Tokenized Deposits as Alternative to Stablecoins Favored by South Korean Banks in Preparation for CBDCs

A South Korean bank favors Certificate of Deposit (CD) tokens as a potential alternative to “volatile” stablecoins. report South Korean news agency Pulse reported on July 24.

According to Pulse, industry insiders have revealed that Hana Bank plans to study CD tokens as part of preparations for a potential central bank digital currency (CBDC) project led by the Bank of Korea.

Woori Bank has also shown interest in the CD Token, as evidenced by a recent report issued by its research institute.

Cryptocurrency Regulations in South Korea

The development comes as South Korean financial regulators strategize the final aspects of new rules for the country’s cryptocurrency industry.

As previously reported, crypto ratethe impending bill focuses on regulating cryptocurrency issuance, addressing conflicts of interest, and establishing a robust framework for overseeing stablecoins.

Following the passage of the Virtual Asset Users Protection Act earlier this year, which introduced safeguards for investors, the Financial Services Commission (FSC) is considering extending the law’s reach to crypto asset managers after two investment platforms, Derio and Hull Investments, recently suspended withdrawals due to their interconnectedness.

CD token

According to Pulse, the CD Token, which uses blockchain technology to turn bank deposits into tokens, could replace payments that are currently funded directly from bank accounts. This interest in CD tokens was especially heightened after the failure of Silicon Valley Bank (SVB) in March of this year.

In contrast to stablecoins, CD tokens are based on the existing banking system and are more reliable as transactions are settled using CBDCs issued by central banks.

Pars also emphasized one of the key features of CD tokens, the requirement for identity verification to be issued based on bank deposits. For traditional financial institutions, this could be an advantage over stablecoins. Stablecoins can become untraceable once issued, which can pose regulatory oversight and fraud prevention issues.

APAC stablecoins

This development of the South Korean banking sector is in line with broader global digital currency adoption and stability trends. For example, USDC stablecoin provider Circle recently expressed interest in covering 74% of Asia Pacific (APAC) trade claims made in US dollars.

Circle sees the digital dollar, particularly the USDC, as having the potential to significantly impact financial landscapes in the Asia-Pacific region, given that the dollar has dominated financial transactions in the region over the past two decades.

Circle CEO Jeremy Allaire highlighted USDC’s potential in the APAC region, stating:

“USDC will harness the strength of the dollar to power the Internet, making communication as quick and easy as texting.”

Circle aims to revolutionize cross-border payments, dramatically reduce remittance costs, and facilitate traceable humanitarian aid.

The emergence of the CD token and Circle’s expansion plans could ignite a battle between CD and stablecoins for digital asset market share as the FSC prepares for the second phase of its regulatory evaluation.

Banks’ fears of decentralized digital assets and their preference for traceable tokens confirm global expectations that CBDCs will arrive, giving governments and central banks greater access to their citizens’ financial histories.