Bank of Korea Warns on Stablecoin Depeg Risks, Says Banks Should Lead

Core Viewpoint - The Bank of Korea (BOK) has raised concerns about won-denominated stablecoins, emphasizing the need for institutional trust and urging traditional banks to take a leading role in their issuance [1][4]. Group 1: Risks of Stablecoins - The BOK's main concern is "depegging risk," where stablecoins fail to maintain their promised 1:1 value with the underlying currency, citing the Terra/Luna crash as a significant example [3][4]. - The report highlights that even major dollar-pegged stablecoins, such as USDC, are susceptible to depegging, referencing its drop to $0.88 during the Silicon Valley Bank crisis [3]. - Concerns are particularly acute for non-dollar stablecoins with limited circulation, with euro-pegged stablecoins also deemed "particularly vulnerable" [4]. Group 2: Trust and Innovation - The BOK asserts that currency relies on trust rather than technology alone, challenging the belief that blockchain innovation can guarantee stability [2]. - The central bank does not aim to hinder innovation but seeks to promote safe and sustainable advancements in the stablecoin sector [4]. - The report stresses that the primary question regarding won-denominated stablecoins should focus on the possibility of trust rather than the feasibility of technology [4]. Group 3: Regulatory Framework - The BOK emphasizes that private issuers of stablecoins must demonstrate a high level of "publicness" and establish institutional mechanisms to mitigate risks if the 1:1 promise is broken [5]. - The report warns that if issuers fail to manage reserve assets properly or if those assets decline in value due to risky investments, the stability promise cannot be upheld [6].