South Korea’s Stablecoin Bill Stalls Amid Critical Party Divisions, Creating Regulatory Uncertainty

SEOUL, South Korea – January 28, 2025 – South Korea’s ambitious cryptocurrency regulatory framework faces significant delays as the ruling Democratic Party fails to reach consensus on crucial stablecoin bill provisions. This legislative impasse creates immediate uncertainty for the nation’s rapidly growing digital asset sector, which has positioned itself as a regional leader in blockchain innovation. The deadlock specifically concerns who can issue won-denominated stablecoins and how to regulate cryptocurrency exchange ownership structures.

South Korea’s Stablecoin Bill Faces Internal Party Obstacles

The Democratic Party’s digital asset task force announced its failure to reach internal consensus on January 28, 2025. Consequently, this development marks a significant setback for South Korea’s comprehensive Digital Asset Basic Act. The legislation aims to establish clear regulatory frameworks for the country’s cryptocurrency market, which has experienced exponential growth since 2020. According to Edaily’s report, sensitive issues requiring further coordination include the scope of the Bank of Korea’s authority and restrictions on major shareholders of cryptocurrency exchanges.

Task force chairman Lee Jeong-moon revealed sharp divisions within the party regarding stablecoin issuance rights. Specifically, the proposal would grant issuance rights for won-denominated stablecoins only to consortiums where banks maintain a stake exceeding 51%. This banking-centric approach has generated substantial debate among lawmakers, industry stakeholders, and financial regulators. The compromise plan submitted to the Bank of Korea and the Financial Services Commission remains unapproved, indicating deep-seated disagreements about financial sovereignty and innovation.

Cryptocurrency Regulation Debates Intensify in Asian Markets

South Korea’s regulatory challenges mirror broader regional trends as Asian nations grapple with digital asset governance. Meanwhile, Japan has implemented its stablecoin legislation, while Singapore continues refining its payment services framework. South Korea’s approach appears more conservative regarding banking sector involvement compared to some regional counterparts. The proposed 15% cap on any major shareholder’s stake in cryptocurrency exchanges represents another contentious provision, though lawmakers generally agree on its intent to prevent market manipulation.

Lee Jeong-moon acknowledged the deferred decision on exchange ownership caps, citing legislative strategy concerns despite consensus on the measure’s purpose. This cautious approach reflects South Korea’s complex regulatory history following major exchange collapses in previous years. The table below illustrates key differences between South Korea’s proposed framework and existing regional regulations:

Expert Analysis of Regulatory Implications

Financial regulation experts highlight several critical implications of South Korea’s legislative delays. First, market uncertainty may temporarily slow institutional investment in Korean cryptocurrency ventures. Second, the banking sector’s potential dominance in stablecoin issuance could reshape competition dynamics. Third, exchange ownership restrictions might influence corporate governance structures across the industry. These developments occur against the backdrop of South Korea’s broader financial modernization efforts, including its central bank digital currency research initiatives.

The Bank of Korea has consistently advocated for substantial oversight authority in digital asset matters, citing monetary policy and financial stability concerns. Conversely, industry advocates argue for more flexible approaches that encourage innovation while maintaining consumer protections. This tension between regulatory caution and technological advancement characterizes digital asset debates globally, though South Korea’s specific political dynamics add unique complexity to the legislative process.

Historical Context of South Korea’s Cryptocurrency Regulation

South Korea’s current regulatory challenges follow years of evolving cryptocurrency policies. The nation emerged as a global cryptocurrency trading hub during the 2017-2018 bull market, prompting initial regulatory responses focused on investor protection. Subsequent years saw:

• 2018: Real-name trading account requirements implemented
• 2020: Special Financial Transactions Information Act passed
• 2022: Terra-Luna collapse triggers regulatory reassessment
• 2024: Digital Asset Basic Act drafting begins in earnest

This historical progression demonstrates South Korea’s incremental approach to cryptocurrency regulation, balancing innovation encouragement with risk mitigation. The current legislative impasse represents the latest chapter in this ongoing regulatory evolution. Market participants have generally welcomed regulatory clarity efforts while expressing concerns about potential overregulation that might stifle domestic innovation.

Market Impact and Industry Response

South Korean cryptocurrency markets showed muted reactions to the legislative news, suggesting traders had anticipated potential delays. However, industry representatives expressed measured concern about prolonged uncertainty. Major exchanges including Upbit and Bithumb continue operating under existing regulations while awaiting legislative clarity. The proposed Lunar New Year deadline for bill introduction appears increasingly ambitious given current divisions, though the Democratic Party maintains its commitment to pre-holiday submission following additional discussions.

International observers note that South Korea’s regulatory approach could influence broader Asian cryptocurrency policy development. As the world’s fourth-largest economy in Asia and a technological innovation leader, South Korea’s decisions often carry regional significance. The specific focus on banking sector involvement in stablecoin issuance particularly interests regulators worldwide who monitor private sector digital currency developments alongside central bank digital currency initiatives.

Conclusion

South Korea’s stablecoin bill faces significant legislative hurdles as internal party divisions delay crucial cryptocurrency regulation decisions. The Democratic Party’s failure to reach consensus on key provisions, particularly regarding stablecoin issuance rights and exchange ownership restrictions, creates regulatory uncertainty during a critical period of digital asset market development. While lawmakers aim to introduce legislation before the Lunar New Year holiday, substantial disagreements require resolution through further internal and governmental coordination. This development underscores the complex balancing act between financial innovation and regulatory oversight in South Korea’s rapidly evolving digital economy.

FAQs

Q1: What is the main issue delaying South Korea’s stablecoin bill?
The Democratic Party cannot agree on whether only bank-led consortiums should issue won-denominated stablecoins, with sharp divisions about requiring banks to hold over 51% stakes in issuing entities.

Q2: How does the proposed legislation affect cryptocurrency exchanges?
The bill includes a provision to cap any major shareholder’s stake in exchanges at 15%, though this measure has been deferred due to legislative strategy concerns despite general agreement on its intent.

Q3: What happens next for the Digital Asset Basic Act?
The ruling party plans further internal and government discussions before introducing its version of the bill before the Lunar New Year holiday in February 2025, though current divisions suggest potential additional delays.

Q4: How does South Korea’s approach compare to other Asian countries?
South Korea’s proposed bank-centric stablecoin model appears more conservative than Japan’s licensed institution approach or Singapore’s payment institution framework, reflecting different regulatory philosophies.

Q5: Why is the Bank of Korea’s authority scope controversial?
Determining how much oversight the central bank should have over digital assets involves balancing monetary policy concerns with innovation encouragement, creating natural tensions between regulators and industry advocates.