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- Stablecoin backed by the South Korean won is set to launch, supported by eight major banks to reduce dollar dominance.
- South Korea aims to reduce its reliance on dollar-pegged stablecoins and strengthen its position in the digital finance sector.
- The won-pegged stablecoin will use a 1:1 reserve model, with regulatory approval still pending.
The adoption of stablecoin is increasing in South Korea. Eight major banks in the country will issue a stablecoin backed by South Korean won. An Econovill report stated that the partnership encompasses KB Kookmin, Sahnan, Woori, Nonghyup, Corporate, Suhyun, Citi Korea, and SC First Bank. The goal of this initiative is to decrease the dominance of US dollar-pegged stablecoins. The step is also strategic to strengthen South Korea in the global market for digital finance.
RWA.xyz reported that the market cap for stablecoins exceeded $239 billion. 99% are pegged to the US dollar. The new stablecoin will become the first stablecoin to adopt South Korean currency. The move is essential because South Korea wants to create a unique digital asset and challenge international competitors in the field.
Source: RWA.xyz
Regulatory Approval Pending
The project will be launched towards the end of 2025 or the beginning of 2026. It is the first major investment in digital currencies by the traditional South Korean banks. The project has received support from blockchain-oriented organizations like Open Blockchain and the Decentralized Identity Association. The Korea Financial Telecommunications and Clearings Institute is also supporting the initiative.
The stable coin will be marked by a trust-based system, in which each token has the same value in reserve as won. This 1:1 deposited token system is stable and transparent. Nevertheless, the project is yet to be approved by regulators.
South Korea is active in the creation of a regulatory system for digital assets. The government presented the Digital Asset Basic Act by the ruling party in June 2023. The legislation would control the minting of stablecoins and encourage the development of the national crypto markets. It indicates that South Korea wants to stay competitive within a fast-growing digital finance industry.
Stablecoin and Currency Management
However, Bank of Korea governor Rhee Chang-yong expressed concerns that the move to create a stablecoin would allow currency to be more easily converted into dollars. While, this is likely to undermine the won and make it hard to manage the currency by the central bank. However, he added that he was not against the issuance of a won-pegged stablecoin.
Ryoo Sangdai, Deputy Governor of the Bank of Korea, asked to introduce the stablecoin gradually. However, he suggested that the tokens be first issued by banks to make the transition secure. By adopting a cautious attitude, the government will reduce the risk, but not exclude the possibility of exploring the potential of digital currencies.
