South Korea's Bank-Driven Stablecoin Strategy Criticized by Kaia Chair

South Korea’s bank-first stablecoin approach lacks logic, says Kaia chair

Dr. Sangmin Seo, chair of the Kaia DLT Foundation, challenges the Bank of Korea’s (BOK) approach to stablecoins, stating that putting banks at the forefront of rollout lacks sound reasoning. He advocates for clearer regulations for all issuers instead of limiting the initiative to banks, and he also critiques the proposed ban on interest payments on stablecoins, highlighting the potential risks to adoption and innovation.

Key Takeaways

Dr. Sangmin Seo criticizes the Bank of Korea’s strategy to have banks lead the stablecoin rollout, arguing it lacks logic.
The central bank's regulatory concerns are valid, but a more effective approach would be to establish clear guidelines for all stablecoin issuers.
A total ban on interest payments for stablecoins may stifle growth and restrict adoption.
South Korean banks are planning to launch won-pegged stablecoins by late 2025 and early 2026.
The current regulatory environment has become more favorable for the cryptocurrency sector following recent political changes.

The Bank of Korea's Vision for Stablecoins

The Bank of Korea's push for the banking industry to spearhead the introduction of won-denominated stablecoins has been described as lacking a logical basis by Dr. Sangmin Seo, the chair of the Kaia DLT Foundation. In a recently published report, the central bank expressed that banks are already governed by rigorous regulations pertaining to capital, foreign exchange, and Anti-Money Laundering initiatives, which could alleviate risks tied to stablecoin implementation.

In addition, the BOK suggests forming a policy consultative body comprising currency, foreign exchange, and financial authorities to determine issuer eligibility, volume limits, and other critical factors. However, Seo conveyed to Cointelegraph that while the concerns regarding stablecoin risks are recognized, the rationale for allowing banks to dominate the rollout appears to lack a sound foundation.

Improved Solutions: Clear Guidelines for All

Seo believes that the optimal approach would involve creating transparent regulations for stablecoin issuers, aimed at minimizing monetary risks while fostering innovation. He emphasized that this would enable both banking and non-banking entities, which meet the established criteria, to compete and showcase their capabilities.

Dr. Sangmin Seo (pictured) emphasizes the need for clear regulations for stablecoin issuers, advocating for a more inclusive approach than solely relying on banks as issuers. Source: YouTube

In June, BOK Deputy Governor Ryoo Sangdai suggested that South Korean banks should be the principal issuers of stablecoins to create a secure environment before expanding to other sectors.

The Controversy Over Stablecoin Yields

The BOK has also proposed a ban on interest payments associated with stablecoins, arguing that such yields could compete with bank deposits, potentially destabilizing the sector. Instead, they have recommended the commercialization of deposit tokens—digital tokens representing bank deposits.

Seo contends that a blanket prohibition on stablecoin yields would be too extreme and could hinder adoption. He argued, “While I agree that stablecoins themselves should not have any yield-bearing features, I think it would be excessive to limit the possibility of generating additional yield through their use.”

The Evolving Stablecoin Landscape in South Korea

A minimum of eight notable South Korean banks have revealed intentions to introduce won-backed stablecoins, targeting launches in late 2025 and early 2026.

Related:__South Korea caps crypto lending rates at 20%, bans leveraged loans

In parallel, Naver Financial, the fintech division of the major tech company Naver, is reportedly progressing with plans to acquire Dunamu, which runs South Korea's largest cryptocurrency exchange, Upbit. Following the acquisition, Naver aims to kick off a project involving a stablecoin backed by the Korean won.

The crypto landscape in South Korea has seen a rise in positivity following the election of President Lee Jae-myung in June, who has actively promoted various cryptocurrency regulations, including efforts to legalize stablecoins. Magazine:__South Koreans dump Tesla for Ethereum treasury BitMine: Asia Express