Concerns Over South Korea’s Shift to Stablecoins
Experts in South Korea have raised concerns that the country’s shift towards stablecoins may pose challenges for credit card companies while simultaneously benefiting major domestic technology firms. Reports from local media outlets, dated June 23, suggest that lawmakers from the Democratic Party plan to introduce the Digital Asset Innovation Act next month, which will formally define stablecoins as “value-stable digital assets”. Under this bill, any entity looking to issue stablecoins must demonstrate that it possesses equity capital assets of at least 1 billion won (approximately $720,258).
Impact on Financial Landscape
This innovation in stablecoin development, particularly those pegged to the won, has the potential to transform the South Korean financial landscape by enabling payments through privately issued tokens without the need for traditional fiat currencies. However, the Bank of Korea has expressed hesitation regarding such shifts, citing potential risks to the commercial banking sector.
Furthermore, a report from New Daily Kyungjae indicates that the rise of stablecoins might jeopardize the credit card industry, leading to concerns about a long-term structural crisis as their payment infrastructures could weaken over time.
Risks for Credit Card Companies
Alarmingly, analysts warn that the transition towards stablecoins could challenge the industry’s ability to maintain current profitability, with some reporting that the average monthly default rate for South Korean credit card companies reached 1.93% in the first quarter of the financial year, dangerously close to the 2% threshold considered critical by industry standards. Notably, several major card providers—including KB Kookmin, Hana, and BC Card—have exceeded this mark, leading to fears of a rising number of loan defaults as these firms increase their high-interest loan offerings in an effort to safeguard their financial health.
Opportunities for Tech Firms
Conversely, within the tech sector, there is an air of optimism regarding the possibilities that stablecoins present. As regulatory frameworks begin to solidify globally, leading South Korean firms like Naver, an extensive online platform akin to Google, and Kakao, the developer of a popular messaging app, are poised to embrace blockchain innovations. Other noteworthy companies, including Hyundai’s subsidiaries (Hyundai HT and Hyundai Mobis), Kocom (a smart home firm), and IT service providers like Bridgetec and Kaon Media, are also exploring the advantageous realms of stablecoins.
Anticipation is mounting for Naver’s potential entry into the stablecoin market, possibly aligning its services with web3 technology to leverage this new digital asset. An anonymous industry expert remarked that Naver could enhance its market position by collaborating with Line, a popular messaging platform widely used in Japan and other Asian countries. Such synergy might lead to enhanced cross-border transaction capabilities.
Market Speculation
This surge of enthusiasm surrounding stablecoins in South Korea has ignited speculative activities in the nation’s stock and cryptocurrency markets, with traders eager to invest in companies already showing enthusiasm for stablecoin initiatives ahead of the impending legislation.
