South Korean presidential candidate Lee Jae-myung, the Democratic Party leader and front-runner for the June 3, 2025, election, has proposed accelerating stablecoin regulation, specifically advocating for a won-pegged stablecoin to curb capital outflows and enhance financial sovereignty. His plan aims to reduce reliance on foreign-issued stablecoins like USDT and USDC, which dominate local crypto markets due to South Korea’s current prohibition on domestic stablecoin issuance.
Lee’s proposal includes the Digital Asset Basic Act to establish a legal framework for cryptocurrencies, covering stablecoin issuance, trading, and regulation with requirements like substantial reserves and Financial Services Commission (FSC) approval. This marks a shift from South Korea’s historically cautious crypto stance, following the recent lifting of a ban on corporate crypto trading. However, the Bank of Korea’s Governor, Lee Chang-yong, has emphasized that stablecoin regulation is urgent, warning that foreign stablecoins could bypass capital and foreign exchange regulations.
Critics, including rival candidate Lee Jun-seok of the Reform Party, argue that Lee Jae-myung’s proposals lack market understanding and could be risky, citing past issues with volatile stablecoins like Terra’s UST. Economists also caution that private stablecoin issuance might undermine the central bank’s control over inflation and liquidity. A won-pegged stablecoin could reduce South Korea’s reliance on foreign stablecoins (e.g., USDT, USDC), which currently dominate 99% of local crypto trading volume. This could limit capital outflows, as foreign stablecoins facilitate cross-border transactions that bypass South Korea’s strict capital controls.
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By issuing a domestic stablecoin, South Korea could strengthen its monetary policy control, reducing the influence of foreign currencies like the USD in its crypto markets. This aligns with concerns from the Bank of Korea about foreign stablecoins undermining capital and foreign exchange regulations. A regulated stablecoin framework could foster trust in digital assets, encouraging adoption and investment in South Korea’s crypto market, which is among the world’s most active. However, poorly designed regulations or volatile stablecoin models (e.g., Terra’s UST collapse in 2022) could destabilize markets and erode public confidence.
Private stablecoin issuance might conflict with the Bank of Korea’s authority over monetary policy, potentially complicating inflation and liquidity management. The central bank is exploring a central bank digital currency (CBDC), which could compete with or complement a won-pegged stablecoin. Lee’s pro-crypto stance targets younger voters and crypto enthusiasts, a significant demographic in South Korea, where crypto trading is popular. His promise to lift ICO bans and regulate stablecoins could position him as a forward-thinking candidate.
Rushed or poorly crafted regulations could lead to financial instability, potentially damaging Lee’s credibility if elected. The Terra-Luna crash, linked to South Korean founders, remains a cautionary tale for voters and regulators. South Korea’s move could set a precedent for other Asia-Pacific nations with active crypto markets, like Japan or Singapore, to develop their own stablecoin regulations. A won-pegged stablecoin could challenge the dominance of USD-based stablecoins, though its global adoption may be limited due to the won’s smaller international footprint.
Local exchanges, blockchain startups, and crypto traders support Lee’s proposal, as it could legitimize the industry, attract investment, and reduce dependence on foreign platforms. The recent FSC approval of corporate crypto trading accounts has already boosted optimism. Lee’s pro-crypto policies resonate with tech-savvy, younger demographics who see digital assets as a hedge against economic uncertainty and a path to financial innovation. Policymakers and economists favoring reduced reliance on USD-based systems see a domestic stablecoin as a step toward greater economic independence.
The central bank, led by Governor Lee Chang-yong, warns that private stablecoins could undermine monetary policy and enable regulatory evasion. Economists argue that only a CBDC under central bank control can ensure stability. Lee Jun-seok of the Reform Party criticizes the proposal as populist and poorly thought-out, arguing it lacks understanding of crypto market dynamics and risks repeating past failures like Terra’s UST.
Critics highlight South Korea’s history of stringent crypto oversight (e.g., real-name trading laws, high taxes on crypto gains) and question whether the FSC can implement robust regulations without stifling innovation or exposing consumers to risk. South Korea’s crypto market is vibrant, with over 7 million active traders (14% of the population) as of 2024. Many support deregulation and innovation but remain wary after the $40 billion Terra-Luna collapse.
Older generations and conservative investors, scarred by past crypto scandals, favor stricter oversight or a CBDC over private stablecoins, fearing volatility and fraud. Lee Jae-myung’s push for accelerated stablecoin regulation reflects a balancing act between fostering innovation and addressing economic risks. While it could strengthen South Korea’s crypto market and financial sovereignty, it faces resistance from traditional financial institutions and skeptics wary of regulatory missteps.