South Korean lawmakers have issued an urgent warning, demanding immediate regulatory action on stablecoins as a critical 10% correction in market stability looms. The push comes amid a heated clash between the Bank of Korea and the Financial Services Commission that has stalled the Digital Asset Framework Act, with the discovery of an offshore KRW-pegged stablecoin intensifying fears of unregulated financial exposure.

Why is South Korea’s stablecoin law stuck? 

Rep. Kim Sang-hoon, a key lawmaker from the ruling People Power Party and chairman of the Special Committee on Digital Assets, is publicly demanding that the National Assembly prioritize stablecoin legislation and stop wasting time on controversial proposals.

During a spring conference of the Korean Commercial Law Association in Seoul, Rep. Kim warned that while politicians argue over governance structures, the market is already moving ahead without them, despite President Lee Jae-myung’s administration promising swift action. 

Rep. Kim mentioned the emergence of a Korean won stablecoin reportedly issued and circulated overseas as a direct threat to national monetary sovereignty.

“The reality that stablecoins are being issued and distributed overseas first is raising serious concerns about our currency sovereignty,” Kim said, according to local media reports.

Rep. Kim criticized the delay in approving the framework, saying that “governance issues such as limiting the stakes of major shareholders suddenly take up the center of the discussion,” pushing essential market stability discussions to the back burner.

The much-anticipated second phase of the Digital Asset Framework Act is still stuck in committee due to the Financial Services Commission (FSC) and the Bank of Korea (BOK) being unable to agree on who should issue a Korean won stablecoin. 

Major meetings between the ruling party and the FSC have also been postponed due to external factors, including the Iran-US situation and the June 3 local elections. 

The Bank of Korea argues that only consortia where banks hold a majority stake (50% plus one share) should be allowed to issue these assets to ensure financial stability. However, the Financial Services Commission reportedly disagrees with legally enforcing a specific percentage, arguing that it should leave room for technology companies and fintech startups.

Exchange shareholding limits

The second major issue involves regulating the exchanges that would list these assets. The government is reportedly considering a rule similar to the Capital Markets Act, which limits major shareholders in crypto exchanges like Upbit operator Dunamu or Bithumb to between 15% and 20%. 

The industry has responded negatively, calling it unconstitutional and saying it would destroy shareholder value. 

Lawyer Han Seo-hee, an advisor to the Democratic Party’s Digital Asset TF, argued at the same conference that such limits violate property rights and equal protection principles. She pointed out that no other major jurisdiction, including the EU, the US, or Singapore, imposes such rigid ownership caps on exchanges. 

Interestingly, while the government goes back and forth on equity caps, the Democratic Party is moving forward with provisions to regulate Real World Assets (RWA). A draft integration plan seen by the Seoul Economic Daily proposes that issuers of RWA tokens must store those assets in a managed trust under the Capital Markets Act. 

The opposition Democratic Party’s Digital Asset TF, led by Lee Jung-moon, has urged the National Assembly to start discussing the bills immediately. They argue that since eight different digital asset bills have already been submitted, waiting for the “perfect” government proposal is a waste of time. 

However, Professor Lee Jong-seop of Seoul National University stated that “the essence of the stablecoin crisis is not a problem of governance structure” but how to secure market trust through proper reserve holdings.

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