Main Points：
- Election of Lee Jae-myung as President on June 3, 2025, with a campaign centered on pro-crypto policies, securing 49.42% of nearly 35 million votes
- Introduction of a won-backed stablecoin to enable on-chain fund movement without reliance on USDT/USDC and to prevent domestic capital outflow, addressing the 56.8 trillion won (~$42 billion) asset exodus from January to March 2025
- Legalization of spot crypto ETFs and potential inclusion of the $884 billion national pension fund in direct cryptocurrency investments, aiming to diversify portfolios and hedge volatility
- Bipartisan pro-crypto support ensuring regulatory reform regardless of election outcome, with both leading candidates pledging to loosen the “one exchange, one bank” rule and simplify bank partnerships for exchanges
- Potential impact on over 18 million crypto users (approximately 35% of the population) and $74.5 billion worth of crypto holdings reported by late 2024, highlighting South Korea as one of the world’s most active crypto markets
- Regulatory and monetary challenges, including concerns that stablecoin issuance by private entities could expand money supply and impact financial stability, as warned by analysts at the Korea Capital Market Institute
- Global context with ongoing US stablecoin legislation and regulatory debates, influencing South Korea’s approach to digital asset policy
- Implications for new crypto assets, income streams, and blockchain applications, positioning South Korea to lead practical on-chain innovations and foster a thriving digital-asset ecosystem.
Election Outcome and Pro-Crypto Mandate
The snap presidential election held on June 3, 2025, saw Lee Jae-myung, a 61-year-old former human rights lawyer and member of the Democratic Party, secure a decisive victory with 49.42% of the vote, defeating conservative rival Kim Moon-soo, who obtained 41.15%. This election was prompted by the impeachment and removal of President Yoon Suk Yeol following his ill-fated attempt to impose martial law in late 2024, which plunged the nation into political turmoil. Voter turnout reached 77.8%, the highest since 1997, underscoring the public’s desire for stability and reform. Lee’s campaign capitalized on widespread dissatisfaction with the previous administration’s governance, promising pragmatic policies aimed at revitalizing the economy, reducing inequality, and safeguarding democracy.
A cornerstone of Lee’s platform was a robust, pro-crypto regulatory framework. During debates and policy forums, Lee emphasized that South Korea’s digital-asset industry had matured to the point where restrictive regulations were stifling innovation and pushing capital overseas. With more than 18 million South Koreans actively transacting in digital assets—roughly 35% of the population—domestic exchanges sometimes see daily trading volumes that exceed those of the KOSPI and KOSDAQ stock indices. Lee’s victory thus signaled a clear mandate for regulatory reforms designed to harness the potential of blockchain technology, foster new crypto assets, and unlock practical on-chain use cases. By pledging immediate action on stablecoins and crypto exchange-traded funds (ETFs), Lee tapped into both retail enthusiasm and institutional interest in digital assets. His administration takes office amidst a deeply divided political landscape, but with a unified vision on cryptocurrency reform that transcends party lines, as evidenced by bipartisan pledges to legalize spot crypto ETFs and streamline banking partnerships for exchanges.
Vision for Won-Backed Stablecoin
One of Lee Jae-myung’s most ambitious proposals is the introduction of a South Korean won-backed stablecoin. Under current law, issuance of a won-pegged digital currency by private entities is prohibited. However, Lee argued that without a domestic stablecoin, Korean crypto users must rely on dollar-pegged tokens such as Tether (USDT) and USD Coin (USDC), forcing capital to flow offshore and exposing market participants to foreign exchange risk. From January to March 2025 alone, South Korean crypto exchanges witnessed an outflow of 56.8 trillion won (approximately $42 billion), nearly half of which was attributed to conversions into USDT and other dollar-denominated stablecoins.
Lee posits that a won-backed stablecoin would enable seamless, on-chain transfers of value within domestic blockchain networks without the intermediary of foreign fiat. By anchoring the coin’s value to the won, users could park funds during high volatility periods or move assets between exchanges with minimal slippage. This local stablecoin market could curb capital flight and channel liquidity back into Korean platforms. During his campaign, Lee noted that “to prevent the nation’s wealth from leaking overseas, we must establish a robust won-backed stablecoin market”.
Stablecoins, by design, aim to maintain price stability through backing by fiat reserves or algorithmic mechanisms. While USDT and USDC are fiat-backed and widely used for trading and as a store of value during market turbulence, algorithmic stablecoins rely on smart contracts to dynamically adjust supply. Lee’s proposal did not specify whether the won-backed stablecoin would follow a fiat-backed model, requiring issuers to hold equivalent won reserves, or an algorithmic model akin to Terra’s earlier approach. Nonetheless, his administration plans to draft legislation that would permit regulated private entities to issue stablecoins under stringent reserve, audit, and transparency requirements.
