South Korea's Path to Digital Asset Regulation and Market Evolution

South Korea is taking decisive steps to modernize its outdated digital asset regulatory framework, dating back to 2018, to better align with a rapidly evolving market. The introduction of the Digital Asset Basic Act (DABA) and other legislative efforts in the National Assembly reflect a growing urgency to establish comprehensive guidelines. Experts stress that the current conversation must go beyond stablecoins and regulatory oversight to focus on fostering an ecosystem that integrates institutions, technology, and policy for sustainable growth.

At "Block Festa 2025" on October 26 at the Textile Center in Seoul, industry experts, including Professor Yoon Min-sub of Soongsil University, Attorney Kang Ryeon-ho of Sejong Partners, and Attorney Joo Seong-hwan of the Gwangjang law firm, convened to discuss the critical issues shaping South Korea's digital asset policies. Their insights revealed structural gaps, opportunities, and the urgent need for regulatory clarity.

Understanding South Korea's Digital Asset Market

Professor Yoon Min-sub set the stage by providing a snapshot of South Korea's digital asset market. While regulations stagnate at 2018 levels, he noted an uptick in policy dialogues and related activities. Yoon emphasized the importance of addressing "shadow regulations"—implicit constraints hindering market efficiency, as well as analyzing how the market responds to the new wave of proposed legislation. These discussions aim to create a regulatory foundation capable of keeping pace with global trends.

Institutional Gap: A Structural Weakness

Attorney Kang Ryeon-ho identified the exclusion of institutional and corporate investors as a significant bottleneck in South Korea's digital asset market. Administrative restrictions have limited the participation of corporations, resulting in an over-reliance on retail investors. "This distortion of the market has granted monopolistic power to certain entities," Kang explained, pointing to overseas markets where institutional trading accounts for over 60% of market activity, such as in the case of Coinbase.

Kang further emphasized that encouraging institutional participation would pave the way for more advanced products like Exchange-Traded Funds (ETFs), which require functional regulatory frameworks and broader market participation. This step would not only diversify market players but also normalize trading dynamics, fostering a healthier investment ecosystem.

Bridging the Financial Sector and Digital Assets

The disconnect between traditional financial institutions and the digital asset industry is another critical issue highlighted by Attorney Joo Seong-hwan. He outlined how existing regulations prohibit financial institutions from holding, acquiring, or using digital assets as collateral, effectively isolating these two sectors from collaborating.

Joo also spotlighted the challenges arising from the Foreign Exchange Transactions Act, which complicates digital asset-based remittances for businesses. As foreign exchange rules remain ambiguous, companies face operational uncertainty and are deterred from exploring global expansion opportunities. Joo stressed that regulatory clarity is essential to support legitimate operations and position South Korea as a global player in the digital economy.

Addressing Stablecoin Regulations

Stablecoins emerged as a central topic during the panel, with both Kang and Joo underscoring the urgent need for precise regulatory guidelines. Kang argued that stablecoins serve primarily as payment vehicles rather than investment tools, and their unclear classification exacerbates market confusion. The lack of tailored rules diminishes South Korea’s ability to stabilize its digital asset marketplace.

Joo added that applying existing regulations to stablecoins is ineffective given their distinct role in the financial ecosystem. He called for a new framework specifically for Korean won-denominated stablecoins to ensure alignment with electronic payment systems. "Comprehensive measures are essential to create predictability and foster a favorable environment for businesses and consumers alike," he concluded.

Toward a Balanced and Flexible Regulatory Framework

The panel collectively urged the government to adopt a regulatory strategy that balances domestic growth with international competitiveness. Attorney Joo proposed prioritizing foreign-issued stablecoins and the participation of global entities in South Korea’s market as key elements in upcoming legislative discussions. Such policies would enable South Korea to integrate with global capital flows while maintaining oversight of domestic innovations.

Attorney Kang highlighted the principle of "same activity, same regulation," suggesting that security-like digital assets could fall under the Capital Markets Act, while payment-oriented digital assets could be governed by electronic payment regulations. He also predicted that the eventual Digital Asset Basic Act would consolidate elements from existing laws, including the Electronic Financial Transactions Act, the Capital Markets Act, and the Foreign Exchange Transactions Act, offering a more cohesive framework.

While the prospects for passing these regulatory measures this year remain uncertain, Kang anticipated a more practical timeline extending into late next year. Regardless of the timing, South Korea’s opportunity to redefine its standing within the global financial system hinges on creating policies that address both innovation and stability.

Charting the Future of Digital Assets in South Korea

As South Korea’s digital asset market continues to expand, the nation finds itself at a pivotal juncture, balancing the need for prudent regulation with the potential for innovation. By addressing limitations in corporate and institutional participation, clarifying rules around stablecoins, and fostering alignment between financial and digital sectors, the country can establish a forward-looking regulatory framework. These steps are not just necessary for domestic growth but also critical for positioning South Korea as a competitive player in the global digital economy.