South Korea's Stablecoin Stalemate: Capital Flight and Conflicting Laws Stall Progress

South Korea is at the forefront of shaping the future of stablecoin regulation, with the Bank of Korea and government agencies engaging in critical discussions to define the legal and operational framework for these digital assets. Multiple bills are currently under review in the National Assembly, each proposing distinct approaches to capital requirements, asset backing, and oversight. These developments are attracting global attention from major players like Binance and Tether, which see South Korea as a potential hub for reserve-backed stablecoins in the Asia-Pacific region [1].

The Value-Stable Digital Assets Bill introduced by Ahn Do-geol from the Democratic Party imposes the strictest requirements, mandating a minimum capital of 5 billion won and a ban on interest payments on stablecoin holdings [2]. In contrast, Kim Eun-hye’s Payment Innovation bill from the People Power Party allows for interest payments and emphasizes transparency through detailed disclosures [3]. Meanwhile, Min Byung-duk’s Digital Asset Basic Act proposes a more open market by reducing the capital threshold to 500 million won and establishing a presidential-level committee to oversee industry development [1].

The fragmented nature of South Korea’s regulatory landscape has led to delays in passing a cohesive framework. According to reports, all four draft laws remain stalled in parliamentary committees, with disagreements persisting over whether only banks or fintech firms should be allowed to issue stablecoins [2]. The Bank of Korea has expressed concerns about potential disruptions to monetary policy and systemic instability if non-bank entities are permitted to issue KRW-pegged tokens. These fears are rooted in the country’s history of chaebol dominance and the desire to prevent the emergence of privately controlled "currencies" [2].

The urgency for a clear regulatory approach has been compounded by capital outflows. In the first quarter of 2025, more than $19 billion in dollar-backed stablecoins left South Korea, with many investors redirecting funds to offshore exchanges offering higher returns [1]. This trend has intensified the government’s push to retain capital and reduce reliance on U.S. dollar-backed stablecoins. Legislative efforts are also being influenced by global examples, such as Japan’s licensing framework and the EU’s MiCA regulation, which impose strict reserve and transaction limits [1].

Binance and Tether are closely monitoring South Korea’s regulatory direction, as it could either open new market opportunities or impose burdens that limit innovation [1]. A balanced regulatory framework could position the country as a competitive fintech hub, while overly strict policies may entrench the dominance of USD-backed stablecoins and hinder local development. The outcome of these legislative efforts will likely set a precedent for how emerging markets balance financial sovereignty, innovation, and macroeconomic stability in the digital asset space [1].

Source:

[1] Binance and Tether are watching Korea closely: Here's why (https://cointelegraph.com/explained/binance-and-tether-are-watching-korea-closely-heres-why)

[2] Frustration Grows as S Korea's Stablecoin Legislation 'Slows ... (https://finance.yahoo.com/news/frustration-grows-korea-stablecoin-legislation-233000581.html)

[3] Binance and Tether Wait as South Korea Sharpens Its Sword (https://www.tipranks.com/news/binance-and-tether-wait-as-south-korea-sharpens-its-sword)