Stablecoins and crypto are challenging fiat dominance in Eastern Asia.

According to a Chainalysis report released on September 17, 2024, Eastern Asia emerged as the sixth-largest crypto economy, accounting for over 8.9% of the global cryptocurrency value received between June 2023 and July 2024.

The increasing adoption of cryptocurrencies and stablecoins is being driven, in part, by countries grappling with persistent fiat currency devaluation and high inflation, notes Maruf Yusupov, co-founder of Deenar, a digital stablecoin backed by physical gold. 

Yusupov shared a statement: 

"In most emerging markets, stablecoins are gradually replacing fiat due to their lower barriers to entry, low costs, and ease of use. If the current trend of adoption continues, we may see reduced reliance on traditional banking services."

Stablecoins are proving to be a cheaper and faster alternative to traditional bank transfers, particularly for cross-border transactions, which are often expensive for emerging economies. Remittance fees averaged 7.34% for transfers involving bank accounts in 2024, according to Statista.

Between June 2023 and July 2024, Eastern Asia received over $400 billion in on-chain value, with much of the cryptocurrency activity in the region likely driven by institutional and professional investors.

Institutional activity appears to be fueling this growth, as large average transfer sizes suggest, according to the Chainalysis report. It also noted that Eastern Asia has the highest proportion of professional-sized transfers among all regions studied.

Institutional investors have primarily relied on decentralized exchanges (DEXs) and other decentralized finance (DeFi) platforms, while professional investors continue to prefer centralized exchanges (CEXs). The report attributes this trend to DEXs offering "more arbitrage opportunities than CEXs" due to their broader asset range.

Hong Kong’s ambitions to become a global cryptocurrency hub seem to be materializing, as evidenced by the region's increasing digital asset activity.

In terms of crypto adoption, Hong Kong saw over 85.6% growth, the largest year-on-year increase among Eastern Asian countries, followed by South Korea.

Stablecoins have played a crucial role in this surge, representing over 40% of the total value received in Hong Kong.

However, the rise in stablecoin usage is expected to prompt further regulatory scrutiny, Yusupov cautioned:

"Central Banks will take steps to limit stablecoins' impact on fiat dominance. Additionally, new scam models may emerge as stablecoin usage expands globally. While innovators focus on the disruptive potential of stablecoins, they must also prepare for regulatory and market challenges."

The surge in digital asset activity could be linked to recent regulatory developments. In July 2024, Hong Kong regulators introduced their first proposal for a stablecoin licensing framework for issuers of fiat-backed stablecoins.