[Financial Stability Report] Bank of Korea Takes Preemptive Action, Highlights Four Major Risks of Stablecoins

Depegging and Coin Runs May Occur if Trust in Stablecoins Is Undermined
Insufficient Regulation and Infrastructure, Potential for Technical Errors
Foreign Exchange Risks Such as Increased Exchange Rate Volatility and Capital Flows
Decline in Currency Credibility and Weakening of Banks' Credit Creation Function
Bank of Korea: "Will Discuss Risk Assessment with the Government and Others"

The Bank of Korea has identified four major risks that need to be addressed before the institutionalization of stablecoins, as outlined in its Financial Stability Report. As discussions about the introduction of won-based stablecoins have become more active under the new administration, the central bank is proactively highlighting and responding to the risk factors it is concerned about. The Bank of Korea reiterated that it will thoroughly prepare for these risks before institutionalization, working together with the government and relevant financial authorities as the main parties responsible for monitoring stablecoin risk factors.

In its "Financial Stability Report for the First Half of 2025," released on June 25, the Bank of Korea cited the following as the main risks associated with the spread of stablecoins: coin run (large-scale coin withdrawal events) risk, payment and operational risk, foreign exchange and capital flow risk, and constraints on the effectiveness of monetary policy.

The Bank of Korea warned that if trust in the value stability and reserve assets of stablecoins is undermined, "depegging"?where the stablecoin price deviates from its fixed value?and coin runs could occur. Such events could lead to shocks in the short-term funding market and liquidity risks for banks, potentially spreading into broader financial system risks. The previous day, Deputy Governor Yoo Sangdae of the Bank of Korea also emphasized, "If a so-called coin run occurs, the central bank will have no choice but to intervene to prevent systemic risk," and stressed that "the issuance of stablecoins must be prepared for with even greater safety measures."

Because stablecoins operate on blockchain technology, and the relevant systems and infrastructure are not yet fully established, there is also a possibility of technical errors. The Bank of Korea pointed out, "There are various payment and operational risks inherent in stablecoins, including the potential for criminal misuse."

Another issue is that if foreign currency-based stablecoins are widely used in non-reserve currency countries, this could increase foreign exchange-related risks, such as greater exchange rate volatility and capital outflows, thereby acting as a destabilizing factor for the financial system. If the use of stablecoins becomes widespread, it could undermine the credibility of the national currency and weaken banks' credit creation function, which in turn could constrain the effectiveness of monetary policy.

As of the end of last month, the global market capitalization of stablecoins stood at $230.9 billion (based on the top 10 major stablecoins), continuing its upward trend. The proportion of stablecoins used in virtual asset transactions rose sharply from 7.9% in December 2017 to 84.0% last month. Recently, the use of stablecoins has expanded beyond the virtual asset market, being used as a store of value and in everyday transactions by integrating with existing payment systems.

The key feature of stablecoins, unlike other virtual assets, is their value stability. To achieve this, they are designed to hold reserve assets?such as government bonds or other highly liquid and safe assets denominated in fiat currency?corresponding to the amount issued. Lee Jongryul, Senior Deputy Governor of the Bank of Korea, stated, "While institutionalization of stablecoins is being pursued both domestically and internationally in consideration of their various advantages, we must not overlook the risk factors associated with their spread." He added, "We will strengthen cooperation with the government and financial authorities to ensure that regulations are established in a way that minimizes potential macroprudential and monetary policy risks, without hindering the various innovations based on stablecoins."