Demand for dollar-backed stablecoins can place downward pressure on national currencies when investors receive direct access through fiat trading pairs, according to research published by the Bank of Korea on Sept. 3. The effect appeared after Binance introduced trading between selected local currencies and stablecoins such as USDT and USDC.
Summary
- Dollar-backed stablecoins transmitted buying pressure into exchange rates after Binance introduced direct fiat pairs globally.
- Local stablecoin premiums declined between 0.33 and 0.38 percentage points following Binance pair introductions overall.
- Korea showed higher stablecoin premiums but no measurable exchange-rate response without direct Binance pairing access.
- Market makers can sell received local currencies for dollars while balancing stablecoin trading positions afterward.
- Researchers examined 12 currencies using pairing events between 2019 and 2025 to identify transmission effects.
The Bank of Korea study, written by Jihyun Kim and Sangheum Cho, examined 12 currencies with enough local and global exchange data. Pair introductions covered the period from 2019 through 2025.
The researchers found that direct fiat-stablecoin markets strengthened the connection between crypto demand and foreign exchange markets. Stablecoin premiums became smaller, but demand shocks also gained a route into conventional currency trading.
The findings do not establish that stablecoin demand always causes currency depreciation. The measured relationship depended on market structure, access to global intermediaries and the availability of direct trading pairs.
Binance pairs connected stablecoin demand with FX markets
Dollar stablecoins trade globally, but investors in many countries cannot always purchase them directly with local currency on a large international exchange. They may instead buy stablecoins through domestic platforms, peer-to-peer markets or intermediaries.
That separation can create a local premium. The price of USDT or USDC on a domestic exchange may rise above the conventional dollar exchange rate when demand exceeds the available supply. Capital controls, transfer costs and restrictions on international exchanges can prevent arbitrageurs from closing the difference immediately.
Binance’s introduction of direct fiat-stablecoin pairs changed this structure for the currencies examined. Global market makers could sell stablecoins directly to investors paying with local currency. Those firms could then manage the resulting fiat exposure through conventional FX markets.
For example, a market maker selling USDT for Brazilian reais receives reais while giving up a dollar-linked asset. To rebalance, it can sell the reais and buy dollars in the FX market. Stablecoin buying demand can therefore generate an accompanying sale of the local currency.
The researchers described this as a shock-transmission channel. Before direct pairing, buying pressure mainly affected the domestic stablecoin premium. After pairing, some of the pressure passed into the exchange rate.
Net buyer-initiated stablecoin order flow was associated with depreciation among paired currencies. The result indicates that the direction of trading activity mattered, not only the difference between local and global stablecoin prices.
The findings support concerns that digital dollar demand may affect national currencies through new channels. An International Monetary Fund official similarly warned that local tokens could ease conversion into dollar stablecoins, particularly when on-chain markets allow users to move between currencies without conventional banking routes.
Stablecoin premiums fell after direct trading opened
The study also found stronger price integration between global and domestic stablecoin markets. Local premiums declined by approximately 0.33 to 0.38 percentage points following the introduction of Binance fiat pairs.
This decline means the local stablecoin price moved closer to the corresponding spot exchange rate. Global liquidity providers could respond when domestic demand pushed stablecoins above prices available elsewhere.
On-chain and exchange flows provided further support for this result. Stablecoins tended to move from Binance into local exchanges when domestic premiums exceeded prices on Binance. Traders could purchase the tokens in the lower-priced market, transfer them and sell where the premium was higher.
The process improves price consistency across venues, but it also links markets that were previously more separated. A demand shock that once remained within a domestic crypto exchange can prompt global market makers to trade the underlying national currency.
The paper’s result is therefore not simply that exchange listings reduced trading costs. Greater integration came with stronger transmission between digital-asset demand and foreign exchange prices.
In a separate weekly test, the researchers used Google searches for Bitcoin as a proxy for crypto investment interest. A one-standard-deviation increase in search activity was associated with a 0.118% depreciation of the Brazilian real and a 0.109-percentage-point increase in Brazil’s stablecoin premium.
These figures describe statistical relationships within the study’s sample. They do not mean every increase in Bitcoin searches will produce an equivalent currency move. Search activity may also capture broader risk sentiment, political developments or financial stress.
Korea’s unpaired market absorbed demand through premiums
South Korea provided a useful comparison because Binance did not offer a direct won-stablecoin pair during the period examined. Korean investors mainly accessed stablecoins through domestic exchanges or other indirect channels.
The researchers found no statistically measurable relationship between stablecoin buying pressure and the won’s exchange rate. Instead, stronger demand mainly raised the price premium for stablecoins inside the Korean market.
