In a recent update, private commercial banks in South Korea have teamed up to tokenize the depository services. The research examined alternative digital tokens that will substitute the stablecoins issued by private financial institutions and the Bank of Korea (BOK).
A news briefing featured on the local media outlet Maeli Business News Korea revealed that Hana Bank and Woori Bank plan to develop “certificate of deposit” (CD) digital tokens. A CD consists of tokenized bank depository products that replace conventional notes and deposits.
Also, CD leverages emerging technology such as blockchain to verify user identity. A notable feature of the CD is that it has minimal impact on the operation of the traditional banking system.
Banks in Korea Seeks to Launch Certificate of Deposit Tokens
According to Hana Bank, the financial institution plans to research CD tokens extensively. The Hana strategic move mirrors the action taken by the research team at the Woori Bank.
In light of the report, Hana and Woori claimed that CD tokens have more advantages than disadvantages. In 2022 following the implosion of FTX that plunged Terra into a liquidity crisis and the de-pegging of Tether, the investors lost confidence stablecoins. This has encouraged local banks in South Korea to step up to explore ways to issue digital tokens that will substitute stablecoins pegged South Korean Won.
Benefits of CDs Tokens
Elsewhere a senior executive at a bank based in Seoul revealed that the CD tokens have similar features to stablecoin. He mentioned that issuing CD tokens does not interfere with the traditional banking system. However the executive mentioned that the CD tokens are more reliable than the stablecoins.
Beyond this, the CD tokens are easily compatible with central bank digital currency (CBDC). In the initial development phase of the CBDC, the Bank of Korea worked closely with Hana and Woori banks to conduct the pilot test for the proof-of-concept (PoC) of the digital fiat.
At the beginning of July, the BOK announced plans to conduct extensive studies on using stablecoin on smart contracts and other offline payments. Also, the country’s apex bank will leverage near-field communication (NFC) in cross-border CBDC payments.
The remaining phase of the CBDC pilot trial has challenged the Bank of Korea to seek strategic partners. A few months ago, the bank signed a partnership agreement with Samsung to conduct a pilot test for offline payments.
Meanwhile, the BOK works with 14 local banks to conduct CBDC trials. Recently the team behind the CBDC failed to overcome technical challenges after the system failed to support 2000 transactions per second. The project team lamented that after the system reached its maximum capacity, the system slowed down.
This has necessitated the developers to extensively explore practical ways to address the technical issue and improve the system’s capabilities.