South Korea is on the verge of finalizing long-awaited legislation to regulate stablecoins, as authorities debate who should oversee digital tokens pegged to the Korean won. The Financial Services Commission (FSC) plans to submit a government-backed bill by the end of 2025. This legislation will join five other stablecoin proposals currently under review in the National Assembly, each introduced by individual lawmakers.
At the same time, the Bank of Korea (BOK) is asserting its role in the regulatory framework. Following the release of its stablecoin whitepaper on October 27, the central bank emphasized that “currency functions on trust rather than technology” and is advocating for a role in licensing and monitoring the new digital assets.
Legislative Chaos and Competing Visions
South Korea’s stablecoin policy landscape has been muddled by competing legislative proposals. Most bills currently in the National Assembly envision a licensing regime for private stablecoin issuers, according to Sejin Kim, a fintech policy analyst at the Information Technology and Innovation Foundation. Meanwhile, the central bank favors bank-led issuance, citing concerns over financial stability.
The FSC, for its part, considers stablecoins part of the virtual asset market and believes that licensing, exchange oversight, and custody supervision should remain under its jurisdiction. However, none of the current bills fully align with the preferences of either the FSC or the BOK, said Jeonghwan JK Kim, an attorney specializing in digital assets at Architect Legal Advisory.
The Kimchi Premium Extends to Stablecoins
President Jae-Myung Lee, recently elected, has expressed concerns over South Korea’s heavy reliance on USD-backed assets. Stablecoins pegged to the U.S. dollar, such as USDC and USDT, dominate the Korean crypto market. According to the BOK, trading volumes of USD stablecoins reached 56.95 trillion won ($41.6 billion) in the first quarter of 2025—a threefold increase from 17.06 trillion won in the third quarter of 2024.
However, Korean investors are paying a premium for these stablecoins compared to prices abroad. This so-called “kimchi premium” stems from high local demand and capital restrictions that complicate moving money in and out of the country. The phenomenon was first observed during the 2017 Bitcoin bull run and has now spread to stablecoins.
A Pro-Crypto Agenda
President Lee has signaled his ambition to transform South Korea into a digital asset hub. During his campaign, he proposed creating a won-pegged stablecoin market and allowing domestic companies to issue stablecoins.
Sejin Kim believes, however, that the ongoing debate is missing the bigger picture. According to her, regulators are too focused on licensing authority and the potential for stablecoins to spur new industries, rather than on practical use cases. Stablecoins function primarily as high-volume settlement systems with thin profit margins. Korea’s success in stablecoins will depend on managing distribution costs and fostering surrounding industries.
“Licensing follows after the design principles are formed,” Kim explained. “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 (STOs), international remittances, and cross-border B2B settlement. ETFs act as the investment pipe, and stablecoins act as the settlement pipe. Korea can only capture global capital flows if both pipes move together.”
Central Bank Caution
The BOK continues to advocate for a bank-led issuance model for won-pegged stablecoins. Its whitepaper highlights several risks, including depegging, mass redemptions, and potential violations of foreign exchange regulations that could trigger capital flight and exchange rate volatility.
BOK Governor Chang-yong Rhee warned that won-pegged stablecoins could bypass foreign exchange rules, potentially increasing volatility in capital outflows. Finance experts, including Jaewon Choi of Seoul National University, support this measured approach, noting that even the most liquid USD stablecoins carry depegging risks.
“The won does not have the same global liquidity profile as the USD, so Korea needs to carefully evaluate the economic effects of introducing won-pegged stablecoins at scale,” Kim added.
Early Won-Pegged Stablecoins
Despite the regulatory uncertainty, some won-pegged stablecoins have already been announced. Blockchain developer IQ AI and Frax Finance unveiled the KRWX stablecoin on October 30, designed for multi-blockchain and cross-border use. However, it remains at the proof-of-concept stage and is not yet available to South Korean residents.
Busan Digital Asset Custody Services launched KRW1 in September as Korea’s first stablecoin, aimed at institutional use, cross-border remittances, and emergency aid distribution. The token is still in pilot mode pending final stablecoin regulations.
Balancing Control and Innovation
South Korea is moving toward a split regulatory model, with the central bank overseeing reserves and settlement while the FSC manages licensing and exchanges. While not yet formally agreed, this dual-oversight approach suggests the first stablecoins are likely to come from bank-led consortia rather than tech startups.
“This approach makes Korea’s stablecoins less experimental but more durable,” noted Jeonghwan JK Kim. Both regulators agree that stablecoins should be introduced gradually as institutionally anchored assets to ensure stability and trust.
As South Korea finalizes its regulatory framework, the country could become a model for balancing innovation and financial security in the rapidly evolving stablecoin landscape.
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