Why Short-Term Bonds Are Key for South Korea’s Stablecoin Success

South Korea’s journey towards a stablecoin pegged to the Won faces a significant obstacle: the absence of easily accessible short-term government bonds. This key element, highlighted by KCMI researcher Kim Pil-kyu, is crucial for ensuring the stability and liquidity of digital won-denominated stablecoins. Why are short-term bonds vital for stablecoin reserves? Kim Pil-kyu emphasizes that these bonds act as essential backing for stablecoins, offering both safety (low risk) and ease of access to cash in case of redemption requests. This is particularly important as stablecoins need to maintain their value against the Won, making a well-managed reserve vital for success. A Global Perspective: What’s Working in the US? The US market offers a clear example. Most dollar-based stablecoin issuers primarily use short-term government debt to create these reserves, demonstrating its effectiveness for both security and operational fluidity. This suggests that South Korea needs to adopt similar practices. What Regulators Need to Do: Key Regulatory Changes For this to happen, regulatory changes are needed. These include defining stablecoins as distinct financial instruments, establishing clear guidelines for reserve management and auditing, and creating a robust legal framework supporting the issuance and circulation of a won-denominated stablecoin. **Unlocking South Korea’s Potential** By addressing these hurdles, South Korea can unlock the full potential of its digital currency market. A well-regulated system will pave the way for a more efficient and secure digital economy while fostering innovation in the global digital finance landscape.