South Korean Private Bank Explores Alternatives to Private Stablecoins and CBDCs

In South Korea, a number of private banks are actively researching tokenized deposit technology as a viable alternative to private stablecoins and central bank digital currencies (CBDCs). Top banks in the region have shown significant interest in certificates of deposit (CDs), which are tokenized bank deposits deposited on the blockchain.

CDs are a modern alternative to traditional paper notes and deposits without any disruption to the existing banking system. In addition, using CDs is subject to the same strict authentication standards as any other traditional banking service.

Two Seoul-based private firms, Hana Bank and Woori Bank, have reportedly shown strong interest in exploring these certificates of deposit tokens.

Hana Bank has expressed interest in conducting research on CD tokens. On the other hand, Woori Bank Research has published a report on these coins.

Both Hana Bank and Woori Bank are delving into the concept of stablecoins, but they are looking at it with a modern lens aimed at addressing any potential shortcomings associated with traditional stablecoins. They call it a tokenized form of money, seeing it as a promising alternative to CBDCs and stablecoins.

CDs may be more promising than stablecoins and CBDCs

In Woori Bank’s recent report focusing on deposit tokens and CBDCs, CD tokens are considered stable from a banker’s perspective. CD tokens are considered stable because they do not deviate significantly from the current banking system, according to a senior banker.

Notably, the aforementioned Hana Bank and Woori Bank are both actively participating in the Bank of Korea’s proof-of-concept testing of CBDCs.

The report mentioned:

Due to the high interest in wholesale CBDC and deposit token models, domestic financial companies need to conduct various domestic and foreign demonstration experiments using deposit tokens like global banks.

The report further highlighted that the growing interest in CD tokens is driven by concerns over the failure of the stablecoin in 2022. These failures have raised concerns among financial regulators, prompting a search for stronger, more reliable alternatives such as CD tokens.

Algorithmic stablecoins have come under scrutiny from regulators following the collapse of Terra’s native asset UST, causing investors to abandon such assets. Even asset-backed stablecoins like Tether have recently experienced decoupling events, sparking skepticism among market watchers.

Given these developments, CD tokens are seen as a more reliable alternative compared to stablecoins, as mentioned in the report.

The Central Bank of Korea’s CBDC implementation has encountered problems

In July, the Bank of Korea announced that it was actively preparing to introduce a CBDC. As part of these efforts, the bank has been exploring aspects such as incorporating smart contracts, using near-field communication to enable offline payments, and facilitating cross-border payments.

A pilot scheme involving 14 private banks is currently operational. But despite the progress, some technical challenges remain.

The system managed to process 2,000 transactions per second, exceeding the capacity of most domestic payment systems, but slowed down as it approached its limit.

However, the Bank of Korea is working on enhancing the technical capabilities of the project to ensure efficient functionality for future implementation.