South Korean Banks Dive Into Tokenized Deposit Technology
Several private banks in South Korea are taking steps towards exploring tokenized deposit technology, a prospective alternative to both private stablecoins and central bank digital currencies (CBDCs). As reported by Maeli Business News Korea, Hana Bank and Woori Bank — both esteemed private institutions headquartered in Seoul — have shown particular interest in the so-called “certificate of deposit” tokens (CDs).
What Are CD Tokens?
In a nutshell, CDs are tokenized bank deposits housed on the blockchain, effectively replacing traditional notes and deposits without causing disruption to the existing banking system. Notably, CD transactions require identity verification matching the rigor of any conventional banking service.
Hana Bank is currently making plans to investigate CD tokens further. On a similar note, Woori Bank’s research department has also released a report delving into the intricacies of these tokens.
The Appeal of CD Tokens
From the perspective of bankers, CDs seem to carry few drawbacks. The interest in them is reportedly driven by the unease caused by the failure of stablecoins in 2022, which ruffled the feathers of financial regulators worldwide. According to unnamed senior bankers:
“CD tokens are perceived as stable from the banks’ perspective since they do not differ significantly from the current system.“
Compatibility with CBDCs
One more compelling aspect is the potential compatibility of CDs with CBDCs. Both Hana Bank and Woori Bank are currently involved in the proof-of-concept test for a CBDC conducted by the Bank of Korea.
In July, the Bank of Korea unveiled its ongoing preparations for a potential CBDC launch, which involved exploring the application of smart contracts, offline payments using near-field communications, and cross-border payments.
The pilot program incorporating 14 private banks is already in operation. However, certain technical issues have been identified; the system, initially handling up to 2,000 transactions per second — surpassing the capacity of most domestic payment systems — experienced a slowdown upon reaching full capacity. As a response, the Bank of Korea is actively seeking ways to enhance the project’s technical prowess.