South Korea said it is close to finalizing its long-awaited stablecoin legislation, as the central bank and financial regulator jostle over who should police digital tokens pegged to the won.
The Financial Services Commission (FSC) plans to submit a government sponsored bill by the end of 2025. It will join five other competing stablecoin bills under review in the National Assembly which have been submitted by individual lawmakers.
Meanwhile, the Bank of Korea (BOK), which released a stablecoin whitepaper on October 27, stressed that “currency functions on trust rather than technology,” and is also seeking a role in licensing and monitoring.
Legislative chaos
Competing proposals have muddled the stablecoin policy landscape.
“Most of the bills in the National Assembly envision a licensing regime for private stablecoin issuers,” said Sejin Kim, a fintech policy analyst at the Information Technology and Innovation Foundation.
“The central bank, on the other hand, wants to keep issuance in the hands of banks over concerns about financial stability.”
The FSC views stablecoins as part of the virtual asset market and maintains that licensing, exchange oversight, and custody supervision should remain within its jurisdiction.
While all the bills share the same overarching objective none of them fully align with either the FSC’s or the BOK’s preferred model, explained Jeonghwan JK Kim, an attorney specializing in digital assets at Architect Legal Advisory.
The kimchi premium spreads to stablecoins
The newly elected President Jae-Myung Lee expressed concerns that South Koreans are too reliant on USD backed assets.
USD pegged stablecoins USDC and USDT dominate Korea’s crypto market. According to the BOK, the total trading volume of USD pegged stablecoins reached 56.95 trillion won ($41.6 billion) in the first quarter of 2025, marking a threefold increase from 17.06 trillion won in the third quarter of 2024.
But Korean investors are paying more for USDT and USDC than investors abroad. The price gap, referred to as the “kimchi premium,” stems from high user demand and capital restrictions that make it harder for traders to move money in and out of the country.
The price hike was initially observed in the 2017 Bitcoin bull run where prices soared as high as 30% and has now spread to stablecoins.
Pro-crypto president
President Lee pledged to transform the country into a digital asset hub. His election campaign included proposals to establish a Korean won pegged stablecoin market, and allow domestic companies to issue stablecoins.
Sejin Kim believes the stablecoin debate has the wrong priorities. She said the FSC and BOK are too focused on licensing authority and the idea that stablecoins are the key to unlocking new growth industries.
She stressed that stablecoins work as a high volume settlement system with razor thin profit margins. The success of Korea’s stablecoin ecosystem depends on how distribution costs are managed and whether surrounding industries grow around it.
“Licensing follows after the design principles are formed,” she said. “For a won pegged stablecoin to function in Korea’s real economy, it must be designed alongside actual use cases such as spot ETFs, tokenized securities (STO), international remittances, and cross-border B2B settlement. ETFs act as the investment pipe. Stablecoins act as the settlement pipe. Korea can only capture global capital flows if both pipes move together.”
Central bank caution
The BOK insists that the issuance of won stablecoins should be bank-led. In its stablecoin whitepaper, the BOK outlined several risk factors, such as depegging where the coin loses its one-on-one value with fiat currency, mass redemptions, as well as foreign exchange violations and capital flight.
BOK Governor Chang-yong Rhee said that the issuance of won pegged stablecoin could act as a bypass for foreign exchange regulations, potentially increasing capital outflow and exchange rate volatility.
Jaewon Choi, professor of finance at Seoul National University, agrees with the BOK’s measured approach. While USD stablecoins are traded at high volumes in Korea, he is uncertain whether a won-denominated stablecoin will gain traction.
“I think the Bank of Korea’s concerns are legitimate. Of course, we can’t predict whether a stablecoin will collapse until it happens. But given that the most liquid USD stablecoins have a risk of depegging, it is not surprising that the BOK suspects that won denominated stablecoins carry the same risk.”
Sejin Kim, fintech policy analyst at the Information Technology and Innovation Foundation stressed that the Korean won cannot be compared to the dominant USD stablecoins.
“The won does not have the same global liquidity profile, so Korea needs to carefully evaluate the economic effects of introducing won pegged stablecoins at scale.”
Jeonghwan JK Kim of Architect Legal Advisory said Korea’s regulatory philosophy remains rooted in a “positive-list” model, where only activities explicitly approved by authorities are allowed.
“Initial coin offerings are a prime example of this because they are not formally banned, but they have never launched in practice because of regulatory pressure,” he said.
It’s a legacy that makes it difficult for Korea to adopt a market-driven, innovation-first framework like the U.S. Genius Act.
Two issuers, one coin
Korean won pegged stablecoin issuers are waiting in the wings for legislation to be finalized. Blockchain developer IQ AI and Frax Finance announced the launch of the KRWX stablecoin on October 30. The coin was built for multi-blockchain and cross-border use. It is still at the proof-of-concept stage and not yet available to South Korean residents
KRW1, launched by Busan Digital Asset Custody Services in September, is officially South Korea’s first stablecoin. It was designed around Korea’s regulations and with institutional transactions in mind. In particular, cross-border remittances, emergency aid distribution, and institutional finance applications. The token remains in pilot mode until national stablecoins rules are finalized.
Control versus innovation
South Korea is leaning towards splitting duties, with the central bank managing reserves and settlement, and the FSC oversees licensing and exchanges, said Jeonghwan JK Kim.
“It’s not yet a formal agreement, but the bills assume some form of shared responsibility.”
He said it’s likely that the first stablecoins will come from bank-led consortia rather than tech startups.
“Both regulators share a common recognition that stablecoins should be introduced gradually and should function as a safe, institutionally anchored asset.”
This kind of a model would make Korea’s version of stablecoins less experimental but more durable.
