablecoins is high, with the expectation that PayPal's 430 million users will be drawn into the stablecoin market. Reception from the Korean market, however, has been lukewarm, with expectations that the PayPal stablecoin will have little to no impact. This is due to the fact that 1) PayPal has a small number of domestic users and 2) the service is unavailable in Korea. Furthermore, the negative perception of stablecoins may also be due to the fact that domestic investors have experienced the Terra-Luna crisis firsthand.
In addition to these external factors, there are also reasons why stablecoins themselves are less attractive. Stablecoins have a small presence in the Korean cryptocurrency market, with only 10 out of 26 domestic cryptocurrency exchanges supporting trading in stablecoins, and the number of coins that are supported for trading is very small. In addition, the trading volume of stablecoins in the top five domestic exchanges is also very low, accounting for only 0.0009% of the total global trading volume on a daily basis (24 hours). Considering that Korean cryptocurrency exchange Upbit recently ranked second globally in monthly cryptocurrency trading volume, this shows how little attention stablecoins are receiving from the Korean market.
Why no love from Korean markets?
There are three main reasons why stablecoins are not gaining traction in domestic markets.
First is the low volatility of stablecoins. This makes it difficult to profit from their price differentials compared to other assets. In fact, the average fluctuation rate of major stablecoins over the past year is only 0.01%. Such low volatility is inevitably unattractive for investment in a market characterized by a strong risk appetite.
Especially among the 20~30s, which is the main user base of cryptocurrency exchanges, the number of risky investments that aim for a one-time sweepstakes is steadily increasing. It is not uncommon to see people invest with debt and purchase lotteries to “graduate” from their current fiscal situation.1 Therefore, it is expected that Korea's tendencies for aggressive investment will only grow stronger. At the same time, the demand for stablecoins is also expected to remain low.
The second reason is that stablecoins are not that attractive as a base currency for purchasing cryptocurrencies. In Korea, it is easy to buy and sell cryptocurrencies through KRW exchanges, and there is a perception that KRW exchanges are relatively safe because they fall within the regulatory system. Therefore, it is inevitable that transactions through KRW, rather than stablecoins, are more popular. In fact, KRW exchanges accounts for 99.4% of domestic cryptocurrency transactions. The proportion of cryptocurrency transactions through BTC/USDT/USDC is only a measly 0.6%. Therefore, the position of stablecoins is extremely minuscule.
Third, South Korea has a well-developed financial infrastructure that makes the practical utility of stablecoins ambiguous at best. South Korea has a well-developed digital payment system provided by banks and card companies, and its credit card distribution rate is among the highest in the world, reaching 64%. Therefore, the need to utilize stablecoins as a payment method is questionable compared to developing countries that lack such financial infrastructure.
The future of stablecoins in the Korean market
Going forward, the Korean market interest in stablecoins is expected to remain low. This is because there is a widespread negative perception of stablecoins due to the direct aftermath of the Terra-Luna crisis, and the low investment attractiveness and utility of stablecoins. However, institutional investors and web3 companies are expected to actively invest and utilize stablecoins. In the case of these companies, it is difficult to immediately cash out a large amount of virtual assets. Hence, the following reasons make stablecoins attractive.
Companies will try to minimize risks by exchanging volatile virtual assets for stablecoins.
In the case of web3 companies, it is likely to be used as collateral for business involving virtual assets.
It is expected to be actively used as a means for virtual asset investment or global business expansion.2
For these reasons, the amount of stablecoin holdings and usage centered on institutional investors and web3 companies is expected to increase.
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Compared to 2019, the average monthly lottery ticket purchase cost for 20s in Korea skyrocketed by 313.8% in 2020, compared to the average increase of 30.6% for all ages.
According to the Financial Supervisory Service, about KRW 51.6 billion (USDC 33.5 billion, USDT 18.1 billion) worth of stablecoins are held by 30 listed companies in Korea.