Naver headquarters (above) and Kakao building. /Courtesy of News1

Following Kakao Pay, Naver Pay has thrown down the gauntlet in the stablecoin market. It plans to issue stablecoins for use as payment or rewards. The virtual asset industry predicts that success will require providing motivation for easy use of stablecoins like legal tender and supplying ample liquidity.

Park Sang-jin, the head of Naver Pay, noted on the 26th that "stablecoins will become a key medium of future digital finance" and said, "We will play a leading role in industry consortiums quickly adapting to policy introductions." He also mentioned that "if stablecoins are operated primarily by non-financial companies, there could be situations where rewards are replaced with coins," adding that "this can be tested efficiently."

Naver Pay and Kakao Pay did not disclose what services they would provide using stablecoins. However, it is highly likely they will choose to issue stablecoins directly. Kakao Pay has applied for patents on six brands related to stablecoins, including KKRW, while Naver Pay has filed for five brands, including NKRW, with the Korean Intellectual Property Office.

Stablecoins are virtual assets that hold values equivalent to legal currency. The dollar stablecoin is fixed at "1 dollar = 1 coin," while the won stablecoin has not been determined yet, but it will be structured like "1,000 won = 1 coin." This means stablecoins serve as digital currency.

◇ Past won stablecoins failed due to lack of liquidity

The virtual asset industry analyzes that the first condition for the success of stablecoins is liquidity. The circulation of dollar stablecoins is only about 1% of the broad money supply in the United States, but within the virtual asset market, liquidity is deemed to be sufficient. According to blockchain research media The Block, as of the 26th, the market capitalization of dollar stablecoins has reached $243.5 billion (about 330 trillion won). This indicates that 243.5 billion stablecoins are circulating in the market. In terms of daily transaction volume, the leading stablecoin, USDT, has a market cap of $60.3 billion (81 trillion won), while the second-ranking USDC has a market cap of $61.6 billion (83 trillion won).

The CEO of Circle Group, which issues the stablecoin USDC, Jeremy Allaire, and co-founder Sean Neville attend the company's initial public offering (IPO) at the New York Stock Exchange (NYSE) on the 5th (local time). /Courtesy of Reuters Yonhap News

In the past, several won stablecoins were launched, but they failed to overcome the limitations of liquidity and faded away. The world's largest exchange, Binance, issued a won stablecoin called BKRW in April 2020, but ceased trading just eight months after its launch. The reasons for BKRW's failure included tightened domestic regulations, among other factors, but Binance identified decreased liquidity and transaction volume as the main causes. They issued a won stablecoin, but there were no users.

◇ Proving the 'utility' of stablecoins is key

For stablecoin circulation to increase, it is crucial to provide incentives for purchasing and actively using them. Establishing a relevant ecosystem to expand usage and offer benefits that demonstrate the necessity and utility of stablecoins is essential.

Some in the virtual asset industry respond that it is difficult to guarantee immediate success. Dollar stablecoins, regarded as a successful model, have earned trust and secured liquidity over a long period in the virtual asset market and decentralized finance (DeFi) space. The fact that stablecoins have begun to be used as payment methods during real transactions is a recent development. According to global asset management firm AllianceBernstein, approximately 88% of all stablecoin transactions last year were used in virtual asset trading. Only 6% of dollar stablecoins were used for payment purposes.

In contrast, stablecoins issued by payment platforms like Naver Pay and Kakao Pay are likely to be used as payment methods right away without securing trust and liquidity in the virtual asset market. Korea's virtual asset trading volume ranks among the top five in the world, but the majority purchases virtual assets using won, reducing the necessity for stablecoins.

A representative from the virtual asset industry stated, "If you issue a won stablecoin and claim its value is the same as legal currency, it is meaningless if there is no response," adding that "to succeed, stablecoins must ultimately create utility." The representative also mentioned that "as the utility of dollar stablecoins expands and the ecosystem grows, its value is being reassessed," emphasizing that there need to be various policies and investments in place to create a stablecoin ecosystem.