The technical dilemma behind "51% control": Analyzing the hybrid architecture design of central bank digital currencies and private stablecoins

South Korea’s financial authorities’ regulatory requirement that stablecoin issuers must be “51% owned by a bank” appears on the surface to be a dispute over equity and innovation rights, but at its core, it is a severe challenge in blockchain engineering. In traditional finance, 51% ownership implies absolute control by the board of directors, signing authority for audit reports, and the final veto over fund flows. However, mapping these abstract controls onto a decentralized, globally operated, and code-automated stablecoin system creates a gray area. This is far from a simple compliance step; it touches on the fundamental conflict between blockchain-native finance and traditional finance: how to embed a “safety switch” that complies with real-world laws and sovereignty requirements while maintaining blockchain transparency, openness, and composability. We will technically deconstruct the core dimensions that “51% control” might correspond to and propose a modular hybrid architecture design based on this. Our goal is not to judge policy merits but to answer a constructive question: if these are the rules, how can we implement them with the most elegant code?

Deconstructing Legal Terms: From Equity Control to On-Chain Permission Mapping

The “control” in regulatory requirements must be translated into privileged access to key system functions in technical implementation. This primarily maps to three core capabilities. First is the one-way switch for minting and burning, which is the cornerstone of monetary sovereignty. In times of crisis, regulators must have the ability to immediately and unilaterally suspend minting and redemption of stablecoins to stabilize the financial system. Technically, this requires a “pause module” controlled by regulators or a banking alliance, triggered by an independent private key. The invocation of this module must surpass regular multi-signature governance processes to enable response within seconds. Second is the custody and audit rights of reserves; the core of 51% is to ensure each stablecoin is backed by sufficient, high-quality Korean won assets. This demands a system capable of real-time, verifiable, and fraud-resistant reserve proof. The technical challenge is how to allow third parties to continuously verify that the total balance of the custody account is greater than or equal to the total issued stablecoins without exposing the full details of the bank’s balance sheet. Lastly, the veto rights for system upgrades and parameter adjustments—such as fee rates, supported collateral types, and compliance address lists—must evolve with the times. The bank alliance’s “control” must be reflected in governance veto rights over these changes, requiring a layered governance module ensuring that any proposals involving risk models or fundamental compliance changes must obtain the bank alliance’s final signature to take effect.

Designing a Three-Layer Architecture: Seeking Balance in Isolation

Based on the above deconstruction, a three-layer hybrid architecture called “Regulatory Layer - Operation Layer - User Layer” can be proposed. The core idea is to separate concerns, isolating sovereignty control, market operation, and user interaction at the logical and contract levels. The regulatory layer consists of a series of minimal, highly secure smart contracts holding “sovereign keys” controlled by the banking alliance or central bank. This layer includes only two core functions: a global pause switch and final governance veto. These contracts should be designed to minimize upgrades and could even be deployed on permissioned chains or national-level blockchain nodes to maximize control and security isolation. The operation layer is the system’s engine, operated by a tech company or a financial institution alliance. It contains the main business logic: handling user minting and redemption requests, managing multi-signature reserve wallets, running reserve proof algorithms, and maintaining compliance filter lists. This layer operates independently when the regulatory layer has not triggered a pause, fully reflecting market efficiency and innovation. The user layer is the stablecoin itself, as a standard ERC-20 or similar token, freely circulating on public blockchains, enjoying full composability, and seamlessly integrating with various decentralized finance protocols. The minting and burning permissions of the user layer are entirely controlled by the operation layer contracts under the authorization of the regulatory layer. The key to this architecture is that the regulatory layer’s keys can freeze the core contracts of the operation layer at any time but cannot directly misappropriate user assets. Meanwhile, innovations in the operation layer will not threaten the sovereignty control bottom line, achieving a “sandbox freedom” through technical means.

Overcoming Core Challenges: Technical Implementation and Necessary Trade-offs

Implementing this architecture requires overcoming several specific technical hurdles. The “non-intrusive” verification of reserve proofs is the primary challenge. To meet bank confidentiality requirements, a “third-party audit node with zero-knowledge proofs” scheme can be adopted. Audit nodes periodically obtain encrypted balance snapshots from banks and generate a zero-knowledge proof asserting that the total reserve balance at a specific time is greater than or equal to the total supply of on-chain stablecoins. This proof is published on-chain, allowing anyone to verify its authenticity without knowing the specific balances, balancing transparency and privacy. Layered multi-signature and emergency access controls are equally critical. The operation layer manages reserve multi-signature wallets, but the regulatory layer holds a special “escape key.” This key cannot directly transfer assets but can initiate a “return of assets” proposal with a time lock, transferring all reserves to a designated bankruptcy management address. This provides an orderly liquidation path for extreme risks, avoiding immediate disaster caused by private key leakage. On-chain and off-chain collaboration for compliance transaction filtering is also essential. Every stablecoin transfer is checked by the compliance engine in the operation layer to see if the sender and receiver addresses are on the sanctions list. The entire list is not published on-chain to protect privacy and avoid censorship disputes but is verified through proofs provided by compliance nodes. Transactions must include this proof to succeed, enabling automated compliance enforcement. These designs inevitably involve trade-offs: higher security and compliance assurance mean more complex systems, higher transaction costs, and some degree of centralization. However, these are necessary “tickets” for mainstream capital and regulators to trust and enter the blockchain world.

Architecture as Diplomacy—Defining a New Era of Financial Relations in Code

South Korea’s “51%” controversy is essentially a search for a technical interface between the old and new financial systems. Our designed hybrid architecture is precisely a coded financial diplomacy protocol. It does not attempt to conceal or eliminate the tension between centralization and decentralization but transforms this tension into predictable and auditable system features through clear module boundaries and permission definitions. Ultimately, the value of this technical implementation transcends meeting a single regulatory requirement. It provides a feasible technical blueprint for central banks and traditional financial institutions worldwide that are watching, demonstrating how to embrace blockchain’s efficiency and innovation without abandoning core financial stability responsibilities. When regulators can be assured of system security through cryptographic proofs rather than vague promises, true openness and large-scale adoption will arrive. Therefore, solving the technical dilemma of “control” is not only about breaking the legislative deadlock in Korea but also laying a critical cornerstone for the next-generation global financial infrastructure.