Written by Hazel J. Greene, Senior Analyst

In South Korea, private banks are embracing the potential of tokenized deposit technology as an innovative solution to complement stablecoins and central bank digital currencies (CBDCs). Prominent financial institutions, such as Hana Bank and Woori Bank, are actively exploring the concept of certificates of deposit (CDs) that can be placed on the blockchain.

CDs offer a modernized alternative to traditional paper-based notes and deposits, without disrupting the existing banking system. Moreover, their utilization entails the same stringent identity verification standards upheld by traditional banking services.

Hana Bank has expressed its intent to delve into research on CD tokens, whereas Woori Bank’s research department has already published a comprehensive report on this technology.

While both banks are also venturing into the realm of stablecoins, their approach takes a contemporary perspective, aiming to mitigate potential drawbacks associated with conventional stablecoins. They perceive CD tokens as a promising alternative to both CBDCs and stablecoins, referring to them as the tokenized form of money.

Woori Bank’s research report emphasizes the stability of CD tokens from a banker’s perspective. It highlights that CD tokens align closely with the current banking system, thus inspiring confidence in their stability. Notably, both Hana Bank and Woori Bank are actively participating in a proof-of-concept test for a CBDC conducted by the Bank of Korea, indicating their commitment to exploring innovative financial solutions.

The report further highlights the growing interest in CD tokens, driven by recent stablecoin failures observed in 2022. These failures have raised concerns among financial regulators and prompted the search for more robust and reliable alternatives, like CD tokens.

The collapse of Terra’s native asset UST and instances of de-pegging experienced by asset-backed stablecoins like Tether have caused investors to question the reliability of stablecoins. In this context, CD tokens emerge as a more trustworthy alternative, providing increased confidence to market observers.

While the Bank of Korea has been actively preparing for the potential introduction of a CBDC, there have been some technical challenges. The ongoing pilot program involving 14 private banks has showcased promising progress; however, the system has experienced slowdowns when nearing its limits.

Acknowledging these challenges, the Bank of Korea is committed to enhancing the technical capabilities of its CBDC project, ensuring efficient functionality for future implementations.

As the interest in tokenized deposit technology and CBDCs continues to grow, financial institutions in South Korea are encouraged to conduct extensive domestic and international demonstration experiments utilizing deposit tokens. This proactive approach aims to ensure the development of robust financial solutions that address the shortcomings of traditional stablecoins and CBDCs.

South Korea’s private banks, including Hana Bank and Woori Bank, remain at the forefront of this exciting financial revolution, exploring the potential of CD tokens with the intention of presenting a promising and secure alternative in the digital finance.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.