Opponents warn that allowing private issuance of stablecoins effectively delegates monetary-issuance authority to non-state actors. Shin Bo-seon, a researcher at the Korea Capital Market Institute, cautioned that “granting currency-issuance rights to the private sector could expand the overall money supply, leading to unintended macroeconomic consequences” . The concern centers on maintaining central bank control of monetary policy and preventing unmonitored growth of digital-fiat pegged tokens. Additionally, if a stablecoin issuer fails to maintain adequate reserves or suffers a security breach, systemic risks could materialize, undermining consumer trust. Lee’s team has acknowledged these concerns and intends to work closely with the Bank of Korea and the Financial Services Commission (FSC) to design a regulatory framework that balances innovation with financial stability. This may involve mandatory reserve ratios, periodic attestations by independent auditors, and real-time monitoring of on-chain peg integrity.
Legalizing Spot Crypto ETFs and Pension Fund Involvement
Alongside stablecoin issuance, Lee pledged to legalize spot cryptocurrency exchange-traded funds (ETFs). Unlike futures-based ETFs, which derive exposure through derivatives contracts, spot ETFs hold the underlying digital assets directly. Legalizing spot ETFs would allow retail and institutional investors to gain regulated, transparent exposure to cryptocurrencies like Bitcoin and Ethereum without managing private keys or interacting directly with crypto exchanges. Both leading candidates in the election—Lee and Kim Moon-soo—committed to lifting this restriction, indicating bipartisan consensus on expanding crypto ETF access.
Spot crypto ETFs have gained traction globally as a gateway for mainstream investment. In the United States, after years of rejections, the SEC approved several spot Bitcoin ETFs in early 2025, leading to record inflows and renewed investor confidence. South Korea’s financial authorities have been cautious, concerned about market manipulation and the nascent state of digital-asset governance. Lee’s proposal would require the FSC to establish listing criteria, custody standards, and surveillance mechanisms to ensure market integrity. For example, ETFs might be required to hold assets with fully segregated custody at licensed custodians, submit daily transparency reports, and adhere to strict know-your-customer (KYC) and anti-money-laundering (AML) protocols.
A transformative element of Lee’s platform is his intention to allow institutional investors—including the $884 billion National Pension Service (NPS)—to allocate a portion of their portfolios to cryptocurrencies. He argues that adding digital assets to a diversified portfolio serves as a hedge against volatility, given the historically low correlation between Bitcoin and traditional asset classes. If enacted, this policy could unlock substantial capital inflows into Korean cryptocurrency markets, reinforcing price stability and legitimizing digital assets in the eyes of risk-averse investors. However, critics contend that pension funds have a fiduciary duty to preserve capital and generate predictable returns for retirees. Entrusting even a small percentage of pension assets to high-volatility digital assets could trigger public backlash if markets experience steep downturns.
To mitigate risk, Lee’s team proposes strict suitability criteria—requiring pension funds to invest only in crypto products that meet robust regulatory standards for custody, liquidity, and auditability. Further, they advocate a cap on allocation—perhaps limiting direct crypto holdings to no more than 1–2% of total pension assets, akin to allocations for alternative investments like private equity or real estate. Such a cautious approach could pave the way for incremental adoption, enabling institutional players to gain exposure while maintaining overall portfolio resilience.
Bipartisan Crypto Support and Regulatory Landscape
Remarkably, both major presidential contenders—Lee Jae-myung of the Democratic Party and Kim Moon-soo of the People Power Party—ran on platforms endorsing pro-crypto reforms. This bipartisan alignment signals that, regardless of the election outcome, South Korea’s cryptocurrency sector is poised for liberalization. Kim supported legalizing spot ETFs, loosening bank partnership requirements for exchanges, and exploring a won-pegged stablecoin, albeit with slight variations in implementation details compared to Lee’s plan.
Under the current “one exchange, one bank” rule, each crypto exchange must designate a single commercial bank for fiat-on/fiat-off services, effectively throttling competition and impeding user convenience. Lee’s administration plans to revise this regulation by allowing multiple bank partnerships, reducing counterparty risk, and fostering a more competitive market. Moreover, they aim to simplify the stringent requirements that banks impose on exchanges, such as minimum deposit thresholds and elaborate KYC/AML compliance attestations. By easing these constraints, smaller exchanges could gain market entry, driving innovation and price competitiveness.
