Stablecoins become South Korea’s new national endeavor: Why and what’s at risk?

In line with the fast-advancing stablecoin legislation in the U.S., South Korea has taken on the currency-pegged crypto as its newest economic priority.The country's recently elected President Lee Jae Myung has vowed to approve the currently banned issuance of Korean won-pegged stablecoins and promote a local stablecoin market.Following the election, left-wing lawmaker Min Byeong-deok, Lee's head of digital assets during the campaign, proposed legislation establishing a licensing regime and a set of requirements for prospective stablecoin issuers."The use of dollar stablecoins is directly linked to the outflows of capital, while settlement of overseas transactions using won-based stablecoins can reduce domestic capital being converted into foreign currencies," Min told The Block. With Korean won (KRW) stablecoins, South Korea's new administration seeks to strengthen the country's independence from foreign currency-based assets and expand the won-based digital finance landscape to eventually broaden its economic and monetary landscape."This initiative is expected to yield several economic benefits such as reducing trade costs, diversifying foreign exchange risks, and increasing global investment into the local economy," Min said.In the interview with The Block, Min explained that the goal is to create an environment where private entities can issue won-pegged stablecoins and various industries — namely content creators, game developers and e-commerce platforms — can actively utilize the tokens.South Korea's private sector is already gearing up for the emergence of stablecoins, with KakaoPay, a leading mobile payment platform, filing related patent applications earlier this month."A Korean won-backed stablecoin can fill a niche as an alternative to traditional payment methods like bank wiring or currency exchange," wrote Sam Seo, chairman of the Kaia DLT Foundation. "Theoretically, Korean tourists bound for neighboring countries or tourists visiting Korea can exchange KRW for USD or vice versa, not in cash but in stablecoins to almost remove commission costs."CriticismHowever, some industry experts have questioned the actual efficacy of the initiative."KRW stablecoins won't solve the capital flight issue — they might even accelerate it," said Brian Hoonjong Paik, co-founder and CEO of bitcoin investment services firm SmashFi. "Unlike the dollar, the Korean won is not a globally accepted currency. Issuing a won-backed stablecoin doesn't suddenly give it international demand."According to data from the Atlantic Council, the U.S. dollar dominates global foreign exchange reserves, owning a share of 57%. The dollar was used for 88% of all foreign exchange transactions as of January 2025. The Korean won is grouped together with multiple others as nontraditional currencies, which share around 10% of reserves.Paik added that the stablecoin initiative could backfire by exposing the country's monetary system to speculative use in global crypto markets."Stablecoins match the demand for government bonds in that currency … No one is buying Korean won bonds," X user and bitcoin author "bonghyeon_bro" wrote. "Forcing use in public institutions or businesses may bring some initial results. I just hope that the people involved won't end up wasting resources and time."SmashFi's Paik also raised a potential issue that KRW stablecoins, expected to be private sector-led but largely overseen by the government, risk becoming a proxy-CBDC, potentially opening doors to financial censorship.Instead of allowing and promoting won-pegged stablecoins, Paik suggested South Korea take a similar route as El Salvador — building a national bitcoin reserve."Bitcoin is the only truly neutral, censorship-resistant, and globally liquid digital asset," Paik said. "[Bitcoin reserve] offers Korea a chance to strengthen its monetary sovereignty by owning an asset that can’t be debased or controlled by foreign governments."Real demand existsMin acknowledged that won is not a major global currency, but argued that there is "real demand" for won-pegged stablecoins."In the field of 'digital finance,' a won-based payment measure has realistic demand, seeing as Korean contents, gaming, e-commerce and other Korean services are expanding globally," Min said. "It could especially build a digital economic infrastructure for foreign users of Korean services or settlements with foreign merchants."According to the Ministry of Trade, Industry and Energy, South Korea reported $683.8 billion worth of exports last year, its highest-ever record, with widespread growth across exports IT, shipbuilding, automobile, cosmetics and other export sectors."In terms of global interoperability, many countries are currently promoting stablecoins based on local currencies, and BIS and IMF are also recommending currency digitization experiments in cross-border payments. South Korea should also take a preemptive measure to participate in the global payment infrastructure ecosystem," the lawmaker added.On concerns regarding the stablecoins possibly becoming a proxy-CBDC or a tool for censorship, Min drew a clear line, saying that the stablecoins would be strictly issued by the private sector and led by market demand."However, basic transparency, disclosure of reserves, and the issuer registration system are inevitable in order to meet international standards in anti-money laundering and counter terrorism," Min said. "This is not for capital control, but a minimum requirement to secure trust in the international financial market."Min also agreed that the government should make adjustments to adopt bitcoin into the country's financial space, in ways of incorporating the cryptocurrency into investment products, but said it would be difficult to follow the national bitcoin treasury model due to innate differences in currency policies, inflation structure and political environment. Crypto legislationMin's proposed legislation — the Digital Asset Basic Act — aims to help South Korea's comeback to the global digital economy. This follows a period of regulatory caution, largely stemming from the collapse of the South Korea-born TerraUSD stablecoin project that previously hindered authorities from promoting Web3 innovation.The proposal includes President Lee's various crypto commitments beyond stablecoins, such as lifting the ban on crypto exchange-traded funds and creating a Digital Asset Committee directly overseen by the president.SmashFi's Paik, while lauding the decision to push crypto ETFs, pointed out that the administration's crypto push is missing crucial elements — self-custody, decentralization and monetary freedom."Lee's agenda seems overly focused on financialization and capital control, not empowerment," Paik wrote. "There's no mention of protecting non-custodial wallets, supporting open-source development, or aligning with the Bitcoin ethos that underpins the entire space. That's a major blind spot."In response, lawmaker Min said such criticism is "well worth listening to," agreeing that the foundation of blockchain lies in decentralization and the right to self-control personal assets."In reality, however, a certain level of institutionalization is inevitable in areas where financial markets and consumer protection are linked," Min said. To strike a balance between preserving blockchain's core ethos and safeguarding market participants, the lawmaker said he will strive to introduce minimum rules on preventing unfair acts and investor protection without compromising the openness and creativity of blockchain technology."Going forward, we will ensure that market autonomy and right to self-custody will be guaranteed at a 'technology/protocol' level, and regulations and policies to intervene only in requiring the 'transparent operation of platforms,'" Min said.Disclaimer: The Block is an independent media outlet that delivers news, research, and data. 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