South Korea's Stablecoin Ambitions Hit Regulatory Roadblock

Source: Coindoo Original Title: South Korea’s Stablecoin Ambitions Hit Regulatory Roadblock Original Link: https://coindoo.com/south-koreas-stablecoin-ambitions-hit-regulatory-roadblock/

Bank-Grade Rules for Stablecoins

Under the draft framework, stablecoin issuers would be required to hold reserve assets exclusively in highly secure instruments, such as bank deposits or government bonds. In addition, one hundred percent of those reserves would need to be entrusted to approved custodians, including commercial banks.

The goal is to prevent a stablecoin issuer’s failure from spilling over into losses for users, effectively isolating customer funds from corporate insolvency risk. Regulators are seeking to close loopholes exposed by past stablecoin collapses, where insufficient or poorly managed reserves amplified investor losses.

Beyond stablecoins, the bill would impose broader obligations on digital asset service providers. These include stricter disclosure requirements, standardized terms of service, and tighter advertising rules. Providers could also be held financially liable for damages resulting from hacks or system failures, even without proven negligence—mirroring liability standards already applied to online retail platforms.

ICOs May Return—Under Tight Conditions

The proposal also opens the door to a conditional return of initial coin offerings. ICOs have been banned in South Korea since 2017, but the new framework would allow domestic projects to launch tokens if they meet rigorous disclosure and risk-management standards.

If implemented, this would mark a significant shift in policy, potentially reviving local token fundraising—albeit under heavy regulatory supervision designed to limit speculation and fraud.

A Regulatory Deadlock at the Core

Despite progress on paper, the most contentious issue remains unresolved: who gets to issue stablecoins. The Bank of Korea has taken a conservative stance, arguing that stablecoin issuance should be restricted to consortia in which banks hold at least a fifty-one percent controlling stake. From the central bank’s perspective, this is essential to preserve monetary stability and reduce systemic risk.

The Financial Services Commission, however, disagrees. It has warned that imposing rigid ownership thresholds would crowd out technology firms, limit competition, and slow innovation in digital finance. The two institutions are also divided on governance, with the Bank of Korea pushing for a new licensing committee, while the FSC argues existing structures are sufficient.

The standoff has delayed the bill’s timeline, prompting South Korea’s ruling Democratic Party to draft a separate proposal that consolidates various lawmaker-led digital asset initiatives.

Stablecoins, Sovereignty, and the Bigger Picture

The debate is unfolding against a broader strategic backdrop. South Korea’s government has made the development of a won-pegged stablecoin ecosystem a policy priority, framing it as a way to protect monetary sovereignty in a market increasingly dominated by U.S. dollar-based stablecoins.

The Digital Asset Basic Act represents the second phase of South Korea’s comprehensive crypto regulatory push. The first phase, passed in 2023 and implemented in 2024, focused on combating market abuse such as insider trading and price manipulation.

Whether South Korea ultimately opts for a bank-centric stablecoin model or a more open issuance framework remains unresolved. What is clear is that the country is positioning itself for a tightly controlled—but potentially influential—role in the next stage of global digital asset regulation.