Title: Will it be launched in 2027? An in-depth analysis of the capital game behind the "difficult birth" of the Korean won stablecoin

By Four Pillars

Compiled by Tim, PANews

Key Takeaways:

• What is the current status of the Korean won stablecoin? Let's analyze the stances and latest trends of the South Korean government, parliament, and business community.
• The essence of stablecoins can be summarized as a game of "net inflow and net outflow." Blockchain technology has expanded the accessibility of financial services. For governments and businesses, the core question is whether this increased accessibility will attract more capital inflows or lead to capital flight. All policies and strategies must be formulated based on this deduction.
• Within this "net inflow and net outflow" framework, the Korean won stablecoin presents a thorny challenge for policymakers and businesses alike. However, the global financial system is already shifting towards blockchain. If South Korea hesitates, it risks being left behind in this wave of financial innovation.

1. Legislation takes a long time

Five separate bills related to won-based stablecoins have been proposed in South Korea. Lawmakers Min Byung-deok, Ahn Do-chul, Kim Hyun-jung, and Lee Gang-il of the ruling Democratic Party of Korea have submitted proposals. Lawmaker Kim Eun-hye of the opposition People Power Party has also proposed a bill. While the general outlines of the five drafts are similar, they differ in details, such as the eligibility of issuers, whether interest payments are permitted, and collateral requirements.

In addition to the lawmakers’ bill, South Korea’s Financial Services Commission (FSC), a government agency, is also preparing to roll out its second phase of digital asset regulations, which will include stablecoin regulations. As the FSC will ultimately have ultimate oversight over stablecoins pegged to the Korean won, the industry is closely watching its upcoming draft regulations.

Unlike in the United States, in South Korea, companies are practically unable to conduct any business without an established legal framework for financial products. Therefore, the most critical question for companies is when the Korean won stablecoin legislation will actually be passed.

According to the legislative activity report of the 21st National Assembly of South Korea, the average time for government proposals to be passed is 435.2 days, while the average processing time for proposals from legislators is 657.1 days. The stablecoin bill that the Financial Services Commission plans to submit in October 2025 falls under the category of government proposals. Even at this point, the actual implementation of the Korean won stablecoin legislation will likely not take place until early 2027. This means that before then, it will be almost impossible for Korean companies and even foreign blockchain projects to advance concrete business plans .

2. Favorable for private blockchains

From the outset, we have argued that for Korea’s blockchain industry to truly flourish, a Korean won stablecoin must be issued on a public blockchain like Ethereum or Solana. However, this vision currently seems elusive.

The two public institutions expected to oversee the Korean won stablecoin are the Financial Services Commission and the Bank of Korea. The Bank of Korea's stance is clear: while a won stablecoin is necessary, there's no reason to rush. They prefer to start with a private blockchain and expand gradually. The newly appointed chairman of the Financial Services Commission has even suggested that South Korea should build its own custom blockchain and issue a stablecoin based on it.

Their stance is not without merit. Unlike US dollar stablecoins, Korean won stablecoins face high barriers to entry due to foreign exchange regulations and the risk of capital flight. From a national economic management perspective, issuing Korean won stablecoins directly on a public blockchain is indeed difficult to control.

South Korea is one of the few countries in the world that prefers to use its own payment system rather than Visa and Mastercard for domestic payments. The country is still reeling from the trauma of the 1997 foreign exchange crisis. Consequently, regulators prefer to maintain a predictable economic environment. Therefore, it seems highly likely that the Korean won stablecoin will be launched first on a private blockchain rather than a public one.

While this direction is disappointing for those who support the development of South Korea’s blockchain ecosystem, it also presents opportunities for domestic system integrators and global blockchain foundations.

South Korean system integration companies are expected to undertake Korean-specific blockchain construction projects tailored for stablecoin issuance. A notable example is LG CNS, the IT services subsidiary of LG Group, which built the blockchain infrastructure for the Bank of Korea's central bank digital currency pilot.

Public blockchain projects can still provide technical support for private networks that handle the issuance and distribution of Korean won stablecoins. Avalanche subnets and Arbitrum Orbit are prime examples. Any team with experience building and operating large-scale public blockchains should be able to easily tailor such solutions for South Korea.

The utility of a stablecoin primarily comes from its existence on a public network. For a Korean won stablecoin to be competitive, it must either be built on a public blockchain from the outset or, if political constraints prevent it, eventually expand to a public blockchain.

