Bank of Korea Supports Phased Stablecoin Launch as 8 Banks Create Digital Won Venture

Key Takeaways

• South Korea’s Digital Basic Act paves the way for the creation of won-backed stablecoins.
• Bank of Korea Deputy Governor Ryoo Sang-dai spoke on who will be allowed to issue digital won first.
• Eight of the country’s largest banks plan to form a joint venture to develop a KRW stablecoin.

Under the administration of its newly elected president, Lee Jae-myung, South Korea is opening up to won-backed stablecoins for the first time.

After Bank of Korea Deputy Governor Ryoo Sang-dai suggested that commercial banks would be allowed to issue digital won first, eight of the country’s largest banks plan to form a joint venture for the purpose.

Stablecoins in South Korea

South Korea’s tight foreign exchange regulations create significant legal and operational barriers to issuing a token that represents the won.

The few ventures that have attempted the feat didn’t end well.

In 2018, BxB launched KRWb, but the initiative was wound down after just one year. Binance’s BKRW shared a similar fate and was quietly abandoned due to low traction in 2021.

Finally, Terraform Labs’ KRT collapsed with the rest of the Terra ecosystem in 2022.

With an estimated 200,000 South Korean investors impacted, the Terra fiasco prompted increased regulatory scrutiny of the crypto sector. This has made launching any new won-pegged stablecoins even harder.

Won-Backed Stablecoins Back on the Agenda

Ahead of South Korea’s presidential election, Lee Jae-myung pledged to support the creation of KRW stablecoins, arguing that they could prevent the outflow of wealth currently diverted toward dollar-denominated coins.

With the Democratic Party of Korea in control of both the executive and legislative branches of government, lawmakers moved quickly to introduce the Digital Basic Act, fast-tracking the creation of a regulatory framework for stablecoins.

After the Act was proposed in the National Assembly, Bank of Korea Governor Rhee Chang-yong met with bank chiefs to discuss the issue of stablecoins.

Rhee Chang-yong’s meeting and Ryoo Sang-dai’s recent comments suggest that banks, and not financial technology companies, will lead South Korea’s looming stablecoin wave.

“It is desirable to first allow banks, which are under a high level of regulations, to issue (won-based stablecoins) and gradually expand to the non-bank sector with the experience, the central bank governor said on Tuesday.

Korean Banks to Form Stablecoin Joint Venture

On Wednesday, South Korean media reported that eight major banks are planning a joint venture to establish a KRW-pegged stablecoin.

Members of the stablecoin coalition include KB Kookmin, Shinhan, Woori, Nonghyup, Industrial Bank of Korea, Suhyup, Citibank Korea, and SC First Bank.

The initiative will be supported by the Open Blockchain and Decentralized Identifier Association (OBDIA), an industry group that counts major financial institutions and technology companies as members.

The phased approach to stablecoin licensing contrasts with the evolution of dollar-pegged coins, which were pioneered by technology companies like Tether and Circle, and are only now gaining attention from banks.

However, the current stablecoin ecosystem emerged in a climate of limited regulation. As lawmakers around the world look to increase oversight of the sector, commercial banks, which are already subject to strict prudential regulation, are positioned as low-risk candidates to issue new coins.