South Korea’s legislative progress on a comprehensive crypto framework has stalled as regulators grapple wi…

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South Korea’s legislative progress on a comprehensive crypto framework has stalled as regulators grapple with specific rules regarding the issuance of won-backed stablecoins. The proposed Digital Asset Basic Act has seen a significant slowdown due to a clash between the country’s central bank and financial regulators over whether these assets should be treated as bank-like money or as licensed digital products. This fundamental disagreement centers on the seemingly simple yet highly contested question of who should be permitted to issue a stablecoin pegged to the national currency.

The Bank of Korea is currently advocating for a “banks-first” approach, expressing concerns that stablecoins could impact monetary policy and financial stability if they scale without strict oversight. Officials argue that a cautious, staged rollout is necessary to reduce the risk of sudden capital outflows or a loss of control over how private money circulates. Conversely, the Financial Services Commission and various lawmakers express concern that limiting issuance to traditional banks could materially limit competition and stifle innovation within the domestic digital asset market. Because of this regulatory standoff, the passing of the next major crypto law is now expected to be pushed into 2026, leaving the industry in a state of uncertainty as the debate over issuer eligibility continues to bog down the legislative process.

Context

The primary point of contention in the current legislative debate is the “51% rule,” a concept dubbed by local media. This proposed regulation suggests that any issuer of a won-backed stablecoin should be a consortium led by commercial banks. Under this framework, banks would be required to hold at least a 51% ownership stake in the entity. The central bank’s goal for this threshold is to ensure that traditional financial institutions remain in control of governance and redemption operations, thereby importing prudential discipline such as capital standards and Anti-Money Laundering (AML) controls from the outset rather than attempting to add safeguards later.

However, the Financial Services Commission and pro-industry lawmakers argue that such a hard-wired requirement for bank control would materially limit experimentation. They suggest that the “51% rule” could effectively shut out capable fintech or payments firms that might otherwise deliver better user experiences and distribution. Critics of the bank-led model believe that risks can be managed through other means, such as reserve requirements, audits, and strict supervisory powers, rather than mandated ownership structures. This clash of incentives highlights a broader dispute over which institution should hold primary responsibility when private digital money becomes systemically important to the national economy and the existing separation between industrial and financial capital.

Impact

While the legislative debate continues, stablecoin activity in South Korea remains significant. In the 12 months leading up to June 2025, stablecoin purchases denominated in the Korean won reached approximately $64 billion. This highlights the existing demand among local traders who often utilize stablecoins to access offshore liquidity or move value within crypto markets. To facilitate this demand, major Korean exchanges, including Bithumb and Coinone, introduced USDT/KRW trading pairs in December 2023, making it easier for retail users to access stablecoins directly with the won.

Current regulatory requirements already impose strict safety measures on licensed service providers. For example, firms are required to maintain at least 80% of customer assets in offline cold wallets to provide protection against theft and potential hacks. Despite these existing protections, the lack of a finalized Digital Asset Basic Act means that everyday stablecoin activity often defaults to offshore, dollar-based infrastructure. This reliance on foreign stablecoins may reduce domestic regulatory visibility and makes it harder for the government to manage foreign-exchange flows. As the standoff persists, the country risks losing time in building a trusted local stablecoin industry, while the market continues to grow through existing trading pairs and exchange infrastructure.

Outlook

Looking ahead to 2026, the resolution of the issuer eligibility debate will determine the structure of South Korea’s domestic stablecoin market. Several scenarios are currently under consideration to resolve the deadlock. One approach, which has received public support from the Bank of Korea, involves a staged licensing model. Under this plan, banks would be permitted to issue stablecoins first, with broader participation from non-bank firms allowed at a later date. Other potential outcomes include an open licensing system with a “systemic” tier for larger issuers or the use of bank-led consortia that are allowed but not mandatory, easing the fight over the strict ownership rules.

Despite the legislative delay, several major firms are already positioning themselves for the eventual rollout of a won-backed token. Toss, a prominent fintech company, has confirmed that it is preparing to issue a won-based stablecoin once the regulatory framework is finalized. However, the ongoing debate over the “51% rule” remains a critical hurdle for such firms that wish to operate independently of bank-controlled consortia. The longer the stalemate continues, the more difficult it may become for South Korea to establish a domestic alternative to dollar-pegged assets. The year 2026 is now viewed as the likely timeframe for when these rules will finally be established, dictating whether the market will be bank-led or open to a wider range of fintech innovators.