The Need for a Won-Linked Stablecoin and Legislative Proposals

In January 2019, the won-linked stablecoin "KRWb" was launched. The coin was issued by a small startup called BxB, aiming to eliminate inefficiencies in the domestic virtual asset market, such as the "Kimchi Premium," which refers to the price difference between global and Korean exchanges.

In January 2019, a small startup called BxB launched a won-linked stablecoin named 'KRWb' with the goal of eliminating inefficiencies in the domestic virtual asset market. The coin was planned to be listed on foreign exchanges to resolve price disparities, as it was difficult for foreign funds to enter the domestic virtual asset market at the time.

However, the timing was premature, and KRWb became a failed project without even fully blossoming.

Six years have passed since then, and the virtual asset market has grown remarkably. Dollar-linked stablecoins like Tether (USDT) and USDC have become ubiquitous in the virtual asset market and have also started to establish themselves in everyday life, including payments and trade. Foreign countries such as the European Union (EU), the United States, and Hong Kong are preparing stablecoin regulations, accelerating their integration into the institutional framework.

But inefficiencies in the domestic virtual asset market remain. Foreign funds are still blocked from entering domestic exchanges, and regulations have been introduced to prevent domestic investors from accessing unregistered overseas exchanges, further intensifying market closure. In addition to the Kimchi Premium, a 'reverse premium' sometimes appears.

Particularly, the United States, as the issuer of the dollar, is using stablecoins as a 'digital weapon' to strengthen dollar hegemony. President Trump has also not hidden his intention to use stablecoins to reinforce the status of the dollar as the key currency.

This leads to the analysis that now is the right time for the issuance of a won-linked stablecoin. Despite the persistent problems in the domestic virtual asset market, stablecoins have grown in market size and are trending towards institutionalization.

There is also a call for a won-linked stablecoin to protect currency sovereignty.

The most significant factor highlighting the need for a won-linked stablecoin is the structural inefficiency of the domestic virtual asset market.

Last month, blockchain research firms Populous and Hashed Open Research (HoR) delivered a report titled 'The Need for a Won-Linked Stablecoin and Legislative Proposals' to the authorities.

The report identified structural problems in the domestic virtual asset market, including the Kimchi Premium, 'listing beam' (a phenomenon where the price of a newly listed coin soars), and 'Gaduri (gated) Pumping' (a phenomenon where the price of a specific virtual asset rises when deposits and withdrawals are temporarily suspended).

Populous identified the closed market structure as the cause of these problems. Currently, non-resident foreigners cannot join domestic exchanges. With market participants limited to Koreans, liquidity is insufficient, and isolation from the global market leads to continued price distortion.

This has also led to the exodus of domestic virtual asset investors. Populous noted that the amount of virtual assets withdrawn from Korea to overseas is on the rise, indicating that domestic investors are moving to overseas exchanges.

A won-linked stablecoin is seen as an alternative to these problems.

Populous explained, "If a won-linked stablecoin is listed on global virtual asset exchanges or on-chain (blockchain) markets, global investors will have direct access to won-based assets. This will enable two-way capital flows with the Korean market, contributing to reducing price disparities between markets."

They further predicted, "Global investors will attempt arbitrage using the price differences between the Korean and global markets through the won-linked stablecoin. This will naturally exert pressure to reduce the Kimchi Premium."

Hwang Seok-jin, a professor at Dongguk University's Graduate School of Information Security, also pointed out, "If a won-linked stablecoin is issued and starts circulating on overseas exchanges, the Kimchi Premium will be resolved, and virtual asset prices will stabilize compared to before."

From the perspective of currency sovereignty, there is also an analysis that a won-linked stablecoin is essential.

Currently, the stablecoins listed on major domestic virtual asset exchanges are Tether (USDT), USDC, and DAI, all of which are dollar-linked stablecoins.

The trading volume of these stablecoins is on the rise. According to data obtained by the office of Park Sang-hyuk, a member of the Democratic Party of Korea, from major domestic virtual asset exchanges (Upbit, Bithumb, Coinone, Korbit), the monthly trading volume of USDT on domestic exchanges was 2.26 trillion won in October last year, before the exchange rate surge began in earnest. However, in December last year, when the dollar-won exchange rate surged due to the state of emergency, the monthly trading volume of USDT on domestic exchanges reached a whopping 13.89 trillion won. This increased more than 6.4 times in just two months.

As the trading volume of dollar-linked stablecoins increases domestically and related companies such as payment firms adopt