In-depth analysis of the capital博弈 behind the delayed launch of the Korean won stablecoin
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In-depth analysis of the capital博弈 behind the delayed launch of the Korean won stablecoin
The launch of the Korean won stablecoin is already late.
Navigating Web3 tides with focused insightsAuthor: Four Pillars
Translation: Tim, PANews
Key Takeaways:
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What is the current status of KRW stablecoin development? Let's analyze the positions and latest developments from the South Korean government, parliament, and corporate sector.
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The essence of stablecoins can be summarized as a "game of net inflows versus net outflows." Blockchain technology expands financial inclusivity, but for governments and corporations, the core question is whether this enhanced inclusivity will attract more capital inflows or trigger greater capital flight. All policies and strategies must be formulated based on such projections.
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Within this "net inflow vs. outflow" framework, KRW stablecoins present a difficult dilemma for both policymakers and businesses. However, the global financial system has already begun tilting toward blockchain. If South Korea hesitates, it risks being left far behind in the wave of financial innovation.
1. Lengthy Legislative Process
Currently, five separate bills related to KRW stablecoins have been proposed in South Korea. Bills were submitted by ruling party Democratic Party lawmakers Min Byung-deuk, Ahn Do-chul, Kim Hyun-jeong, and Lee Kang-il. Opposition party People Power Party lawmaker Kim Eun-hye also introduced a bill. While the overall frameworks of the five drafts are similar, they differ in details such as issuer eligibility, interest-bearing provisions, and collateral requirements.
In addition to legislative proposals, the Financial Services Commission (FSC) is preparing its second-phase digital asset regulations, which will include stablecoin oversight rules. Since the FSC will ultimately hold supreme regulatory authority over KRW-pegged stablecoins, the industry is closely watching its upcoming draft regulations.
Unlike in the United States, in South Korea companies can practically do nothing if the legal framework for a financial product hasn't been established. Therefore, the most critical question for businesses is when the KRW stablecoin legislation will actually pass.
According to the legislative activity report of South Korea’s 21st National Assembly, the average passage time for government-proposed bills is 435.2 days, while the average processing time for lawmaker-proposed bills is 657.1 days. The stablecoin bill that the FSC plans to submit in October 2025 falls under the government proposal category. Even counting from that point, actual implementation of KRW stablecoin legislation likely won’t occur until early 2027. This means that before then, neither domestic Korean companies nor foreign blockchain projects will realistically be able to advance concrete business plans.
2. Favoring Private Blockchains
From the outset, we've argued that for South Korea's blockchain industry to truly develop, KRW stablecoins must be issued on public blockchains like Ethereum or Solana. But currently, this vision appears unlikely to materialize.
The two public institutions expected to regulate KRW stablecoins are the Financial Services Commission and the Bank of Korea. The central bank's stance is clear: KRW stablecoins should be introduced, but there's no reason to rush. They prefer starting with private blockchains and gradually expanding outward. The newly appointed FSC chair even suggested that South Korea should build its own customized blockchain and issue stablecoins on top of it.
Their position isn't without merit. Unlike USD stablecoins, KRW stablecoins face high barriers due to foreign exchange regulations and capital flight risks. From a national economic management perspective, issuing KRW stablecoins directly on public blockchains would indeed be difficult to control.
South Korea is one of the few countries globally that doesn't rely on Visa and Mastercard for domestic payments, preferring its own payment systems. The country still bears deep scars from the 1997 foreign exchange crisis. As such, regulators favor keeping the economy within predictable boundaries. Given this context, KRW stablecoins are highly likely to debut first on private rather than public blockchains.
This direction may disappoint those advocating for the growth of South Korea’s blockchain ecosystem. Nevertheless, domestic system integrators and global blockchain foundations can still find opportunities here.
Domestic system integration firms are poised to win contracts to build Korea-specific blockchains tailored for stablecoin issuance. A clear example is LG CNS, an IT services subsidiary of the LG Group, which previously built the blockchain infrastructure for the Bank of Korea’s central bank digital currency pilot.
Public chain projects can still provide technical support for private networks handling KRW stablecoin issuance and distribution. Avalanche subnets and Arbitrum Orbit are prime examples. Any team experienced in building and operating large-scale public chains should be able to easily customize such solutions for Korea.