This contrast supports the study’s market-structure argument. Where global intermediaries could not directly accept won in exchange for stablecoins, they had no equivalent position to unwind through the conventional FX market.
The result does not show that Korean stablecoin activity has no connection with the won. It shows that the specific exchange-rate transmission identified among Binance-paired currencies was not measurable in Korea under the market structure studied.
Korean demand is already large. Won-denominated purchases of stablecoins reached about $64 billion during the 12 months through June 2025, according to Chainalysis data. The firm described South Korea as Asia-Pacific’s largest local-currency stablecoin market during that period.
The Bank of Korea said the relationship could change if the country expands access for corporations and foreign investors. That view remains forward-looking because Korea has not yet developed the same direct trading structure used in the study’s paired markets.
South Korea is also considering wider digital-asset rules. Lawmakers have been working on legislation covering stablecoin issuers, reserve standards and supervision. The central bank has supported a model in which banks lead won-backed issuance during the market’s early stages, citing monetary and financial stability concerns.
That position was reinforced when the Bank of Korea supported bank-led stablecoin consortiums while discussions over the Digital Asset Basic Act remained unresolved.
Dollar stablecoins create a new capital-flow channel
Traditional capital flows move through banks, securities markets and regulated foreign exchange dealers. Stablecoins add another route because investors can acquire dollar-linked assets through cryptocurrency exchanges and transfer them across borders.
The Bank of Korea researchers described these movements as a form of non-traditional capital flow. The asset remains a blockchain token, but the market maker’s decision to hedge its exposure can produce a conventional dollar purchase and local-currency sale.
This mechanism may be especially relevant in countries where households use stablecoins to preserve purchasing power. Demand often rises during inflation, currency depreciation or limited access to conventional dollar accounts.
Tether has pointed to Venezuela, Argentina, Bolivia and Turkey as markets where USDT adoption has grown amid currency instability and restricted dollar access. Those are company claims rather than independent measurements, but they align with the broader pattern examined in crypto.news coverage of stablecoin use during local currency stress.
The mechanism can work in both directions. Existing currency weakness may encourage investors to buy stablecoins, while the transactions used to fulfil that demand may add selling pressure to the local currency. Separating those effects is difficult because demand for digital dollars often increases when confidence in domestic money is already declining.
The study used the timing of Binance pair introductions to identify changes in market structure. This approach helped the researchers compare conditions before and after global intermediaries gained direct access. It does not remove every outside factor affecting exchange rates.
The researchers argued that deeper FX liquidity could improve a market’s ability to absorb stablecoin-related flows. Wider international use of the won could also create more counterparties and reduce the effect of individual demand shocks.
Korea’s stablecoin rules may shape future FX exposure
The findings arrive while South Korea is developing a broader regulatory framework for stablecoins, tokenized securities and digital-asset markets. Changes allowing greater corporate or foreign participation could increase liquidity, but they could also strengthen the link between crypto demand and the won.
Authorities are considering how won-backed stablecoins should be issued and supervised. The Bank of Korea prefers bank-led issuance, while some lawmakers and technology companies have supported broader access for licensed non-bank firms.
The government has also outlined plans to expand offshore won settlement and modernize foreign exchange rules. Those measures could make the currency more accessible internationally, potentially increasing the market’s capacity to absorb cross-border flows.
South Korea’s roadmap combines won stablecoins with foreign exchange reforms, reflecting the same policy connection identified in the Bank of Korea paper. Stablecoin regulation cannot be separated entirely from currency-market structure when tokens trade directly against national money.
No new rule or trading pair was announced alongside the study. The paper is research rather than a regulatory order. Its main contribution is evidence that exchange design determines whether stablecoin demand remains a crypto-market premium or enters the conventional FX market.
For Korean policymakers, the central question is not only whether local investors will use stablecoins. It is whether future market access will give global intermediaries a direct route to hedge won positions through foreign exchange markets.
FAQs
Why can stablecoin purchases weaken a local currency?
A market maker selling dollar stablecoins for local currency may later sell that currency and purchase dollars to rebalance its position. Those FX transactions can add depreciation pressure.
Did the researchers find that stablecoins always weaken currencies?
No. The relationship appeared among currencies with direct Binance fiat-stablecoin pairs. Korea showed higher local premiums but no measurable exchange-rate response under its different structure.
Why did local stablecoin premiums decline?
Direct Binance pairs allowed global market makers to supply stablecoins and arbitrage price differences. That liquidity brought local prices closer to conventional dollar exchange rates.
What does the research mean for South Korea?
Future corporate participation, foreign access or direct global exchange pairs could strengthen links between stablecoin demand and the won. The study did not predict the size of any future effect.
