Original title: Why Seoul is betting its economic future on digital assets Original author: Thejaswini M A, Token Dispatch
Original translation by: Saoirse, Foresight News
On that strange night in December 2024, former President Yoon Suk-yeol announced military control, deploying troops to the National Assembly, and even attempted to take military action against North Korea. He likely never imagined that this political suicide of a farce would give rise to one of the most radical cryptocurrency policy agendas globally.
And that is indeed the case.
This two-hour-long failed coup ended with impeachment, creating a power vacuum. Filling this void is Lee Jae-myung, known as the 'disruptor.' With a unified government team and clear governing authority, the Lee administration launched the Digital Asset Basic Act within days of taking office and began to abolish an eight-year-long corporate cryptocurrency restriction policy.
Before delving deeper, it's important to clarify one point about South Korea: it is a technologically advanced economy with widespread public awareness of cryptocurrencies while also facing structural economic challenges that traditional monetary policy struggles to address. Cryptocurrencies provide solutions to current economic pressures and lay the foundation for building long-term competitive advantages.
Currently, the number of people in South Korea holding cryptocurrency accounts has reached 16 million, surpassing the 14.1 million stock investors in the country. This marks the first time in South Korea's history that retail participation in digital assets has exceeded that of traditional stocks.
Nearly one-third of South Korea's population participates in cryptocurrency trading, with more than half of adults under 60 engaged in it. The total cryptocurrency holdings disclosed by 20% of government officials amount to about 9.8 million dollars. According to a report by the Hana Financial Research Institute, 27% of South Koreans aged 20 to 50 own cryptocurrencies, and digital assets constitute 14% of their financial asset portfolios.
This is the result of years of increasing cryptocurrency applications, driven by economic pressure, public familiarity with technology, and the political system ultimately choosing to adapt rather than resist this change.
Data source: @yna
Economic Foundation
South Korea's acceptance of cryptocurrencies stems from real economic pressures that traditional policy tools cannot resolve. The GDP growth forecast for 2025 is only 0.8%, a figure typically seen only during major financial crises. In March 2025, the youth unemployment rate rose to 7.5%, the highest for the same period since 2021.
South Korea's national debt-to-GDP ratio is approaching 47% - 48%, having risen since the pandemic and is now stabilizing. By the end of 2024, South Korea's household debt-to-GDP ratio will reach 90%-94%, ranking among the highest globally, and the highest among major developed economies and Asian countries. This sharply contrasts with other major economies, where government debt often exceeds household debt. In the U.S., household debt accounts for 69.2%, while government debt accounts for 128%; Japan’s government debt ratio is as high as 248%, while household debt is only 65.1%. South Korea's inverted debt structure brings unique economic pressure: policy decisions are driven more by personal financial stress rather than sovereign fiscal concerns.
When interest rates rise and economic growth stagnates, this debt burden can weigh down consumer spending, and monetary policy alone cannot solve this issue.
For millions of young South Koreans, cryptocurrency represents, as researcher Eli Ilha Yune puts it, a 'financial desperation.' This is not due to ideological support for blockchain technology but rather a realistic response to an economy with almost no other means of wealth creation. Traditional investment returns from stocks are meager, real estate is unaffordable, and the long-term sustainability of the national pension system is in question.
This context explains why South Korea's cryptocurrency applications differ from those in other markets. Western investors often view cryptocurrency as a means of portfolio diversification or speculation on technology, while South Korean investors see it as essential financial infrastructure. The government's cryptocurrency policy is a reactive measure to the widespread adoption of cryptocurrency.
The Lee Jae-myung government has formulated a cryptocurrency agenda aimed at preventing South Korean wealth from flowing overseas through dollar-denominated digital assets. Currently, when South Korean investors purchase stablecoins, they primarily choose USDT or USDC, which effectively channels capital into U.S.-controlled financial infrastructure.
In the first quarter of 2025, approximately 56.8 trillion won (about 40.6 billion dollars) in digital assets were transferred overseas from South Korean cryptocurrency exchanges, with stablecoins accounting for 26.87 trillion won (about 19.1 billion dollars), nearly 47.3% of all outflowing digital assets.
