South Korean lawmaker Min Byeong-deok has proposed the Digital Asset Basic Act to strengthen cryptocurrency regulation.

The bill expands on the Virtual Asset Investor Protection Act, aiming to create a broader framework beyond just investor safety.

It introduces a licensing system for stablecoin issuers, requiring at least 500 million won in capital to support a local, won-based stablecoin market.

The proposal draws from global standards and includes forming a presidential-level Digital Asset Committee and penalties for market abuse.

This move follows a global trend of stricter stablecoin rules, as seen in the US, EU, Japan, and Hong Kong.

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🔗 Source: The Block

🧠 Food for thought

1️⃣ South Korea’s crypto regulation reflects a shift from crisis response to strategic framework

South Korea has experienced a dramatic evolution in its approach to cryptocurrency regulation since 2017, when it accounted for nearly 30% of global crypto trading despite representing less than 1% of the world’s population 1.

The country’s initial regulatory response in 2017-2018 was primarily reactive, banning anonymous trading accounts after prices surged and crashed, causing Bitcoin to drop 11% in a single day 2.

This latest Digital Asset Basic Act represents a shift to a proactive, structured approach that builds on the foundation of the Virtual Asset User Protection Act implemented just months ago in July 2024 3.

The establishment of a Digital Asset Committee directly overseen by the president signals elevated importance, moving crypto regulation from a peripheral concern to a central economic strategy 3.

This evolution parallels global regulatory trends, with South Korea now joining jurisdictions like the EU, Hong Kong, and Singapore that have established comprehensive frameworks rather than piecemeal regulations 4.

2️⃣ The proposed won-based stablecoin reflects economic sovereignty concerns

President Lee Jae-myung’s support for a Korean won-based stablecoin directly addresses capital outflow concerns, with the legislation explicitly aiming to “prevent the outflow of domestic capital via stablecoins based on other currencies” 3.

This approach aligns with a growing global trend of countries developing domestic currency stablecoins, as seen in Singapore’s framework for single-currency stablecoins and Hong Kong’s regulatory sandbox for stablecoin testing 5.

The $367,890 capital requirement for stablecoin issuers demonstrates a balance between enabling innovation and ensuring financial stability, falling in line with international practices requiring issuers to maintain substantial reserves 6.

The regulatory emphasis on stablecoins comes as these assets have gained prominence for their utility in cross-border payments and lending while avoiding the volatility of traditional cryptocurrencies 6.

3️⃣ South Korea’s unique crypto landscape is shaped by distinct demographic and cultural factors

Approximately 30% of salaried workers in South Korea owned cryptocurrencies by 2018, with estimates suggesting real ownership could be as high as 50% when including retirees 1.

High youth unemployment has been a significant driver of crypto adoption, with young South Koreans viewing digital assets as a potential path to financial security in a challenging economic environment 7.

South Korea’s robust gaming industry and widespread acceptance of digital goods created fertile ground for cryptocurrency adoption, with citizens already comfortable with virtual currencies through gaming experiences 1.

The country’s concentrated urban population and advanced technological infrastructure allowed crypto trends to spread rapidly, contributing to the disproportionately high trading volumes seen in the market 1.

These cultural and demographic factors have made cryptocurrency policy politically significant enough to become a major election issue, with both major political parties developing crypto-focused campaign promises to appeal to younger voters 8.

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