South Korea's Stalemate on Stablecoin Regulation and Its Implications for Crypto Market Entry and Innovation

South Korea's crypto sector stands at a crossroads. The country's ambitious but delayed regulatory framework for stablecoins has created a unique tension between innovation and financial stability. As of late 2025, the Digital Asset Basic Act (DABA) remains stalled due to a deep divide between the Financial Services Commission (FSC) and the Bank of Korea (BOK). The FSC, prioritizing innovation, advocates for a flexible model to foster blockchain infrastructure, while the BOK insists on strict rules, including requiring banks to hold a 51% stake in stablecoin consortia to mitigate systemic risks according to reports. This regulatory limbo has pushed the DABA's implementation to 2026, creating both uncertainty and opportunity for investors.

The Regulatory Stalemate: A Clash of Priorities

The core of the dispute lies in who controls stablecoin issuance. The BOK's stance-mandating banks to hold majority stakes in stablecoin projects-aims to ensure compliance with anti-money-laundering (AML) protocols and solvency requirements as research shows. By contrast, the FSC argues that such a rule would stifle competition and innovation, particularly in blockchain infrastructure development according to analysis. The DABA, as proposed, includes 100% reserve requirements for stablecoin issuers, full custody of reserves by licensed banks, and expanded AML measures like a "travel rule" for transactions under 1 million won as per the draft.

This delay has left domestic stablecoin issuance illegal, forcing Korean users to rely on foreign-issued stablecoins like USDC according to market data. Meanwhile, private sector initiatives, such as major banks exploring won-pegged stablecoins, are advancing independently according to industry reports. The ruling Democratic Party's push for a consolidated bill in early 2026 could accelerate clarity, but the outcome remains uncertain.

Market Entry Strategies in a Shadow Regulatory Environment

The regulatory delay has created a "shadow regulatory environment" where crypto firms operate without clear guidelines. Korean exchanges like Upbit (Dunamu) and Bithumb have seen trading volumes surge-Upbit's 2025 volume hit $286.4 billion, while Bithumb's grew from $47 billion to $128.1 billion according to market analysis. However, these platforms remain heavily reliant on retail trading fees, unlike global peers like Coinbase, which have diversified into institutional services and derivatives.