South Korea's First Stablecoin Navigates Uncertain Regulatory Waters

BDACS, a South Korean digital asset custodian, has launched KRW1, the country’s first won-backed stablecoin, on the Avalanche blockchain. The stablecoin, fully collateralized with Korean won deposits held at Woori Bank, was announced following a completed proof of concept (PoC) that validated its technical infrastructure. The token operates on a 1:1 reserve model, with real-time API integration ensuring transparent proof of reserves. BDACS emphasizes that KRW1 is not yet publicly circulated and remains in a pilot phase, in line with the evolving regulatory landscape for stablecoins in South Korea.

The launch marks a significant development in the integration of blockchain technology with traditional financial systems in the region. KRW1 is designed to function as a low-cost payment and settlement tool, particularly for public-sector programs such as emergency relief disbursements. BDACS CEO Harry Ryoo stated that the company aims to establish KRW1 as a technical standard for stablecoins in Korea, leveraging blockchain’s ability to reduce transaction costs and enhance efficiency in financial processes.

Avalanche, which powers the KRW1 stablecoin, has positioned itself as a critical partner in this initiative. Justin Kim, Head of Asia at Ava Labs, highlighted that Avalanche’s high-performance infrastructure and regulatory compliance capabilities make it well-suited for this type of project. The company also noted that KRW1’s launch aligns with broader efforts to expand Avalanche’s Asian footprint, particularly as the blockchain firm recently announced plans to establish AVAX reserve companies in the United States. The move strengthens Avalanche’s role in South Korea’s digital asset ecosystem, where it has been increasingly seen as a preferred infrastructure provider.

Regulatory uncertainty remains a key challenge for the stablecoin’s broader adoption. South Korea has yet to establish a formal regulatory framework for stablecoins, though lawmakers are actively debating proposals that would require full reserve backing and stricter oversight. The Democratic Party’s proposed legislation, for example, would ban interest payments on stablecoins and mandate a minimum capital requirement of $3.6 million, while the People Power Party’s version focuses more on licensing and disclosure requirements. BDACS has strategically positioned KRW1 to operate within a pre-emptive regulatory environment, having completed a trademark registration in December 2023 and developed a comprehensive framework for token issuance, management, and verification.

The KRW1 initiative is part of a growing trend of traditional financial institutions entering the stablecoin space in South Korea and beyond. Financial institutions such as Kakao Bank, Kookmin Bank, and the Industrial Bank of Korea have filed for won stablecoin trademarks, while Japan’s JPYC is expected to become the first officially recognized yen-backed stablecoin later this year. This regional momentum reflects a broader global shift in how governments and institutions are approaching the integration of digital assets into national financial systems. With KRW1 now in a pilot phase, the project could serve as a model for future stablecoin initiatives in the region.

BDACS has also outlined future plans for KRW1, including expanding the stablecoin to additional blockchains and exploring potential collaborations with USD-backed stablecoin issuers like Circle and Tether. The company aims to position KRW1 as a tool for remittances, payments, and investments, with a focus on enhancing interoperability and global adoption. As South Korea’s digital asset market continues to evolve, KRW1’s development could influence regulatory decisions and shape the trajectory of stablecoin innovation in Asia.