South Korea is on the cusp of establishing comprehensive regulations for stablecoins. Lawmakers are accelerating their efforts. If enacted, the Digital Asset Innovation Act has the potential to significantly transform payment systems and challenge traditional financial institutions.
Stringent Requirements for Issuers
Recent analysis indicates that any entity looking to issue stablecoins will need to maintain a minimum capital of ₩1 billion (approximately USD 720,258). Such a barrier could exclude smaller startups, effectively favoring established corporations and well-funded entities.
The initiative is being propelled by lawmakers from the Democratic Party within the National Assembly, set to unveil the bill shortly. Its goal is to characterize stablecoins as “value-stable digital assets” and to implement structured regulations.
Impact on Payment Providers
According to industry experts, credit card companies may find themselves under significant pressure. Analysts warn that the adoption of stablecoins could diminish the transaction volume for credit cards, posing a serious threat to the overall viability of these firms.
Additionally, companies are grappling with a rising loan default rate nearing 1.93% in the first quarter of the year, which is perilously close to the 2% critical threshold. Major players like KB Kookmin, Hana, and BC Card have already surpassed this benchmark. Such trends indicate potential disruptions if a portion of transactions migrates toward digital tokens.
Growing Concerns in Banking
The Bank of Korea has expressed skepticism regarding stablecoins, urging caution and raising alarms over the possible negative impact on the banking sector. Increased use of stablecoins for routine transactions could lead to significant losses in fees and customer deposits for banks.
The central bank cautions that this shift could erode the profitability of commercial banks. Consequently, these institutions may need to rethink their strategies or develop their own digital solutions to retain clientele.
Tech Giants Eager to Innovate
While financial institutions remain wary, major tech companies are positioning themselves advantageously. Firms like Naver and Kakao have been investing in blockchain advancements for years, viewing the integration of a won-backed token into their platforms as an opportunity.
Hyundai HT and Hyundai Mobis are closely monitoring developments as well. Other companies, such as Kocom, MediaZen, Kaon Media, and Bridgetec, are also in the mix. Experts suggest that a stablecoin from Naver, potentially linked to web3 services or the popular Line app in Japan, could unlock new revenue streams.
Market Speculation Surges
In anticipation of the upcoming vote, investors have started flocking to the market. Local cryptocurrency and stock exchanges are abuzz with activity. Shares of companies exploring stablecoins are experiencing notable increases, reflecting a heightened sense of optimism. However, this excitement carries risks—should the legislative process stall or undergo significant changes, valuations could face sharp declines.
Image sourced from Unsplash, chart data from TradingView
