Stablecoins Trade Above Value in Korea as Kimchi Premium Surges

Key Takeaways

• A weak won has increased demand for stablecoins in South Korea.
• Heightened demand has increased the Kimchi Premium.
• On Oct. 14, USDT was trading more than six percent above its dollar value on South Korean exchanges.

As U.S.-China trade tensions weigh on Asian markets, the South Korean Won (KRW) has fallen to a five-month low against the dollar. 

Seeking refuge from currency risk, Koreans have flocked to stablecoins, which have traded at a significant premium in recent days on local exchanges.

South Koreans Seek Shelter From Weak Won

On Tuesday, Oct. 14, the won fell to its lowest level against the dollar since the start of May, with the exchange rate climbing to 1,435 KRW/USD.

The currency has been weakening since mid-September, but the trend was amplified by the recent escalation of trade between the U.S. and China. In the latest chapter of the ongoing trade war, the two countries began charging port fees on each other’s ships.

As locals look to hedge against further devaluation, stablecoin prices have jumped on South Korean crypto exchanges. For instance, on Tuesday, USDT was trading more than six percent above its dollar value on Bithumb and Upbit, the country’s largest exchanges.

Kimchi Premium Hits Eight-Month High

The markup is extreme even by Korean standards. Due to strict capital controls which restrict efficient arbitrage, cryptocurrencies are often priced higher on South Korean exchanges. On Saturday, this price gap, known as the Kimchi Premium, surged to levels not seen since February.

For example, cryptoquant data shows that Bitcoin traded at a 7.63% premium across South Korean exchanges. Although the index has declined somewhat since, it remains significantly elevated.

A high Kimchi Premium indicates strong demand from Korean retail investors. After crypto markets crashed on Friday, volumes jumped on Bithumb and Upbit.

On the former exchange, USDT has surpassed XRP as the most popular asset, reflecting a sustained rush to buy stablecoins as they continue to trade above the dollar.