South Korea’s Digital Asset Basic Act Delayed to 2026 Amid Stablecoin Dispute
- Keyword Financial
- Jan 2
- 9 min read
Introduction
South Korea’s top securities bourse, the Korea Exchange (KRX), has declared it is technically and operationally ready to list Bitcoin ETFs and other virtual asset ETFs, as well as move toward 24/7 trading starting in 2026. Chairman Jeong Eun-bo announced plans to introduce new crypto investment products and derivatives as part of a broader strategy to tackle the long‑standing “Korea Discount” and modernize the country’s capital markets. The exchange also aims to roll out AI-based monitoring systems and tougher crackdowns on stock manipulation, signaling that mainstream, regulated crypto products are increasingly seen as key infrastructure for South Korea’s financial markets.
However, the rollout of South Korea Bitcoin ETFs is being stalled by a major regulatory deadlock over stablecoin governance and broader crypto regulation. The country’s Digital Asset Basic Act has been pushed into 2026 as the Financial Services Commission (FSC) and the Bank of Korea (BoK) clash over who should be allowed to issue stablecoins and under what ownership structure. The central bank wants bank-led consortia with at least 51% ownership, while the FSC argues this could choke innovation and exclude tech firms. The draft law would impose strict investor protections, including 100% reserve requirements in bank deposits or government bonds, full-reserve custody, tighter licensing for crypto service providers, and a possible return of ICOs under strict disclosure rules, as well as clearer rules for domestic stablecoin issuance.
At the same time, South Korean authorities are ramping up crypto AML enforcement against major exchanges, even as policy guidance remains mixed. The Financial Intelligence Unit (FIU) has levied heavy fines on platforms like Korbit and Upbit operator Dunamu for anti–money laundering breaches, and is considering extending the travel rule to all crypto transfers, regardless of size, to counter smurfing. Meanwhile, the Financial Supervisory Service (FSS) has verbally restricted the share of crypto‑related stocks (such as Coinbase and MicroStrategy) in domestic ETFs, creating tension between capital controls and investor demand for crypto exposure. Overall, South Korea’s crypto market sits at a crossroads: infrastructure like the KRX is ready for spot Bitcoin ETFs and regulated digital asset products, but unresolved regulatory disputes over stablecoins and ETF rules continue to delay full-scale institutional adoption.
Background
South Korea’s capital markets are inching closer to Bitcoin ETFs and regulated crypto exposure—but they’re running into a different kind of bottleneck: stablecoin regulation. The Korea Exchange (KRX) has said it is preparing to list virtual asset ETFs, extend trading hours toward 24/7 markets, and deploy AI-based surveillance tools. Yet the country’s flagship Digital Asset Basic Act—the second major phase of Korea’s crypto regulatory framework—has been pushed into 2026 amid a governance fight over who gets to issue won‑pegged stablecoins.
For DeFi and fintech professionals watching Asia, South Korea’s trajectory matters. The country is one of the world’s most active crypto trading hubs by volume, with exchanges like Upbit regularly ranking among the top global spot venues. How Seoul resolves its framework for Bitcoin ETFs, stablecoins, and crypto AML rules could shape onshore liquidity, institutional participation, and the competitive balance with markets like Hong Kong, Singapore, the EU, and the US.
This article walks through what KRX is planning, why the Digital Asset Basic Act is stalled, how enforcement is tightening, and what all of this means for builders and investors in digital assets.
Korea Exchange: Technically Ready for Bitcoin and Crypto ETFs
During the first trading session of 2026, KRX chairman Jeong Eun‑bo outlined plans to:
Introduce crypto ETFs (including Bitcoin ETFs and broader virtual asset ETFs)
Explore derivatives linked to digital assets
Move toward 24/7 trading to better align with global crypto markets
Strengthen AI‑driven market surveillance and crack down on manipulation
The stated policy goal is to help close the long‑discussed “Korea Discount”—the tendency for Korean equities and assets to trade at lower valuations than global peers—by modernizing the capital markets infrastructure and product set.
At a high level:
A Bitcoin ETF is a fund that tracks the price of Bitcoin and trades on a stock exchange. It allows investors to gain BTC exposure without self‑custody or direct interaction with crypto exchanges.
A virtual asset ETF could extend this model to baskets of tokens, sector indices (e.g., smart contract platforms), or even companies with high crypto beta.
South Korea’s Financial Services Commission (FSC) has already floated a roadmap to allow spot crypto ETFs in principle, echoing moves by the US SEC and regulators in Canada and Europe who have approved multiple spot Bitcoin and crypto ETPs over the past few years. But unlike those jurisdictions, Korea has tied the next wave of ETF launches to broader digital asset legislation—which is where the stablecoin dispute comes in.
