South Korea’s Stablecoin Bill Stalls as Ruling Party Faces Critical Deadlock

SEOUL, South Korea – January 28 – A critical legislative effort to establish a comprehensive regulatory framework for digital assets in South Korea has hit a significant roadblock. The ruling Democratic Party has failed to reach an internal consensus on key provisions of its planned Digital Asset Basic Act, casting uncertainty over the future of cryptocurrency and stablecoin regulation in one of the world’s most active digital asset markets. This development delays crucial decisions on bank authority and exchange ownership that could shape the industry for years.

South Korea’s Stablecoin Bill Faces Internal Division

The Democratic Party’s digital asset task force announced the deadlock on January 28, revealing deep internal divisions on several sensitive issues. According to a detailed report from the financial news outlet Edaily, the party cannot agree on two fundamental pillars of the proposed legislation. Consequently, the scope of the Bank of Korea’s supervisory authority and restrictions on major shareholders of cryptocurrency exchanges remain unresolved. The task force chairman, Lee Jeong-moon, confirmed that these contentious points require further coordination with both government agencies and party members before the bill can proceed.

This legislative impasse occurs against a backdrop of rapid global movement toward digital asset regulation. Major economies are racing to establish clear rules, and South Korea’s delay could impact its competitive position. The domestic market features millions of active traders and several globally recognized exchanges. Therefore, regulatory clarity is not merely a bureaucratic exercise but a necessity for market stability and investor protection. The proposed Digital Asset Basic Act aims to provide that clarity, but its path forward is now clouded.

Bank Consortium Proposal Sparks Sharp Debate

A central point of contention involves the proposed framework for issuing won-denominated stablecoins. The current draft includes a provision that would grant issuance rights exclusively to consortiums where traditional banks hold a controlling stake of over 51%. Chairman Lee Jeong-moon stated that opinions on this model are “sharply divided” within the party. Proponents argue that this bank-led approach ensures financial stability, leverages existing regulatory frameworks, and protects consumers by tying stablecoin value directly to the national currency under strict oversight.

However, critics within the party and the broader industry contend that this model stifles innovation. They argue it could create an oligopoly, limiting competition from fintech startups and potentially slowing the development of a more diverse and innovative digital won ecosystem. A compromise proposal has been sent to both the Bank of Korea and the Financial Services Commission for review, but no agreement has been reached. This debate mirrors global discussions on whether stablecoins should be bank-centric or open to a wider range of regulated entities.

• Bank-Centric Model: Grants issuance rights only to consortiums with >51% bank ownership.
• Key Argument for: Ensures stability, consumer protection, and aligns with traditional finance regulation.
• Key Argument against: Risks creating a closed market that limits competition and technological innovation.

Expert Analysis on the Regulatory Impasse

Financial policy analysts note that this deadlock reflects a fundamental tension in regulating emerging technologies. On one side, there is a paramount need for safety and systemic risk management, especially following high-profile crypto failures globally. On the other side, there is a desire to foster a dynamic digital economy. The Bank of Korea has previously expressed concerns about stablecoins impacting monetary policy and financial stability, likely influencing the conservative draft. The delay suggests lawmakers are grappling with balancing these competing priorities, a challenge faced by regulators worldwide from the EU to the United States.

Exchange Ownership Cap Deferred Despite Consensus

Another major provision, which appeared to have broader support, has also been postponed. The proposal to cap any single major shareholder’s stake in a cryptocurrency exchange at 15% was deferred for strategic legislative reasons. Chairman Lee acknowledged that while there is a “general consensus” on the intent of the measure—presumably to prevent excessive control and potential market manipulation—the timing and presentation of the rule require more careful consideration. This cap is seen as a direct response to past governance issues within the local exchange sector, aiming to decentralize power and improve corporate governance.

The deferral indicates that the party is considering the broader legislative strategy. Packaging controversial and less-controversial items together can sometimes facilitate passage, but it can also risk sinking popular measures with contentious ones. By deferring the ownership cap, the party may be seeking to simplify the initial bill or negotiate it separately to ensure its adoption. This move demonstrates the complex political calculus involved in passing comprehensive financial legislation.

The Road Ahead for Digital Asset Regulation

Despite the current stalemate, the Democratic Party maintains its goal of introducing its version of the Digital Asset Basic Act before the Lunar New Year holiday in February. This ambitious timeline now hinges on successful “further internal and government discussions.” The party must reconcile internal factions, incorporate feedback from the Bank of Korea and the Financial Services Commission, and potentially craft new compromise language on the bank consortium issue.

The outcome of these negotiations will have profound implications. A bank-dominated stablecoin system would likely lead to a more controlled, slower-growing digital won ecosystem. Conversely, a more open model could accelerate innovation but require robust new supervisory mechanisms. The exchange ownership cap, if implemented, could force significant restructuring of some domestic exchange ownership charts, promoting greater market fairness. The global crypto industry is watching closely, as South Korea’s decisions may influence regulatory approaches in other Asian markets.

Conclusion

The failure to reach consensus on South Korea’s stablecoin bill highlights the intricate challenges of regulating fast-evolving digital asset markets. The deadlock over the Bank of Korea’s authority and the bank-led stablecoin model underscores a global regulatory dilemma: how to ensure safety without stifling innovation. While the delay may cause short-term uncertainty for businesses and investors, a carefully negotiated Digital Asset Basic Act could ultimately provide the clear, sustainable framework needed for South Korea to solidify its position as a leader in the responsible development of digital finance. The coming weeks of negotiation will be crucial in determining the shape of this landmark legislation.

FAQs

Q1: What is the main issue causing the delay in South Korea’s Digital Asset Basic Act?
The ruling Democratic Party is deeply divided over a proposal to allow only bank-led consortiums (with >51% bank ownership) to issue won-denominated stablecoins. This fundamental disagreement on the regulatory model has stalled the bill’s progress.

Q2: What is the proposed cap on crypto exchange ownership?
A separate proposal aims to cap any major shareholder’s stake in a cryptocurrency exchange at 15%. This measure is intended to prevent excessive control and improve governance, and while there is consensus on its intent, it has been deferred for legislative strategy reasons.

Q3: Which government agencies are involved in the discussions?
The party’s task force is coordinating with the Bank of Korea, the nation’s central bank, and the Financial Services Commission, the main financial regulator. Their feedback is critical to finalizing the bill’s provisions.

Q4: When does the ruling party aim to introduce the bill?
The Democratic Party plans to introduce its version of the Digital Asset Basic Act before the Lunar New Year holiday in February, following further internal and inter-agency discussions.

Q5: Why is regulating stablecoins considered so important?
Stablecoins are digital assets pegged to a stable value, like a national currency. They are crucial for trading and payments in the crypto ecosystem. Regulating them is vital to prevent risks to financial stability, protect consumers, and ensure they don’t enable illicit finance, making them a top priority for lawmakers worldwide.