South Korea is on the brink of significant advancements in its digital asset regulatory landscape as it gears up for the potential passage of Phase Two of its regulatory framework. This initiative aims to provide clearer guidelines for stablecoins and digital asset trading platforms, yet it faces increasing opposition among political factions, regulatory bodies, and the central bank.
The proposed legislation, known as the Phase Two Digital Asset Law, is crucial for defining the future of South Korea”s digital asset ecosystem. The Democratic Party of Korea is pushing to introduce this law before the Lunar New Year, focusing on the regulation of stablecoins and establishing ownership limits for major shareholders in digital asset exchanges.
Central to the debate is the proposed cap on major shareholder ownership, which is set between 15% and 20%. Additionally, the Democratic Party seeks to enforce a minimum capital requirement for stablecoin issuers, estimated at approximately $3.46 million (5 billion won), to bolster financial stability and protect investors.
Financial experts in South Korea have expressed concerns that ongoing regulatory disagreements could delay the legislative process, potentially compromising the competitiveness of the nation”s financial markets against international counterparts. There is particular contention surrounding the issuance of won-backed stablecoins, with discussions revealing significant divisions regarding ownership structures. A proposal suggests that banks should maintain a majority stake—at least 50% plus one share—in stablecoin issuers.
The Bank of Korea has emphasized the importance of safeguarding monetary policy effectiveness and investor protection, advocating for banks to take the lead in stablecoin issuance. In contrast, the Financial Services Commission argues that permitting private technology firms to issue stablecoins could stimulate market entry and foster growth within the sector. This divide has resulted in repeated delays, with the bill initially expected to be introduced in 2025.
Opponents of a bank-dominated approach argue that such a model would effectively transform stablecoins into a new type of deposit product rather than a legitimate digital currency. They assert that this stance deviates from global regulatory trends and could significantly impede the development of South Korea”s stablecoin market.
Experts point out that no major jurisdiction requires majority ownership by banks for stablecoin issuance, highlighting regulatory frameworks in countries like Singapore, the United States, Japan, and various European nations, which allow both government-licensed private companies and traditional financial institutions to issue stablecoins.
Amid these challenges, the Bank of Korea is contemplating a registration system for domestic entities interested in creating won-pegged stablecoins. This move stems from concerns that such assets could circumvent capital controls. Reports indicate that regulatory disputes, combined with external trade pressures and exchange rate fluctuations, have heightened tensions surrounding this issue.
Despite the hurdles, South Korea”s digital asset landscape is experiencing growth, driven by new local stablecoin initiatives and the increasing regulation of digital asset trading for corporate actors. In this context, Korea Digital Assets has formed a partnership with privacy-centric blockchain firm Maiden to enhance digital infrastructure aimed at institutional adoption, prioritizing regulatory compliance and alignment with domestic industry standards.
