Crypto Alert: South Korea Warns Private Stablecoins Could Collapse

South Korea’s central bank has raised concerns about the risks posed by won-denominated stablecoins, urging traditional banks to take a leading role in issuance.

The Bank of Korea (BOK) emphasized that trust, rather than technology, is the foundation of any stable currency, noting that private issuers often lack the institutional safeguards needed to maintain a stable peg.

The central bank’s report highlights “depegging risk,” the possibility that stablecoins could fail to maintain their promised 1:1 value with the underlying currency. The report references past failures, including the Terra/Luna collapse and USDC’s temporary decline during the Silicon Valley Bank crisis, to illustrate how quickly stablecoins can lose value and harm investors.

Banks Should Lead, Private Issuers Must Meet High Standards

The BOK stressed that private stablecoin issuers need robust institutional mechanisms and sufficient reserve assets to ensure stability. Without these safeguards, any decline in reserve value could break the peg and undermine confidence. The report advocates for inter-agency coordination on stablecoin policy and highlights Project Hangang, the bank’s pilot program for bank-issued digital deposit tokens.

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Despite its cautionary stance, the central bank stated that it does not aim to block innovation but to promote “safe and sustainable” development. The BOK recommends that won-backed stablecoins initially be issued primarily through banks, with a gradual expansion to qualified non-bank participants.

The report comes as South Korea explores regulatory frameworks for digital assets. In September, BDACS launched KRW1, the nation’s first fully regulated won-backed stablecoin, in partnership with Woori Bank. Meanwhile, the ruling Democratic Party has pledged to pass legislation by the end of the year to protect the country’s monetary sovereignty.

Critics argue that South Korea risks falling behind in the global blockchain ecosystem. Rich O., APAC regional manager at OneKey, noted that fiat currency trust is gradually eroding, citing rising gold, Bitcoin, and stock prices as indicators. He added that KRW-backed stablecoins could provide the country with a foothold in the global digital economy.