South Korea Nears Won-Pegged Stablecoin Rules Amid USDT Dominance and Regulator Debate

• South Korea nears stablecoin bill submission by end of 2025, joining multiple assembly proposals.

• Regulatory tension arises as BOK favors bank control, contrasting FSC’s market-focused approach.

• Trading volume of USD-pegged stablecoins hit 56.95 trillion won in Q1 2025, showing market dominance and kimchi premium effects.

South Korea stablecoin legislation advances with FSC and BOK negotiations. Explore risks, proposals, and impacts on won-pegged assets. Stay informed on crypto regulations shaping Asia’s digital finance hub. (152 characters)

What is South Korea’s Stablecoin Legislation?

South Korea’s stablecoin legislation refers to ongoing efforts to create a regulatory framework for digital tokens pegged to the Korean won, addressing issuance, licensing, and oversight amid growth in the virtual asset sector. The Financial Services Commission plans to introduce a government-backed bill by the end of 2025, complementing several assembly-submitted proposals. This initiative responds to surging stablecoin usage while mitigating risks like depegging and capital flows.

How Do Regulatory Disputes Affect Stablecoin Development in South Korea?

The primary dispute centers on authority between the Financial Services Commission, which treats stablecoins as virtual assets under its purview for licensing and exchange supervision, and the Bank of Korea, which advocates for bank-led issuance to safeguard financial stability. Sejin Kim, a fintech policy analyst at the Information Technology and Innovation Foundation, notes that most National Assembly bills propose licensing for private issuers, yet none fully align with either regulator’s vision. Jeonghwan JK Kim, an attorney at Architect Legal Advisory, explains that this misalignment creates legislative chaos, delaying comprehensive rules. Data from the Bank of Korea’s October 27 whitepaper highlights concerns over trust-based currency functions, emphasizing technology’s secondary role. Experts like Jaewon Choi, a finance professor at Seoul National University, support the BOK’s caution, citing depegging risks observed in global USD stablecoins. Overall, these tensions underscore South Korea’s positive-list regulatory model, where only approved activities proceed, potentially hindering innovation compared to more flexible frameworks elsewhere.

Frequently Asked Questions

What Are the Key Proposals in South Korea’s Stablecoin Legislation?

South Korea’s stablecoin legislation includes proposals for a licensing regime targeting private issuers and won-pegged tokens, with the FSC aiming to submit a bill by late 2025. The BOK’s whitepaper stresses bank involvement to manage risks like mass redemptions and foreign exchange violations. These align on objectives but differ in oversight, promoting gradual introduction for stability. (48 words)

Why Is There a Kimchi Premium on Stablecoins in South Korea?

The kimchi premium on stablecoins like USDT and USDC in South Korea arises from high domestic demand and capital controls limiting fund transfers, causing prices to exceed global levels. Bank of Korea data shows USD-pegged stablecoin trading volumes surged to 56.95 trillion won in Q1 2025, three times higher than Q3 2024. This premium, first seen in Bitcoin’s 2017 bull run with up to 30% hikes, now affects stable assets due to similar market dynamics. (72 words)

Key Takeaways

• Regulatory Division of Labor: South Korea may split duties, with the BOK handling reserves and settlement while the FSC manages licensing, fostering a balanced approach to stablecoin oversight.
• Market Dominance of USD Stablecoins: Volumes reached 56.95 trillion won in early 2025, highlighting reliance on foreign-pegged assets and the need for local won alternatives to reduce premiums.
• Innovation with Caution: Bank-led issuance is favored for durability, urging integration with use cases like ETFs and remittances to capture global capital flows effectively.

Conclusion

South Korea’s stablecoin legislation marks a pivotal step in regulating won-pegged digital assets, navigating disputes between the FSC and BOK to ensure financial stability and innovation. With expert insights from figures like Sejin Kim and Jeonghwan JK Kim emphasizing practical design over mere licensing, the framework promises to integrate stablecoins into real-economy applications such as tokenized securities and cross-border settlements. As President Jae-Myung Lee’s pro-crypto agenda unfolds, stakeholders should monitor developments closely to leverage opportunities in Asia’s evolving digital finance landscape.

The Financial Services Commission (FSC) is advancing plans to submit a stablecoin bill by the end of 2025, integrating with six competing proposals in the National Assembly from individual lawmakers. This legislative push addresses the rapid expansion of stablecoins in South Korea’s crypto ecosystem, where virtual assets have become integral to trading and remittances. The Bank of Korea (BOK), through its October 27 stablecoin whitepaper, underscores that currency relies on trust over technology, advocating for its involvement in licensing and surveillance to prevent systemic risks.

Competing bills have created a fragmented policy environment, complicating the path to unified stablecoin regulations. Sejin Kim highlights that assembly proposals largely support licensing for private issuers, diverging from the BOK’s preference for bank-controlled issuance amid stability concerns. The FSC, viewing stablecoins within the broader virtual asset framework, insists on retaining authority over licensing, exchanges, and custody. Jeonghwan JK Kim points out that while shared goals exist, no bill perfectly matches either regulator’s model, prolonging deliberations.

A notable market dynamic is the extension of the kimchi premium to stablecoins, driven by President Jae-Myung Lee’s warnings against overdependence on USD-backed options. USDC and USDT command the Korean market, with BOK figures indicating 56.95 trillion won in Q1 2025 trading volume—a threefold rise from 17.06 trillion won in Q3 2024. This premium, rooted in demand surges and outbound capital restrictions, echoes the 2017 Bitcoin phenomenon where prices exceeded global benchmarks by up to 30%.

Under President Lee’s vision to position South Korea as a digital asset powerhouse, campaign promises include fostering a won-pegged stablecoin market and enabling local issuance. Yet, Sejin Kim critiques the focus on regulatory turf wars, arguing stablecoins function best as efficient, low-margin settlement tools. She advocates designing them around use cases like spot ETFs, security token offerings (STOs), remittances, and business-to-business payments, where stablecoins serve as the settlement layer alongside ETFs for investment inflows. “Licensing follows after the design principles are formed,” she asserts, emphasizing ecosystem growth over isolated permissions.

The BOK maintains a conservative stance, recommending bank-led won stablecoin issuance to counter risks including depegging, rapid redemptions, exchange violations, and capital outflows. Governor Chang-yong Rhee warns that such tokens could circumvent forex rules, heightening volatility. Jaewon Choi concurs, noting uncertainties in won stablecoin adoption given USD counterparts’ liquidity and depegging vulnerabilities. Sejin Kim adds that the won’s limited global profile demands thorough economic impact assessments before scaled introduction.

Jeonghwan JK Kim describes South Korea’s “positive-list” approach, permitting only explicitly sanctioned activities, as a barrier to agile innovation—evident in the stalled initial coin offerings landscape despite no outright bans. This contrasts with more permissive models abroad, underscoring the need for adaptive policies.

Prospective issuers await clarity: IQ AI and Frax Finance unveiled KRWX on October 30 for multi-chain, cross-border applications, though it’s in proof-of-concept and unavailable domestically. Busan Digital Asset Custody Services launched KRW1 in September, tailored for institutional needs like remittances and aid distribution, operating in pilot mode pending national rules.

Emerging consensus suggests divided responsibilities—the BOK on reserves and settlement, the FSC on licensing—potentially yielding bank-consortium stablecoins over startup ventures. Jeonghwan JK Kim observes a mutual emphasis on phased, institutionally secure rollout, prioritizing resilience for long-term viability in South Korea’s controlled yet ambitious crypto arena.