Countdown to South Korea's stablecoin legislation! The ruling party issues an ultimatum, submit the bill by December 10.

The ruling Democratic Party of Korea issued an ultimatum to the financial authorities, urging them to expedite the formulation of local stablecoin market-related laws. The ruling party has notified the country's Financial Service Commission, requesting a government proposal on stablecoin regulation to be submitted by December 10, and stated that this is the final demand. The authorities are considering a plan that would allow the Bank of Korea, FSC, and the banking industry to form an alliance to issue stablecoins, requiring banks to collectively hold more than 50% of the shares in the consortium.

Background of South Korea's stablecoin legislation: Currency sovereignty defense battle

With South Korean President Lee Jae-myung (who was elected earlier this year) making the development of the Korean won stablecoin market one of his main initiatives, aimed at protecting South Korea's monetary sovereignty from the dominance of the US dollar stablecoin market, efforts for local stablecoins in South Korea have gained momentum. This concern for monetary sovereignty is not unfounded, but is based on the current reality of the global stablecoin market.

Currently, the global stablecoin market is dominated by USD-pegged stablecoins such as USDT and USDC, with a total market capitalization exceeding $200 billion. These USD stablecoins are widely used in cross-border payments, cryptocurrency trading, and DeFi applications. For non-U.S. countries, this dominance brings multiple risks. The first is the risk to financial sovereignty; when domestic residents and businesses heavily use USD stablecoins, they are essentially using USD instead of their local currency, which undermines the effectiveness of the monetary policy of their central bank.

Secondly, there is the risk of payment systems. If the US dollar stablecoin becomes the primary payment tool, the domestic payment systems and financial infrastructure may be marginalized. Thirdly, there is a loss of regulatory control; the issuers of US dollar stablecoins are typically based in the United States or offshore jurisdictions, making it difficult for Korean regulators to impose effective oversight. If these stablecoins encounter issues (such as insufficient reserves or issuer bankruptcy), Korean users will face losses with no recourse for compensation.

In light of these concerns, the South Korean government has decided to promote the development of a local Korean won stablecoin. This strategy is not uncommon globally, as the European Union is also advancing the euro stablecoin, and countries like Japan and Singapore are exploring local currency stablecoins. By establishing a domestic stablecoin, South Korea hopes to maintain control over its monetary system while preserving the advantages of blockchain technology.

Despite some legislators proposing a regulatory framework for establishing a local stablecoin market, there has been no substantial progress in the legislative work. The bank-led alliance model currently under discussion seems to reflect the firm stance of the Bank of Korea, which asserts that stablecoin issuance should be limited to regulated banks. This conservative position contrasts with the model in the United States, which allows non-bank entities such as Circle and Paxos to issue stablecoins.

Central Bank Banking Alliance Model: The Deep Logic of 50% Bank Equity Holding Requirement

On Monday, members of the ruling party committee and the Financial Supervisory Commission held a closed-door meeting to discuss the matter. Jiang Junxuan told the Daily News that the authorities are considering a proposal that would allow the South Korean Central Bank, FSC, and the banking sector to form an alliance to issue stablecoins. The parties involved advanced the discussion and exchanged views on specific requirements, such as requiring banks to collectively hold more than 50% of the shares of the consortium.

The design of this alliance model is highly characteristic of South Korea. The Central Bank of Korea participates as the monetary policy maker, ensuring that the issuance of stablecoins aligns with monetary policy objectives. The FSC (Financial Supervisory Commission), as the financial regulatory authority, participates to ensure that the issuance and operation of stablecoins comply with regulatory standards. The banking sector, as the actual operator, provides the technical infrastructure and customer service.

The requirement for banks to hold more than 50% of the consortium's shares is extremely critical. This requirement ensures the dominance of the banking sector within the alliance, preventing the issuance of stablecoins from being controlled by technology companies or cryptocurrency firms. From a risk management perspective, banks have established compliance systems, risk control mechanisms, and good communication channels with regulatory authorities, making it relatively more secure for them to lead the issuance of stablecoins.

Key Elements of the South Korean Stablecoin Alliance Model

Participants: Bank of Korea, Financial Services Commission (FSC), banking industry

Control: The total shareholding of the bank must exceed 50%.

Issuance Entity: Limited to regulated banks

Regulatory Logic: Conservative and prudent, prioritizing financial stability

However, the Financial Service Commission stated in another announcement that no final agreement was reached during the meeting. This indicates that there are still differences among the parties regarding specific details. Possible points of contention include: the role and power of the Central Bank within the alliance, how shares are allocated among banks, reserve requirements for stablecoins, and competitive strategies against existing USD stablecoins.