The Digital Asset Basic Act: A Stablecoin Governance Stalemate
The Digital Asset Basic Act (DABA) is designed to be South Korea’s phase‑two crypto framework, building on the earlier Virtual Asset User Protection Act. It is intended to cover:
Rules for stablecoin issuance and redemption
Licenses and risk standards for virtual asset service providers (VASPs)
Reserve, custody, and disclosure requirements for crypto platforms
Conditions under which ICOs or token offerings might be re‑legalized with strict investor protections
However, DABA has been delayed into 2026, largely because of a governance fight over KRW‑pegged stablecoins, as reported by multiple outlets including CoinDesk, CCN, and Cryptopolitan.
Bank of Korea vs. FSC: Who Can Issue Stablecoins?
The core disagreement is between:
Bank of Korea (BoK) – the central bank
Financial Services Commission (FSC) – the primary financial regulator
Key points of contention:
Who is allowed to issue KRW stablecoins?
BoK supports a strict “51% rule”: only bank‑led consortia where regulated banks hold at least 51% of the equity should be allowed to issue won‑pegged stablecoins. The argument: this protects monetary sovereignty, mitigates systemic risk, and keeps KRW stablecoins within the existing prudential supervision perimeter.
The FSC views this threshold as too rigid. It argues that limiting issuance to bank‑majority entities would crowd out fintechs, DeFi‑adjacent projects, and technology firms, pushing innovation to friendlier jurisdictions such as Singapore or Hong Kong, both of which are actively positioning themselves as digital asset hubs.
The debate is essentially about whether stablecoins should be treated closer to narrow‑bank deposits (BoK’s view) or regulated payment instruments where both banks and non‑banks can compete (closer to the EU’s MiCA framework or elements of Japan’s approach, which the FSC often cites as reference points).
Licensing and oversight structure
BoK reportedly wants a new licensing committee with strong representation from the central bank and the Ministry of Economy and Finance—and in some proposals, a type of veto or unanimity requirement for stablecoin approvals.
The FSC prefers to use existing regulatory structures under its remit, warning against a fragmented oversight model that could slow down approvals and create uncertainty for issuers and investors.
Reserve and custody rules
There is broad convergence that KRW‑pegged stablecoins should be fully backed (100%+) by high‑quality liquid assets such as bank deposits and government bonds, with reserves held by licensed custodians and clear redemption guarantees for users.
The implementation details—exact capital requirements, eligible asset mix, and the balance between domestic vs. foreign issuers—are still being debated, as covered by The Korea Times.
Until these issues are resolved, the Digital Asset Basic Act remains stuck. That, in turn, slows down formal approval of South Korea Bitcoin ETFs and broader crypto ETFs because policymakers want a coherent framework for both market infrastructure (ETFs, exchanges, custodians) and core instruments (especially stablecoins used for settlement and liquidity).
Enforcement Tightens: AML Fines, Travel Rule Expansion, and ETF Portfolio Limits
While lawmakers argue over stablecoin design, supervisors are not waiting to enforce existing rules.
AML Penalties for Major Exchanges
The Financial Intelligence Unit (FIU) has ramped up anti‑money laundering (AML) enforcement against domestic crypto exchanges:
Korbit was fined tens of billions of won over AML violations, including gaps in customer identification and insufficient monitoring of transactions involving unregistered overseas platforms.
Upbit operator Dunamu previously faced sanctions, including a temporary restriction on onboarding new customers and a large monetary penalty, for similar AML and reporting failures.
Additional exchanges—such as Bithumb, Coinone, and GOPAX—have reportedly been under review in a rolling series of inspections, with total sector fines expected to reach into the hundreds of billions of KRW.
For context, Korean authorities are broadly aligning with global standards developed by the Financial Action Task Force (FATF). That means exchanges are expected to implement:
Robust KYC procedures
Transaction monitoring and risk‑based AML programs
Screening for interactions with unregistered or sanctioned VASPs
Extending the Crypto Travel Rule
Regulators are also evaluating whether to extend the Travel Rule—which requires originator and beneficiary information to travel with a transaction—to all crypto transfers, not just those above 1 million won.
The concern is so‑called “smurfing”: splitting large transfers into many smaller ones to stay below reporting thresholds. By lowering or eliminating the minimum threshold, the FIU aims to close this gap and bring crypto transfers closer to traditional wire transfer standards, as recommended by FATF guidance.
