South Korea’s Ministry of Strategy and Finance announced on October 8 that it is reviewing measures to regulate stablecoins more strictly.
This decision comes amidst increasing criticism that stablecoins are emerging as a hidden threat in the foreign exchange landscape due to inadequate government oversight.
Rising Cross-Border Use and Industry Criticism
According to local media reports, the Ministry highlighted that stablecoins are primarily used for transactions and exchanges in the virtual asset ecosystem, with their role in cross-border transactions increasing.
The officials believe that these functions may soon extend to being major payment and transaction means in the real economy.
The Financial Services Commission (FSC) has also decided to prioritize stablecoins in the second legislative phase of the Virtual Asset User Protection Act (VAUPA). A spokesperson for the FSC stated, “We plan to consult with relevant ministries by referring to legislative cases in Japan, the European Union (EU), etc.”
These efforts come amid growing discontent among industry experts who argue that the nation has been slow to react to the increasing use of stablecoins in trade transactions. Critics argue that the government is only now reviewing related laws due to concerns about gaps in macroeconomic policy operations.
Stablecoins have gained prominence in the global capital market. Tether holds U.S. Treasury bonds worth $97.6 billion, inching closer to South Korea’s holdings of $116.7 billion, which ranks 18th globally.
In light of this, the nation’s government is compelled to apply foreign exchange regulations to transactions. A government official remarked,
“Stablecoin regulations will begin with establishing a system for issuing won-pegged coins.”
South Korea’s Regulatory Framework
Unlike South Korea, the EU and Japan have enacted regulations for stablecoins pegged to their currencies through the Markets in Cryptocurrencies Act (MiCA).
The rules require at least 30% of customer deposits to be held externally for stability and mandate exchanges to log cross-border transaction details. Countries like the U.S., U.K., and Australia are also progressing toward such a framework.
South Korea is developing its regulatory framework inspired by international practices. A significant change includes relaxing rules that prohibit corporations from holding virtual asset accounts and allowing stablecoin trade transactions to be included in official statistics.
Earlier this year, the country introduced the VAUPA, which stipulates that crypto exchanges like Upbit and Bithumb pay supervisory fees starting in 2025 based on their operating income.
The act also requires exchanges to keep at least 80% of user assets in cold storage, ensuring investments are risk-free. It also mandates regular reviews of listed trading assets, delisting those that do not meet standards.