South Korea is on the verge of finalizing its long-awaited stablecoin legislation, with the Financial Services Commission (FSC) planning to submit a government-sponsored bill by the end of 2025. This move comes amid a regulatory tug-of-war between the FSC and the Bank of Korea (BOK) over jurisdiction, with five other competing bills already under review in the National Assembly.
The BOK, which released a stablecoin whitepaper on October 27, advocates for a bank-led issuance model, emphasizing that "currency functions on trust rather than technology." In contrast, the FSC views stablecoins as part of the virtual asset market and insists that licensing, exchange oversight, and custody supervision should fall under its purview. Sejin Kim, a fintech policy analyst, noted that most assembly bills envision a licensing regime for private issuers, while the central bank prefers banks to handle issuance due to financial stability concerns.
Compounding the issue is the "kimchi premium," where South Korean investors pay higher prices for USD-pegged stablecoins like USDT and USDC. BOK data reveals that trading volume for these stablecoins surged to 56.95 trillion won ($41.6 billion) in Q1 2025, a threefold increase from Q3 2024. This demand stems from capital restrictions and high user appetite, echoing a pattern seen during the 2017 Bitcoin bull run.
President Jae-Myung Lee, elected on a pro-crypto platform, aims to establish a won-pegged stablecoin market and transform South Korea into a digital asset hub. However, analysts like Jeonghwan JK Kim highlight that regulatory philosophy remains rooted in a "positive-list" model, stifling innovation. The BOK has raised alarms about risks such as depegging, mass redemptions, and potential capital flight, with Governor Chang-yong Rhee warning that won stablecoins could bypass foreign exchange rules.
Amid the debate, two won-pegged stablecoins are emerging: KRWX by IQ AI and Frax Finance, launched on October 30 for cross-border use but still in proof-of-concept, and KRW1 by Busan Digital Asset Custody Services, South Korea's first stablecoin, designed for institutional transactions and currently in pilot mode. The likely outcome is a shared responsibility model, with the BOK managing reserves and the FSC overseeing licensing and exchanges.
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