[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 at the end of this month, is expected to be a watershed in determining how to incorporate stablecoins into the financial order. The core of the legislation is to move beyond the first-phase, anti-money laundering-focused management framework 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 part of the financial infrastructure, the basic design of the system could differ in terms of issuer, equity structure, reserve asset rules, and allocation of supervisory authority. At this juncture, there is an urgent need for a "Korea-style supervisory model" that can practically implement consumer protection while balancing innovation and stability. In this context, The Asia Business Daily analyzes the key issues in stablecoin regulation and presents directions for designing an appropriate supervisory framework that can secure market trust.

As the outline of the Democratic Party of Korea's Digital Asset Task Force (TF) second-phase virtual asset legislation, the "Basic Act on Digital Assets," to be proposed this month becomes clearer, voices are emerging that the focus of stablecoin regulation should be placed on structural soundness rather than merely on formal requirements. If stablecoins that perform payment and settlement functions are regarded not as simple virtual assets but as part of the financial infrastructure, then designing a supervisory framework that remains robust even in times of crisis becomes the key requirement of the legislation. Experts stress that it will be difficult to secure institutional trust unless both reserve asset management and internal control mechanisms are refined at the same time.

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

According to the financial sector on the 22nd, the bill is expected to include a provision that would require issuers to secure "100%+α" of the outstanding amount of issued stablecoins in safe assets and to keep these assets segregated and deposited 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 a large-scale redemption demand, a so-called "coin run," occurs in a crisis, the crucial issue will not be whether reserves have simply been accumulated, but whether there is a system that can continuously confirm and verify the actual existence of the assets and their immediate convertibility into cash.

International standards point in the same direction. In its 2023 recommendations, the International Organization of Securities Commissions (IOSCO) stipulated that regulators must have sufficient access to information and appropriate mechanisms to continuously supervise the activities of virtual asset service providers and their customer asset protection frameworks. This means that relying solely on the issuer's voluntary disclosures or self-reporting has limits in maintaining trust, and that both the market and regulators 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 regulation 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 provides a legally designed asset structure that can be converted into cash immediately in times of crisis.

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

From an operational perspective, redemption mechanisms and real-time verification systems are cited as the core of trust. One proposal under consideration is to introduce "Proof of Reserves (PoR)" technology, which links on-chain issuance on the blockchain with off-chain (ledger-based) reserve assets in real time. 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, a U.S. issuer of a U.S. dollar-pegged stablecoin, are also seen as a useful reference. Circle entrusts a significant portion of its reserve assets to BlackRock, the world's largest asset management company. BlackRock manages a Circle-only 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) daily to indicate the size of the assets. It is meaningful in that reserve assets are managed and disclosed within the traditional financial regulatory framework, allowing market participants to cross-check the information.

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

The tasks revealed by the Bithumb mispayment incident... Mandatory dual segregation of ledgers and wallets

If reserve asset regulation is an external prudential issue, internal control is another pillar that determines structural stability. The recent Bitcoin mispayment incident at the virtual asset exchange Bithumb is cited as a case that exposed the vulnerability of internal controls. The incident occurred when an input error in the process of paying out Bitcoin to users led to an excessive amount being transferred. The problem, observers note, was that the internal control system did not function adequately, resulting in a lack of consistency between ledger balances and on-chain wallet holdings.

This has prompted calls to address the limitations of the current rules. Article 7 of the current Act on the Protection of Virtual Asset Users requires the segregation of business assets and user assets, but the focus is on segregation at the ledger level. Because there is no explicit statutory requirement for the physical segregation of wallet addresses on the blockchain, exchanges have no choice but to rely on voluntary guidelines, which is seen as a structural limitation.

Accordingly, there are calls to clearly stipulate in law a dual safeguard of "ledger-level segregation plus wallet-level segregation." The idea is that if companies are legally required to manage separate wallets on the blockchain for corporate assets and customer assets, the on-chain commingling of proprietary funds and customer funds can be structurally blocked.

The European Union's Markets in Crypto-Assets Regulation (MiCA) codifies in law the duty of segregation by requiring that customer assets be distinguishable and identifiable from the service provider's own assets and from those of other customers, and that they be protected from the claims of other creditors in the event of bankruptcy. While it does not directly mandate the segregation of wallet addresses, it regulates the sector by clarifying the legal ownership of customer assets and strengthening the responsibilities of service providers, making it a useful reference.

An official from the financial sector said, "As stablecoins that perform payment and settlement functions expand into the realm of financial infrastructure, the core task of the second-phase legislation must be to design a system under which customer assets cannot be structurally infringed upon."

This content was produced with the assistance of AI translation services.