If issuance is limited to private networks, the only possibility for the success of a Korean blockchain is that a state-operated private network must be established, and all financial services, stablecoins, tokenized assets, platform points and other products must be connected to the network.

While this model would remain private from a technical perspective, it would mimic the user experience of a public blockchain for South Korean citizens and the domestic market. Through a single wallet and a Korean won stablecoin, users could integrate remittances, payments, stock trading, and cryptocurrency trading on a single platform. This appears to be the only approach that can simultaneously satisfy the needs of the government, the blockchain industry, and users.

Will the Korean won stablecoin be allowed to be issued on a public blockchain? We can only wait and see. But the worst-case scenario is clear: multiple private networks will emerge within South Korea, fragmenting the financial system.

3. Companies in wait-and-see mode

South Korean media outlets are rife with headlines, reporting on a company applying for a trademark for a won-denominated stablecoin or another considering launching a stablecoin business. However, from the outside, the reality appears quite different. In South Korea, corporate sentiment regarding the won-denominated stablecoin is split between two camps.

The first camp is the proactive group. Generally speaking, the smaller the company, the more enthusiastic it is about entering the Korean won stablecoin market. This is due to a variety of factors: smaller companies face less regulatory risk than large chaebols, and given the inherent buzz surrounding the topic, dabbling in stablecoins can also generate significant public relations benefits.

But here's the problem: Stablecoins are a scale-dependent business. On the issuance side, success requires expanding supply to build high liquidity and network effects. On the circulation side, attracting a large number of users and merchants is crucial to creating real utility. Small businesses can enter the market, but they face scalability bottlenecks. Their best opportunities lie not in the core issuance or circulation stages of the value chain, but in the surrounding service areas.

The second camp is the cautious camp. Larger companies tend to remain on the sidelines, adopting an extremely cautious stance. This caution stems primarily from two reasons: first, legal uncertainty. As previously mentioned, the legislative process for regulating Korean won stablecoins is expected to take between one and a half and three years. In the Korean market, it is virtually impossible for large companies to proactively launch stablecoin services before the regulatory framework is established.

The second reason is commercial feasibility. Unlike dollar-denominated stablecoins, which serve a vast global market, Korean won-denominated stablecoins are inherently domestic. For large corporations already successfully operating domestic financial services, the tangible benefits of switching to blockchain and stablecoins may not be compelling enough.

4. South Korea’s short-term bond market is small: Is it possible to issue a collateralized stablecoin?

Tether, the issuer of USDT, holds $130 billion in U.S. Treasury bills and repurchase agreements. Circle, the issuer of USDC, holds $63 billion in money market funds. In contrast, South Korea does not issue government bonds with maturities under one year. The government occasionally issues Treasury bills to meet temporary funding needs, but the total amount is only approximately $7 billion.

This means that the market for short-term bonds that could serve as collateral for the won stablecoin is too small, posing a fundamental barrier to issuance. The Korea Capital Market Institute recently proposed issuing short-term government bonds specifically for stablecoins, but the Bank of Korea immediately refuted the idea, warning against it and suggesting that currency stablecoins could be used as an alternative.

These bonds, issued by central banks to absorb market liquidity, typically have maturities of less than three years, with some as short as three months. Their overall size is comparable, making them a potential alternative. However, the market remains small.

Besides scale, both government bonds and stablecoins face another unattractive collateral issue: yield. The average yield on short-term US bonds is around 4%, while the yield on South Korean government bonds and stablecoins is just over 2%. For issuers, this low yield significantly reduces the incentive to operate a Korean won stablecoin, especially given that the issuance scale is much smaller than that of a US dollar stablecoin.

5. Other misunderstandings about the Korean won stablecoin

Regarding the Korean won stablecoin, there are also some misunderstandings in the Korean market that need to be corrected.

First, the risks of issuing stablecoins on public networks have been overstated. Even if the Korean won stablecoin were issued on a public blockchain, regulations and rules defined by the issuer could still be directly enforced through smart contracts. For example, transactions could be restricted to Korean users who have completed real-name verification. Securitize has demonstrated the feasibility of this model with tokenized securities like BUIDL, which meet regulatory requirements entirely through smart contract logic. This means that the Korean won stablecoin can circulate on a public network while allowing regulators to fully monitor fund flows and protect against unforeseen circumstances.

