[123RF]
[123RF]

Despite a sluggish virtual asset market, stablecoins flowing from domestic exchanges to overseas platforms have been running into the hundreds of billions of won each month. Net outflows in June alone nearly equaled 80 percent of Korean investors' net overseas stock purchases during the same period.

Overseas exchanges have been expanding their product offerings beyond virtual assets to include spot and futures products tied to major Korean stocks, and analysts say the trend could push stablecoin outflows even higher. A significant portion of the stablecoins leaving the country is believed to be funding derivatives trades unavailable on domestic exchanges.

Data submitted by the Financial Supervisory Service to People Power Party lawmaker Lee Jong-wook of the National Assembly's Finance and Economic Planning Committee on Sunday showed that stablecoins transferred from South Korea's five major virtual asset exchanges — Upbit, Bithumb, Coinone, Korbit and Gopax — to overseas platforms totaled 2.76 trillion won ($1.92 billion) in June.

Stablecoins flowing in the opposite direction — from overseas exchanges to domestic ones — came to 2.2 trillion won over the same period. Net outflows, calculated by subtracting inflows from outflows, reached 560.3 billion won.

That figure is comparable in scale to Korean investors' net purchases of overseas stocks in the same month. According to the Korea Securities Depository, domestic investors settled $34.93 billion in overseas stock purchases and $34.46 billion in sales in June, for net purchases of $472.54 million.

Converted at the average won-dollar exchange rate of 1,527.95 won for June, that amounts to roughly 722 billion won — meaning stablecoin net outflows equaled 77.6 percent of net overseas stock purchases.

As recently as early last year, stablecoin net outflows amounted to only around 20 percent of net overseas stock purchases. The relative share has risen sharply as enthusiasm for overseas stock investing has cooled somewhat while stablecoin outflows have continued unabated.

Overseas stocks recorded net selling in some months, but stablecoins have posted net outflows for 18 consecutive months — every month since the statistics began being compiled in early last year through June this year.

In the second quarter of this year (April–June), stablecoin net outflows totaled 1.69 trillion won. Over the same period, domestic investors net sold 1.62 trillion won worth of overseas stocks.

Asset transfers to overseas exchanges and personal wallets have been rising across virtual assets more broadly, not just stablecoins. According to the Financial Services Commission, external transfers from domestic virtual asset exchanges in the second half of last year totaled 107.3 trillion won, up 6 percent from the first half. Of that, transfers to whitelisted destinations — including overseas operators and personal wallets — rose 14 percent to 90 trillion won. By contrast, transfers subject to the travel rule between domestically registered operators fell 23 percent to 15.6 trillion won.

However, exchange deposit and withdrawal data alone cannot pinpoint where funds ultimately end up. Personal wallet transfers, arbitrage between exchanges, and deposits or payments can all be mixed in, making it difficult to treat the entire net outflow figure as investment in high-risk derivatives.

Market observers point to the product competitiveness of overseas exchanges as a key driver of stablecoin outflows. Beyond bitcoin and other virtual asset futures, overseas platforms have recently been rolling out products tied to major Korean stocks such as Samsung Electronics, SK Hynix and Hyundai Motor.

Binance, the world's largest virtual asset exchange, listed perpetual futures tracking the share prices of Samsung Electronics, SK Hynix and Hyundai Motor in June. The products launched with leverage of up to 20 times, with margin and profit-and-loss settled in Tether (USDT), the dollar-denominated stablecoin.

Unlike standard futures, perpetual futures have no expiry date and trade around the clock. They allow investors to bet on a stock's price rising or falling without actually holding the shares. At 20 times leverage, a move of around 5 percent in the wrong direction can wipe out most of a trader's margin.

Demand for dollar-denominated real-world asset (RWA) products, decentralized finance (DeFi) services and staking is also drawing users to overseas platforms.

The problem is that Korean users have little recourse under domestic investor protection laws if they suffer losses, encounter technical failures or face withdrawal freezes on overseas exchanges. Once assets leave domestic exchanges, domestic regulators also have limited ability to track how they are used or where they ultimately go.

The current travel rule requires domestic virtual asset businesses to share sender and recipient information for transfers of 1 million won or more between each other. Transfers to overseas exchanges and personal wallets rely mainly on self-regulation, such as exchange whitelists.

Financial authorities are pursuing plans to extend the travel rule to transactions below 1 million won and to allow transfers to overseas exchanges and personal wallets only on a restricted basis, subject to checks on transaction risk and whether sender and recipient are the same person. Even so, critics note that greater transparency in the transfer process would not directly address high-risk products sold by overseas exchanges or the investment losses they can cause.

"As 'coin moves' from Korea to overseas spread, money is flowing out of the country and investors are being left completely exposed to high-risk derivatives and other products on overseas exchanges," Lee said. "The government must conduct a full review of its investor protection and oversight framework and move quickly to reform the system."

Crypto360
Crypto360

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