Korean Banks Investigate Tokenized Deposits Technology

Several private banks in South Korea are investigating the viability of tokenized deposit technology, an alternative to private stablecoins and central bank digital currencies (CBDCs).

Hana Bank and Woori Bank, both private enterprises with headquarters in Seoul, have shown interest in so-called “certificate of deposit” tokens (CDs), according to a report from Maeli Business News Korea.

CDs are tokenized bank deposits placed on the blockchain, which replace conventional banknotes and deposits without disrupting the current banking system.

CDs require the same level of identity verification as traditional bank services. Hana Bank intends to research CD tokens, whereas Woori Bank’s research division has just published a report on the tokens.

From the perspective of financiers, it appears that CDs have few disadvantages. According to the report, the financial regulators’ interest in them originates from their anxiety over the stablecoin failures of 2022.

“CD tokens are perceived as stable from the banks’ perspective since they do not differ significantly from the current system.”

According to anonymous senior financiers cited in the report, CDs’ potential compatibility with CBDCs is an additional important feature.

Both of the aforementioned banks are collaborating in the Bank of Korea’s CBDC proof-of-concept test.

The Bank of Korea disclosed in July that it was investigating the use of smart contracts, offline payments with near-field communications, and cross-border payments in preparation for the prospective introduction of a CBDC.

The pilot program involving 14 private institutions is currently operational.

However, there are still some technical issues; the system, which was able to process 2,000 transactions per second more than most domestic payment systems can accommodate stalled as it reached capacity.

The Bank of Korea is currently exploring methods to enhance the project’s technical capabilities.