South Korea accelerates stablecoin framework amid global race

Just one week after electing President Lee Jae-myung, an apparent backer of stablecoin adoption, South Korea is swiftly moving to clear the path for local currency-denominated stablecoins.

On Tuesday, Lee’s ruling Democratic Party proposed a bill dubbed the Digital Asset Basic Act, aimed at promoting the country’s digital asset industry under legal frameworks for better transparency and fair competition.

Under the act, Korean companies with at least 500 million won ($363,768) in equity capital will be allowed to issue stablecoins pegged to the Korean won while ensuring that refunds are guaranteed through reserves.

The act is also designed to stipulate that asset-linked digital assets, including stablecoins, must be approved by the Financial Services Commission (FSC), according to a text of the act released by the ruling party.

The bill comes as Asia’s fourth-largest economy has grown into one of the world’s most vibrant crypto markets, with about one-fifth of the country’s population trading digital assets as of end-2024, according to the Financial Supervisory Service’s deposit data of Korean crypto exchanges.

In the first three months of this year, US dollar-pegged stablecoin trading in the country already hit 57 trillion won, according to the Bank of Korea.

US dollar-denominated stablecoins, such as USDT, USDC and USDS, were the main digital coins traded on Korea’s top five crypto exchanges: Upbit, Bithumb, Coinone, Korbit and Gopax. 

This is a significant volume that underscores the growing prominence of stablecoins in domestic digital asset markets and prompting regulatory scrutiny, said industry observers.

Last July, the country introduced the Digital Asset User Protection Act, primarily aimed at protecting crypto investors. 

ACTIVE TRADING, SLOW LEGITIMACY

A stablecoin is a cryptocurrency in which the value of the digital asset is linked to a reference asset like the US dollar, fiat money, exchange-traded commodities such as precious metals or industrial metals, or another cryptocurrency.

Despite the active trading in the country’s crypto market, Korea is lagging behind other countries in placing the market under regulatory oversight.

The US is set to establish a regulatory framework for stablecoins through legislation soon, while Japan and the European Union are also moving fast to legitimize stablecoin adoption, said Min Byeong-deok, a lawmaker of the Democratic Party and the lead sponsor of the bill.

“Digital assets are not unconventional means requiring more validation anymore,” said Min. “Korea, however, lacks a comprehensive and systematic legislation to regulate this market.”

The bill comes just a week after the election of Lee as Korea’s new president. He has been known as a staunch advocate for digital assets alongside traditional financial assets such as stocks.

The new presidential office has appointed Kim Yong-beom, chief executive officer of Hashed Open Research, a Seoul-based think-tank on blockchain technology-driven technological development and social change, as chief of staff for policy. Kim has been a long-time advocate of digital tokens.

Kim’s appointment comes as the latest bill proposes the establishment of the so-called Digital Asset Committee under the direct control of the president to support digital asset industry policies systematically.

In response to the growing call for regulatory frameworks for legitimate digital asset trading in Korea, the country’s FSC is also preparing related rules to propose a bill in the second half of this year.

Against the backdrop of the latest development in the country’s crypto industry, the Bank of Korea has come under pressure to reconsider its stance on won-denominated stablecoins.

Last month, BoK Governor Rhee Chang-yong voiced concerns against the issuance of won-pegged stablecoins by non-bank entities, warning they could significantly undermine the efficacy of monetary policy.

He argued that the central bank should take the lead in regulating any won-pegged stablecoins.

Write to Mi-Hyun Jo and Hyeong-Gyo Seo at mwise@hankyung.com

Sookyung Seo edited this article.