Stablecoins and cryptocurrencies are gaining importance in emerging economies as they begin to replace fiat currencies in some East Asian countries.
According to a report released by Chainalysis on September 17, East Asia is expected to emerge as the sixth largest cryptocurrency economy by 2024, accounting for over 8.9% of global cryptocurrency imports from June 2024 to July 2023.
According to Maruf Yusupov, co-founder of Deenar, a digital stablecoin backed by physical gold, the growing adoption of cryptocurrencies and stablecoins is partly due to the devaluation of fiat currencies and countries with high inflation rates.
In a statement shared with Cointelegraph, Yusupov wrote:
“In most emerging markets, stablecoins are gradually replacing fiat currencies due to their low barriers to entry, low costs, and ease of use. If the current adoption trend continues, these assets could contribute to reducing the patronage of traditional banks as they are today.”
Cryptocurrency value received in East Asia. Source: Chainalysis
Stablecoins are emerging as a cheaper and faster alternative to traditional bank transfers, especially for cross-border transactions that can be costly in emerging economies. According to Statista, remittance fees will average 7.34% in 2024, including bank account transfers.
East Asia created over $400 billion in on-chain value between June 2024 and July 2023.
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Cryptocurrency activity in East Asia is driven by institutional and professional investors.
Most of the cryptocurrency activity in East Asia is likely to be driven by institutional and professional investors.
According to the Chainalysis report, most of the activity increase was driven by institutions, as the average size of digital asset transfers was large. The report stated:
“In particular, East Asia accounts for the largest share of professional-scale migration compared to other regions examined in this report.”
Transaction value by region (by previous volume). Source: Chainalysis
However, institutional investors mainly used decentralized exchanges (DEXs) and other decentralized finance (DeFi) services, while professional investors continued to choose centralized exchanges (CEXs).
Transfer volume by transfer size and service type. Source: Chainalysis
The report explains that DEXs offer a wider range of assets, which generally provides “more arbitrage opportunities than CEXs.”
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Hong Kong’s ambitions to become a cryptocurrency hub are becoming a reality.
Hong Kong’s efforts to become a global cryptocurrency hub are starting to bear fruit, with digital asset activity in the region increasing.
In terms of cryptocurrency adoption, Hong Kong recorded the highest year-over-year growth rate among East Asian countries, growing by over 85.6%, followed by South Korea.
Crypto Adoption: The Fastest-Growing Countries. Source: Chainalysis
Stablecoins have been a significant part of this rapid growth, accounting for more than 40% of the total value collected in Hong Kong.
However, as stablecoin usage increases, regulatory oversight will become more stringent, Yusupov added.
“Central banks will do everything they can to limit the impact of stablecoins on fiat currency dominance. Additionally, as stablecoin usage increases globally, new fraud models may emerge. While innovators are fixated on the revolutionary potential of stablecoins, they must also prepare for a backlash.”
The increased activity can be attributed to regulatory developments. In July 2024, Hong Kong regulators released the first proposal for a new stablecoin licensing regime for fiat-backed stablecoin issuers.
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