Seoul Stalemate Stalls Institutional Crypto Integration

The second phase of the Virtual Asset User Protection Act, which governs market entry and asset issuance, has seen its submission to the National Assembly postponed from its original Jan 2026 target, according to ChosunBiz.

Regulatory friction over won stablecoins

The primary hurdle remains a jurisdictional dispute between the Bank of Korea (BOK) and the Financial Services Commission (FSC). BOK Governor Rhee Chang-yong has maintained that won-pegged stablecoins must be issued only by consortia where traditional banks hold at least a 51% controlling stake to preserve monetary stability.

While the FSC initially sought a more flexible framework to encourage fintech innovation, the regulator shifted its stance on 8 Jan to support the BOK’s restrictive proposal. This pivot comes despite President Lee Jae-myung’s administration initially signaling a more crypto-friendly era for South Korea following his 2025 election victory. The current deadlock has drawn sharp criticism from the digital asset industry, which argues that a mandatory bank-majority structure effectively sidelines native firms.

Forced divestment and ownership caps

A new flashpoint has emerged regarding a proposed 15% to 20% cap on major shareholder stakes in cryptocurrency exchanges. The FSC intends to tighten governance by capping ownership to align digital asset platforms with the Alternative Trading System (ATS) model used in traditional securities markets.

If enacted, the review of these ownership caps could force a massive restructuring of the country’s dominant exchanges:

• Upbit: Chairman Song Chi-hyung, who holds roughly 25.5% of parent company Dunamu, could be forced to divest a 10% stake valued at over ₩1.3 trillion ($1bn).
• Bithumb and Coinone: Both exchanges feature concentrated ownership structures that would require significant equity offloading to meet a 15% threshold.

The Digital Asset Exchange Alliance (DAXA) has lobbied against the measure, stating it infringes on private property rights. However, regulators argue that dispersing ownership is necessary to prevent conflicts of interest in token listings.

Institutional capital in waiting

The legislative delay directly impacts 3,500 South Korean listed companies currently prohibited from trading virtual assets. The FSC has drafted guidelines that would reverse a 2017 ban, permitting corporations to allocate up to 5% of their net assets to the top 20 cryptocurrencies by market capitalization.

While offshore jurisdictions like Hong Kong and Singapore have already established institutional frameworks, South Korea’s corporate pilot remains on hold, and without a clear Phase 2 framework, its projects are increasingly migrating to Singapore for token issuance, accelerating capital flight from Asia Pacific’s fourth-largest economy.