The Democratic Party’s Digital Asset Committee, formed in early 2025, has been drafting comprehensive policy proposals to modernize South Korea’s digital-asset framework. Key elements include categorizing tokens by risk profiles (e.g., payment, utility, and security tokens), establishing a dedicated digital-assets division within the FSC, and creating an on-chain supervisory sandbox. Such measures would allow projects to pilot decentralized finance (DeFi) applications, token-issuance platforms, and smart-contract innovations under regulatory oversight. By contrast, the previous administration’s stance was largely reactive—enacting piecemeal regulations after high-profile crypto frauds without offering a cohesive growth strategy. Lee’s administration aims to shift the paradigm from mere oversight to proactive facilitation.
Potential Benefits for Crypto Investors and Novel Assets
South Korea’s active crypto community stands to benefit significantly from these proposed reforms. With over 18 million participants and 104 trillion won (~$74.5 billion) in crypto holdings reported during late 2024, the nation ranks among the top global adopters of digital assets. Retail traders could enjoy faster, cheaper on-chain transactions via a won-pegged stablecoin, reducing dependence on USDT/USDC and mitigating FX risk. Moreover, localized stablecoins may spur new use cases beyond trading—such as cross-border remittances, micro-payments for e-commerce, and programmable rewards within loyalty programs.
Institutional players, previously sidelined due to regulatory ambiguity, might finally access regulated products like spot ETFs and settle directly in won-backed tokens. This could catalyze the creation of innovative financial products: structured notes linked to baskets of altcoins, yield-bearing DeFi strategies integrated with traditional custodian services, and tokenized real estate offerings financed through stablecoins. For blockchain developers and entrepreneurs, these policy shifts herald a fertile environment for building decentralized applications (dApps) tailored to Korean market needs—everything from supply-chain tracking solutions pegged to won-stablecoins to decentralized identity platforms leveraging on-chain KYC credentials.
The prospect of pension fund involvement introduces substantial liquidity, possibly stabilizing price fluctuations in large-cap cryptocurrencies such as Bitcoin and Ethereum. Large institutional inflows historically tend to dampen volatility and reduce bid-ask spreads, making market conditions more attractive for new entrants and smaller tokens alike. However, as institutional capital seeks regulated venues, exchanges and service providers must beef up compliance infrastructure—implementing advanced surveillance tools, robust custodian partnerships, and transparent reporting mechanisms.
Startups focusing on bridging on-chain and off-chain ecosystems may gain traction. For example, fintech firms might develop APIs that enable seamless conversion between won-backed stablecoins and fiat accounts, integrating such rails with existing Korean banking infrastructure. DeFi aggregators could design strategies that automatically optimize yields across multiple smart-contract platforms, with users transacting exclusively in won-stablecoins to avoid FX arbitrage. By fostering a regulatory environment that recognizes token categorization (payment, utility, security), Lee’s administration could further encourage venture capital inflows into Korean blockchain projects, accelerating innovation in NFT marketplaces, decentralized exchange (DEX) protocols, and cross-chain interoperability solutions.
Challenges and Criticisms of Stablecoin Issuance
Despite the optimism, introducing a won-backed stablecoin carries inherent risks. Critics point out that allowing private entities to mint currency-pegged tokens is tantamount to issuing a parallel money supply, potentially undermining the Bank of Korea’s monetary policy tools. If stablecoin issuers maintain inadequate collateral reserves or suffer a hack, public confidence could evaporate, triggering a rapid run on the token and contagion effects across crypto networks. Shin Bo-seon of the Korea Capital Market Institute warned that “granting issuance rights to the private sector could expand money supply in ways that lead to unintended macroeconomic outcomes,” calling for strict reserve requirements and real-time on-chain audits .
Furthermore, designing a governance model for the stablecoin is complex. Will issuance be centralized under a limited number of regulated entities, or will the administration allow multiple issuers under a club-model, wherein a consortium of banks and fintech firms share governance responsibilities? The former could concentrate risk but provide clearer oversight; the latter could foster competition but complicate regulatory surveillance. Lee’s team has floated the idea of requiring issuers to deposit an amount equal to 100% of circulating stablecoin supply in a segregated Bank of Korea account, with periodic attestation from an external auditor. Additionally, smart contracts governing token minting and burning would need to be open-source and audited by multiple independent firms to ensure peg integrity.
