The Bank of Korea has issued a sharp warning about the risks of stablecoins pegged to the Korean won, arguing that private issuers lack the institutional credibility necessary to guarantee price stability. The central bank said it prefers that established banks, rather than tech-driven startups, take the lead in developing stable digital currencies.
In a report released Monday, the Bank of Korea (BOK) emphasised that stablecoins cannot rely on technology alone, stressing that “currency operates not on technology, but on trust.” It compared modern stablecoin experiments to historical currency crises, such as America’s free banking failures in the 19th century and Korea’s own Dangbaekjeon debacle during King Gojong’s reign, where lack of oversight led to financial instability.
The report’s primary focus is the “depegging risk” — when stablecoins lose their 1:1 parity with their reference asset. The BOK highlighted past incidents, including the collapse of Terra/Luna in 2022, which erased billions in value, and USD Coin’s temporary fall to $0.88 following Silicon Valley Bank’s 2023 collapse. The bank noted that even euro-pegged stablecoins have struggled to maintain value, underscoring that non-dollar stablecoins with limited liquidity are especially vulnerable.
Still, the BOK insisted that it is not opposed to innovation but rather seeks a framework that balances innovation with safety. “When discussing won-denominated stablecoins, the first question should not be whether the technology is feasible but whether trust is possible,” the report said.
The warning comes as South Korea’s financial sector moves closer to launching regulated stablecoins. In September, digital asset custodian BDACS partnered with Woori Bank to introduce KRW1, the nation’s first fully regulated won-backed stablecoin, built on the Avalanche blockchain. The project was certified by Korea’s Internet & Security Agency for its reliability in public-sector applications, marking a major step toward integrating blockchain into traditional finance.
The BOK reiterated that stablecoin issuers must exhibit a strong sense of “publicness” and maintain institutional safeguards to prevent investor losses if reserves falter. It urged coordination among regulators and announced continued progress on “Project Hangang,” a pilot for bank-issued deposit tokens based on the BOK’s blockchain infrastructure.
Earlier this year, Deputy Governor Ryoo Sang-dai stated that it would be “desirable to initially allow stablecoin issuance primarily through banks,” with the possibility of expanding later to private firms. Meanwhile, the ruling Democratic Party has launched a Digital Asset Task Force to pass legislation governing virtual assets and stablecoins by year’s end, citing the need to “protect Korea’s monetary sovereignty.”
However, some industry figures criticised the central bank’s position. Rich O., APAC regional manager at OneKey, argued that the BOK remains “stuck in the outdated frame of ‘trust,’ while the world is advancing toward trustless, permissionless blockchain systems.” He added that KRW stablecoins could represent Korea’s best chance to enter the global on-chain economy.
