The Bank of Korea (BoK) has urged traditional financial institutions to take the lead in developing and managing won-backed stablecoins, warning that private issuers lack the public trust and institutional safeguards to prevent depegging.
Bank of Korea Warns on Stablecoin Trust as Seoul Weighs Regulation
29 October 2025 - 17:54 CET
By Matt Neill
The warning appeared in a new BoK report that traces parallels between modern digital currencies and the free-banking era of the nineteenth century, when privately issued notes frequently failed.
The BoK said stablecoins' stability cannot rest on technology alone. It pointed to the collapse of the Terra ecosystem and Circle’s USDC, which briefly fell below 90 cents during the 2023 US banking turmoil, as examples of how confidence can evaporate in hours.
“When discussing won-denominated stablecoins that aspire to be a new currency, the first question should not be whether the technology is feasible but whether trust is possible,” the report said.
Banks urged to lead
While not opposing innovation, the central bank called for strong capital requirements, transparency rules, and compensation mechanisms to protect investors in the event of peg breaks.
The BoK said it believes that banks, with their established compliance systems and regulatory oversight, are best positioned to manage such risks and to build a foundation for stable digital money.
The report adds that stablecoin issuers must establish institutional mechanisms capable of making investors whole after losses. This, the BoK said, would ensure market integrity and prevent systemic shocks in a future digital-payment ecosystem.
Balancing caution and progress
The BoK’s stance aligns with a broader regulatory tightening across Seoul.
On 20 Oct, Financial Services Commission Chairman Lee Eok-won told the National Assembly that South Korea will prohibit interest payments on payment-type stablecoins and restrict fintech companies to technology partnerships under a proposed law due later this year.
The framework, he said, will follow the principles of the US GENIUS Act, barring exchanges from independently issuing stablecoins while promoting a bank-led alliance model for issuance and settlement.
Lee added that the next phase of Korea’s Virtual Asset Bill is in final coordination and will address cross-border stablecoin use cases in payments and remittances.
Korea’s banking and fintech sectors are already developing prototypes for won-pegged stablecoins, though most remain in pilot phases pending regulatory clarity.
