Korea Exchange to conduct CBDC pilot test in H2

Bank of Korea Conducts Successful CBDC Pilot Test with Financial InstitutionsThe Bank of Korea (BOK) announced yesterday in a press release that its central bank digital currency (CBDC) pilot program operated successfully in a practical setting involving multiple financial institutions.Testing environmentsPreviously, the CBDC system was tested in an isolated cloud environment. In this recent test, the system was installed on the servers of various financial institutions over a five-month period to evaluate its performance.The 1.2 billion KRW ($905,000) project included the participation of six companies, such as Kakao’s Krust Universe, KakaoBank, and KakaoPay, as well as 14 banks and the Korea Financial Telecommunications and Clearings Institute. Kookmin, Shinhan, and Woori were among the participating banks.Four scenariosThe BOK and financial institutions tested the system’s performance under four scenarios: increasing transaction requests per second, increasing the number of active users, reducing the transaction queue size, and adjusting the block generation time ratio.The increase in transaction requests led to a 10% decrease in transactions per second (TPS), from 2,100 TPS to 1,900 TPS, compared to the single cloud environment test. This result is still deemed acceptable, as the highest TPS recorded in the current small payment infrastructure network is 1,200, which occurs on paydays and other high-transaction days.Issues such as slower response times arose with higher transaction request volumes but were resolved by enlarging the transaction queue size and increasing the block formation time proportion in the block generation process. The block generation process involves two stages: block formation, where transactions are recorded, and block validation, where transactions are verified.Greater stabilityThe test demonstrated that transaction errors at individual institutions did not affect others, suggesting that a distributed ledger system offers greater management stability than a centralized system. However, institutional officers cited challenges in problem-solving and communication when using the distributed ledger system.The BOK plans to involve more institutions in ongoing experiments this year, supporting them in testing their smart contracts on the CBDC pilot system.Photo by Bundo Kim on Unsplash

BOK Staffers Assess Crypto Market Vulnerabilities and Their ImplicationsOn Thursday, the Bank of Korea’s (BOK) staff members published an assessment of the vulnerabilities in the cryptocurrency market and their potential implications. Here is the summary of the report.Photo by D Tan on Unsplash2022 crypto winterThroughout 2022, the worldwide crypto market faced a series of adverse occurrences, such as significant drops in the prices of major crypto-assets and the collapse of prominent crypto companies. These events shed light on the vulnerabilities that had accumulated during the rapid growth of the market.The first major event occurred in May 2022 when the algorithmic stablecoin TerraUSD experienced a sharp decline, resulting in substantial losses and bankruptcies for numerous retail investors and crypto firms. This incident significantly eroded confidence in the overall crypto market. The subsequent bankruptcies of prominent crypto lender Celsius and hedge fund Three Arrows Capital (3AC) further highlighted the realization of risks commonly associated with traditional financial markets, such as multiple collateral loans and maturity and liquidity mismatches, within the crypto market.In November 2022, the well-known crypto exchange FTX filed for bankruptcy, demonstrating that the activities of a large crypto company can propagate risks through moral hazard and excessive profit-seeking behavior when it operates outside the realm of regulatory oversight.Similarities with TradFiThese negative events that unfolded in the global crypto market in 2022 share similarities with issues previously observed in financial markets, such as unsustainable business models, liquidity risk, leverage, and lack of transparency in financial conditions. These parallels suggest that if the crypto markets were subjected to comparable levels of regulation as traditional financial markets, it is plausible that the triggering of these risks could have been avoided altogether, or at the very least, the resulting damage could have been mitigated to some extent.Implications for the Korean marketAt present, it is deemed unlikely that events akin to those witnessed in overseas crypto markets will transpire in the Korean market. The Korean crypto-asset market has primarily evolved through exchanges, with limited influence from other enterprises such as crypto issuers and decentralized lending platforms. In addition, Korean crypto exchanges are subject to regulation under the Act on Reporting and Using Specified Financial Transaction Information. This mandates the separation of customer deposits from exchange assets and the strict management of custodial crypto-assets through secure wallets. Additionally, Korean exchanges are prohibited from listing their own tokens on their platforms.However, there remains a dearth of information regarding the business structures of crypto companies that offer services similar to those in the traditional financial industry. This lack of information poses challenges in accurately assessing risk and providing adequate investor protection. Meanwhile, there is a potential for a deeper integration between the crypto market and users’ daily lives, particularly through major technology companies, gaming companies, and security tokens.SuggestionsIt is vital to ensure that crypto-assets are regulated based on the principle of “same activity, same risk, same regulation” through the ongoing development of crypto-asset-related legislation. The Financial Stability Board, an international body monitoring the global financial system, explained this principle in a 2022 paper: “Where crypto-assets and intermediaries perform an equivalent economic function to one performed by instruments and intermediaries of the traditional financial sector, they should be subject to equivalent regulation.”Additionally, it is necessary to stay aligned with major countries in terms of the speed and comprehensiveness of regulatory measures to prevent regulatory discrepancies across borders due to the global nature of crypto risks.Enhancing the effectiveness and efficiency of regulation requires the establishment and maintenance of a close cooperation system between authorities. This collaborative effort should encompass various aspects, including monitoring, information gathering, and supervision of the crypto-asset market. Notably, the widespread adoption of stablecoins can affect the stability of the overall financial system, including monetary systems and payment and settlement systems. Hence, it is necessary to strengthen the involvement of central banks in the monitoring and supervision framework for crypto-assets, including stablecoins, as demonstrated by legislative approaches adopted by major economies like the EU. Furthermore, imposing disclosure requirements, external audits, and documentation submission obligations on crypto-asset operators is advisable.

