South Korea's crypto legislation hits a dead end: the battle over stablecoin policies delays key bill until 2026

South Korea’s comprehensive crypto regulation legislative process has encountered a major setback. The originally planned “Digital Asset Basic Law” has been officially postponed for review until 2026 due to fundamental disagreements within regulatory agencies over the core issue of stablecoin issuance entities.

The controversy centers on whether stablecoins should be issued under the control of a bank-held consortium to maintain financial stability, as insisted by the Bank of Korea, or whether such a move would stifle innovation by tech companies, as expressed by the Financial Services Commission. Although there is a consensus on investor protection, information disclosure, and even conditional relaxation of the ICO ban implemented since 2017, the deadlock over stablecoin regulation has forced President Yoon Suk-yeol to delay his promise to develop the domestic digital asset market. This “security versus innovation” debate not only concerns Korea’s market future but also reflects the global dilemma of crypto regulation.

Legislative Process Unexpectedly Stalled: Abundant Consensus but Difficult to Cross the Core Divide

In 2025, when major global economies are racing to improve their crypto asset regulatory frameworks, South Korea—one of the most active and mature cryptocurrency markets worldwide—has pressed the pause button at a critical legislative moment. According to authoritative reports from the Korea JoongAng Daily, the much-anticipated draft of the “Digital Asset Basic Law” has been officially delayed until 2026. This postponement disrupts the policy rhythm set by the current government and leaves market participants awaiting clearer legal guidance in a new round of cautious observation.

Ironically, this setback is not due to a lack of consensus among lawmakers. On the contrary, significant progress has been made within Korea’s financial regulators on many key components of the bill. There is widespread agreement on imposing strict regulations on digital asset service providers comparable to traditional finance, including mandatory disclosure regimes, strict advertising standards, and comprehensive user protection measures. Furthermore, the draft introduces strict liability clauses similar to those in e-commerce, meaning that in the event of hacking or system failures, trading platforms could be liable for user losses even without clear fault. These provisions demonstrate Korea’s firm resolve to restore market order and rebuild investor confidence.

However, all this broad consensus is undermined by a micro-level issue: who should be the issuer of stablecoins? On this point, Korea’s two main pillars of the financial system— the Bank of Korea and the Financial Services Commission—hold sharply opposing positions, refusing to back down. This debate reveals the complexity of crypto legislation: it is no longer a simple “support or oppose” debate but a deep contest of differing regulatory philosophies, departmental responsibilities, and visions for the future of finance. The shadow of the Terra (LUNA) project collapse has made “stability” an unshakable prerequisite for discussion; yet Korea’s strong tech industry base makes policymakers reluctant to miss out on leading the next generation of financial technology due to excessive conservatism. This dual pressure has created an intractable regulatory deadlock.

The Core of the Stablecoin Deadlock: Bank Control vs. Tech Innovation

As an anchor between the crypto world and the real economy, stablecoins’ regulatory design directly determines the future flow paradigm and application boundaries of digital assets. Korea’s proposal has already imposed one of the strictest “bridles” globally: issuers must hold 100% reserves in cash deposits or government bonds, with all assets held in fully regulated financial institutions such as banks. This “full reserve, strict custody” model aims to fundamentally eliminate the risk of collapse associated with algorithmic or partial-reserve stablecoins, ensuring every circulating stablecoin is backed by tangible assets.

However, the real legislative “storm” centers not on these technical requirements but on the qualification of the issuer. The Bank of Korea, as the guardian of national monetary sovereignty, firmly advocates a “bank-held consortium” model, requiring stablecoin issuers to be majority-controlled (at least 51%) by traditional commercial banks. The Bank’s logic is clear and resolute: only by keeping the issuance power firmly within well-capitalized, directly regulated banks deeply embedded in the existing monetary policy transmission mechanism can systemic risks threatening financial stability and monetary sovereignty be effectively prevented. For central bank officials, this is an uncompromising safety bottom line.

In stark opposition stands the stance of the Financial Services Commission (FSC). As the regulator of broader financial markets and innovation activities, FSC strongly opposes rigid bank shareholding thresholds. Its officials have repeatedly warned that limiting issuance rights to banks effectively excludes core blockchain technology firms and application developers from the game. This could slow Korea’s development in cutting-edge financial sectors like payments, cross-border remittances, and DeFi, and may force domestic innovative companies to relocate overseas to more permissive regulatory environments. FSC favors a licensing framework centered on behavioral and outcome-based regulation: as long as firms meet strict reserve custody, auditing, and operational standards, whether they are banks or tech companies, they should have equal opportunities.

