South Korea has long been a significant player in the global cryptocurrency market, with a tech-savvy population and high trading volumes. However, its regulatory stance has evolved over the years, balancing innovation with investor protection. The Special Financial Information Act, introduced in 2021, established strict anti-money laundering (AML) requirements for crypto exchanges, mandating compliance with Know Your Customer (KYC) guidelines. In 2023, the Act on the Protection of Virtual Asset Users (VAUPA) was introduced to enhance consumer protections and regulate digital asset service providers.
Despite these measures, South Korea has maintained a cautious approach toward stablecoins, particularly after the collapse of TerraUSD (UST) in 2022, which was linked to a South Korean-founded project. The government has prohibited the issuance of domestic stablecoins, forcing exchanges to rely on foreign alternatives like USDT and USDC.
Lee Jae-myung’s Stablecoin Proposal
South Korea’s Democratic Party leader and presidential candidate, Lee Jae-myung, has proposed launching a won-backed stablecoin to curb capital flight and strengthen financial sovereignty. Between January and March 2025, South Korean exchanges recorded 56.8 trillion won ($40.8 billion) in crypto outflows, with nearly half tied to foreign stablecoins. Lee argues that a domestic stablecoin market would prevent national wealth from leaking overseas and reduce reliance on foreign currencies.
Potential Regulatory Shifts Under New Leadership
If Lee Jae-myung wins the presidency, South Korea’s crypto regulations could undergo significant changes. His broader digital asset strategy includes legalizing spot cryptocurrency ETFs and allowing institutional investments, such as the National Pension Fund, under government oversight. This marks a departure from previous administrations, which have been hesitant to integrate crypto into traditional financial markets.
Lee’s campaign also emphasizes lower transaction fees and enhanced oversight, aiming to make crypto markets more transparent and accessible. His proposed Digital Asset Basic Act would establish legal standards for crypto issuers, including mandatory reserves and approval from the Financial Services Commission (FSC).
Challenges and Concerns
Despite the potential benefits, Lee’s stablecoin proposal has sparked concerns among economists. Some experts warn that stablecoins could inflate the money supply and shift monetary control to private issuers. Shin Bo-sung, a senior researcher at the Korea Capital Market Institute, argues that stablecoins are “another form of banking, creating money out of nothing”.
Additionally, South Korea’s regulatory bodies, including the FSC and the Korea Financial Intelligence Unit (KoFIU), may impose strict oversight on stablecoin issuers to prevent risks associated with algorithmic stablecoins. The government’s cautious stance on stablecoins suggests that any new regulations would likely include rigorous reserve requirements and compliance measures.
The Future of Crypto Regulation in South Korea
If Lee Jae-myung’s proposals are implemented, South Korea could become a crypto-friendly jurisdiction, fostering innovation while maintaining regulatory safeguards. The legalization of crypto ETFs and institutional investments could attract more mainstream investors, integrating digital assets into the broader financial system.
However, the success of these initiatives will depend on regulatory clarity and market stability. South Korea’s approach to crypto regulation has historically been reactive, responding to market crises rather than proactively shaping policy. A new leadership could shift this dynamic, creating a structured framework that balances economic growth with investor protection.
South Korea’s crypto landscape is at a crossroads, and the upcoming election could determine whether the country embraces digital assets as a core component of its financial system or continues its cautious regulatory approach.
If Lee’s administration successfully implements these reforms, South Korea could emerge as a leading hub for regulated and institutionalized cryptocurrency adoption, setting a precedent for other nations navigating digital asset governance.
Shogun Lin
