South Korean consortium completes digital local currency pilot on Kaia blockchain

A South Korean blockchain consortium has completed a proof of concept demonstrating blockchain-based digital local currency payments and settlements can be processed within one second and achieve a 100% transaction success rate.

According to Korean news agency Newsisthe K-STAR consortium and BNK Busan Bank have completed a proof of concept (PoC) to test whether a blockchain-powered digital version of South Korea’s local currency system can work in a real banking environment.

The trial covered the entire payment cycle, from issuing currency to loading funds into digital wallets, to customer payments and merchant settlements.

The consortium included BNK Busan Bank, AhnLab Blockchain Company, OpenAsset, Kaia, and Lambda256. Within this project, BNK Busan Bank designed a policy-based local currency model based on the country’s existing local currency framework, validating charge, payment, and settlement functions.

AhnLab Blockchain Company developed the project architecture, digital wallet, and transaction infrastructure, and OpenAsset managed stablecoin issuance and asset consistency. Kaia provided the blockchain mainnet environment, while Lambda256 handled node operations and monitored transaction activity.

Policy controls built into digital money

Rather than testing simple blockchain transfers, the PoC focused on programmable digital money that can convey policy conditions. According to Newsisthe system allowed issuers to limit spending to approved merchants, automatically expire unspent balances after a predefined period, and apply different payment rules depending on merchant category.

Performance tests were also part of the exercise. The consortium evaluated the system under a mix of normal traffic conditions, congestion, maximum load, and irregular conditions, alongside 24-hour continuous operation, using a transaction load modeled after BNK Busan Bank’s payment operations. According to K-STAR, payment processing took less than one second throughout the testing period, and all transactions were completed successfully.

The consortium said the same technology could later support applications for government subsidies, digital vouchers, central bank digital currency (CBDC) services, and stablecoins backed by the Korean won.

Stablecoin development accelerates

The latest court case comes as South Korea’s financial sector continues to expand experimentation with blockchain payments ahead of a new digital asset law.

Last year, Upbit operator Dunamu confirmed it would collaborate with Naver Pay on a Korean won stablecoin initiative after Naver Pay announced it would lead an industry consortium to develop the project.

The partnership is in line with President Lee Jae-myung’s June 29 pledge to allow companies to issue won-backed stablecoins, with several major domestic banks also launching their own stablecoin partnerships.

The K-STAR consortium initiative is also a similar pilot across the Korean banking industry. In May of this year, KB Financial Group completed a proof of concept for a Won-denominated stablecoin using Kaia and OpenAsset infrastructure to test retail payments, merchant payments, and cross-border remittances.

In early April, as financial institutions prepare for the country’s evolving digital asset framework, Shinhan Card partnered with Solana Foundation to evaluate stablecoin payments on blockchain infrastructure, including non-custodial wallets and retail payment scenarios.