According to a recent report by the authoritative South Korean media outlet "Economic Review," the South Korean financial industry is undergoing a milestone transformation. Eight major banks—Kookmin Bank, Shinhan Bank, Woori Bank, Nonghyup Bank, Korea Development Bank, Korea Water Resources Corporation, Citibank Korea, and Standard Chartered Bank Korea—plan to jointly establish a joint venture aimed at developing and issuing a Korean won stablecoin.

Background: Strategic Significance of the Korean Won Stablecoin

In the global wave of digitalization, stablecoins, as a type of cryptocurrency pegged to fiat currencies, are becoming the focus of the fintech sector. Unlike highly volatile cryptocurrencies like Bitcoin, stablecoins achieve price stability by anchoring to fiat currencies (such as the US dollar, euro, or Korean won) and are widely used in cross-border payments, decentralized finance (DeFi), and digital asset trading. As one of the pioneers in the application of blockchain technology globally, South Korea has a long history of exploring stablecoins in its financial industry. However, progress in developing a Korean won stablecoin has been slow due to regulatory uncertainties and technological maturity. The collaboration of the eight banks indicates that the South Korean financial industry has entered a substantive phase in its strategic layout for digital currencies. According to industry insiders, the project aims to create a secure, transparent, and regulatory-compliant ecosystem for the Korean won stablecoin to enhance South Korea's competitiveness in the global digital economy. The Bank of Korea's recent exploration of central bank digital currencies (CBDCs) provides a policy and technical background for this project, while the participation of the eight banks further strengthens the project's market credibility.

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Preparation and Cooperation Mechanism of the Joint Venture

According to the "Economic Review," the preparation for the joint venture is progressing rapidly. The eight participating banks encompass major commercial banks and foreign bank branches in South Korea, representing a broad consensus in the financial industry. These banks not only possess strong capital strength and a wide customer base but also have accumulated rich experience in payment, clearing, and cross-border financial services. The involvement of the Open Blockchain and Decentralized Identifiers Association injects cutting-edge blockchain technology and decentralized identity (DID) solutions into the project, while the participation of the Korea Financial Telecommunications and Clearing Institute ensures seamless integration of the payment clearing system.

Currently, the project team is engaged in in-depth discussions around common infrastructure, including the selection of blockchain platforms, data privacy protection, transaction efficiency optimization, and compatibility with existing financial systems. It is noteworthy that the establishment of the joint venture still requires approval from regulatory bodies such as the Financial Services Commission (FSC) of South Korea. The regulatory stance on stablecoins is cautious, with particular attention to anti-money laundering (AML), customer fund security, and financial stability. Therefore, the project team has made compliance a core consideration from the outset, striving to find a balance between innovation and regulation.

Weighing Two Issuance Models

The issuance model of the Korean won stablecoin is the current focus of discussion, with the project team proposing two feasible options: the trust model and the deposit token model.

• Trust Model: In this model, customer funds will first be deposited into a trust account managed by an independent trust institution, and the bank will subsequently issue an equivalent amount of stablecoins based on the scale of the trust funds. The advantage of this model lies in fund isolation, effectively reducing the risk of banks misappropriating customer funds while enhancing the transparency and credibility of the stablecoin. However, the operational costs of the trust model are relatively high, and it requires a complex legal and regulatory framework, which may extend the project's implementation timeline.
• Deposit Token Model: This model directly links stablecoins to bank deposits, similar to a digital deposit certificate. The funds deposited by customers in the bank will serve as reserves for the stablecoin, and the bank will issue stablecoins based on the scale of deposits. The advantage of this model is its operational simplicity and higher compatibility with the existing banking system, allowing for rapid market application. However, its downside is that the stability of the stablecoin is highly dependent on the bank's credit risk and operational soundness; if the bank encounters liquidity issues, it may trigger a crisis of market trust.

The final choice between the two models will depend on the regulatory stance, the ease of technical implementation, and market demand. According to industry experts, the trust model may be more favored by regulatory bodies due to its inherent advantages in fund security and transparency, while the deposit token model is more suitable for rapid promotion, especially in small and medium-sized enterprises and retail payment scenarios.

Challenges and Risks

Despite the promising outlook, the Korean won stablecoin project faces multiple challenges. Regulatory uncertainty is the biggest obstacle, as South Korean financial authorities have adopted a stricter stance on cryptocurrencies and stablecoins in recent years. The "Virtual Asset User Protection Act," passed in 2024, imposes higher requirements on the issuance and operation of stablecoins. Technical security and privacy protection are key issues; vulnerabilities in the blockchain platform or data breaches could lead to significant losses and damage user trust. International coordination is also a major challenge; for the Korean won stablecoin to achieve cross-border application, it must reach consensus with international regulatory bodies and payment networks, involving complex policy negotiations.

Conclusion: The Transformation Path of South Korea's Financial Industry

The joint promotion of the Korean won stablecoin project by the eight banks is not only a bold attempt by the South Korean financial industry to embrace blockchain technology but also a reflection of the traditional financial sector's digital transformation. In the context of increasingly fierce global competition in digital currencies, this initiative from South Korea undoubtedly holds forward-looking significance. However, the key to success lies in how to find a balance between innovation and compliance while gaining the trust of the market and users.

This article represents the author's personal views and does not reflect the position or views of this platform. This article is for informational sharing only and does not constitute any investment advice to anyone.

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