Daegu to host first-ever metaverse expo on Nov. 8South Korea’s Daegu Metropolitan City is set to host its first metaverse expo called the “ABB Big Show” from Wednesday to Friday (local time) at the EXCO convention center as part of efforts to stimulate and promote the metaverse industry — a key industry that was notably earmarked as a growth engine in last year’s eighth nationwide local elections. Despite more recent concerns about the sector due to worsening domestic and international economic conditions and reduced investments, the global market continues to recognize its high potential, as divulged at CES 2023, one of the biggest tech events in the world. Daegu has thus stepped up to promote the latest metaverse technologies and content across diverse industrial, administrative and educational services.“The metaverse industry represents a new field that symbolizes a digital era with infinite opportunities and possibilities,” said Choi Woon-baek, Director of the city’s Office for Future Innovation Growth. “I hope that this event will be a meaningful time for citizens to experience firsthand the advanced metaverse technology that is poised to change our future lives.”Photo by GuerrillaBuzz on UnsplashA confluence of metaverse innovation and technologyUnder the theme of exploring the link between reality and the virtual realm, the ABB Big Show — ABB is an acronym for AI, blockchain and big data — will be hosted by Daegu and jointly organized by the Daegu Gyeongbuk Metaverse Industry Association, the MICE Industry Research Institute and local news outlet Yeongnam Ilbo. It will also be held simultaneously with this year’s ICT Convergence Expo Korea and the ABB Hackathon. Of the 156 total companies that are scheduled to participate in the shared event, 32 of them are metaverse companies, the city said.These companies are set to introduce various cutting-edge metaverse technologies through hands-on activities and exhibitions, many of which come with prizes and special events for visitors. In particular, creative media content company YDesign Lab plans to set up a futuristic Instagram photo zone for visitors using immersive anamorphic technology, while mixed reality (MR) content provider DG Entertainment will showcase its motion recognition technology.Other individual guests plan to give lectures on the prospects of Korea’s metaverse industry and propose related policies to push these prospects in a promising direction. The second day of the expo will host a conference featuring Ahn Jong-bae, President of Hansei University’s Future Creativity Campus, who will deliver a keynote speech on the role of artificial intelligence (AI) in changing the future and the metaverse industry.Daegu’s ambitious projectsDaegu is also pursuing several other big-budget projects to foster its regional metaverse ecosystem, including the construction of a metaverse hub in the greater metropolitan area that will serve to support related businesses and cultivate metaverse experts. Also on the city’s agenda is the development of a “Daegu World” metaverse that leverages regional intellectual property in the realms of tourism, education and culture to give citizens unique virtual experiences.