South Korea's Crypto Legislation Stalls Over Stablecoin Dispute: How Do Regulatory Disagreements Affect the Market's Future?

Recently, the Korean Ministry of Science and ICT reported that the “Basic Law on Digital Assets” has been delayed due to disagreements among regulators over stablecoin issuance. The Bank of Korea advocates that only banks holding more than 51% equity should be permitted to issue stablecoins pegged to the Korean won.

In contrast, the Financial Services Commission worries that strict “51% rules” could stifle competition and innovation.

01 Core of the Event

The legislative process for South Korea’s “Basic Law on Digital Assets” has encountered significant obstacles. This highly anticipated law was originally designed to provide a comprehensive regulatory framework for one of Asia’s most active digital asset markets but has stalled due to disagreements among regulators over the issuance rights of stablecoins.

According to the Ministry of Science and ICT, the most serious dispute centers on who should have the legal authority to issue stablecoins linked to the Korean won. This deadlock is expected to delay the bill’s passage until at least January 2026, with full implementation unlikely before 2026.

This delay comes at a critical moment for South Korea’s digital asset market. After banning cryptocurrency trading for nine years, the country has begun to soften its stance earlier this year under financial regulators. The digital asset law marks a significant shift in the country’s approach to cryptocurrency regulation.

02 Regulatory Disagreements

The Bank of Korea insists that only banks holding a majority stake (51%) should be allowed to issue stablecoins. The bank states that financial institutions are already subject to strict solvency and anti-money laundering requirements, and only they can ensure stability and protect the financial system.

In a report, the Bank of Korea explicitly stated: “Stablecoins could be key to unlocking new possibilities for the Korean economy, but they could also sow the seeds of new instability.”

The Financial Services Commission (FSC), however, shows greater flexibility. The commission recognizes the necessity of stability but warns that strict “51% rules” could kill competition and innovation, hindering fintech companies with technical expertise capable of building scalable blockchain infrastructure from participating.

The FSC cites the EU’s Markets in Crypto-Assets (MiCA) regulation, where most licensed stablecoin issuers are digital asset companies rather than banks. The commission also references Japan’s yen-pegged stablecoin projects led by fintech, demonstrating regulated innovation.

03 Political Power Struggles

This regulatory debate has spilled over into the political arena. South Korea’s ruling Democratic Party also opposes the Bank of Korea’s 51% rule.

Democratic Party lawmaker Ahn Do-kyung said, “Most experts involved have expressed concerns about the Bank of Korea’s proposal, with many questioning whether such a framework can promote innovation or generate strong network effects.”

Ahn added, “It is difficult to find precedents in global legislation requiring specific industry institutions to hold 51% of shares.” He believes that concerns over financial stability can be alleviated through regulation and technological means, a view widely supported among policy advisors.

04 Key Provisions of the Bill

Despite the dispute over stablecoin issuance rights, the proposed “Basic Law on Digital Assets” includes a series of provisions aimed at strengthening investor protection.

For stablecoin issuers, the law plans to require reserves held in low-risk instruments such as bank deposits or government bonds. Additionally, issuers must place all outstanding reserves—100%—under the management of an independent custodian (usually a bank).

This bankruptcy isolation structure aims to protect holders from potential losses in the event of issuer insolvency, addressing vulnerabilities exposed in past global incidents.

Beyond stablecoins, the law extends traditional financial standards to digital asset platforms. Service providers will face requirements for transparent disclosures, fair service terms, and regulated advertising practices.

In case of security breaches or operational failures, operators may be held strictly liable for user losses, even without proof of negligence—similar to protections in e-commerce.

A notable shift in the proposal is the reopening of domestic token sales. Since banning initial coin offerings (ICOs) in 2017, local projects have often sought overseas listings to raise funds. The new framework may allow Korean projects to conduct regulated ICOs, provided they adhere to strict transparency rules and demonstrate strong risk management capabilities.

05 Foreign Stablecoin Disputes

Stablecoins issued by foreign entities are another key point of contention. According to early government drafts by the FSC, stablecoins issued by foreign entities would be permitted in Korea if they obtain approval and establish branches or subsidiaries within the country.

This would require issuers like Circle, which issues the second-largest stablecoin USDC globally, to establish a local entity to legally operate the token in Korea.

The Bank of Korea also warns that stablecoins could become channels for circumventing foreign exchange and capital controls, potentially undermining monetary policy effectiveness. Issuance of stablecoins denominated in Korean won could also increase short-term interest rate volatility, as reserves like government bonds purchased by stablecoin issuers might exert downward pressure on market interest rates.

06 Market Impact and Opportunities

The regulatory deadlock introduces uncertainty but also creates unique opportunities. For example, XRP’s price as of December 31, 2025, is $1.8687.

This price reflects the current market sentiment—seeking direction amid regulatory uncertainty.

Renowned crypto expert Dark Defender notes that XRP is currently exploring a low of $1.87 but has charted its own trajectory, heading toward a target of $3.66.

Dark Defender added, “The fourth wave correction of XRP is complete… if market makers try to disrupt the market, so be it. I am not here to panic; I am here to accumulate.”

According to CoinCodex data, by December 31, 2025, XRP’s price could hover around $1.88. The token might reach a new stable price of $2.14 by March 2026.

07 Future Outlook and Global Comparison

South Korea’s regulatory deadlock reflects a broader global debate over whether stablecoins backed by fiat should be controlled by banks or fintech companies. This decision could influence competition, innovation, and monetary regulation.

Compared to the EU’s Markets in Crypto-Assets regulation, Korea’s stance appears more cautious. Under the EU framework, most licensed stablecoin issuers are digital asset firms rather than banks.

South Korea faces a dual challenge: on one hand, ensuring financial stability and investor protection; on the other, avoiding stifling emerging tech sectors that could drive economic growth and innovation.

An FSC official revealed that authorities are still discussing options with other agencies and evaluating all feasible choices. Nonetheless, due to unresolved issues, the bill’s submission has been postponed to next year.

Meanwhile, reports indicate that the ruling party’s digital asset working group is drafting an alternative proposal based on existing bills proposed by lawmakers. This suggests that despite delays, the legislative process continues, with all parties seeking solutions to break the current deadlock.

Future Outlook

The future of South Korea’s crypto market remains uncertain. The disagreements among regulators are not merely technical but reflect deeper philosophical differences about the nature of financial innovation.

On global trading platforms like Gate, the regulatory trends in Korea are closely watched. The outcome of the debate over stablecoin issuance rights will not only determine whether Korea can implement the “Basic Law on Digital Assets” as scheduled in 2026 but also influence the competitive landscape and innovation trajectory of digital assets across Asia and globally.

As the global financial system accelerates its shift toward blockchain technology, the real challenge for Korean regulators is: how to ensure financial stability without being left behind in this wave of financial innovation.