Collaborative Launch of Stablecoin by South Korean Banks

Collaborative Launch of Stablecoin by South Korean Banks

South Korea Pushes Forward with Regulated Stablecoin Framework

South Korea is actively developing a regulated framework for stablecoins issued by Korean banks, with the aim of launching regulated spot crypto ETFs and Korean won (KRW)-pegged stablecoins by late 2025. This push comes as part of the government's broader digital asset ecosystem agenda.

The Financial Services Commission (FSC) has unveiled a comprehensive plan targeting infrastructure, custody, pricing, and investor protections for stablecoins and crypto ETFs. The presidential administration supports legalizing these instruments, aiming to create a trustworthy 'stablecoin' ecosystem through collaboration with banks and supporting the revitalization of the domestic blockchain industry.

Four major Korean banks – KB Kookmin, Shinhan, Woori, and NH Nonghyup – have decided to create a joint venture to issue a Korean stablecoin. KakaoBank, noteworthy among the large Korean banks, is leading regulated stablecoin development, forming cross-platform coalitions with fintech firms to build secure, KYC- and AML-compliant stablecoin frameworks.

The regulatory challenges in South Korea revolve around strict KYC/AML compliance and limiting stablecoin use to whitelisted addresses tied to Korea due to its tightly controlled won currency market. The won is not fully internationalized, and all foreign exchange happens through domestic intermediaries under Bank of Korea oversight. These controls ensure monetary sovereignty but may limit a won-pegged stablecoin’s usefulness beyond domestic, regulated participants.

Pilot programs led by financial institutions have been testing tokenized securities and stablecoin issuance integrated with blockchain-based clearing and settlement mechanisms, directly tied to the existing Capital Markets Act rather than crypto-specific laws. The Bank of Korea, meanwhile, has paused its CBDC pilot, favouring bank-led stablecoin experiments instead, aligning with the new government strategy on digital assets.

Enacting formal stablecoin regulations requires revision of many laws (951 identified amendments), with government targets to submit most changes by 2026. Though there is broad political support, rapid legislative progress is uncertain.

In addition, South Korea has started piloting tokenized deposits using a wholesale central bank digital currency (wCBDC) for interbank settlement. It's important to note that Korea was the launch location for the failed Terra algorithmic stablecoin, which triggered a wave of crypto bankruptcies and contributed to the collapse of the FTX crypto exchange.

The initiative is being coordinated by the Open Blockchain and DID Alliance, which has created a stablecoin working group with participating banks. Notably, Shinhan Bank and NH Nonghyup Bank are participating in Project Pax, a Japanese initiative for banks to use stablecoins for cross-border payments. The sole pre-commercialization banking partner for Project Pax is The Shoko Chukin Bank.

For more details about bank-issued stablecoins and tokenized deposits, refer to the report by Ledger Insights, available here.

[1] Financial Services Commission (FSC) Roadmap, 2023 [2] Official guidelines for blockchain-based tokenized securities and stablecoins, 2023 [3] Ledger Insights Report on Bank-Issued Stablecoins and Tokenized Deposits, 2023 [4] Seoul Business Daily, Banks Concerned about Funds Flowing out of Deposits to Stablecoins, 2023 [5] Bank of Korea Concerns about Visa or Mastercard launching a stablecoin, 2023

1. South Korea aims to launch regulated spot crypto ETFs and Korean won-pegged stablecoins by late 2025, as part of the government's broader digital asset ecosystem agenda.
2. The Financial Services Commission (FSC) has unveiled a comprehensive plan addressing infrastructure, custody, pricing, and investor protections for stablecoins and crypto ETFs.
3. KakaoBank is leading regulated stablecoin development, forming cross-platform coalitions with fintech firms to build secure, KYC- and AML-compliant stablecoin frameworks.
4. The regulatory challenges in South Korea revolve around strict KYC/AML compliance and limiting stablecoin use to whitelisted addresses tied to Korea due to its tightly controlled won currency market.
5. Pilot programs led by financial institutions have been testing tokenized securities and stablecoin issuance integrated with blockchain-based clearing and settlement mechanisms.
6. The Bank of Korea has paused its CBDC pilot, favoring bank-led stablecoin experiments instead, aligning with the new government strategy on digital assets.
7. South Korea has started piloting tokenized deposits using a wholesale central bank digital currency (wCBDC) for interbank settlement, with Shinhan Bank and NH Nonghyup Bank participating in Project Pax, a Japanese initiative for banks to use stablecoins for cross-border payments.

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