Digital Sovereignty Drive: South Korea's Won-Backed Stablecoin to Cut Dollar Reliance

South Korea is advancing plans to launch a won-backed stablecoin, with regulatory and institutional efforts accelerating under President Lee Jae-Myung’s administration. The proposed stablecoin, pegged to the Korean won, aims to reduce reliance on dollar-denominated stablecoins and bolster national digital sovereignty. Legislative initiatives, including the Digital Asset Framework Act, are being debated to establish a transparent and regulated framework for stablecoin issuance, requiring strict reserve management, transparency, and user protection measures Won-based stablecoin plans gain ground under new president^[1]. The Financial Services Commission (FSC) plans to finalize the legal framework by late 2024 or early 2025, aligning with global regulatory models like the EU’s MiCA and Singapore’s standards Digital Revolution in South Korea: Here is the New Stablecoin Won …^[2].

Major banks, including KB Kookmin, Shinhan, and Woori, are collaborating with fintech firms and the Open Blockchain and DID Association to develop the stablecoin infrastructure. The project, separate from the central bank’s CBDC efforts, will use either a trust-based model (separate customer funds) or a deposit-token model (1:1 bank deposit backing). Pilot projects could launch as early as 2025, with the consortium aiming to finalize legal and technical frameworks by 2026 South Korea’s Top Banks Unite to Launch Won-Based …^[3]. This initiative reflects broader industry momentum, as KakaoPay and other firms seek to dominate the emerging market, with KakaoPay’s shares surging amid speculation about its role in the stablecoin ecosystem Won-based stablecoin plans gain ground under new president^[1].

The push for a won-backed stablecoin is driven by growing concerns over capital outflows and the dominance of dollar-based stablecoins. Data from the Bank of Korea (BOK) shows that trading volumes for dollar-pegged stablecoins on Korean exchanges tripled in Q1 2025 compared to Q3 2024, reaching 56.95 trillion won ($41.6 billion). By pegging stablecoins to the won, South Korea aims to mitigate risks of monetary policy erosion and financial instability, though the BOK remains cautious about potential threats to the won’s status and cross-border transaction loopholes Won-based stablecoin plans gain ground under new president^[1].

Regulatory debates center on balancing innovation with systemic risks. The proposed Digital Asset Innovation Act mandates capital requirements of $7.3 million for stablecoin issuers, strict reserve attestation, and interoperability standards across blockchains. Critics warn that allowing interest-bearing stablecoins could compete with traditional bank deposits, exacerbating liquidity risks. Surveys indicate 42.6% of younger South Koreans view stablecoins as useful for trading, while 21% already hold them, highlighting growing demand “Interest or Regulation?” As South Korea Weighs Stablecoin …^[4]. However, policymakers are divided between a “payments-only” model with strict safeguards or a bank-like regulatory approach for indirect interest mechanisms “Interest or Regulation?” As South Korea Weighs Stablecoin …^[4].

China, meanwhile, is exploring RMB internationalization through stablecoin pilots in Hong Kong, aiming to test cross-border settlement networks while avoiding capital flight risks. Japan is also advancing yen-backed stablecoins, with the Financial Services Agency planning to approve JPYC’s issuance by late 2025. Globally, the U.S. Federal Reserve has endorsed stablecoin innovation as a pillar of payment infrastructure, signaling a shift toward institutional adoption Fed Backs Stablecoins | China, Japan, Korea Race for Digital …^[5]. This international competition underscores the strategic importance of stablecoins in reshaping currency dominance and digital finance.

The South Korean initiative could reshape the domestic financial landscape by integrating stablecoins into web3 ecosystems, cross-border payments, and DeFi platforms. However, challenges remain in ensuring regulatory coherence, consumer trust, and technical scalability. The BOK and FSC must navigate tensions between fostering innovation and safeguarding financial stability, particularly as the won-backed stablecoin competes with dollar-based alternatives. If successful, the project could position South Korea as a leader in Asia’s regulated digital asset market, mirroring Singapore’s fintech advancements Digital Revolution in South Korea: Here is the New Stablecoin Won …^[2].