Korea races to unify crypto rules amid stablecoin standoff

In August 2023, People Power Party lawmaker Kim Sang-hoon proposed a phased approach to won-denominated stablecoin issuance that prioritizes financial stability by initially granting banks majority control under a “50%+1” ownership rule. This strategy envisions banks, subject to stringent oversight, spearheading the issuance phase to mitigate volatility risks commonly associated with unbacked cryptocurrencies, while fintech firms would subsequently join to foster innovation and expand distribution channels. By balancing regulatory caution with technological advancement, Kim's two-track plan aims to cultivate a stable yet dynamic digital asset ecosystem in South Korea.

Despite these legislative efforts, the broader Digital Asset Framework Act has been repeatedly delayed due to unresolved disputes over stablecoin regulation, the central bank’s role, and investor protections, leaving the regulatory environment fragmented and uncertain. Currently, the Financial Services Commission regulates virtual asset service providers under the Specific Financial Information Act, but key aspects of stablecoin governance remain unaddressed, creating significant ambiguity for market participants and contributing to financial strain within the crypto industry.

In response to mounting political pressure and the risk of falling behind global regulatory developments, South Korea's Financial Services Commission (FSC) has accelerated efforts to pass the Digital Asset Framework Act during the fall 2026 legislative session. Spearheaded by FSC Chairman Kim Byoung-hwan and Lee Eog-weon, the government aims to unify up to ten pending digital asset bills into a comprehensive package that prominently features stablecoin regulation. This consolidation seeks to streamline rules governing virtual asset service providers, disclosure obligations, internal controls, and systemic resilience, reflecting a strategic push to enhance market stability and investor protection.

Stablecoin regulation stands at the heart of this legislative acceleration, with detailed provisions under consideration to address issuance eligibility, reserve asset management, and licensing requirements. The Bank of Korea advocates for a bank-led model for won-denominated stablecoins to mitigate risks to payment systems and financial stability, a stance that has shaped months of inter-agency discussions. The forthcoming bill is expected to mandate reserve transparency and disclosure obligations, aiming to bolster systemic stability and consumer confidence amid concerns over the broader monetary policy implications of digital assets.

This intensified legislative push is not only a response to domestic industry concerns over regulatory uncertainty and financial strain but also a deliberate effort to position South Korea as a regional leader in crypto regulation. Democratic Party lawmaker Lee Kang-il's calls for expedited action underscore the political urgency, especially as the U.S. advances clarity through the SEC and CFTC on digital asset oversight. By aligning its framework with international trends and addressing stablecoin risks comprehensively, South Korea aims to create a resilient and transparent digital asset ecosystem that can compete on the global stage.

By mid-2026, South Korea's won stablecoin pilot projects surged with over 19 MOUs and proofs of concept, reflecting a robust industry push despite legislative gridlock. Major players like Coupang and Woori Bank demonstrated real-time settlement using stablecoins that integrate seamlessly with existing card payment networks, while Hyundai Motor and K Bank spearheaded cross-border remittance trials linking local currencies and stablecoins across the US, Mexico, Europe, and Asia. These initiatives underscore the sector's drive to embed blockchain technology pragmatically within current financial infrastructures, aiming to preserve established customer and merchant relationships.

However, the absence of finalized legislation on critical issues such as stablecoin issuer regulation, reserve management, and redemption obligations has cast a long shadow over these advancements, stalling full-scale implementation and intensifying financial strain within the crypto industry. Despite the Virtual Asset User Protection Act addressing user asset safety, the awaited Basic Act on Digital Assets remains stalled since its introduction over a year ago, with 10 related bills languishing without substantive debate. This legislative inertia has prompted industry voices to lament that the government prioritizes tax collection over fostering innovation, especially as plans to tax capital gains on virtual assets loom amid unresolved regulatory frameworks.

Contentious regulatory debates further exacerbate uncertainty, particularly over won-denominated stablecoin issuance, where financial authorities advocate for bank-centric models with stringent AML controls, contrasting with industry calls for broader nonbank participation. Additionally, proposed equity stake caps of 15%-20% for major shareholders in virtual asset exchanges face strong opposition from industry stakeholders who view these limits as infringements on property rights. This regulatory deadlock has contributed to a sharp contraction in South Korea’s virtual asset market, with transaction volumes at major won-market exchanges plummeting 54.6% year-on-year in H1 2023 and operating profits declining by 38% from the first to the second half of last year.