The advantage of this bank-dominated model is stability and credibility, but the disadvantage is that innovation may be limited. Banks are usually more conservative and may be reluctant to quickly iterate products or explore new application scenarios. In contrast, stablecoins led by technology companies or crypto firms (such as USDC) tend to be more innovative and market-sensitive. South Korea needs to find a balance between stability and innovation.

Deadline on December 10 and Legislative Sprint in January

According to local media reports, the party's goal is to pass the bill before January. It is reported that Jiang Junxuan stated that the party plans to introduce the bill during the current session of the National Assembly and obtain its passage in January. This timeline is extremely tight, with only about 3 weeks between the government's submission of the proposal on December 10 and the passage of the legislation in January.

There are multiple considerations behind this accelerated legislation. Firstly, there is the political timing; the ruling party hopes to push important legislation early in its term to demonstrate its governance capability and determination. Secondly, there is market pressure, as South Korea is one of the most active markets for cryptocurrency trading globally, and the demand for stablecoin usage is strong. The lack of a domestic stablecoin forces South Korean users to rely on USD stablecoins, exacerbating the loss of monetary sovereignty.

Thirdly, there is international competition, as multiple countries and regions around the world are promoting local stablecoin legislation. The United States' GENIUS Act, the EU's MiCA framework, and the stablecoin regulations in Japan and Singapore are all advancing rapidly. If South Korea moves too slowly, it may lose its voice in the formulation of rules in the global stablecoin market.

However, a three-week timeframe from proposal to legislative passage is nearly impossible to achieve under normal circumstances. Legislation typically requires multiple rounds of discussions, public hearings, debate on amendments, and other procedures. This extremely compressed schedule may imply one of two scenarios: either the ruling party has enough parliamentary majority to force the bill through, or the “January passage” goal is actually a negotiation strategy, with the real passage time possibly being much later.

Kang Jun-hyun's statement was extremely firm: “If the government's plan is not released within this deadline, I will promote the implementation of the plan through a bill initiated by lawmakers at the committee secretary level.” This threat indicates that the ruling party has lost patience and is determined to push for legislation in the short term, no matter what. If the government fails to submit the proposal on time, the bill initiated by the legislators may bypass the government and be directly advanced in Congress.

From a procedural perspective, bills initiated by members of parliament are usually harder to pass than government proposals, as they lack the support and resources of the executive branch. However, if the ruling party holds a majority in parliament, this procedural hurdle can be overcome. The key lies in whether the ruling party can persuade enough members of parliament to support the bill, and whether the opposition will cooperate or obstruct.

Opportunities and Challenges of Korean Won Stablecoin

Although South Korea's strategy to promote local stablecoin is reasonable, it faces multiple challenges. First is market acceptance; users are already accustomed to using USDT and USDC, and it is not easy to convince them to switch to the Korean won stablecoin. Unless the Korean won stablecoin has clear advantages in terms of cost, speed, or application scenarios, it will be difficult to compete with established US dollar stablecoins.

Secondly, there are cross-border usage restrictions. The Korean won is not an international reserve currency, and the acceptance of Korean won stablecoins in cross-border payments and international trade may be much lower than that of US dollar stablecoins. This limits its application scenarios and may restrict its circulation to the domestic market in South Korea.

The third challenge is technical and operational; although banks have compliance advantages, their experience in blockchain technology and cryptocurrency operations is far less than that of professional crypto companies. If the technical implementation of the Korean won stablecoin is poor (e.g., slow transfer speeds, high costs, poor wallet integration), the user experience will be significantly compromised.

However, South Korea also has its unique advantages. South Korea has one of the most active cryptocurrency trading communities in the world, and local users have a high acceptance of innovative financial products. If the KRW stablecoin can be deeply integrated with South Korea's major cryptocurrency exchanges (such as Upbit and Bithumb), offering favorable trading fees or unique trading pairs, it may quickly establish a user base.

In addition, if the South Korean government mandates that certain scenarios must use the Korean won stablecoin (such as government subsidy disbursement, tax payments, or specific cross-border remittances), demand can be artificially created. Although this administrative push does not conform to market principles, it may be necessary when establishing the initial market.

In the long run, the success of the Korean won stablecoin depends on whether it can find differentiated application scenarios. For example, focusing on cross-border payments between Korea and its trading partners, serving the global fan economy of the Korean Wave cultural industry, or integrating into Korea's leading gaming and entertainment platforms. If it can establish advantages in these verticals, the Korean won stablecoin may find its niche.