The second misconception is that South Korea, as a highly developed financial market, would see minimal improvement in user experience from adopting a won-based stablecoin. This view is only half true. Indeed, South Korea's fintech infrastructure is well-developed, and users already have easy access to a wide range of financial services through a diverse platform. From this perspective, while a blockchain-based stablecoin won't bring a quantum leap in convenience, it will offer several key advantages:

• Cross-platform interoperability: Today, financial services are not only fragmented across platforms like Naver, Kakao, Toss, and Upbit, but also fragmented across functions like remittances, stock trading, cryptocurrency trading, and payments. Blockchain and stablecoins can connect these isolated islands, providing users with a highly integrated experience.
• Micropayments: In the current financial system, high transaction fees make small transactions difficult. Blockchain and stablecoin technology offer a solution. Imagine paying only for the minutes you actually watch on a streaming platform, or receiving revenue proportional to the number of ads you watch. A micropayment economy will flourish.
• Lower fees: This may not please card issuers and payment networks, but in an ideal stablecoin payment system, they wouldn't be necessary. This could reduce transaction fees by 1% to 2%. For high-frequency trading firms, this would mean a significant profit recovery, much of which would be passed on to consumers in the form of new benefits.

6. The Essence of the Problem: The Game of Net Inflow and Outflow

The discussion surrounding the Korean won stablecoin ultimately boils down to a game of net inflows and net outflows. We live in an era of highly fragmented financial backend systems, with banking systems, payment networks, and securities settlement systems across continents, countries, and even within the same country all experiencing disconnectedness.

Blockchain has the potential to unify all of this into a unified system. Stablecoins and RWAs are currently hot topics in the US, driven by the push to replace outdated financial systems with blockchain. Within the broader trend of financial technology development, blockchain has become a major trend.

If blockchain can integrate multiple financial systems, the result will be greater accessibility. South Korean users could pay for services in Nigeria with won, Vietnamese users could buy Korean content with Vietnamese dong, and Americans could spend Lotte Points. With blockchain as a foundation, anything is possible.

This increased accessibility raises the question that governments and businesses worldwide must consider: Will launching a Korean won stablecoin bring more capital inflows to the country and its platforms, or will it lead to more capital outflows? For the United States, the answer is obvious. The dollar's dominance means more capital inflows, leading to strong support for a dollar-denominated stablecoin. But for South Korea, the trade-off is more complex. Companies, too, must consider whether opening their products to the global market will bring more benefits than risks, or whether the benefits will outweigh the costs.

From this perspective, one can begin to judge whether the Korean won stablecoin business is helping or causing harm.

7. Top-down adoption path

South Korea is a financial powerhouse. In countries with unstable currencies, there's a natural bottom-up drive for adoption of stablecoins. In South Korea, however, users have little reason to switch to won-based stablecoins.

If governments or businesses truly want to introduce stablecoins, they will have to embed them into their back-end systems in a clever way so that users don’t even need to be aware of the stablecoin’s existence to benefit from the new features it powers.

For example, overseas remittances could become more convenient. Cross-platform payments could become seamless. Platform points could be more easily redeemed. Subscription models based on micropayments could emerge. All of this could be achieved from top to bottom using stablecoins and blockchain backend technology.

If exchanges replace the won with a won-based stablecoin, users will adopt it. If fintech giants like Naver, Kakao, or Toss adopt a won-based stablecoin option and include incentives, users will adopt it. If streaming platforms launch a micropayment system based on a won-based stablecoin, users will adopt it.

8. What is the prospect of the Korean won stablecoin?

After months of conversations with public institutions, financial institutions, and businesses, I haven't encountered a single participant with a clear sense of purpose or concrete plan for a Korean won stablecoin. Honestly, this is because even if the won becomes more accessible through blockchain technology, its value proposition remains unclear.

However, I believe South Korea must move forward. In the United States, the government, the Securities and Exchange Commission, and the Commodity Futures Trading Commission are fully committed to blockchain technology. Banking, payment systems, and securities infrastructure are gradually being replaced by blockchain technology. This trend means that it is only a matter of time before the world transitions from outdated back-end systems to blockchain.

The launch of a Korean won stablecoin is already overdue. But if, as current discussions suggest, South Korea waits until 2027 to launch on a private blockchain, they will be significantly behind the global pace of development. The real question in this fiercely competitive stablecoin race is whether South Korea can still chart a meaningful course.