Trump momentum drives stablecoin urgency in Asian financial hubs

Economic Times

2 days ago

Asian markets are hurriedly updating their stablecoin rules as President Donald Trump's embrace of US dollar-pegged cryptocurrencies instills a fresh sense of urgency among the region's authorities.
ADVERTISEMENT Recent developments in South Korea, Hong Kong, Malaysia, Thailand and the Philippines point to a proliferation of stablecoins pegged to Asian currencies — even as authorities raise concerns about capital outflows.
Regional heavyweights including JD.com and Ant Group plan to capitalize by applying to become issuers. Shares in Kakaopay Corp. ballooned on expectations that it would do the same. Even China, which has for years imposed a sweeping crypto ban, appears to be warming to the notion of tokens that serve as yuan surrogates.
It all stems from the US, where lawmakers recently passed legislation that will promote wider use of digital tokens that seek to maintain a 1:1 peg with the dollar. The White House earmarked dollar stablecoins as a priority in a January executive order, days after Trump's inauguration. 'The Genius Act has opened the floodgates for stablecoin adoption,' said Benjamin Grolimund, General Manager for the UAE at crypto exchange Flipster. 'Whether you support it or not, stablecoins are now unavoidable.'
ADVERTISEMENT Overhanging Asia's flurry of activity is the fear of capital flight. The dollar reigns supreme in today's stablecoin market, with $256 billion in tokens pegged to the greenback. These maintain their price by managing reserves of cash-like assets, such as US Treasuries. By contrast, there's just $403 million of euro-backed stablecoins in circulation, despite a well established regulatory framework covering such products in the form of the Markets in Crypto-Assets Regulation regime.Koreans are already trading piling into dollar-pegged stablecoins. Transactions involving USDT, USDC and USDS — three of the largest dollar proxies — on five domestic exchanges reached 57 trillion won ($41 billion) in the first quarter, Yonhap News reported, citing Bank of Korea data.
ADVERTISEMENT Local lawmakers in recent weeks clashed with the central bank over whether to allow Korean companies to issue won-based stablecoins. President Lee Jae Myung's ruling Democratic Party on June 10 proposed the Digital Asset Basic Act, creating a pathway for local firms to become issuers.Two weeks later, Ryoo Sangdai, Senior Deputy Governor at the Bank of Korea, warned that stablecoins may shift the country's longstanding policy stance on capital liberalization and the won's internationalization. Central bank Governor Rhee Chang Yong went further, arguing that non-bank stablecoins would 'cause big chaos like in the 19th century,' when currencies issued by the private sector flooded the market.
ADVERTISEMENT 'Local stablecoins, while offering regulatory visibility at the point of issuance, carry the risk of becoming efficient bridges to global markets through seamless crypto-to-crypto swaps on decentralised exchanges,' said John Park, head of Korea at Arbitrum Foundation.Asian central banks need to find ways to channel the momentum, rather than fighting it, Park said. Regulatory frameworks should aim to preserve sovereignty while staying competitive, he added.
ADVERTISEMENT For digital-asset trading firms, a more diverse stablecoin market is a no-brainer.'Capital controls are a challenge,' said Yoann Turpin, co-founder of crypto market maker Wintermute. 'But stablecoins could provide a vetted, more efficient on-chain system.'
Such a setup could streamline arbitrage trades across venues or between markets without the constraint of foreign exchange market hours, said Le Shi, Hong Kong managing director at market making firm Auros. 'There's a real use case for local currency stablecoins — particularly for enabling weekend liquidity and smoother capital movement.' Another possibility is that the growth of local stablecoins could enliven crypto economies in Asia. In South Korea, an estimated 18 million people, over a third of the country's population, are engaged in digital assets. Sam Seo, chairman of the Kaia DLT Foundation, said a won-backed stablecoin would serve different needs than US dollar alternatives.'In the short term, swaps between the won and USDT will dominate. But longer term, we'll need stablecoins from other countries to support direct pairings and faster settlement,' Seo said.Hong Kong, meanwhile, has quickly become the region's stablecoin laboratory. The Hong Kong Monetary Authority is particularly focused on 'viable and practical use cases,' not just capital buffers, Clara Chiu, founder of QReg Advisory said. Many of the issuers that have taken an interest in yuan-backed stablecoins are trading and payment firms that are already using the yuan in cross-border settlement. 'That's where the practical demand lies,' Chiu added. While China's next steps are far from certain, crypto firms including brokers are already preparing for the prospect of yuan-pegged stablecoins. Kennix Chan, vice president at Victory Securities, said the firm is in active talks with a range of would-be issuers in Hong Kong.The firm's affiliate, VDX, is close to securing a license to operate a digital-asset exchange, according to Chan, allowing it to offer new trading pairs — such as Bitcoin against stablecoins pegged to the Hong Kong dollar — and eventually yuan-backed equivalents. 'When a yuan-stablecoin is born, the market will definitely be exponentially bigger,' Chan said.Despite its blanket crypto trading ban, China appears to be warming to blockchain as a financial tool. People's Bank of China Governor Pan Gongsheng said in June that stablecoins could revolutionize international finance, as rising geopolitical tensions highlight the fragility of traditional payment systems.A recent licensing upgrade granted for a major Chinese state-owned brokerage to deal in digital assets through Hong Kong has also stirred optimism among Chinese players. 'It gave hope that there's a way,' Chiu said.
Still, few expect Beijing to open its doors to crypto trading anytime soon. Lily King, chief operating officer at digital-asset custodian Cobo, said Hong Kong will continue to serve as a testing ground for Chinese enterprises looking to build overseas. 'China may not feel the need to open itself,' she added.
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