Insights

Stablecoin Interest Is Surging — What Happens When It Is Linked to Carbon Assets?

ㅣTaehan Kim, COO of KoSIFㅣ

Interest in Korean won-based stablecoins has surged since the launch of the Lee Jae-myung administration. During the presidential campaign, Lee pledged to introduce a won-based stablecoin, arguing that Korea needed to establish such a market to avoid falling behind and to prevent the outflow of national wealth. The Democratic Party has since introduced a proposed Framework Act on Digital Assets to support this agenda.

Interest in stablecoins backed by national currencies is growing worldwide. The European Union, Japan, and Singapore have already enacted relevant legislation, while the United Kingdom, Brazil, and others are preparing their own regulatory frameworks. Among them, the United States is attracting the greatest attention.

On June 17, the US Senate passed the GENIUS Act, which sets out a legal and regulatory framework for stablecoins. President Trump also urged the House of Representatives to pass the bill before the August recess, stating that dollar-based stablecoins would further strengthen the dominance of the US dollar.

The current stablecoin market is valued at approximately USD 235 billion, or around KRW 340 trillion. US Treasury Secretary Scott Bessent has projected that the market could grow to USD 3.7 trillion by 2030 if the legislation is enacted.

     What Is a Stablecoin?

As the name suggests, a stablecoin is a “stable coin.”

Unlike cryptocurrencies such as Bitcoin, whose prices can fluctuate dramatically, stablecoins are digital currencies designed to reduce volatility by linking their value to a specific asset. The core question is therefore how that stability is maintained. This was also the point behind the unfamiliar references to USDT and USDC made by then-presidential candidate Lee Jun-seok during the election debates.

There are broadly three ways to maintain the stability of a stablecoin.

The first is an algorithmic model, which uses computer algorithms to adjust the supply of coins automatically in order to stabilize the price. Terra-Luna, which caused major losses for investors in Korea and abroad, is widely known to have used this approach.

The second is a crypto-collateralized model, in which coins are issued against other cryptocurrencies such as Bitcoin or Ethereum.

The third, and currently the focus of the greatest attention, is the fiat-backed model. Under this approach, actual currencies such as the US dollar or the Korean won are held as reserves, and coins are issued in proportion to those reserves. This is generally considered the safest model. Stablecoins may be issued by central banks or by private companies.

USDT and USDC, which were mentioned during the presidential debate, are the most prominent examples of dollar-based stablecoins. The first three letters refer to the US dollar, while the final letter identifies the issuer or brand. In USDT, the “T” comes from Tether, while the “C” in USDC stands for Coin.

     Why Introduce Stablecoins?

If one stablecoin is worth exactly one dollar, why issue a coin at all instead of simply using the currency itself?

The gold standard and credit cards provide useful comparisons. Under the gold standard, people deposited gold and used banknotes because paper money was easier and more convenient to use. Today, people use credit cards even though banknotes and coins remain available, for the same reason.

The greatest advantages of stablecoins are faster transactions and lower costs. International transfers that currently take three to seven days and involve high fees could reportedly be completed within minutes at significantly lower cost. Their potential to support a wider range of blockchain-based financial services is another major advantage.

However, the real reason political leaders around the world, including President Trump, are paying close attention to stablecoins appears to lie elsewhere.

Consider dollar-based stablecoins. An issuer must hold dollars or US Treasury securities as reserves equivalent to the amount of stablecoins in circulation. Naturally, issuers are likely to prefer Treasury securities because they generate interest income.

From the US perspective, increased demand for Treasury securities lowers government bond yields. Lower yields reduce the interest costs paid by the US government and can help ease the fiscal deficit.

At the same time, greater private-sector demand for dollar-denominated assets reinforces the global dominance of the US dollar and reduces US vulnerability to threats by China or other holders to sell US Treasury securities.

Countries without widely used stablecoins backed by their own currencies may experience the opposite effect.

     Potential Benefits of Carbon Asset-backed Stablecoins

Stablecoins do not have to be linked only to fiat currencies such as the dollar or the won. They can also be connected to other real-world assets with recognized value.

Stablecoins could, for example, be issued against carbon assets such as emissions allowances in compliance markets or carbon credits in the voluntary carbon market.

Combining carbon assets with stablecoins is receiving attention as a possible way to address some of the structural problems facing the voluntary carbon market.

The voluntary carbon market is currently experiencing a crisis of confidence due to weak verification of actual emissions reductions, insufficient transparency, inadequate systems to prevent double counting, and limited oversight of illegal transactions. Demand for carbon credits has consequently remained weak, and the market is barely fulfilling its intended role of directing capital toward new emissions-reduction activities.

Linking carbon assets with stablecoins could improve many of these problems.

For example, blockchain technology could make it possible to track the entire lifecycle of a carbon credit, from issuance to retirement, thereby improving transparency and credibility.

In addition, stablecoin issuers would need to acquire and hold carbon credits as reserve assets before issuing coins. This could create additional demand for carbon credits and encourage investment in emissions-reduction projects, following the same logic by which dollar-based stablecoins increase demand for US Treasury securities.

If stablecoins were linked to emissions allowances in a compliance market, they could also help raise allowance prices and stimulate domestic emissions-reduction projects.

     Examples of Carbon Asset-backed Stablecoins

One of the most closely watched examples in the carbon credit-backed stablecoin market is PACT, or Planetary Aligned Climate Token.

PACT combines satellite data with economic models to calculate emissions reductions, then tokenizes those reductions and issues them in the form of a stablecoin. Its attempt to address the additionality problem associated with conventional carbon credits through remote-sensing technology is particularly noteworthy.

Another example is Base Carbon Tonne, or BCT, developed by Toucan Protocol. BCT pools different carbon credits to increase liquidity and enable standardized trading.

KlimaDAO also operates the KLIMA token, which uses a decentralized autonomous organization model backed by carbon credits. Its aim is to enable collective investment and governance for carbon-removal projects.

     Challenges to Overcome

Stablecoins are an attempt to overcome the credibility problems associated with cryptocurrencies by linking them to trusted existing assets, while maximizing the convenience and scalability of blockchain technology.

The greatest challenge for carbon asset-backed stablecoins is that the carbon market underlying the coins is itself not yet highly credible.

Blockchain technology could be used to issue coins only against transparent, high-quality projects. But the opposite is also possible.

For example, issuers could create coins backed by low-quality carbon credits with little actual mitigation value, or by old credits that have become difficult to sell. They could then sell the coins to investors, collect the proceeds, and leave the market. At present, there are few effective safeguards against such practices.

The low liquidity of carbon markets also creates a risk that these coins could be used as speculative instruments.

Carbon asset-backed stablecoins remain an emerging market in its early stages. It is natural that they face a range of problems.

If regulation can prevent abuse while maximizing their potential benefits, there is no reason not to consider their use. With public attention now focused on stablecoins, this is the right time to begin the discussion.