Stablecoin Policy in South Korea Sparks Industry Concern and Debate

TLDR

• Only licensed banks can issue won-backed stablecoins under the new policy.
• Experts say the rule may push blockchain innovation outside South Korea.
• Critics argue the policy favors banks and excludes fintech developers.
• Kaia DLT Chair calls the policy illogical and harmful to open innovation.

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Only banks can issue won-backed stablecoins under South Korea’s new policy. This move is facing growing criticism. Industry experts warn that this approach may push innovation away from South Korea and limit competition. Fintech leaders believe that the current draft gives too much power to banks and cuts off key blockchain players. The backlash suggests tensions between innovation and regulation in the country’s digital finance roadmap.

Policy Restricts Stablecoin Issuance to Banks

The Bank of Korea’s new stablecoin policy restricts the issuance of won-backed stablecoins to licensed banks. The central bank stated this is to maintain market stability and reduce risks from unregulated digital assets. It believes that placing issuance under the control of banks will ensure transparency, consumer protection, and secure reserve backing.

Under the proposal, all issuers must keep full reserves with the central bank. This reserve must match the stablecoin’s value, to maintain a 1:1 peg with the Korean won. The central bank maintains that this rule will prevent misuse of funds and avoid volatility often seen in unregulated stablecoins.

However, many experts say the policy could hurt long-term growth. They argue that the framework favors traditional finance over the open development model used in the crypto and fintech sectors. Critics say this approach may discourage smaller firms from entering the market.

Innovation Concerns Raised by Industry Leaders

Dr. Sangmin Seo, Chair of the Kaia DLT Foundation, called the policy “illogical” and said it weakens innovation in blockchain development. He noted that many of the breakthroughs in digital payments and blockchain use cases have come from startups and decentralized projects.

Dr. Seo warned that giving banks exclusive rights to stablecoin issuance ignores the role of smaller players. “This direction could block out developers who have led blockchain progress for years,” he said. The concerns reflect broader fears that regulatory moves could drive talent and capital out of the country.

Others in the industry agree. They note that blockchain development relies on diversity and open participation, which the policy may restrict. Several market watchers also believe that innovation thrives when multiple entities can experiment and compete.

Risk of Slowing South Korea’s Blockchain Position

South Korea has been known for its strong position in digital technology and fast adoption of blockchain solutions. Experts say that limiting stablecoin issuance could slow this progress. Some fear the country may fall behind others that take a more flexible approach.

Japan, for example, allows both banks and licensed non-bank firms to issue stablecoins under regulation. This model has drawn attention from South Korean stakeholders who prefer a shared role between banks and fintech companies.

Observers also warn that startups may look outside of Korea if domestic regulations become too restrictive. This could lead to a talent drain and missed economic opportunities in the growing digital finance market.

Calls for Balance Between Regulation and Growth

The Bank of Korea has defended its cautious approach, stating that public trust in digital currency must be protected. It said the rules aim to prevent misuse, fraud, and speculative losses.

However, industry groups are calling for more dialogue between the central bank, fintech firms, and blockchain developers. They believe a more open framework would allow growth while still maintaining safety and control.

Discussions are expected to continue in the coming weeks. Stakeholders hope a middle ground can be reached that includes banks but also supports innovation from startups and decentralized projects.

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