South Korea’s Ruling Party Proposes Digital Asset Basic Act to Legalize Stablecoin Issuance

On June 10, South Korea’s ruling Democratic Party, led by newly elected President Lee Jae-myung, introduced the Digital Asset Basic Act, a legislative proposal designed to regulate and promote the issuance of stablecoins by local companies, Bloomberg reported. The bill aligns with Lee’s campaign pledge to bolster the country’s digital asset ecosystem, reinforcing South Korea’s position as a global leader in cryptocurrency adoption. By establishing a licensing regime for stablecoin issuers, the legislation seeks to enhance transparency, protect investors, and foster competition in the crypto sector.

A Step Toward Stablecoin Regulation

The Digital Asset Basic Act, proposed by Democratic Party lawmaker Min Byeong-deok, sets a framework for South Korean companies to issue stablecoins pegged to the Korean won. To qualify, companies must maintain a minimum capital of 5 billion Korean won (approximately $367,876) and ensure full asset backing to guarantee user redemptions. This requirement aims to mitigate risks and ensure financial stability for stablecoin users.

The bill builds on South Korea’s existing Virtual Asset Investor Protection Act, which took effect in July 2024 and focused on investor safeguards. The new legislation expands this framework by introducing a structured regulatory environment for stablecoins, addressing a critical gap in the country’s crypto regulations. Min Byeong-deok, who leads the Democratic Party’s Digital Asset Committee, emphasized that the bill could position South Korea as a leader in the global digital economy.

South Korea’s Vibrant Crypto Market

South Korea is a hotbed for cryptocurrency activity, with more than 16 million people — over a third of the population — engaged in the digital asset market. Trading volumes on domestic crypto exchanges have, at times, surpassed those of the Korea Composite Stock Price Index (KOSPI) and the KOSDAQ, underscoring the market’s significance. In the first quarter of 2025, transactions involving major US dollar-pegged stablecoins, such as Tether’s USDT and Circle’s USDC, reached 57 trillion won ($42 billion) across five major domestic exchanges, according to Bank of Korea data.

This surge in stablecoin activity highlights the growing demand for digital assets that offer price stability, making the proposed legislation timely. The bill’s focus on won-pegged stablecoins aims to retain domestic capital and reduce reliance on foreign stablecoins, which could help prevent capital outflows — a priority articulated by President Lee during his campaign.

Kaia’s Stablecoin Ambitions

Layer-1 blockchain Kaia, backed by South Korean tech giant Kakao, has already signaled its intent to launch a won-pegged stablecoin, capitalizing on the improving regulatory environment. Kaia’s involvement carries weight due to Kakao’s dominance in South Korea’s digital services, including messaging, navigation, and fintech through Kakao Pay. The latter is seen as a potential beneficiary of a domestic stablecoin ecosystem, given its existing digital wallet infrastructure and QR code payment systems.

Kaia’s stablecoin initiative follows the merger of Kakao’s Klaytn blockchain with LINE-backed Finschia, forming a robust platform for Web3 innovation. The company’s commitment reflects growing private-sector interest in stablecoins, supported by the Democratic Party’s push for innovation over central bank exclusivity, despite constitutional provisions granting the Bank of Korea sole authority over currency issuance.

Lessons from Terra’s Collapse

The push for stablecoin regulation comes with historical context. South Korean investors still recall the collapse of the Terra blockchain and its algorithmic stablecoin, TerraUSD (UST), in May 2022, which wiped out billions in value and shook confidence in the crypto market. Unlike Terra’s algorithmic model, the proposed legislation emphasizes fiat-backed stablecoins with full reserves, aligning with global regulatory trends to ensure stability and user trust.

Global Context and Local Impact

South Korea’s move mirrors global efforts to regulate stablecoins. In the United States, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) is advancing through the Senate, mandating full backing by US dollars or liquid assets and annual audits for large issuers. Similarly, Hong Kong has introduced a stablecoin licensing regime, reflecting a broader trend of regulatory clarity driving adoption.

Locally, the Digital Asset Basic Act is expected to stimulate South Korea’s crypto market, which has shown resilience despite past scandals in Terra’s Collapse. A survey by the Korea Chamber of Commerce and Industry found that nearly 58% of respondents plan to increase their crypto holdings under Lee’s administration, signaling strong retail investor confidence. However, challenges remain. The Korean won’s status as a tightly controlled currency with strict capital restrictions could complicate integration into global crypto markets.

Looking Ahead

The Digital Asset Basic Act represents a pivotal step for South Korea’s crypto industry, balancing innovation with investor protection. If passed, the bill could pave the way for a thriving won-pegged stablecoin market, reinforcing South Korea’s role as a global crypto hub. As the National Assembly reviews the legislation, industry stakeholders and investors will closely monitor its progress and its potential to reshape the digital asset landscape.