Bank of Korea Warns on Stablecoin Depeg Risks, Urges Traditional Banks to Lead

The Bank of Korea has issued a stark warning about the risks of won-denominated stablecoins, emphasizing that private issuers lack the institutional trust needed to maintain currency stability. The central bank's report draws parallels to historical currency failures, from America's free-banking era to Korea's Dangbaekjeon crisis, arguing that trust—not technology—is the cornerstone of stable currencies.

Depegging risks took center stage in the report, with the BOK citing the collapse of Terra/Luna and the temporary devaluation of USDC to $0.88 during Silicon Valley Bank's 2023 failure. "The algorithm that promised to maintain '1 coin = 1 dollar' collapsed in just a few days," the report noted, underscoring the fragility of algorithmic assurances.

Despite these warnings, South Korean firms continue to advance won-pegged stablecoin pilots. BDACS recently tested its KRW1 stablecoin on the Avalanche blockchain, signaling ongoing interest in the technology. The BOK, however, remains adamant: traditional banks, not private entities, should spearhead stablecoin issuance to ensure systemic trust.