'Bank-led won stablecoins risk limiting innovation'

South Korea's proposed bank-led approach to won-backed stablecoins could give institutions with established payment networks little incentive to build alternatives, global industry executives said at a Seoul roundtable Wednesday.

"If you give licenses to tier-one banks, as most regulators are inclined to do, there's little incentive to push the boundaries in building out infrastructure compared with giving them to a fintech," said Anthony Koo, head of payments at Singapore-based stablecoin issuer StraitsX.

Wednesday's roundtable brought together executives from Coinbase, Kaia, StraitsX, First Digital and Hilbert Capital, with their discussion highlighting banks' competing incentives, cross-border restrictions and potential uses for won-backed stablecoins.

As Korean regulators weigh who can issue won-backed stablecoins, the Bank of Korea favors a bank-led model, citing banks' compliance infrastructure and risk management capabilities. Executives at the roundtable questioned banks' incentives to develop a system that could compete with parts of their existing business.

Koo, who spent much of his career in banking, said major banks already process payments efficiently through established networks. For them, the question is what stablecoins would add.

"They already have an infrastructure on that side. So when they're presented with an alternative, they're trying to understand where the utility comes from," he said.

John D'Agostino, head of strategy for Coinbase Institutional, pointed to another incentive. Banks can put existing deposits on blockchain networks while keeping the deposit business and customer relationship, rather than ceding ground to independent stablecoin issuers.

"It's entirely rational for them to skew toward tokenized deposits," he said.

John Cho, chief stablecoin officer at Kaia DLT Foundation and co-founder and CEO of Ratio, said established financial companies fear losing market share and revenue. A division of responsibilities could offer a compromise, with banks providing custody and other firms developing services, he said. He stressed that the arrangements under discussion were not final.

Ashley Moore, managing director at digital asset manager Hilbert Capital, cautioned that the risks extend beyond competition. If interest-paying stablecoins drew money away from bank deposits, they could put pressure on banks' funding and ability to lend.

"I think we're worried about the unintended consequences, the second- and third-order effects," he said.

Beyond deciding who can issue won tokens, Korea must determine how they can be used across borders.

Koo said regulators face the task of balancing capital controls and the won's restricted currency status with rules that can work alongside those elsewhere in Asia and beyond.

Cho warned that applying conventional restrictions to blockchain payments without adapting them could undermine the technology's advantages.

"If you maintain the same capital controls you have with traditional legacy infrastructure, you're going to make all the optimizations and efficiencies you could see with blockchain infrastructure moot," he said.

Gunnar Jaerv, chief operating officer at Hong Kong-based First Digital, challenged the assumption that freer movement of stablecoins would necessarily create a way around capital controls.

"Regulators very often think that if they open the floodgates and let stablecoins run freely, that would be a way to circumvent those capital controls," he said. "I don't think that's necessarily true."

Won-backed stablecoins would still need a commercial edge in a market dominated by dollar tokens.

Cho said companies could continue to hold dollar assets for returns while using local currency tokens for operating payments if settlement became cheaper. Korea's manufacturing and investment ties with Vietnam could provide such opportunities, Jaerv suggested, with money following "the path of least resistance."

For merchants, that calculation is already encouraging some stablecoin use elsewhere in Asia. Koo described international visitors buying watches, handbags and collectibles with the tokens, so merchants could avoid higher card processing fees. "There's demand for certain transaction types to be settled in stablecoins," he said.

Cho described proofs of concept with KB Group in which Korean tourists paid from a won balance while Vietnamese merchants received local currency. Test won and dong stablecoins handled the transactions behind the scenes.

He cited lower costs and access to merchants without card infrastructure as advantages. The opportunity, he argued, lay in improving settlement behind familiar payment services, without requiring consumers to buy or manage tokens themselves.

"That's why I think much of the utility for Korean won, JPY (Japanese yen) or IDR (Indonesian rupiah) stablecoins will be in cross-border transactions and FX (foreign exchange) on the back end, where what's actually happening will be largely invisible," he said.