For DeFi and fintech teams, this trend implies more demand for:
Travel Rule messaging solutions and interoperability between VASPs
On‑chain analytics for risk scoring and sanctions screening
Better integration between on‑chain activity and off‑chain compliance workflows
ETF Portfolio Guidance: Crypto‑Linked Equities Under Scrutiny
On the securities side, the Financial Supervisory Service (FSS) has reportedly issued verbal guidance limiting the weight of crypto‑linked equities—such as Coinbase or MicroStrategy—inside domestic equity ETFs. This is based on older administrative guidance dating back to 2017 that remains technically in force.
Several Korean ETFs already hold double‑digit allocations to such names through passive index tracking. Asset managers argue that unilateral restrictions on domestic ETFs:
Do little to prevent capital outflows, since local investors can still buy US‑listed Bitcoin ETFs or crypto‑centric funds
Put Korean asset managers at a competitive disadvantage versus overseas issuers
Introduce portfolio construction frictions in index‑tracking strategies
The result is a somewhat contradictory environment: Korea is preparing for onshore Bitcoin ETFs and crypto ETFs, but in the meantime is telling managers to dial back indirect crypto exposure via listed equities.
What This Means for DeFi and Fintech Builders
For a DeFi or fintech audience, the South Korean situation is less about headlines and more about design constraints and market entry strategy.
Bitcoin and Crypto ETFs: Institutional Rails, Once Law Catches Up
If and when South Korea Bitcoin ETFs go live on KRX:
Institutional investors (pension funds, insurers, asset managers) will gain a compliant, exchange‑traded wrapper for BTC exposure under local custody and supervision.
Market‑making and derivatives desks will see new arbitrage channels between KRX ETFs, onshore spot markets, and offshore venues.
For DeFi protocols that build structured products or yield strategies, regulated ETFs can become an underlying asset in tokenized portfolios or cross‑margin strategies, provided domestic rules permit such usage.
However, until the Digital Asset Basic Act is resolved, ETF timelines will likely remain fluid.
Stablecoins: A Strategic Battleground for KRW Liquidity
The stablecoin debate has immediate implications for on‑chain design:
A bank‑only model (BoK’s preference) might support highly conservative, institution‑friendly KRW stablecoins but could limit innovation and reduce competition on features like programmability, cross‑chain support, or DeFi integrations.
A more open issuer model, with strong prudential and conduct rules, could enable a richer landscape of KRW stablecoins that plug into DeFi liquidity pools, on‑chain FX pairs, and payment rails, closer to what builders see with USDC, USDT, and EUR‑denominated stablecoins.
For builders, it’s worth tracking whether the final rules allow:
Non‑bank financial institutions (e‑money providers, payment companies) to issue KRW stablecoins
Clear passporting or licensing paths for foreign stablecoins to operate onshore, which several draft discussions have contemplated [CoinDesk]
Compliance by Design
The enforcement trend is clear: AML, Travel Rule compliance, and risk management are non‑negotiable:
Exchanges and custodians are expected to integrate endpoint screening, KYT (Know Your Transaction), and Travel Rule messaging.
DeFi‑adjacent fintechs that touch fiat on/off‑ramps or provide crypto brokerage, wallets, or API infrastructure into Korea will need to be ready for local regtech audits and documentation standards.
For teams already architecting around MiCA (EU), FATF, or US travel rule requirements, aligning Korean operations will likely be an incremental, not fundamental, shift—but one that still requires local expertise.
Outlook: A High‑Potential Market Waiting on Policy Clarity
South Korea is at a pivotal point:
Market infrastructure (KRX, major exchanges, custodians, surveillance tech) is ready or close to ready for Bitcoin ETFs and crypto ETFs, 24/7 trading, and AI‑driven oversight.
Investor demand is already present; Korean retail and professional traders contribute a material share of global spot and derivatives volume.
Political momentum exists: the current administration and ruling party have signaled support for easing overly restrictive digital asset rules and integrating crypto more deeply into mainstream finance [CCN].
What’s missing is a resolved framework for stablecoins and digital asset licensing, encapsulated in the Digital Asset Basic Act. Until the Bank of Korea and FSC find a compromise on issuer eligibility, governance, and reserve structures, Korea will likely continue to send mixed signals: expanding enforcement and gradually modernizing ETFs and trading infrastructure, while leaving core pillars like KRW stablecoins unsettled.
For DeFi and fintech builders, the practical takeaway is:
Treat Korea as a strategic but regulation‑sensitive market.
Design products with regulatory optionality: stablecoin‑agnostic integrations, flexible compliance modules, and the ability to pivot between onshore and offshore liquidity.
Monitor developments around the 51% bank rule, Travel Rule thresholds, and KRX’s final Bitcoin ETF and crypto ETF listing standards.
Once the policy logjam breaks, South Korea has the ingredients to become one of the most important regulated markets for Bitcoin ETFs, stablecoins, and institutional crypto adoption in Asia. The question is less if than how fast—and under whose rules.
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