South Korea is close to finalizing its long-awaited stablecoin legislation, amid ongoing discussions between the central bank and the Financial Services Commission (FSC) over which authority should regulate digital tokens pegged to the Korean won.

### Legislative Developments and Regulatory Turf War

The FSC plans to submit a government-sponsored bill by the end of 2025. This bill will join five other competing stablecoin proposals currently under review in the National Assembly, all of which have been submitted by individual lawmakers.

Meanwhile, the Bank of Korea (BOK), which published a stablecoin whitepaper on October 27, emphasized that “currency functions on trust rather than technology.” The BOK is also seeking a role in licensing and monitoring stablecoins, indicating a turf conflict with the FSC.

Sejin Kim, a fintech policy analyst at the Information Technology and Innovation Foundation, explains the situation: “Most of the bills in the National Assembly envision a licensing regime for private stablecoin issuers. The central bank, on the other hand, wants to keep issuance in the hands of banks over concerns about financial stability.”

The FSC views stablecoins as part of the broader virtual asset market. Therefore, it maintains that licensing, exchange oversight, and custody supervision should remain within its jurisdiction. However, none of the current bills fully align with the preferred models of either the FSC or the BOK, according to Jeonghwan JK Kim, an attorney specializing in digital assets at Architect Legal Advisory.

### The Kimchi Premium Extends to Stablecoins

Newly elected President Jae-Myung Lee has expressed concerns about South Korea’s heavy reliance on USD-backed assets. USD-pegged stablecoins such as USDC and USDT currently dominate Korea’s crypto market. According to the Bank of Korea, the total trading volume of USD-pegged 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 more for USDT and USDC than investors abroad. This price gap, referred to as the “kimchi premium,” arises from strong local demand and capital controls that make it difficult for traders to move funds in and out of the country. The phenomenon was first observed during the 2017 Bitcoin bull run—when prices surged by as much as 30%—and has now spread to stablecoins.

### A Pro-Crypto Presidency

President Lee has pledged to transform South Korea into a digital asset hub. His election campaign prominently featured plans to establish a Korean won-pegged stablecoin market and to permit domestic companies to issue stablecoins.

Despite this enthusiasm, Sejin Kim cautions that the current debate on stablecoins is focused on the wrong priorities. She argues that both the FSC and BOK are preoccupied with licensing authority and the notion that stablecoins will unlock new growth industries.

“Stablecoins primarily serve as a high-volume settlement system with razor-thin profit margins,” Kim explained. “The success of Korea’s stablecoin ecosystem will depend largely on managing distribution costs and fostering growth in surrounding industries.”

She added, “Licensing should come only after the fundamental design principles are determined. For a won-pegged stablecoin to function effectively in Korea’s real economy, it must be developed alongside practical use cases such as spot ETFs, tokenized securities (STO), international remittances, and cross-border B2B settlements. ETFs act as the investment pipe, stablecoins act as the settlement pipe. Korea can only capture global capital flows if both pipes move together.”

### Central Bank’s Cautious Stance

The Bank of Korea insists that won stablecoin issuance should be led by banks. In its whitepaper, the BOK outlined several risk factors, including depegging risks where the coin loses its one-to-one value with the fiat currency, mass redemptions, as well as potential foreign exchange violations and capital flight.

BOK Governor Chang-yong Rhee warned that issuing won-pegged stablecoins could serve as a loophole to bypass foreign exchange regulations, possibly increasing capital outflows and exchange rate volatility.

Jaewon Choi, a finance professor at Seoul National University, concurs with the central bank’s cautious approach. “While USD stablecoins see high trading volumes in Korea, it remains uncertain whether a won-denominated stablecoin will gain traction,” he said. “The concerns raised by the Bank of Korea are legitimate. Although we cannot predict a collapse until it happens, the risk of depegging exists even among the most liquid USD stablecoins, so won-denominated coins are likely to carry similar risks.”

Sejin Kim also noted the differences in global liquidity profiles: “The Korean won does not have the same liquidity as the USD, so Korea must carefully evaluate the economic implications of introducing won-pegged stablecoins at scale.”

Jeonghwan JK Kim pointed out that Korea’s regulatory framework remains anchored in a “positive-list” approach, where only activities explicitly approved by authorities are permitted. “Initial coin offerings (ICOs) are a prime example. They are not formally banned, but regulatory pressure has prevented any from launching in practice,” he said. This legacy complicates Korea’s ability to adopt a more market-driven, innovation-first framework like the U.S. Genius Act.

### Emerging Won-Pegged Stablecoins

Two issuers are poised for a stablecoin rollout once legislation is finalized.

Blockchain developer IQ AI and Frax Finance announced the launch of the KRWX stablecoin on October 30. Designed for multi-blockchain and cross-border use, KRWX is currently at the proof-of-concept stage and is not yet available to South Korean residents.

Meanwhile, KRW1—launched by Busan Digital Asset Custody Services in September—is South Korea’s first official stablecoin. It was designed with Korean regulations and institutional transactions in mind, targeting use cases such as cross-border remittances, emergency aid distribution, and institutional finance applications. KRW1 is still in pilot mode pending the finalization of national stablecoin rules.

### Balancing Control and Innovation

South Korea appears to be leaning toward a split regulatory model, where the central bank manages reserves and settlement functions, while the FSC oversees licensing and cryptocurrency exchanges. “While not yet formalized, the current bills assume some form of shared responsibility,” said Jeonghwan JK Kim.

He further noted that the first stablecoins will likely emerge from bank-led consortia rather than tech startups. “Both regulators agree that stablecoins should be introduced gradually and operate as safe, institutionally anchored assets.”

This approach would make Korea’s stablecoin ecosystem less experimental but potentially more durable over the long term.

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