South Korea’s Plans for Stablecoins Face Regulatory Hesitation

South Korea has introduced its inaugural stablecoin tied to the won, known as KRW1, on the

blockchain, representing a major milestone in the country’s digital financial initiatives. Created by BDACS, a prominent digital asset custodian in South Korea, KRW1 is entirely backed by Korean won reserves kept at Woori Bank, one of the nation’s top banks. The stablecoin successfully passed its proof of concept (PoC), showcasing both its technical reliability and transparency by integrating real-time banking APIs, which enable users to instantly check reserve holdings . BDACS envisions KRW1 being used for international money transfers, digital transactions, and government-related services such as emergency aid distribution, utilizing Avalanche’s robust scalability and security to drive broad adoption .

Currently, the stablecoin is in a pilot phase, with BDACS clarifying that it is not available for public trading to avoid regulatory issues. South Korea does not yet have a full legal framework for stablecoins, but the Financial Services Commission (FSC) is anticipated to introduce new regulations soon under the Virtual Asset User Protection Act. President Lee Jae-myung has advocated for stablecoins pegged to the local currency to decrease dependence on U.S. dollar-backed coins and reinforce the country’s monetary independence. Nevertheless, the Bank of Korea has warned that only licensed banks should be allowed to issue stablecoins to minimize systemic risks

Avalanche’s involvement in this initiative highlights its rising prominence in South Korea’s blockchain sector. Its fast transaction speeds and strong security standards were key reasons BDACS selected Avalanche for KRW1’s deployment. The blockchain’s collaboration with Inex, a local exchange, is also paving the way for both online and offline stablecoin payments, pointing to a larger movement to bring blockchain into daily commerce. Following the announcement, the platform’s native token,

, experienced a 9.38% price jump within 24 hours, indicating increased market optimism about its growing applications .

BDACS has revealed intentions to expand KRW1’s reach beyond Avalanche, seeking compatibility with additional blockchains and exploring partnerships with U.S. dollar stablecoins such as

and . The company also plans to launch a user app that will enable peer-to-peer transfers and transaction verification, aiming to build a complete ecosystem around the stablecoin. These efforts are in line with South Korea’s broader digital asset goals, as shown by KOSCOM’s recent trademark filings for several stablecoin brands and the Financial Supervisory Service’s ongoing oversight of major exchanges .

The future of KRW1 will depend heavily on regulatory developments. While the government is eager to encourage innovation, both the Bank of Korea and the FSC have voiced concerns about potential threats to financial stability and monetary policy. Competing legislative proposals, including the Value-Stable Digital Assets Bill and the Payment Innovation with Fixed-Price Digital Assets Bill, reflect the ongoing debate between supporting homegrown stablecoins and preventing capital flight. These discussions echo global trends, such as the EU’s MiCA regulations and Japan’s approach to stablecoin oversight.

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