Is South Korea the next model for cryptocurrencies? The game and ambition behind the legalization of stablecoins

Written by: Ethan (@ethanzhang_web3)

On June 10, South Korea's ruling Democratic Party, under the leadership of new President Lee Jae-myung, formally proposed a draft "Digital Asset Basic Law", which intends to allow qualified local companies to issue stablecoins.

The bill clearly stipulates that companies with a registered capital of not less than 500 million won (about 368,000 US dollars) and full reserves can legally apply to issue stablecoins anchored to the Korean won. This move marks that South Korea may become the first major economy in Asia to officially allow the issuance of non-bank stablecoins, and also lays the foundation for its "institutional repositioning" on the global crypto map. At the same time, the market responded quickly: KakaoPay's stock price rose by 18%, setting the largest single-day increase since the beginning of 2024; and local head exchange platforms such as Upbit and Bithumb are also generally regarded as potential beneficiaries.

However, from a broader policy and industry perspective, is South Korea's move creating the next "crypto-friendly country model"?

What has South Korea done so far regarding crypto?

Legalization of stablecoins: from institutional deficiency to regulatory dominance

The current global stablecoin market is still dominated by dollar-pegged products, especially USDT and USDC.

According to data from the Bank of Korea, in the first quarter of 2025 alone, the transaction volume of US dollar stablecoins on South Korea's five major mainstream exchanges (such as Upbit and Bithumb) reached 57 trillion won, of which US dollar stablecoins accounted for more than 80%.

For a long time, this structure has met the demand for transaction liquidity on the one hand, and has also caused monetary sovereignty,SafetySystemic concerns such as compliance and foreign exchange outflows.

Therefore, the launch of the "Digital Asset Basic Law" is seen as the "opening shot" for Lee Jae-myung to fulfill his campaign promise.

Its core intention is not to support the project in the short term, but to try to reduce dependence on US dollar stablecoins such as USDT/USDC through the local currency stablecoin system and realize the return of financial sovereignty.

This is not only a regulatory adjustment, but also a sovereign digitalization strategy for the local currency.

ETF, pension, and supervision trinity: forming an institutional moat

In Lee Jae-myung’s policy vision, stablecoins are not isolated tools, but a combination of financial tools that are promoted together with ETFs, pensions, and national regulatory systems:

1. Promote the implementation of BTC/ETH spot ETF;

2. Allowing the $884 billion national pension fund to allocate crypto assets;

3. Establishment of the Digital Asset Regulatory Authority.

These measures all point to a core logic: incorporating crypto assets into the national financial governance system and completing the transformation of "asset formalization". In his view, "legality + security + sustainability" is the basis for crypto assets to enter the national financial system.

Regulatory attitude shifts: the central bank cautiously accepts, and the division of labor in payment emerges

Although South Korea’s central bank governor Chang-yong Lee has publicly expressed concerns that “the issuance of stablecoins by non-bank institutions may impact monetary policy regulation,” his latest statement shows that his attitude is softening: “The South Korean central bank will work with relevant institutions to develop a unified regulatory framework and prevent it from being used to circumvent foreign exchange controls.”

More noteworthy is that the Bank of Korea has participated in the BIS-led Agorá project (CBDC and tokenized bank deposit pilot program), indicating that its strategic understanding of new financial infrastructure is undergoing a structural shift.

It is foreseeable that the institutional division of labor of "stable currency issuance belongs to FSC, and monetary regulation belongs to the central bank" is taking shape. I believe that this kind of regulatory coordination may become a blueprint for other countries to learn from.

Another thing that needs to be guarded against is that the "Kimchi Premium" may hide inflated liquidity and systemic risks. At the same time, in the context of overlapping regulatory powers, stablecoins still need to cross multiple thresholds from "central bank coordination", "foreign exchange review", "anti-money laundering prevention and control" from proposal to implementation.

Why might South Korea stand out?

