Here is the New Stablecoin Won and the Law That Will Change Everything

South Korea is considering a crucial step in the cryptocurrency sector, aiming to introduce the first stablecoin pegged to the Korean won.

A new law has been put on the table and could be discussed by the end of 2024: the text aims to define a regulatory framework that is transparent and rigorous, designed especially to strengthen user protections and limit the wide dependence on tokens pegged to the US dollar (PYMNTS).

According to industry analysts, South Korea holds a key position in the crypto landscape of Asia, thanks to a market characterized by strong retail participation and regulatory innovation.

Experts from the banking system highlight how the digitalization of the national currency is also strategic for interoperability with global systems.

Regulation on stablecoins in South Korea: what really changes?

The proposed law, whose discussion should take place in the second half of 2024, establishes precise criteria for the issuance and management of stablecoin pegged to the won.

Strict requirements are introduced regarding transparency, reserves, and internal practices so that issuers meet high standards: these are elements considered essential to ensure trust and reliability in a local cryptocurrency market that continues to expand.

It should be noted that this package represents further progress compared to previous regulations, with the intention of bringing South Korea closer to the regulated models of major economies (Forkast).

According to the data collected by the Financial Services Commission of South Korea, the value of transactions in digital currency has increased by over 50% in the last 24 months, indicating a growing demand for regulated digital instruments.

Stablecoin won law: timing and national strategy

The proposta di legge sulla stablecoin won initiated by the Financial Services Commission (FSC) will likely be discussed in the National Assembly by the end of 2024.

This is a second phase compared to the path marked by the Virtual Asset User Protection Act, involving a synergy between parliamentary institutions and supervisory authorities. In this context, the emphasis is placed on the solidity of the digital sector and inter-institutional cooperation with the aim of increasing the overall security of digital assets (CoinDesk).

According to industry sources, this legislative strategy follows a model similar to what has already been initiated by the European Union with the MiCA, demonstrating the desire to make South Korea a solid environment for institutions, investors, and users.

Why does South Korea want a stable token linked to the won?

The main intention is to reduce dependence on dollar-pegged stablecoins. Today, approximately 99.6% of the global stablecoin volume refers to the US dollar, with a capitalization exceeding 161 billion dollars in June 2024 (The Block).

An interesting aspect is that the South Korean strategy aims to strengthen national digital sovereignty by offering a more stable and better-regulated local alternative (Bloomberg).

Experts interviewed by independent sources confirm that, with increasing pressure on digital payment systems, the choice of a national stablecoin also aims to improve risk profiles in international flows and support the growth of the local DeFi ecosystem.

Regulatory news: key points for stablecoins in Korea

• Detailed regulation for issuance, management, and custody of stablecoins pegged to the won
• Elevated standards of internal control for operators with more supervision
• Management of reserves and collaterals subject to strict obligations for the protection of users
• Particular attention to the protection of digital assets connected to stablecoins

Thus, South Korea positions itself to converge towards international standards adopted in areas like the European Union (MiCA) and Singapore (Reuters).

Those operating in the crypto sector highlight how cybersecurity requirements and account segregation obligations are already best practices among the main regulated platforms.

Korean banks and won stablecoin: a strategic alliance for the future

The main South Korean banks, such as Kookmin Bank and Shinhan Bank, are engaged together with the Bank of Korea and the regulator in a pilot project for the stablecoin pegged to the won.

In practical terms, the first steps are being taken towards a national digital currency, under strict control, that can offer a safer alternative compared to the proliferation of dollar stablecoins. According to the current timeline, the pilot projects could be effectively launched as early as 2025 (Forkast).

According to the official reports of the Bank of Korea, the participation of major banks reflects the confidence of financial institutions in the project and ensures a robust technical and legal infrastructure.

Banking collaboration: what changes for users?

This institutional collaboration could help strengthen the security and transparency of movements in stablecoin, increasing the protection of savers and mitigating potential risks of fraud or involuntary loss of funds.

This represents a concrete advancement towards a digital ecosystem that is more reliable, attentive, and adequately regulated (Forkast).

According to many direct testimonies collected by crypto-regulation observers, the presence of banks in pilot projects reassures users about the protection of deposits and the traceability of transactions.

Protection of users: the priority of the new regulation

The new bill focuses primarily on the protection of stablecoin users. It should be noted that there will be strict controls on the financial solidity of the issuers and on the declared reserves, with an obligation of total transparency towards the public.

Additional measures will also be implemented to prevent sudden market fluctuations and to regulate the separation between collateral assets and user funds, key points for investor security (The Korea Times).

According to the data provided by Statista, about 14% of the South Korean population had digital assets in their portfolio at least once in 2023, which makes user protection a central aspect of the new regulations.

Political debate and plurality of proposals to regulate stablecoins

In the past few months, parliamentary initiatives have multiplied: various political actors have presented bills aimed at a more coordinated regulation of cryptocurrencies.

Among the most discussed texts are the Digital Asset Basic Act and measures to regulate the Issuance and Circulation of Stable Digital Assets. There is also a bill dedicated to the Innovation of Payments through Digital Assets pegged to values. In summary, all the proposals converge on a shared necessity: to define clearer rules for a rapidly expanding sector (Forkast).

Direct experiences reported by industry operators highlight how public consultation and cross-sectional dialogue among institutional representatives have accelerated the process of defining the new regulatory framework.

Cryptocurrency Regulation in South Korea: A Rapidly Evolving Path

The regulatory process related to cryptocurrencies in South Korea is developing rapidly, thanks also to the dialogue between trade associations, the financial sector, consumer protection groups, and regulatory authorities.

The shared goal remains to find a balance between innovation and collective safety (CoinDesk). For an in-depth look at the latest international laws, see also our guide on crypto regulation in Europe.

Expected impact: stability, security, and growth of the national digital market

• Increase in confidence and stability in the South Korean digital sector
• Reduction of currency risks due to foreign stablecoins
• Enhancement of protections for users and digital assets
• General improvement of transparency and accountability among operators

On the sidelines of all this, the new regulatory path is also fostering a more intense dialogue between public entities, banks, and private fintech realities, pushing South Korea towards growth that promises to be sustainable and open to innovation (Reuters).

According to experts consulted by Decrypt, the solidity of regulation is a determining factor for attracting institutional investors to the country.

Next steps: towards approval by the end of 2025

The discussion and analysis of the law on stablecoin should come to life by the end of 2024. The final approval, barring unforeseen events, could arrive in 2025, making South Korea an advanced reference case in Asia both on the regulatory front and in the synergy between the public sector and banking institutions (PYMNTS).

As has already happened in other countries with strong digital ecosystems, the intensification of public-private dialogue remains one of the main accelerators of the legislative process.

Conclusions

The path towards a stablecoin pegged to the Korean won and the related new law represent a central moment for the digital sovereignty of South Korea.

An important aspect is the priority given to security and transparency; this will allow the country to take a leading role in the Asian regulatory framework for cryptocurrencies, facilitating a modern and constantly developing market.

For more details on stablecoin and similar digital initiatives globally, visit our page on what a stablecoin is and discover insights on cryptocurrencies.

The data on the stablecoin market is updated to June 2024 (The Block).