“`html
Stablecoins Dominated by Bot Trading, Limited Retail Use: Korea Institute of Finance Report
Table of Contents
Despite a total transaction volume of $5.42 trillion as of November 2023, stablecoins see minimal adoption for everyday purchases, with the vast majority of activity driven by automated trading and institutional use.
A recent report from the Korea Institute of Finance (KIF) highlights a significant disconnect between the growing market for stablecoins and their actual utilization as a payment method.The findings suggest that, notably in countries with robust financial infrastructure like south Korea, the incentive for consumers to switch from traditional payment options like credit cards remains low.
Bot Trading Fuels Stablecoin Volume
According to a survey conducted by Visa, the global financial payment network, the $5.42 trillion in dollar stablecoin transactions last year was overwhelmingly dominated by automated bots. A staggering 77.6%, or $4.21 trillion, was attributed to these programs, utilized for activities such as arbitrage and providing liquidity in the virtual asset trading market.This contrasts sharply with traditional payment methods,where human-initiated transactions are the norm.
Breaking down the remaining $1.21 trillion in general transactions, retail payments accounted for a mere $7.5 billion – just over 0.1% of the total. The bulk of this remaining volume consisted of high-value transactions,including cross-border remittances,fund transfers between exchanges,activity within decentralized finance (DeFi) platforms,and settlements between financial institutions.
Limited Impact on Retail Finance
The limited retail adoption is further underscored by comparing stablecoin transaction volume to established fintech giants. Monthly retail payments using stablecoins represent only 5.4% of paypal’s monthly volume and 0.6% of Visa’s. In terms of transaction numbers, stablecoins accounted for 6.5% of PayPal’s transactions and 0.7% of Visa’s.
“Stablecoins can be held or used as foreign currency substitute assets in emerging countries,” noted a researcher at the KIF,”but in developed countries such as the United States,where financial service infrastructure is already advanced,there is not much incentive for consumers to hold and use them directly compared to the benefits and convenience of existing credit cards and payment methods.”
Focus Shifts to Wholesale settlement and Regulatory Concerns
The KIF report suggests that KRW stablecoins – stablecoins pegged to the South Korean won – are more likely to find utility in wholesale settlement applications rather than everyday retail transactions. This shift in potential use cases raises concerns about financial stability and the potential for illicit activities.
“A device to ensure financial stability will be vital,” the KIF researcher added, emphasizing the need for regulatory oversight.
At a recent forum held at the National assembly, a senior official from the Bank of Korea’s foreign exchange department warned that the widespread adoption of won-denominated stablecoins could facilitate the circumvention of existing foreign exchange regulations.
Bitcoin Volatility Amidst Economic Uncertainty
The report’s release coincides with increased volatility in the Bitcoin market. On Thursday,the price of Bitcoin plummeted to around 114 million won per unit,down from approximately 125 million won at the end of the previous month,following the nomination of a former U.S. Federal reserve Director as the next Chairman.
The findings from the KIF report underscore the evolving role of stablecoins within the broader digital asset landscape, suggesting that their impact on retail finance will likely remain limited unless significant
