[Why&Next] The Heated Debate Over Introducing a Won-Based Stablecoin: Rival to Tether or Catalyst for Dollarization?

Dollar Stablecoin 'Tether' Rapidly Rising in the Payments Market
Expanding Beyond Virtual Asset Trading to Online/Offline Payments and Loans
Foreign Currency Exchange for Foreigners, Tether Salaries... Penetrating Everyday Life in Korea
Concerns Over Threats to the Status of the Won... Political and Financial Circles Begin Discussions
Growing Calls for 'Let's Create a Won-Based Stablecoin Too'
Counterarguments Over Undermining Legal Tender Status and Expanding Tether Use
"Blocking Domestic Circulation of Dollar Coins Should Be the Top Priority"

Discussions about the introduction of a Korean won-based stablecoin are becoming increasingly active, particularly among political and financial circles. Concerns have arisen from the United States' proactive efforts to foster stablecoins, leading to the sentiment that Korea cannot afford to remain idle. There is growing support for the idea of creating a won-based stablecoin to prevent dollar stablecoins, such as Tether (USDT), from directly infiltrating everyday life in Korea, and to enhance the status of the won. Essentially, there is a push for Korea to foster its own stablecoin industry, similar to the United States. However, there are also opposing views. Some worry that it could undermine the status of the national currency and even encourage the use of 'dollar coins.' There is also criticism that the focus of political and financial discussions should shift toward responding to 'dollarization' (the replacement of local currency with the US dollar).

The US Moves to Foster Dollar Stablecoins... Korea Cannot Remain Idle

Simply put, a won-based stablecoin is the Korean version of 'Tether.' While Tether is a virtual asset pegged to the US dollar, a won-based stablecoin is backed by Korea's legal tender, the won. Like dollar stablecoins, it is fixed at '1 won = 1 coin,' resulting in minimal volatility and high stability.

Discussions about introducing a won-based stablecoin in Korea have intensified since the United States, under the Donald Trump administration, began actively fostering dollar stablecoins. The US has created the GENIUS Act, which contains regulatory measures for stablecoins and is nearing final passage in the Senate. While this bill regulates stablecoin issuers, it is essentially a measure to institutionally support value stability and foster the industry.

Stablecoins are also rapidly gaining traction in the payments market. Previously, they were mainly used as a means of trading virtual assets like Bitcoin or Ethereum, but now they are being expanded as online and offline payment methods in partnership with international payment companies such as Visa and Mastercard. In the US, even Bitcoin-backed loans have begun.

As their uses increase, the stablecoin market is growing rapidly. According to DefiLama, a decentralized finance data analysis company, as of May 27, the market capitalization of stablecoins reached $247.484 billion (about 340 trillion won). This represents a 64% increase compared to a year ago (about $150 billion). In Korean currency, this means an increase of about 100 trillion won in just one year.

As the US moves to establish dominance in the virtual asset market, countries around the world are also taking action. The European Union, the United Kingdom, and Hong Kong are all preparing related legislation. In Korea, the issue has surfaced in connection with the presidential election. As dollar stablecoins like Tether are being used not only for virtual asset trading but also for foreign currency exchange and the payment of wages to foreign workers, their penetration into daily life has led to louder calls for institutional design and regulation.

Among these developments, the focus of discussion is shifting toward a won-based stablecoin. If the activation of stablecoins is an unstoppable trend, some argue that Korea should introduce a won-based stablecoin as soon as possible to counter 'dollar coins.' There are concerns that hesitation will only strengthen Tether's position in the domestic payments market. Some suggest that it would be better for the government to foster and transparently manage a won-based stablecoin to prevent the domestic market from being overtaken by Tether. Given that there is some overseas demand for the won due to K-culture, others argue that this is an opportunity to expand the sovereignty of the won in the digital currency market.

'Replacing Tether with a Won-Based Coin Has Its Limits'... Calls to Focus on Dollarization Response

However, depending on its use, a won-based stablecoin is not without controversy. If, as with dollar stablecoins in their early days, it is used as a means of trading virtual assets, there may be few problems. It would allow for portfolio management by moving some highly volatile cryptocurrencies like Bitcoin or Ethereum into a won-based stablecoin. Only the initial cryptocurrency transaction would go through a bank, and a new market could emerge where cryptocurrencies are bought and sold primarily through won-based stablecoins. Since most domestic cryptocurrency transactions are conducted in won, its utility would be even greater.

However, as dollar stablecoins have recently begun to penetrate everyday payments, this presents a different issue. Allowing the issuance of a won-based stablecoin would effectively grant private businesses the right to create money. This could undermine the status of the won as legal tender. The government would also find it difficult to fully monitor or control supply and demand. There could be an increase in transactions that are not captured by official statistics. This raises concerns about the central bank losing control over the flow of money. If monetary policy tools such as base rate adjustments no longer have an effect in the market, it would pose a fundamental threat to the nation. In the event of market instability, a 'coin run' could deliver a significant shock to the financial system.

Some also point out that a won-based stablecoin cannot completely block the domestic penetration of dollar stablecoins. The stablecoin market is already overwhelmingly dominated by the dollar, accounting for nearly 90%. It would be difficult for a won-based stablecoin to replace this. The main users are also different. A won-based stablecoin would likely be used mainly by Koreans sending money abroad or by foreigners using Korea's on- and offline markets. Foreigners are more likely to hold virtual assets in dollar form, and a won-based stablecoin could serve as a bridge to facilitate payments in the domestic market. In this case, even if dollars are not directly used for payments in the domestic market, it could inevitably encourage the use of 'dollar coins.' In Korea, where capital controls are in place, it could also be used as a means of evading such regulations, allowing funds to move easily beyond supervisory oversight.

For these reasons, there are calls to shift the focus from rushing to introduce a won-based stablecoin to addressing the domestic entry of Tether and the resulting dollarization. Shin Boseong, Senior Research Fellow at the Korea Capital Market Institute, said, "There is no need to unconditionally follow the US's stablecoin fostering policies, and even if it becomes inevitable to establish an institutional framework, careful preparation and pacing are necessary," adding, "At this point, the priority should be to develop the capacity and institutional foundation to control and manage the circulation of dollar stablecoins in Korea."