Rising stablecoin outflows raise investor protection, FX concerns

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Stablecoin outflows from Korea to overseas exchanges topped 500 billion won ($346 million) in June, even as the crypto market underwent a correction, an opposition lawmaker said Sunday. The amount reached a level comparable to Korean investors’ net purchases of overseas stocks.

The persistent flow of funds abroad to access high-risk derivatives, real-world assets (RWA) and decentralized finance (DeFi) services unavailable in Korea is raising new concerns over investor protection and foreign-exchange management.

According to data provided by the Financial Supervisory Service (FSS) to Rep. Lee Jong-wook of the main opposition People Power Party, stablecoins worth 2.76 trillion won were transferred from the five domestic crypto exchanges — Upbit, Bithumb, Coinone, Korbit and Gopax — to overseas exchanges in June.

That compared with 2.2 trillion won in stablecoins transferred from overseas exchanges to domestic platforms, resulting in a net outflow of 560.3 billion won.

That was equivalent to 77.6 percent of Korean investors’ net purchases of overseas stocks in that month, according to the Korea Securities Depository.

Until early last year, net stablecoin outflows generally hovered at around 20 percent of net foreign stock purchases.

However, as investor enthusiasm for overseas equities has recently cooled while stablecoin outflows have remained steady, the relative share of stablecoins has surged noticeably.

The trend diverged sharply in the second quarter of this year, when foreign stocks registered 1.62 trillion won in net sales, compared with 1.69 trillion won in net stablecoin outflows.

Market watchers believe the competitive edge of overseas exchanges is fueling the trend as foreign platforms offer cryptocurrency futures and high-leverage products that are banned in Korea.

They have also recently launched spot and futures contracts tied to major Korean stocks, including Samsung Electronics, SK hynix and Hyundai Motor, driving an influx of retail investors.

Demand for services largely unavailable at home, including dollar-denominated RWA, DeFi and staking, is also cited as a key factor pushing capital to offshore exchanges.

Concerns are rising as these capital flows occur outside the reach of domestic regulators.

While investors using foreign exchanges face significant exposure to ultra-risky derivatives, local investor protection mechanisms are virtually nonexistent even if losses or incidents occur.

Worries are also growing over the need to close regulatory loopholes in foreign exchange management.

“The government must comprehensively examine its investor protection and supervisory frameworks again and move swiftly to improve regulations,” Rep. Lee said.

Separate data from the FSS showed that Coinone, Bithumb and Upbit account for most of Korea’s stablecoin trading market. Upbit still dominates the broader cryptocurrency market, but the three exchanges had similar shares of stablecoin trading.

Coinone recorded the highest average daily stablecoin trading volume in June at 84.58 billion won, accounting for 34.8 percent of the market, the data showed. Bithumb followed with 75.57 billion won, or 31.1 percent, while Upbit recorded 73.03 billion won, or 30.1 percent.

Korbit and Gopax had much smaller shares, accounting for 3.9 percent and 0.06 percent of the market, respectively.

Korea’s stablecoin market was initially dominated by Upbit and Bithumb.

In January last year, Upbit accounted for 53.5 percent of average daily stablecoin trading volume, while Bithumb held a 42.5 percent share. Coinone accounted for just 1.8 percent at the time.

The market began to shift in March last year, when Coinone’s share rose to 11.5 percent. By December, its share had jumped to 30.5 percent, surpassing Upbit’s 29.7 percent.

Coinone’s rapid rise came after it began offering zero-fee trading for Circle’s USDC, a stablecoin pegged to the U.S. dollar, in October last year. The exchange has maintained the zero-fee policy, while other exchanges charge trading fees ranging from 0.04 percent to 0.20 percent.

Upbit, which was briefly pushed into third place, has also sought to regain ground by temporarily offering zero-fee stablecoin trading.

Still, the dominance of Upbit and Bithumb remains largely unchanged when measured by total cryptocurrency trading volume, including stablecoins.

According to CoinGecko, a crypto market data provider, Upbit and Bithumb accounted for 60 percent and 32 percent, respectively, of average daily trading volume in June, giving them a combined share of more than 90 percent. Coinone followed with 6.2 percent, ahead of Korbit at 1.7 percent and Gopax at 0.1 percent.