South Korea is advancing its strategies toward stablecoin regulation and the overarching framework for digital currency. A recent report from Yonhap News highlights that the Bank of Korea is establishing a dedicated virtual asset division within its Financial Settlement Bureau. This new division will be instrumental in monitoring the cryptocurrency landscape and spearheading discussions centered on the establishment and governance of stablecoins tied to the Korean won.

In conjunction with this transformation, the central bank is planning to rename its Digital Currency Research Lab to the Digital Currency Lab, effective July 31. This renaming aims to shift the focus from merely academic research to more practical, business-oriented initiatives. Moreover, the existing Digital Currency Technology Division will be reorganized into two distinct teams: the Digital Currency Technology Team and the Digital Currency Infrastructure Team. These teams will prioritize advancements in privacy technology, platforms for deposit tokens, and environments for testing the usability of stablecoins.

This strategic realignment underscores South Korea’s ambition to become a leader in digital currency innovation. As the global shift toward stablecoins and central bank digital currencies (CBDCs) accelerates, the Bank of Korea is positioning itself for an active and policy-driven role in the evolving landscape of financial technology.

Bank of Korea Enhances Focus on Stablecoin Innovation Amid Project Challenges

Recently, a representative from the Bank of Korea provided insights into the motivation behind rebranding its research facility, asserting, “Our goal is to support a variety of operational functions beyond traditional research parameters.” This adjustment reflects the central bank’s desire to formalize its role in the burgeoning digital currency sector. However, it was emphasized that the core responsibilities of the unit will largely remain unchanged.

Emerging from earlier research efforts, the Digital Currency Lab is pivotal to South Korea’s CBDC ambitions. A cornerstone of this initiative is “Project Han River,” which aims to assess the real-world applicability of a digital won. While the initial testing phase concluded successfully, concerns from participating banks regarding the absence of a well-defined roadmap have led to the postponement of future phases. This hesitance also includes discussions on financial commitments related to the project.

Even with these setbacks, Bank of Korea Governor Lee Chang-yong stressed the project’s significance during a July 10 press briefing. He noted that Project Han River is dedicated to “safely launching a stablecoin linked to won.” He observed, “Digital forms of currency, whether they be stablecoins or deposit tokens, will be essential for future transactions.”

This indicates a broader trend in global finance: the rapid incorporation of stablecoins outside the US. South Korea’s proactive stance on regulating and fostering its own stablecoin initiatives is particularly relevant as nations work to innovate their payment systems while asserting control over their digital financial ecosystems.

Market Trends: USDT and USDC Show Stability Around 6%

As of now, the combined market share of USDT and USDC hovers near 5.96%, reflecting a stable atmosphere in stablecoin capital distributions. Following a dramatic uptick to over 18% in early 2022—symbolizing a period of heightened market caution—this metric has been diminishing, signifying a trend of capital reallocating from stablecoins back into higher-risk investments.

The accompanying chart illustrates how USDT and USDC have consistently faced challenges maintaining dominance above critical moving averages, including the 50-week (6.57%), 100-week (6.93%), and 200-week (8.38%) marks. Recent market actions reveal resistance near these benchmarks, with dominance now navigating its mid-cycle support around the 6% level.

This prevailing trend suggests a growing risk appetite among investors, as funds transition from stable assets toward the more volatile realms of BTC, ETH, and altcoins. However, the persistence of dominance above the 5% mark indicates a persistent level of caution within the market, sustaining a solid foundation of capital on the sidelines.

Image courtesy of Dall-E, chart provided by TradingView.