The collapse of Terra has called into question the stability of stablecoins. This crisis might be understated as an exception limited to the algorithmic stablecoin, an uncommon type. However, as various problems have erupted from fiat-collateralized stablecoins, concerns have been growing over internal and external risks. For instance, fiat-collateralized stablecoins could lead to a loss of confidence or invite a speculative attack due to inadequate management of reserve assets. A sharp price drop in non-stablecoins such as Bitcoin could put downward price pressure on the entire stablecoin market. Furthermore, distress in the stablecoin market could be passed onto the traditional financial market as well as the crypto market. There is also a possibility that the supply of stablecoins would come into conflict with monetary policy.
With potential risks from stablecoins in mind, major economies have drafted specific criteria and plans for permission, operation and oversight. The US and EU categorize crypto assets into stablecoins and non-stablecoins and seek to design policies for both categories. On the other hand, Korea’s policy discussions about crypto assets primarily center around non-stablecoins, which raises concerns about a regulatory gap in stablecoins. In preparation for the rapid growth of Korea’s stablecoin market, the government needs to promptly build the related institutional framework.
First of all, Korea should gear its policy direction toward inducing the issuance of fiat-collateralized stablecoins rather than other types. In addition, regulations of stablecoins should be differentiated depending on the scope of use to keep a balance between technical neutrality and financial stability. It is also necessary to support the redemption of stablecoins, not covered by deposit insurance, by applying the supervisory guideline for prepaid electronic money. To prevent conflicts with monetary policy, it is worth considering measures for large stablecoin issuers that impose stricter regulation on prudence or a limit on the total issuance volume.