The utility of stablecoins primarily stems from their existence on public networks. For KRW stablecoins to be competitive, they must either launch directly on a public chain or, if politically constrained initially, eventually expand onto one.
If issuance is limited to private networks, the only path to success for a Korea-specific blockchain would be establishing a nationally operated private network where all financial services—stablecoins, tokenized assets, platform points, etc.—must plug into the same system.
Technically, this model preserves privacy, but for Korean citizens and the domestic market, it could simulate the user experience of a public chain. With one wallet and one KRW stablecoin, users could integrate remittances, payments, stock trading, and cryptocurrency trading on a single platform. This seems to be the only viable path satisfying the needs of the government, the blockchain industry, and end users alike.
Will KRW stablecoins be allowed on public chains? We can only wait and see. But the worst-case scenario is clear: fragmentation of the financial system through multiple competing private networks emerging domestically.
3. Companies in Wait-and-See Mode
Korean media headlines almost daily feature stories about companies applying for KRW stablecoin trademarks or considering stablecoin ventures. But externally, the reality seems quite different. In South Korea, corporate attitudes toward KRW stablecoins fall into two camps.
The first group is proactive. Generally, the smaller the company, the more enthusiastic it is about launching KRW stablecoin services. There are multiple reasons: smaller firms face lower regulatory risks compared to large conglomerates, and given the topic's popularity, entering the stablecoin space offers significant PR value.
But the problem is: stablecoins are a scale-driven business. On the issuance side, success requires scaling supply to achieve high liquidity and network effects. On the circulation side, it demands attracting a large base of users and merchants to generate real utility. Small firms can enter the market, but will hit scalability bottlenecks. Their best opportunities lie not in core issuance or circulation functions, but in adjacent service areas.
The second group is cautious. The larger the company, the more likely it is to remain观望, taking an extremely prudent stance. This caution stems from two main factors: First, legal uncertainty. As noted earlier, the legislative process for KRW stablecoin regulation is expected to take one and a half to three years. Under these market conditions, large enterprises cannot realistically launch stablecoin services before regulatory frameworks are finalized.
The second factor concerns commercial viability. Unlike USD stablecoins that serve vast global markets, KRW stablecoins are inherently domestic. For large firms already successful in domestic financial services, the incremental benefits of shifting to blockchain and stablecoins may not justify the investment.
4. Small Size of Korea's Short-Term Bond Market: Can Collateralized Stablecoins Be Issued?
Tether, issuer of USDT, holds $130 billion in U.S. Treasury bills and repurchase agreements. Circle, issuer of USDC, holds $63 billion in money market funds. In contrast, South Korea does not issue government bonds with maturities under one year. The government occasionally issues Treasury Fund-Bills to meet temporary funding needs, but their total size is only around $7 billion.
This means the short-term bond market available as collateral for KRW stablecoins is too small, posing a fundamental barrier to issuance. Recently, the Korea Capital Market Institute proposed issuing short-term government bonds specifically for stablecoin backing, but the Bank of Korea immediately rejected the idea, warning against it and suggesting instead using monetary stabilization bonds as an alternative.
These central bank-issued bonds, used to absorb market liquidity, typically mature in under three years, some as short as three months, and have a comparable total size, making them a potential alternative. Still, the market remains relatively small.
Beyond size, both government and stabilization bonds face another drawback as collateral: yield. U.S. short-term bonds yield around 4% on average, while Korean government and stabilization bonds yield just above 2%. For issuers, this low yield significantly undermines the incentive to operate a KRW stablecoin business—especially given its much smaller scale compared to USD stablecoins.
5. Other Misconceptions About KRW Stablecoins
There are several misconceptions in the Korean market regarding KRW stablecoins that need correcting.
First, the risks of issuing stablecoins on public networks are exaggerated. Even if KRW stablecoins are issued on public blockchains, rules defined by regulators and issuers can still be enforced via smart contracts. For example, transactions could be restricted to verified Korean users only. Securitize has already demonstrated the feasibility of this model with tokenized securities like BUIDL, which fully comply with regulations through smart contract logic. This means KRW stablecoins could circulate on public networks while allowing regulators full visibility over fund flows and protection against unforeseen risks.
