The value of the won has plummeted by more than 5% in a month, bringing the exchange rate close to the 1500 won mark. It also set a record high not seen in nearly 16 years since the financial crisis. There are forecasts that if the strong dollar phenomenon strengthens after Donald Trump takes office as U.S. president, 1500 won could become the 'new normal.'
The impact of the high exchange rate is also affecting the virtual asset market. There is a particular type of coin that garners attention when the exchange rate soars, namely 'stablecoin.' The over hundreds of virtual assets can be broadly categorized into three types: coin, token, and stablecoin, based on their uses or technologies. Virtual assets like Bitcoin and Ethereum that exist on their own independent blockchain networks are classified as coins, whereas virtual assets issued for different functions on existing networks like Ethereum are regarded as tokens.
As can be inferred from the English word 'stable,' stablecoins are less volatile in terms of price compared to other virtual assets. In fact, stablecoins were designed to reduce volatility in the virtual asset market. Such virtual assets are generally designed to peg their value to legal currencies like the dollar or precious metals such as gold.
For instance, the price of Bitcoin changes every hour, minute, and second. A gem that was 0.05 Bitcoin could become 0.06 Bitcoin an hour later. This significant price volatility makes it challenging to utilize general virtual assets as a means of payment on blockchain networks. Although it may not be necessary in everyday life right now, there is a growing need for a means to support transactions on the blockchain network, and stablecoins have been designed as a means of payment and store of value since they reduce price volatility while maintaining stable prices.
The most famous stablecoin is Tether (USDT). It ranks third in market capitalization after Bitcoin and Ethereum, and is issued on a 1:1 basis backed by U.S. dollars. The issuer of Tether, the Tether Limited company, holds U.S. dollar reserves equivalent to the amount of Tether issued in order to maintain trust in Tether, with most of these reserves invested in U.S. Government Bonds. Reports indicate that the investment amount reached $118.4 billion as of the end of June last year, approximately 173 trillion won.
In addition to Tether, there are various other stablecoins. The USD Coin (USDC), operated by U.S. Circle and the largest U.S. exchange Coinbase, also fixes its value to the U.S. dollar, while MakerDAO (DAI), which fixes its value using other cryptocurrencies as collateral, and a dollar-pegged stablecoin called RLUSD from the operator of Ripple, which is ranked fourth in market capitalization, is set to launch this month.
However, there have been instances where the price of stablecoins deviated from their assets. An example of this is the 'Terra incident,' which made waves in the virtual asset industry two years ago. The stablecoin Terra (UST) was issued using Luna (LUNC), another cryptocurrency on the Terra blockchain, as collateral and was an algorithm-based stablecoin where more Terra could be minted when the price of Luna increased. While this algorithm worked well when the virtual asset market was thriving, an external factor led to a rush of funds trying to convert Terra at once, causing Terra's price to drop below $1, and Luna could not support it, resulting in a massive crash of both virtual assets.
Recently in South Korea, a phenomenon known as 'Kimchi premium' caused the price of Tether to spike. Kimchi premium refers to cases where the price of virtual assets traded domestically exceeds that of overseas exchanges. On the 28th of last month, Tether was traded above 1500 won at domestic exchanges. At that time, the dollar was in the 1470 won range, but as the exchange rate soared and the value of the won decreased, there was a sudden surge in demand from domestic investors looking to hedge, causing Tether to trade at a premium on domestic exchanges.
There is also a growing interest in stablecoins among global investors. As the U.S. Federal Reserve indicated it would adjust the pace of interest rate cuts, uncertainty increased, and with Donald Trump, who will lead the next U.S. administration, advocating for protectionism, there is a heightened preference for safe assets. Additionally, there is anticipation that the Trump administration will be more open to virtual assets, drawing attention to stablecoins as essential transactional means in the virtual asset industry.
Lee Seung-hwa, head of Dispread Research Team, noted, 'Stablecoins are the most common means of transaction in the virtual asset market and are a growing sector alongside the boom in the virtual asset market. As long as there is sustained interest in the virtual asset industry, stablecoins will continue to attract the attention of market participants in 2025 as a key sector.'