[Stablecoin Supervision]②100% Reserves Are Not Enough, Ongoing Verification Is Key... Wallet Segregation Needed to Prevent Another "Bithumb"

Push to mandate reserve assets in safe instruments equal to 100%+α of outstanding issuance
Need for constraints on maturity structure... Calls for stronger liquidity management
"Ongoing verification" framework linking on-chain issuance and off-chain

Editor's noteThe Democratic Party of Korea's second-phase virtual asset legislation, the "Basic Act on Digital Assets," which is to be proposed later this month, is expected to be a watershed in determining within what kind of financial order stablecoins will be incorporated. The core of the legislation is to move beyond the first-phase management framework focused on anti-money laundering and expand it into a comprehensive regulatory regime that encompasses both the establishment of market order and investor protection. In particular, depending on whether stablecoins, which are linked to currency value and perform payment and settlement functions, are viewed as an industry or defined as financial infrastructure, the basic design of the system - including the issuer, equity structure, rules on reserve assets, and allocation of supervisory authority - could vary significantly. At this point, a "Korea-style supervisory model" that can substantively realize consumer protection amid the trade-off between innovation and stability is desperately needed. Against this backdrop, The Asia Business Daily analyzes the key issues in stablecoin regulation and presents directions for designing an appropriate supervisory framework that can underpin market trust.

As the outline of the "Basic Act on Digital Assets," the Democratic Party of Korea Digital Asset Task Force (TF)'s second-phase virtual asset legislation to be proposed this month, has begun to emerge, some argue that the focus of stablecoin regulation should be placed not merely on formal requirements but on structural safety. If stablecoins that perform payment and settlement functions are regarded not as simple virtual assets but as part of the financial infrastructure, then, according to this analysis, the core requirement of the legislation is to design a supervisory framework that will remain robust even in times of crisis. Experts stress that it will be difficult to secure institutional trust unless the management of reserve assets and internal control mechanisms are refined simultaneously.

Obligation to hold safe assets of at least 100% of outstanding issuance... The key is liquidity and continuous verification

According to the financial sector on February 22, the bill is expected to include a provision obligating issuers to secure "100% + alpha" of their outstanding stablecoin issuance in safe assets, and to keep those assets segregated on deposit with external institutions. The intent is to enhance crisis response capabilities by requiring reserve assets to be held in highly liquid instruments such as deposits or Treasury bonds.

However, experts emphasize that the formal standard of "100% holdings" alone is not sufficient. They explain that if there is a surge in redemption requests during a crisis, in other words a so-called "coin run," the critical factor will be whether there is a system that can continuously check and verify the actual existence of the assets and their immediate convertibility into cash, rather than merely whether reserves have been accumulated on paper.

International standards point in the same direction. In its 2023 recommendations, the International Organization of Securities Commissions (IOSCO) specified that regulators must have sufficient access to information and appropriate tools to continuously supervise the activities of virtual asset service providers and their customer asset protection frameworks. This means that reliance solely on voluntary disclosures or self-reporting by issuers has limits in maintaining trust, and that both the market and supervisory authorities must be able to independently verify the existence and adequacy of reserve assets.

In the United States, the safety and liquidity of reserve assets are clearly guaranteed at the statutory level. The U.S. stablecoin regulatory bill known as the "Genius Act" requires issuers to hold reserve assets on a one-to-one basis, while limiting those assets to highly liquid instruments such as U.S. currency, insured deposits, certain short-term U.S. Treasury securities, and Treasury-backed repurchase agreements (repos). This goes beyond a simple 100% reserve requirement and instead designs, at the institutional level, an asset structure that can be immediately converted into cash during a crisis.

Some also argue that constraints are needed on the maturity structure of reserve assets. Choi Jaewon, professor of economics at Seoul National University, said, "In the United States, there are clear maturity limits on Treasury securities within reserve assets," and emphasized, "Even if reserve assets are invested in Treasuries, regulations should require that they be concentrated in ultra-short-term securities with maturities of less than 90 days, so that stability and liquidity are structurally secured."

In practice, redemption mechanisms and real-time verification systems are cited as the core of trust. One option under discussion is to introduce "Proof of Reserves (PoR)" technology, which links the amount issued on the blockchain (on-chain) with off-chain (book-entry) reserve assets. This method periodically compares on-chain issuance with off-chain reserve assets to identify discrepancies at an early stage, thereby enhancing transparency.

The reserve asset management practices of Circle, the issuer of a U.S. dollar-pegged stablecoin, are also seen as a useful reference. Circle entrusts a substantial portion of its reserve assets to BlackRock, the world's largest asset manager. BlackRock operates a Circle-dedicated fund focused on short-term U.S. Treasuries and ultra-short-term repos, discloses the asset composition and maturity structure, and calculates and publishes the net asset value (NAV) on a daily basis. This is meaningful in that reserve assets are managed and disclosed within the traditional financial regulatory framework, allowing market participants to cross-check them.

Jang Boseong, head of the Macro-Finance Division at the Korea Capital Market Institute, said, "It must be possible to verify through market information whether the total amount issued is transparently disclosed and whether reserve assets in excess of that amount are maintained at all times," and emphasized, "The core of trust is not the simple reserve ratio but the verifiability of those reserves."

The lesson from the Bithumb mispayment incident... Mandatory dual segregation of ledgers and wallets

While rules on reserve assets address external soundness, internal control is another pillar that determines structural stability. The recent mispayment of Bitcoin by the virtual asset exchange Bithumb is cited as a case that revealed vulnerabilities in internal controls. The incident occurred when an input error in the process of paying out Bitcoin to users resulted in an excessive quantity being transferred. The problem, observers note, was that the internal control framework did not function adequately to ensure consistency between ledger balances and the amount actually held in on-chain wallets.

This has prompted calls to remedy the limitations of the current rules. Article 7 of the current Act on the Protection of Virtual Asset Users stipulates the segregation of business assets and user assets, but its focus is on segregation at the ledger level. Because it does not explicitly mandate physical segregation of blockchain wallet addresses, there is a structural limitation in that exchanges must rely on voluntary guidelines.

Accordingly, some argue that the law should clearly mandate a dual safeguard of "ledger-level segregation plus wallet-level segregation." If blockchain wallets for company assets and wallets for customer assets are required to be managed separately, this would, in structural terms, prevent the on-chain commingling of proprietary funds and customer funds.

The European Union's Markets in Crypto-Assets Regulation (MiCA) codifies the obligation of segregated custody by requiring that customer assets be distinguishable and identifiable from business assets and from the assets of other customers, and that they be protected from claims by other creditors in the event of insolvency. Although it does not directly mandate the segregation of wallet addresses, it regulates the area by clearly defining the legal ownership of customer assets and strengthening the responsibilities of service providers, making it a useful reference.

A financial industry official emphasized, "As stablecoins that perform payment and settlement functions evolve into financial infrastructure, the core task of the second-phase legislation must be to design the system so that customer assets cannot be structurally infringed upon."