South Korea currently finds itself at a pivotal juncture in its digital-asset evolution. On one side, a surge in demand for stablecoins — digital tokens pegged to fiat currencies — is reshaping payment flows and crypto behaviour. On the other side, the country’s central bank and regulators are signalling strong caution about the risks of allowing stablecoin issuance to proliferate without tight controls. The tension between innovation and financial-stability is very much on display.

At the heart of the matter is the proposal that a Korean-won-pegged stablecoin (or several) be issued domestically. Indeed, several major banks and fintech firms have publicly stated their intention to launch won-backed stablecoins by late 2025 or early 2026. At the same time, the Bank of Korea (BOK) has publicly insisted that such stablecoins must be issued by regulated banks — not unregulated or lightly-regulated companies. The BOK’s reasoning centres on trust, monetary sovereignty and the need to prevent private-currency formation that can escape supervision.

In a recently released BOK report, the bank argued bluntly that stablecoins do not become safe simply because of blockchain technology; rather, the key foundation of any currency remains institutional trust and oversight. In that report the BOK points to historical episodes (such as free-banking periods in the U.S. and Korea’s own past currency-failures) as cautionary tales of private currency-issuance gone wrong. It cited the collapse of algorithmic stablecoins (for example the TerraUSD collapse) and other de-pegging events as evidence that having a peg alone is no guarantee of stability.

One of the central themes is de-pegging risk. The BOK emphasised that even major dollar-backed stablecoins may temporarily lose their 1:1 value, pointing to episodes where a stablecoin fell below its peg during banking stress. This underscores the bank’s concern that if won-pegged stablecoins proliferate without proper reserves, oversight and redemption backstops, a sudden loss of confidence could ripple into the broader financial system.

Hence the regulator’s strong preference: only banks, which are already subject to capital, foreign-exchange and anti-money-laundering regulation, should initially be permitted to issue won-stablecoins. This “bank-first” model is viewed by the BOK as the safer route. But this view is not without its critics.

One voice of dissent is Kaia DLT Foundation: its chair recently argued that limiting issuance only to banks “lacks logic”. His point: a more level playing field — where non-bank entities that meet stringent criteria can issue stablecoins — could foster innovation, competition and speedier uptake. He suggested that what matters is not who issues the token, but whether the issuer is trustworthy, transparent and backed by the right safeguards. In his view, allowing only banks risks stifling innovation, slowing rollout, and missing the broader opportunity of programmable money.

So we have two competing visions: a conservative, stability-first model (BOK) and a more open, innovation-oriented model (industry challengers). The market signals and legislative developments suggest South Korea is proceeding, but cautiously.

On the legislative front, the government is moving to formally recognise stablecoins as payment instruments under the law. A proposed revision to the Foreign Exchange Transactions Act would classify certain stablecoins as legal “means of payment,” placing them alongside traditional currency and banknotes. This change is motivated by rising concerns that stablecoins could be used to circumvent foreign-exchange controls, illicit capital flows or tax-evasion schemes. Indeed, regulators noted that stablecoin flows between domestic exchanges and offshore platforms surged many-fold in recent years — raising red flags.

At the same time, the regulatory framework remains under construction. Stablecoins currently fall under existing virtual-asset laws in South Korea — but a dedicated stablecoin regime has not yet been adopted. Under the current structure, issuing a virtual asset is generally prohibited unless authorised, and converting stablecoins into fiat for third parties is treated under the Virtual Asset Service Provider (VASP) regime with registration obligations. This legal uncertainty has been a source of friction for fintech firms eager to launch won-stablecoins.

From a market standpoint, the incentives for South Korean won-stablecoins are real. For domestic users, a local stablecoin could mean cheaper payments, more seamless integration with fintech platforms, and less reliance on dollar-denominated stablecoins (which often involve foreign-exchange leakage). For the country as a whole, supporting a home-grown digital-asset infrastructure could strengthen the KRW ecosystem and keep innovation onshore.

But the risks are also tangible. First, if stablecoins proliferate too fast without strong backing, they could fragment monetary policy transmission. If deposits migrate into stablecoins, banks’ funding could be weakened, impairing their ability to lend. Second, foreign-exchange stability might be challenged if large sums of won-pegged tokens are used cross-border or in offshore flows outside the central bank’s oversight. Third, investor trust is fragile: once a stablecoin loses its peg, redemption delays and runs may trigger systemic stress.

In sum, South Korea is at the crossroads of embracing stablecoins while trying to preserve financial stability. The current strategy appears to be: allow carefully controlled bank-issued won-stablecoins first, build out regulatory infrastructure, then expand issuance eligibility. Market participants appear to be aligning their roadmaps accordingly — major banks and fintech firms are preparing pilots or issuance roadmaps for late 2025 or early 2026.

Going forward, key watch-points will include:

• The exact criteria regulators set for stablecoin issuers (capital, transparency, reserves, redemption guarantees)
• Whether yield-bearing features will be allowed for stablecoins (the BOK has expressed concern that interest-paying stablecoins could compete with bank deposits)
• How rapidly non-bank entities gain access — and whether market entrants will feel the regime is fair and encouraging
• How market participants and users respond: will adoption of won-pegged tokens be smooth, or will users continue to favour dollar-stablecoins for their flexibility and global footprint?
• How the foreign-exchange and deposit flows evolve — if stablecoin issuance dilutes deposit bases or amplifies capital flight, regulators may act more aggressively.

In effect, the South Korean market is entering a phase of “controlled innovation” around stablecoins — threading the needle between enabling a new digital-money regime and maintaining the integrity of the traditional monetary and banking system.

For crypto-market watchers, this means South Korea may soon emerge as a laboratory for how a developed economy handles stablecoin issuance. If the won-stablecoin regime works smoothly and trust is maintained, it could become a model for other jurisdictions balancing innovation with oversight. Conversely, if mis-steps occur — peg breaks, liquidity runs, regulatory uncertainty — it could reinforce global caution around stablecoins.

In the short term, market sentiment may remain muted: while announcements and roadmap items are active, actual issuance and large-scale adoption are still some way off. This means any near-term trading impact may stem more from regulatory announcements and clarity than from token-issuance volumes. For projects planning to launch, alignment with bank participants, clear governance, transparent reserve structures and regulatory cooperation will likely determine who succeeds and who struggles.

Ultimately, the story here is about trust — in institutions, in rules, in technology. South Korea’s approach underscores the message that technology alone is not enough to underpin a currency. Without the backing of institutions and clear rules, even the most sophisticated crypto architecture may falter. The coming months will reveal whether South Korea builds a stable-and-innovative won-stablecoin ecosystem — or whether caution will slow the wave of adoption.