The second misconception is that adopting KRW stablecoins would offer minimal improvement to user experience in South Korea, given its highly developed financial market. This view is only half true. Indeed, Korea's fintech infrastructure is robust, enabling users to access diverse financial services across multiple platforms. From this angle, blockchain-based stablecoins may not dramatically improve convenience—but they do bring several key advantages:
Cross-platform interoperability: Today, financial services are fragmented not only across platforms like Naver, Kakao, Toss, and Upbit, but also across functions such as remittances, stock trading, crypto trading, and payments. Blockchain and stablecoins can connect these silos, offering users a highly integrated experience.
Micro-payments: High transaction fees in the current financial system make small-value transactions impractical. Blockchain and stablecoin technologies offer a solution. Imagine paying only for the minutes you actually watch on a streaming platform, or earning proportional rewards based on ads viewed—a micro-payment economy could flourish.
Lower fees: This may not please card issuers and payment networks, but in an ideal stablecoin payment system, they wouldn't be necessary at all. Transaction costs could drop by 1%–2%. For high-frequency trading firms, this means substantial profit gains, a portion of which could be passed on to consumers as new benefits.
6. The Core Issue: Net Inflow vs. Outflow
Ultimately, the debate around KRW stablecoins boils down to a game of net inflows versus outflows. We live in an era of highly fragmented financial backends, where systems across continents, countries, and even within the same nation—banking, payments, securities settlement—are disconnected.
Blockchain has the power to unify all these systems. Today, stablecoins and RWA are hot topics in the U.S. precisely because people are pushing to replace outdated financial infrastructure with blockchain. In the broader trend of financial technology evolution, blockchain has become inevitable.
If blockchain integrates multiple financial systems, the result will be greater accessibility. Korean users could pay in KRW for services in Nigeria, Vietnamese users could buy Korean content with VND, Americans could spend Lotte points. On blockchain, anything becomes possible.
It is precisely this increased accessibility that governments and businesses must evaluate: Will launching KRW stablecoins bring more capital inflows or trigger greater outflows? For the U.S., the answer is clear: dollar dominance ensures net inflows, so USD stablecoins receive full support. For Korea, the calculation is more complex. Businesses must similarly ask: Will opening products globally create more value than risk?
From this perspective, one can begin to assess whether KRW stablecoin initiatives will be helpful or harmful.
7. Top-Down Adoption Pathway
South Korea is a financial powerhouse. In countries with unstable currencies, people naturally adopt stablecoins from the bottom up. In Korea, however, users have little incentive to voluntarily switch to KRW stablecoins.
If the government or corporations truly want to introduce stablecoins, they must cleverly embed them into backend systems. Users could enjoy new features powered by stablecoins without even realizing they exist.
For example, overseas remittances could become faster. Cross-platform payments could become seamless. Platform points could be easier to redeem. Subscription models based on micro-payments could emerge. All of these can be implemented top-down using stablecoins and blockchain backend technology.
If exchanges replace KRW with KRW stablecoins, users will follow. If fintech giants like Naver, Kakao, or Toss adopt KRW stablecoin options with incentives, users will follow. If streaming platforms launch micro-payment systems based on KRW stablecoins, users will follow.
8. What Is the Outlook for KRW Stablecoins?
After months of conversations with public institutions, financial firms, and corporations, I have yet to meet a single participant with a clear sense of purpose or a concrete plan for KRW stablecoins. Frankly, this is because even if the Korean won becomes more accessible via blockchain technology, its value proposition remains unclear.
Yet I believe Korea must move forward. In the U.S., the government, SEC, and CFTC are all actively advancing blockchain adoption. Banking, payment systems, and securities infrastructure are gradually being replaced by blockchain—this trend means the global shift from legacy backends to blockchain is only a matter of time.
The launch of KRW stablecoins is already late. But if, as current discussions suggest, Korea waits until 2027 to launch on private chains, it will fall far behind global progress. In this tough stablecoin race, the real question is whether Korea can still chart a meaningful course forward.
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