Hong Kong, Singapore, Dubai, etc. While the world is competing to become a crypto hub, South Korea is exploring another path as a "financial power":

First of all, South Korea has its own background - the dual-wheel drive of user native and institutional innovation:

The large retail user base provides market depth for entrepreneurs, while the new government's policy support lowers the entry barrier and promotes innovation. This dual advantage gives South Korea an advantage in retail-driven crypto businesses (such as trading platforms and stablecoin projects).

Secondly, after the pro-cryptocurrency President Lee Jae-myung came to power, the green light policy dividends may reshape the market landscape:

The legalization of stablecoins is just the beginning. If the ETF is released, pension funds enter the market, and the regulatory mechanism is unified, South Korea will be expected to become "the first economy in Asia to truly write encryption into the national financial backbone." In addition, South Korea's leading exchanges (such as Upbit and Bithumb) can further consolidate their position under the policy dividend. At the same time, the implementation of the new policy may attract more domestic and foreign companies to settle in, thereby promoting South Korea to become a core node in the Asian encryption industry.

In comparison, although Hong Kong and Singapore are one step ahead, South Korea has more explosive potential in terms of retail market and policy flexibility.

User native provides a market foundation for entrepreneurs in South Korea, while institutional innovation creates development opportunities through policy support. In the context of fierce competition among countries for crypto status and geopolitical reshaping, South Korea is expected to stand out from the pioneers with this combination of punches and become a key player in the global crypto industry.

But this process will not be smooth sailing - the tension between technological innovation and central bank control, and between retail speculation and regulatory responsibility, determines that South Korea's crypto policy still needs to find a new balance between "regulation-market".

The next stop is institutional consensus, not policy carnival.

Enthusiasm and anxiety

Many parties are looking forward to the benefits of the institutionalization of stablecoins

South Korea leads the world in digital asset participation, with about 1/3 of the population (18 million people) being crypto investors, and even the total crypto asset trading volume in South Korea once surpassing the total of South Korea's KOSPI/KOSDAQ. According to data from the Financial Intelligence Service (FIU) of South Korea, 78% of high-net-worth cryptocurrency holders are over 40 years old, and the holdings of middle-aged and elderly investors are increasing significantly, and asset allocation tendencies are also changing.

For this group of users, the legalization of stablecoins will bring: lower transaction costs (reducing the exchange/transfer links); higher certainty of local currency transactions (avoiding exchange rate fluctuations); and clearer tax and declaration paths.

For local financial technology platforms such as KakaoPay and Naver Pay, the issuance of stablecoins means new product expansion paths and the possibility of building user stickiness. The market generally expects these technology companies to be the first to apply for compliance licenses.

Beware of the "double dislocation" of policy bubbles and asset bubbles

While the industry warmly welcomed the policy, analysts also expressed caution.

The JPMorgan report pointed out that the short-term surge in the share prices of companies such as KakaoPay lacked fundamental support, and the real institutional benefits brought by Lee Jae-myung's policies have not yet been realized;

Some South Korean economists have warned that the legalization of stablecoins should also introduce multi-dimensional safeguards such as "reserve information disclosure", "cross-border audit mechanism", and "KYC mandatory interface" to avoid becoming a new hotbed for speculation.

Another old sore is that all this happened less than three years after Terra's Luna debacle.

Conclusion: Institutional dividends are not short-term benefits, but long-term competitiveness

The signal of the legalization of stablecoins in South Korea is by no means an isolated move. Behind it is the deep logical transformation of digital assets from marginal to regulatory and from capital tools to financial infrastructure.

Compared with the policy vacuum and gray growth in the past, South Korea today is entering a "nationalized regulatory-led cycle" - neither a Web3 free utopia nor a high-pressure blocking path, but a localized experiment in institutional compatibility.

In the next three years, the policy driving force of the crypto industry will most likely no longer come from the United States or Hong Kong, but rather from who can take the lead in establishing a "dynamic balance between regulation and the market" in terms of local currency stablecoins, ETF systems, and compliant pension mechanisms.

South Korea may be at the forefront of this new journey.

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