[Part 1] Hegemony of Stablecoins: Global Stablecoin Dominance and US Regulatory Reforms
[Part 2] Hegemony of Stablecoins: KRW Stablecoins at the Crossroads of Innovation and Regulation
[Part 3] Hegemony of Stablecoins: Ethereum’s 'Meta Transactions' as the Key to Cost Innovation
[Part 4] Hegemony of Stablecoins: The Future of Finance Lies in Cars and AI
[Part 5] Hegemony of Stablecoins: Why is South Korea Considering Issuing Won-Based Stablecoins?
The "stablecoin industry hegemony," as observed by Professor Hyoung-Joong Kim, examines the paradigm shift in the market that has emerged as a key axis of digital finance today. Today's issue is the second story about the possibility and doubts of "KRW stablecoin."
Steve Jobs once said, "People don’t know what they want until you show it to them." This truth applies equally when embracing new technologies or ideas. In both the Korean and global markets, several questions have been raised about the KRW (Korean Won)-based stablecoin. The central question is, "Where and how can it be utilized?"
To answer this question, let's connect it to everyday life. Imagine a scenario where scholarships are paid in KRW stablecoin at a university. Traditionally, universities disburse scholarships through bank accounts, incurring costs such as transfer fees. In contrast, with stablecoins, it would be possible to directly transfer funds from issuers to students' wallets, significantly reducing fee burdens. For the university, this could be a strategy to achieve both "establishing an innovative image" and "cost savings," potentially boosting its reputation with media attention.
Students would also gain financial practice using stablecoins issued by the university, naturally enhancing their understanding of decentralized finance (DeFi) and related technologies. This ecosystem could eventually lead to "industrialization," expanding into real-world internships and startups linked to local economies. Ultimately, this small beginning lays the foundation for a new economic ecosystem, reminiscent of the cases of the internet and digital innovation.
However, there are realistic hurdles to implementing such change, including regulations and safety measures. In the U.S., the "Genius Act" and the "STABLE Act" are central to the regulatory conflicts surrounding the stablecoin market. The "Genius Act" strictly limits stablecoin issuers to these three entities: subsidiaries of insured depository institutions (IDIs), non-bank issuers authorized by the Office of the Comptroller of the Currency (OCC), and state-authorized entities. If the issuance exceeds $10 billion, federal oversight is required, while issuance under $10 billion requires state authorization if it meets federal "substantial similarity" criteria.
On the other hand, the "STABLE Act" restricts stablecoin issuance to banks or institutions with federal authorization, making market entry extremely difficult for competitors outside the existing institutional framework. This essentially erects stringent barriers for large tech companies and startups outside the financial sector, such as Google, Apple, and Meta (Facebook), from entering the market.
While these regulatory enhancements aim to ensure market stability and prevent fraud, they also inherently carry the side effect of stifling innovation. As a result of regulation, new technologies may struggle to gain a foothold in the market before being fully tested and verified, ultimately hindering global competitiveness. Thus, genuine "innovation" hinges on finding the right balance between regulation and technological advancement.
Money Laundering: The Security Measures and Limitations of Technology
One of the common concerns is the potential for stablecoins to be misused for money laundering. However, the "traceability" characteristic of blockchain actually enhances transparency. Blockchain analysis firms, such as Chainalysis and Elliptic, analyze transaction data in real-time to identify criminal fund flows and immediately detect suspicious transactions. For example, in cases involving crimes, issuers of stablecoins like USDT and USDC have taken action by freezing funds upon receiving reports, as seen in the 2020 freezing of $100,000 in USDT by Circle and the 2022 freezing of $870,000 in USDT by the Israeli government.
Unlike in the past, when digital currencies could be misused as money laundering tools due to regulatory shortcomings, recent regulatory enhancements and advancements in tracking systems have gradually addressed these issues. Robust tracking and freezing technology further consolidates the stablecoin market as a "secure financial hub," suggesting it could become a much more transparent and secure means of transaction than cash or credit cards.
Now, striking a balance between innovation and regulation is a crucial task. It involves implementing regulations and safety measures without suppressing market creativity through unnecessary over-regulation. Governments and regulatory bodies must keep pace with technological advancements while fostering an ecosystem that enables market participants to operate responsibly. Key to this is global standardization, collaboration, and continuous communication with the industry.
KRW Stablecoin in the Context of Global and Domestic Strategies
In this context, Korea’s KRW stablecoin represents a crucial strategic element. Domestic enterprises and government agencies need to monitor international regulatory developments and craft “tailored regulations closely” and “proactive incentives" suited to Korea’s unique economic and technological environment. Examples include easing regulations to facilitate innovative experiments, such as university pilot programs or small-to-medium enterprise (SME) digital payment expansions, as well as employing advanced analytics technology for crime prevention to foster a secure and vibrant ecosystem.
Currently, stablecoins are also a battlefield for “hegemonic competition." Governments, academia, and corporations in various countries, including the United States, are reshaping the future of financial order amid differing interests and regulatory frameworks. However, the key lies in an attitude that does not dismiss “doubts” but actively seeks answers within them. The effort to find solutions amidst questions fuels technological innovation.
Challenges faced by new technologies like KRW stablecoins can be viewed as both “experiments” and “opportunities.” These small doubts and questions are the driving forces behind innovation and form part of the “larger picture” that citizens, governments, and industries collaboratively build. Continuous questioning and creative problem-solving will enable these technologies to mature and establish a more robust foundation.
From the Starting Point of Inquiry to a Resilient Financial Ecosystem
Through this process, stablecoins could evolve beyond mere digital currency into vital components of transparent, secure, and stable financial systems. The journey begins with questioning, recognizing boundaries, and embracing a mindset of continuous challenge. Innovation hinges on relentless questions and daring pursuits. Our collective responsibility is to responsibly shape this future.
If regulation, technology, and market demand are harmonized, KRW stablecoin has the potential not only to compete on the global stage but also to become a core pillar of Korea’s leadership in financial innovation. Now is the time to venture boldly into uncharted territory. It is the questions we ask—small yet profound—that will unlock the future of finance. These initial doubts and challenges will serve as the keys to great possibilities ahead.
Therefore, balancing regulation, technological advancement, and market needs is crucial. When these elements are harmonized, KRW stablecoin can transcend mere competition, positioning Korea as a leader in the global digital finance landscape, fostering a safe, innovative, and forward-looking financial ecosystem. This is the moment to explore new frontiers and realize new advancements. Small questions can open up vast opportunities, and we all have a responsibility to chart this future responsibly.
You can find the Korean version of this article here.
