The Central Bank of South Korea warns of the risks of stablecoin depegging and calls for banks to take the lead in issuance.

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According to a report by Decrypt on October 28, South Korea's Central Bank released a report on Monday warning about stablecoins denominated in Korean won, emphasizing the lack of institutional trust needed by private issuers to maintain currency stability, and recommending that stablecoin issuance be led by traditional banks.

The Central Bank pointed out that the stability of currency relies on trust rather than technology, and cited examples of the risks of stablecoin de-pegging, such as the Terra/Luna crash incident and USDC's drop to $0.88 during the Silicon Valley Bank crisis. The report particularly emphasizes that non-US dollar stablecoins face more serious risks due to limited circulation.

Despite the warnings, financial innovation in South Korea is still progressing. In September, the digital asset custody institution BDACS partnered with Woori Bank to launch South Korea's first fully compliant Korean Won-backed stablecoin KRW1, which is built on the Avalanche blockchain.

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