Consumer protection is another vital factor. If a user’s stablecoin holdings suddenly lose parity due to market panic or protocol vulnerabilities, significant financial harm could ensue. Lee’s legislative draft proposes a “Stablecoin Investor Protection Framework,” mandating issuers to maintain a minimum collateralization ratio of 120% and requiring instant redemption at face value in case of any collateral shortfall. Insurance pools backed by a consortium of banks could cover losses from hacks or mismanagement, but the cost of such insurance could raise transaction fees, reducing the stablecoin’s competitiveness.
Regulatory jurisdiction will also pose challenges. On-chain transactions transcend national borders, and KYC/AML enforcement must adapt to pseudonymous wallets. While requiring issuers to conduct KYC and AML checks for off-ramp transactions into fiat is straightforward, policing peer-to-peer transfers of stablecoins on public blockchains is more complex. Lee’s administration plans to collaborate with international partners—such as the Financial Action Task Force (FATF)—to adopt common standards for “travel rule” compliance, mandating exchanges and custodians to share sender and receiver information for transactions above a certain threshold. However, decentralized finance (DeFi) platforms that enable swaps or loans without intermediaries could circumvent such measures, necessitating new on-chain monitoring solutions and perhaps the integration of identity wallets.
Global Context: US Stablecoin Regulations and International Trends
South Korea’s approach does not exist in a vacuum. In the United States, Congress is deliberating bipartisan stablecoin legislation as of mid-2025, with separate bills introduced in the Senate and House aiming to define “covered stablecoin” frameworks, reserve requirements, and oversight by the Federal Reserve. The pending U.S. “STABLE Act” seeks to require issuers to maintain reserves in custodial banks, obtain FDIC insurance for backing reserves, and submit to regular examinations by regulators. While these bills have yet to pass both chambers, they reflect a broader push toward ensuring that stablecoins operate under strict financial-industry standards.
Internationally, jurisdictions such as the European Union are advancing the Markets in Crypto-Assets Regulation (MiCA), which includes comprehensive rules for stablecoin issuance, marketing, and consumer protection. Under MiCA, issuers of asset-referenced tokens must hold high-quality liquid assets in reserve, maintain segregation of client funds, and submit to governance and risk management requirements. Similarly, Singapore’s Payment Services Act has established a licensing regime for digital payment token services, requiring issuers to demonstrate robust cybersecurity frameworks and client fund segregation. In contrast, China prohibits private stablecoin offerings entirely and is piloting its digital yuan, a central bank digital currency (CBDC).
South Korea must position its policy to harmonize with these global trends. By aligning its stablecoin framework with FATF recommendations and international best practices, the country can facilitate cross-border interoperability while minimizing regulatory arbitrage. For instance, if a Korean won-pegged stablecoin operator establishes relationships with licensed partners in Singapore or the EU, the token could gain traction as a bridging asset for East-West trade settlements. Conversely, a poorly designed domestic stablecoin regime risks being isolated or facing de-listings from global exchanges that evaluate regulatory compliance. Lee’s administration acknowledged these dynamics, expressing intent to engage in multilateral dialogues with counterparts in G20 forums and seek technical assistance from international standard-setting bodies.
Regarding spot ETF legalization, South Korea can draw lessons from Canada and the United States, where the launch of Bitcoin and Ethereum spot ETFs triggered billions of dollars in inflows within days. Canadian regulators approved several spot Bitcoin ETFs in early 2021, leading to sustained volume growth and providing transparency through daily disclosures of holdings and trading activity. In the U.S., the SEC’s approval of multiple spot Bitcoin ETFs in January 2025 provided institutional investors with a regulated on-ramp, resulting in over $10 billion of cumulative inflows by April 2025. South Korea’s FSC plans to study these precedents to craft listing requirements that ensure adequate liquidity, custody safeguards, and investor protection.
Practical Blockchain Applications and Industry Implications
Beyond stablecoins and ETFs, Lee Jae-myung’s administration envisions embedding blockchain technology into practical applications across public and private sectors. Government agencies could leverage permissioned blockchains for transparent procurement processes, tamper-proof land registries, and streamlined social welfare disbursements. For instance, a blockchain-based land title system could reduce fraud by recording immutable ownership transfers, while smart contracts could automate welfare payments to eligible households, triggering disbursements upon fulfillment of predefined conditions such as income thresholds or enrollment in training programs.
