Uncertainty Looms as South Korea Finalizes Bill for Stablecoin Oversight

TLDR

• South Korea’s FSC finalizing stablecoin regulation bill by end of 2025.
• FSC and BOK in disagreement over who should oversee stablecoin issuance.
• Bank of Korea stresses risks of private stablecoins to financial stability.
• President Jae-Myung Lee supports Korean won-pegged stablecoin market.
• KRWX and KRW1 are South Korea’s first stablecoin initiatives.

South Korea’s Financial Services Commission (FSC) is close to finalizing a bill to regulate stablecoins. The bill will be presented to the National Assembly by the end of 2025. However, the issue remains complicated as South Korea’s central bank, the Bank of Korea (BOK), and the FSC clash over jurisdiction.

The FSC’s draft bill joins five other proposals under review by the National Assembly. The competition over who should regulate stablecoins, pegged to the South Korean won, is intensifying. The FSC aims to keep stablecoin regulation under its domain, while the BOK advocates for a central role in licensing and monitoring.

South Korea’s Stablecoin Regulation Sparks Dispute

The FSC believes stablecoins should fall under the virtual asset market’s purview. This means stablecoins would be subject to licensing, exchange oversight, and custody supervision by the FSC. Sejin Kim, a fintech policy analyst at the Information Technology and Innovation Foundation, explained, “Most bills envision a licensing regime for private stablecoin issuers.”

Meanwhile, the BOK wants to retain issuance powers for banks. It argues that the risk of financial instability is higher if stablecoins are issued by private companies. The central bank’s stance is that financial stability is crucial, especially with the growing volume of stablecoins traded in South Korea.

Both sides are concerned about the potential risks posed by the new digital asset. The BOK’s stance is that stablecoins could undermine foreign exchange regulations and increase capital outflows. This concern stems from the fact that USD-pegged stablecoins like USDC and USDT dominate South Korea’s crypto market.

USD-pegged stablecoins are widespread in South Korea, making up a large portion of the crypto market. In the first quarter of 2025, the total trading volume of these stablecoins reached 56.95 trillion won. This marks a dramatic increase from the previous quarter’s 17.06 trillion won, according to the BOK.

The price of USD-pegged stablecoins in South Korea is higher than in other markets. This is due to high demand and capital restrictions that make moving money in and out of the country difficult. The so-called “kimchi premium” has been observed since the 2017 Bitcoin bull run, and it now affects stablecoins as well.

South Korea’s President, Jae-Myung Lee, has expressed interest in creating a Korean won-pegged stablecoin market. During his election campaign, Lee pledged to reduce the country’s reliance on USD-backed assets. He proposed that South Korean firms should be allowed to issue stablecoins to drive domestic innovation in the sector.

Regulatory Framework and Bank-led Issuance Debate

South Korea’s regulatory framework on stablecoins continues to evolve, with different proposals on the table. The BOK remains adamant that any won-pegged stablecoin should be issued by banks. The central bank’s stablecoin whitepaper raised concerns about depegging risks, capital flight, and foreign exchange violations.

BOK Governor Chang-yong Rhee emphasized the potential risks to South Korea’s economy. He noted that private stablecoin issuers could bypass foreign exchange regulations, increasing capital outflows. According to Jaewon Choi, a finance professor at Seoul National University, the BOK’s cautious approach is justified.

Stablecoins pegged to the won may not have the same global liquidity as USD-pegged tokens. Sejin Kim pointed out that the won lacks the international liquidity profile of the US dollar. South Korea must evaluate the economic impact of introducing a won-pegged stablecoin at a large scale carefully.

Despite regulatory uncertainty, South Korean companies are pressing ahead with stablecoin projects. Blockchain developer IQ AI and Frax Finance announced the launch of KRWX, a stablecoin designed for cross-border use. This coin is still in the proof-of-concept stage and is not yet available to South Korean residents.

In September 2025, Busan Digital Asset Custody Services launched KRW1, South Korea’s first stablecoin. KRW1 is designed for institutional use, particularly in cross-border remittances and emergency aid distribution. This stablecoin remains in pilot mode until the national regulatory framework is finalized.

Regulatory clarity is expected to boost the development of South Korea’s stablecoin ecosystem. While the FSC and BOK continue to push for competing regulatory approaches, the final legislation will shape the future of stablecoin use in the country.

FSC and BOK Likely to Share Oversight Responsibilities

A shared regulatory approach may be the eventual solution. Jeonghwan JK Kim, an attorney specializing in digital assets, suggested that the FSC and BOK could split responsibilities. The FSC would handle licensing and exchange oversight, while the BOK would manage reserves and settlement.

Kim indicated that this shared responsibility would likely lead to a more stable and controlled environment for stablecoins. The initial stablecoins in South Korea are expected to be issued by bank-led consortia rather than tech startups. This model aims to introduce stablecoins gradually, ensuring that they are secure and institutionally backed.

Both the FSC and BOK agree that stablecoins should be introduced cautiously and in a regulated manner. This approach will likely ensure that South Korea’s stablecoins are durable and resistant to risks such as depegging or market instability. The final version of South Korea’s stablecoin legislation will determine how the market develops in the coming years.

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