South Korea’s stablecoin legislation faces hurdles, with banks and regulators engaged in a tug-of-war, leading to capital outflows and missing the opportunity to become Asia’s crypto hub.
(Background: South Korea plans to restrict major virtual asset exchange shareholders, with Upbit and Bithumb potentially facing significant governance reforms)
(Additional context: South Korea’s stablecoin internal conflict: Central bank and Financial Committee draft battles, Seoul missing the initial launch window)

Table of Contents

• Survival costs under the strictest reserve requirements
• Regulatory vacuum accelerates capital outflow
• Double loss from missed opportunities

When President Lee Jae-myung took office in June, he loudly proclaimed “using Korean won-pegged stablecoins to regain monetary sovereignty,” but as the year-end approaches, the “Digital Asset Basic Law” remains stalled in the National Assembly corridor, and South Korea’s stablecoin blueprint has fallen into deadlock.

The trigger for the legal delay is who controls the minting rights. The Bank of Korea proposed a “51% majority share” threshold, requiring stablecoin issuers to be bank-controlled entities to ensure anti-money laundering and financial stability. The Financial Services Commission opposes bank monopolies, advocating that tech companies can also issue coins under strict reserve regulations. Neither side yields, preventing the ruling party from passing legislation this year, and legislative progress is frozen.

Survival costs under the strictest reserve requirements

Even if the draft passes next year, it will become one of the strictest versions globally. The text mandates a “100% reserve rule,” requiring issuance to be backed by equivalent bank deposits or government bonds, with third-party banks holding custody and strictly prohibiting interest payments to coin holders. The government also plans to establish digital trade barriers, requiring foreign stablecoins offering payment services to set up domestic branches and undergo local regulation. The official goal is to safeguard financial sovereignty, but high thresholds increase the costs for foreign capital and technology to enter.

Regulatory vacuum accelerates capital outflow

The market won’t wait for bureaucratic negotiations. Due to lack of compliant Korean won stablecoin channels, approximately $115 billion has flowed overseas this year. Blockchain payment projects by tech giants like Kakao and Naver have been forced to pause; traditional banks, uncertain of legal grounds, dare not pilot. News that Terraform Labs founder Do Kwon, sentenced to 15 years in the US, may return to Korea to serve his sentence further reinforces regulators’ attitude of “better slow than wrong.”

Double loss from missed opportunities

The strong dollar brought by the Trump administration has put immense pressure on neighboring economies. South Korea originally had the chance to create new payment infrastructure through Korean won stablecoins, diversifying away from dollar dependence. Now, with legislation delayed at least a year, capital and technology are seeking other markets, and the position as Asia’s crypto hub is gradually slipping away. If the Bank of Korea and the Financial Services Commission cannot coordinate promptly, South Korea may end up in a double loss in the digital financial race.