In the private sector, supply-chain management stands to gain from on-chain traceability. Manufacturers in South Korea’s semiconductor and automobile industries could implement blockchain solutions to record provenance data, monitor production stages, and certify product authenticity. Retail giants and e-commerce platforms may adopt blockchain for inventory tracking, ensuring real-time synchronization from factories to distribution centers. Financial institutions could explore tokenizing traditional assets—such as real estate or corporate debt—facilitating fractional ownership and increasing market liquidity. A won-backed stablecoin could serve as the settlement layer for these tokenized assets, providing stable unit-of-account functionality within digital ecosystems.
Decentralized finance (DeFi) pioneers could create protocols tailored to the Korean market, denominated in won-stablecoins. For example, yield-farming platforms may offer attractive annual percentage yields (APYs) by aggregating liquidity across multiple DeFi protocols, all while denominating returns in won. Decentralized autonomous organizations (DAOs) could emerge to fund local infrastructure projects, enabling community members to vote on proposals and allocate stablecoin resources to initiatives such as renewable energy installations or cultural events. Smart-contract-enabled micropayments could revolutionize content monetization, allowing digital publishers, musicians, and game developers to receive instant, frictionless payments for ads, subscriptions, or in-game purchases.
For developers, Lee’s policy incentives may accelerate the adoption of Ethereum, BNB Smart Chain, and emerging Layer 2 networks—especially if regulatory clarity reduces compliance risks. Development grants, hackathons, and public-private partnerships could foster a vibrant blockchain ecosystem, drawing talent from South Korea’s robust IT sector. Universities might introduce blockchain curricula, producing graduates skilled in smart-contract programming, cryptographic security, and decentralized application design. South Korean fintech startups could partner with larger conglomerates to integrate blockchain solutions into existing banking infrastructure, offering experimental services such as tokenized loyalty points redeemable across a consortium of retailers.
However, realizing these use cases requires reliable infrastructure—high-throughput blockchains, secure middleware for KYC/AML, and scalable on-chain or off-chain oracles for real-world data. The government plans to invest in public-blockchain R&D, subsidize infrastructure projects, and collaborate with the private sector to deploy regulatory-compliant shared nodes. A national blockchain research institute, under the aegis of the Ministry of Science and ICT, will oversee grant programs focused on next-generation consensus mechanisms, secure multi-party computation (MPC), and cross-chain interoperability protocols. These initiatives aim to position South Korea at the forefront of blockchain innovation, ensuring that private enterprises can seamlessly integrate on-chain services with minimal friction.
Conclusion
President Lee Jae-myung’s ascent to power marks a turning point for South Korea’s cryptocurrency landscape. By advocating for a won-backed stablecoin and the legalization of spot crypto ETFs, Lee seeks to harness blockchain’s potential to drive economic growth, prevent capital flight, and integrate digital assets into mainstream finance. Bipartisan support for pro-crypto policies ensures that, regardless of political fluctuations, the regulatory environment will tilt in favor of innovation, attracting both retail users and institutional players. With nearly 18 million crypto participants and over $74 billion in crypto holdings, South Korea ranks among the world’s most active markets, underscoring the urgency of adopting forward-looking policies.
Challenges remain: designing a robust governance model for stablecoin issuance, safeguarding monetary policy integrity, and protecting consumers from potential peg failures. International harmonization with US, EU, and FATF frameworks will be critical to ensure that Korean stablecoins gain global acceptance and that crypto ETFs operate under best practice standards. By drawing on lessons from Canada and the US, especially regarding custody requirements and transparency mandates, South Korea can avoid regulatory missteps and foster a resilient digital-asset ecosystem.
Practically, the ripple effects of these reforms extend beyond trading and investment. On-chain solutions could revolutionize supply-chain logistics, digital identity systems, and public-sector services, unlocking new efficiencies and transparencies. Entrepreneurs and developers will have fertile ground to build DeFi protocols, tokenized asset platforms, and blockchain-enabled cash-flow products denominated in won-stablecoins. Institutional involvement, including pension funds and asset managers, could anchor market stability and legitimize digital assets in mainstream portfolios.
Ultimately, Lee’s vision of a crypto-friendly South Korea aims to position the nation as a global blockchain hub. By creating a regulatory sandbox that balances innovation with prudence, the government hopes to attract domestic and foreign talent, capital, and technology partnerships. If successful, South Korea could emerge as a leading case study in how a developed economy integrates digital-asset infrastructure with traditional financial systems, fostering sustainable growth and delivering practical blockchain applications across industries. As regulatory drafts proceed and on-chain pilots roll out, the world will be watching whether South Korea’s experiment in won-backed stablecoins and institutional crypto adoption sets a precedent for other nations seeking to capitalize on the promise of blockchain technology.
