High Barriers to Entry for Stablecoin Ventures: Challenges and Strategic Shifts in a Capital-Intensive Industry

The Stablecoin Challenge: High Operational and Financial Hurdles

As stablecoin regulation gains momentum, an increasing number of companies are considering entering the market. However, the stablecoin business presents formidable barriers to entry, requiring substantial financial backing, operational infrastructure, and strategic planning. Industry experts emphasize that profitability in this arena not only relies on reserve management but also demands advanced systems to ensure long-term sustainability.

In South Korea, regulatory movement has intensified. Five legislative bills have been proposed to support the development of won-backed stablecoins, and the Financial Services Commission is preparing a government proposal that could be unveiled soon. Despite this growing regulatory clarity, most companies remain hesitant to commit. Many are still refining their business models and assessing the feasibility of market participation, highlighting the complexities involved in launching stablecoin ventures.

Reserve Management and Limited Revenue Streams

The stablecoin ecosystem largely depends on efficient reserve management, with income derived primarily from interest on reserve assets. Proposed legislation sets entry thresholds for stablecoin issuers between KRW 10 billion and KRW 50 billion, but analysts argue that these levels fall short of what is necessary for sustainable operations.

To break even, industry insiders project that issuers would need to manage capital in the hundreds of billions—or even surpass KRW 1 trillion—given South Korea's low-yield financial environment. Reserve funds equivalent to the issued stablecoin supply are typically held in low-yield instruments like bank deposits, which cap potential income streams.

An industry source noted, “The current legislative capital requirements are insufficient for maintaining stablecoin operations. To cover operating costs purely from interest income, an issuance volume exceeding KRW 1.5 trillion would be necessary. At the outset, issuers require at least KRW 30 billion for system development and operational readiness.”

Lee Byung-kyu, an executive at Naver Pay, echoed this sentiment, stating, “For most won-backed stablecoin issuers, achieving profitability will likely require issuance thresholds exceeding KRW 1 trillion due to operational costs, regulatory demands, and South Korea’s modest 3% annual yield average on reserves.”

South Korea’s financial system compounds these challenges by lacking short-term, risk-free securities like Treasury Bills (T-bills) or Money Market Funds (MMFs), which provide higher yields in other markets such as the U.S. Issuers like Tether (USDT) and Circle’s USDC benefit from U.S.-based instruments offering yields around 5%, creating profitability models unachievable in South Korea.

Kim Pil-kyu, Senior Research Fellow at the Korea Capital Market Institute, highlighted the structural limitations of South Korea’s financial landscape, noting, “Without short-term risk-free securities, issuers cannot strike an optimal balance between asset safety and liquidity. This disadvantage heavily impacts the operational feasibility of stablecoin ventures in the region.”

Navigating the Market: Infrastructure Over Issuance

Given the inherent limitations in reserve-centric revenue models, analysts suggest that South Korean stablecoin players need to pivot away from conventional frameworks. Instead, companies should focus on leveraging existing infrastructure and operational efficiency to carve out value in this competitive market.

A report published in September by Toss Financial Management Research Institute outlined a strategic roadmap for domestic stablecoin ventures. The report urged companies to recognize the constraints of relying solely on reserve asset income, particularly in the context of South Korea’s financial environment. Instead, emphasis should be placed on utilizing pre-existing payment systems, distribution channels, and industry expertise.

“In a low-yield financial environment, competition will likely erode profitability from reserve-based income models post-launch,” the report stated. “Strategic diversification through efficiency-driven approaches and indirect market participation will be crucial moving forward.”

Companies are increasingly exploring creative paths to sidestep high entry barriers. Firms without payment or distribution infrastructure are aligning with external partners to fill operational gaps. Payment Gateway (PG) executives have highlighted the advantage of integrating stablecoins into existing payment frameworks, noting this approach can provide seamless scalability and a clearer path to profitability.

The structural survival of won-backed stablecoins appears to hinge on utilizing infrastructure-centric strategies rather than entering the market as pure issuers. Firms with robust foundations are more likely to attract consistent interest and partnerships, enabling them to offset the steep financial requirements associated with stablecoin operations.

Industry Implications

The stablecoin market represents a transformative yet challenging segment in the financial technology industry. While regulation appears to be smoothing certain paths for market entry, profitability remains elusive for most ventures due to the interplay of high capital demands, limited income streams, and South Korea’s constrained financial instruments.

For stablecoin issuers in South Korea, survival and success depend on innovative strategies that go beyond conventional reserve-based income models. Companies geared toward utilizing infrastructure-driven efficiencies and indirect approaches will likely lead this emerging space.

As legislative progress unfolds and market conditions evolve, the stablecoin arena will demand holistic, infrastructure-first strategies to navigate the high barriers to entry successfully. The financial costs, regulatory hurdles, and operational intricacies underscore the complexities—and opportunities—of this bold new frontier.