This “bank vs. tech” regulatory route dispute extends to the regulatory architecture itself. The Bank of Korea advocates establishing a new, independent administrative licensing committee for stablecoins; FSC believes the existing cross-departmental coordination mechanisms are sufficient, and creating new agencies would only cause unclear responsibilities and administrative inefficiency. The dispute is far from over; fundamentally, it is a struggle for the strategic high ground of digital currency issuance rights. Until both sides find a balance of interests, the entire legislative process can only remain at a standstill.

The Law’s Far-reaching Impact and Market Chain Reactions

Despite the deadlock over stablecoin provisions, other parts of the “Digital Asset Basic Law” draft outline a regulatory blueprint capable of reshaping Korea’s crypto market. The most notable policy reversal is the conditional relaxation of the ban on initial coin offerings (ICOs), in effect since 2017. The draft proposes allowing local projects that meet strict disclosure, third-party audit, and risk management standards to conduct ICOs. This shift is significant, signaling a move from an outright ban to a compliance-guided approach, aiming to bring domestic blockchain projects’ fundraising activities back home and place them under regulatory oversight, fostering a healthy innovation ecosystem.

Additionally, the bill will significantly raise compliance costs and operational standards for all digital asset service providers. Besides disclosure and advertising regulations, the “strict liability” clause—where platforms could be held liable for security incidents even without fault—forecasts a major industry shakeout. Weaker, underfunded, and insecure platforms will face survival challenges, with resources likely to concentrate in large, compliant institutions capable of building robust security systems and bearing associated risks. This “the strong get stronger” trend may reduce market diversity and vitality in the short term but could establish a more reliable and stable infrastructure in the long run.

The legislative delay introduces uncertainty into the market. While the US attracts hundreds of billions of dollars through spot Bitcoin ETFs, and Hong Kong and Singapore actively develop frameworks to attract crypto firms, Korea’s hesitation may cause it to fall behind in the global race for crypto capital and talent. Institutional investors tend to be cautious in regions with ambiguous legal environments, and some local projects may choose to go abroad rather than wait. Conversely, this cautious approach also avoids the pitfalls of rushed legislation following the Terra crisis. Korean regulators seem willing to sacrifice speed to build a more solid, crisis-resistant regulatory system.

Post-Terra Global Regulatory Lessons

Korea’s current legislative dilemma exemplifies a classic case of “post-Terra” global crypto regulation paradigm shift. The collapse of Terraform Labs was not just a business failure but a profound risk lesson that has reshaped the psychological thresholds of Korean and global regulators—financial stability now takes absolute precedence over the pursuit of technological innovation speed. This mindset shift means that any financial innovation touching the core of money creation and payment systems, especially stablecoins, must undergo the strictest scrutiny and adhere to the highest standards.

Korea’s story clearly demonstrates that crypto asset legislation is an extremely complex systemic project. It involves more than drafting legal texts; it is an art of balancing multiple goals—financial stability, technological innovation, investor protection, industry competitiveness, and international cooperation. The differing perspectives of central banks and financial regulators, due to their responsibilities, are sharply amplified in this emerging field. Korea’s “delay” offers other countries observing or drafting similar laws a valuable window to assess the potential benefits and costs of different regulatory paths.

It is also worth noting that while macro-level legislation progresses slowly, Korea continues to intensify enforcement in areas like anti-money laundering and anti-fraud. Recently, authorities announced a significant expansion of the “Travel Rule” scope, lowering reporting thresholds from tens of millions of Korean won to about 1 million won. This move aims to close loopholes used for money laundering and illegal financing through transaction fragmentation, reflecting Korea’s regulatory philosophy of “strict boundary enforcement alongside cautious core rule development.”

Looking ahead to 2026, the prospects for Korea’s crypto legislation depend on high-level political compromise. A possible approach is to design a differentiated licensing system: for “general” stablecoins intended for broad retail use and potentially systemically important, a bank-led or highly capitalized issuance model; for “specialized” stablecoins used within specific ecosystems, transaction scenarios, or limited scales, more inclusive standards matching their risk profiles. Regardless of the path, Korea’s regulatory marathon will ultimately provide an indispensable Asian answer to global digital asset governance. For all market participants, maintaining compliance and strengthening risk resilience until the 2026 law is finalized remains the key to survival and growth in this critical market.