Hana Bank of South Korea to explore CBDC and stablecoin alternatives.

Hana Bank of South Korea to explore CBDC and stablecoin alternatives.

The Rise of Tokenized Deposits in South Korea’s Blockchain Industry

South Korea’s KEB Hana Bank is set to collaborate with the central Bank of Korea (BOK) on the latter’s Central Bank Digital Currency (CBDC) pilot and explore stablecoin alternatives, particularly tokenized deposits. This partnership between Hana Bank and the BOK signifies their active participation in the preparation of a currency system based on blockchain technology[^1^].

The BOK and other central banks have been studying popular stablecoins to gather insights for their own CBDC projects. However, they aim to take stablecoin design a step further, seeking improvements over conventional stablecoins. This includes addressing issues such as price volatility, which has been observed in stablecoins like USDT[^2^].

In April, the Bank for International Settlements (BIS) published a paper discussing tokenized deposits as an alternative to stablecoins in banking and financial sectors. According to the BIS, stablecoins may violate the “singleness of money” principle due to departures in their relative exchange values. On the other hand, tokenized deposits, settled in central bank money, are deemed more conducive to singleness and less prone to price fluctuations[^3^].

Moreover, the BIS highlighted the potential of tokenized deposits to introduce expanded functionality by leveraging programmable ledgers, allowing contingent execution and composability of transactions[^3^]. Evidently, the BOK is heeding these recommendations as it explores the concept of tokenized deposits. This move by the BOK has led South Korean commercial banks to express their interest in carving out a niche for themselves in the CBDC space, fearing potential exclusion[^3^].

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Hana Bank has been actively engaged in the blockchain industry for the past five years, exploring various blockchain-powered applications such as real estate and investing in research related to cryptocurrencies[^3^]. Meanwhile, the BOK has been collaborating with several commercial banking partners on the development of the digital KRW project, demonstrating their commitment to embracing blockchain technology in the financial sector[^3^].

The emergence of tokenized deposits has captured the attention of South Korea’s banking sector. Maeil Kyungjae has referred to tokenized deposits as an “emerging hot topic” within the financial world[^3^]. In fact, the BIS paper published in April was co-authored by Hyun Song Shin, a former economic advisor to South Korea’s presidency, further reinforcing the relevance of tokenized deposits within the domestic market[^3^]. The Woori Financial Management Research Institute, associated with Hana Bank’s rival Woori Bank, also recently released a report on tokenized deposits, reflecting the growing interest within the banking industry[^3^].

With the BOK Governor Lee Chang-yong emphasizing the need for tokenized deposits in March, the South Korean commercial banks have shown great interest in this concept[^3^]. Hana’s own Management Research Institute has predicted that the domestic security token market will grow to reach approximately $27 billion in the coming year, further indicating the industry’s confidence in the potential of tokenized deposits[^3^].

In conclusion, South Korea’s banking sector, led by KEB Hana Bank, is actively exploring tokenized deposits as a viable alternative in the blockchain industry. Their collaboration with the central Bank of Korea signifies the importance of blockchain technology in shaping the future of finance. As the industry matures, the emergence of this innovative concept is facilitating greater financial stability and expanded functionality, while positioning South Korea as a frontrunner in the global blockchain landscape.

References:

[^1^] Maeil Kyungjae. South Korea’s KEB Hana Bank to Work on Tokenized Deposit CBDC Alternative

[^2^] CoinGecko. USDT (Tether) Price Chart

[^3^] Bank for International Settlements. Tokenised deposits: replacing stablecoins?