Interestingly, during this capital outflow, the won is actually strengthening against the dollar. By 2025, the won has appreciated about 6.5% against the dollar, and as of July, the exchange rate has remained in the 1393-1396 won to 1 dollar range. This indicates that South Korean investors' preference for dollar stablecoins is not due to a weakening local currency, but rather a lack of alternative options priced in won and the dominant position of dollar-based cryptocurrency infrastructure globally.
(The Digital Asset Basic Act) establishes a regulatory framework for South Korean companies to issue stablecoins pegged to the won. The capital requirement is set at 500 million won (about 370,000 USD) to enter the stablecoin market. This lower threshold aims to encourage domestic competition while maintaining basic standards.
Can this won-pegged stablecoin strategy really prevent capital outflow? If South Koreans wish to hold dollar assets, they can still exchange won for USDC. Therefore, the true aim of this strategy is to reduce the demand for foreign stablecoins by providing similar advantages (programmability, access to decentralized finance, 24/7 trading) without the need for currency exchange. More importantly, it allows financial infrastructure to remain domestic, directing fees, custody services, and more to South Korean institutions rather than to Circle or Tether. This is a behavior guide, not capital control, making won-denominated options more convenient while placing financial operations under Korean regulation.
South Korea's eight major banks are collaborating to develop a stablecoin pegged to the won, aiming for a launch by the end of 2025 or early 2026. This alliance includes KB Kookmin Bank, Shinhan Bank, Woori Bank, Nonghyup Bank, Korea Development Bank, Suhyup Bank, K Bank, and IM Bank. Their goal is not only to compete with USDT and USDC but also to create financial infrastructure that keeps economic activities within the domestic system.
This stablecoin strategy reflects widespread concerns about the dollar's dominance in the digital finance sector. Currently, 99% of stablecoins globally are pegged to the dollar, which gives U.S. financial institutions and regulators excessive influence in the digital asset infrastructure.
The Bank of Korea has expressed concerns about privately issued stablecoins, warning that such currencies may 'severely undermine the effectiveness of monetary policy and pose systemic risks.' This disagreement led to the suspension of the central bank digital currency (CBDC) project in June 2025, as officials questioned the necessity of launching a state-operated CBDC when private alternatives might perform similar functions more efficiently.
Institutional Transformation
In 2017, due to concerns about speculation and money laundering, South Korea implemented restrictions that prohibited businesses, institutions, and financial companies from opening cryptocurrency exchange accounts. Only individuals can trade cryptocurrencies using verified real-name accounts. Institutional and corporate accounts are banned, and banks face strict compliance obligations. The current government has initiated a phased process to lift these restrictions.
In the initial stage (mid-2025), non-profit organizations and some public institutions have been allowed to monetize cryptocurrencies obtained through donations or seizures, provided they meet strict compliance requirements, such as using verified real-name won trading accounts and establishing internal audit committees.
By the end of 2025, the government will extend the eligibility for cryptocurrency exchange accounts to about 3,500 listed companies and professional institutional investors through pilot projects. These accounts must undergo real-name verification and comply with strict anti-money laundering (AML) and KYC protocols. Financial authorities have announced that listed companies will ultimately be allowed to participate directly in cryptocurrency trading, paving the way for large-scale corporate adoption.
Major domestic exchanges have launched or upgraded 'institutional-grade' products, custody solutions, and support services to meet the growing demand from large corporations and professional investors.
Currently, traditional financial institutions such as banks, asset management companies, and brokers are still excluded from direct cryptocurrency trading. This setup ensures that the first wave of institutional cryptocurrency activity in South Korea will be led by non-financial companies, potentially giving them a competitive advantage when regulatory doors open further.
Political Recognition
Lee Jae-myung's cryptocurrency agenda has garnered broad political support, not limited to his Democratic Party. In recent campaigns, both major parties pledged to legalize cryptocurrency ETFs, marking a rare bipartisan consensus in South Korean politics. The Financial Services Commission, which previously opposed discussions on cryptocurrency ETFs, has now submitted a roadmap to approve spot Bitcoin ETFs and spot Ethereum ETFs by the end of 2025.
This political shift reflects that cryptocurrency has become an important voter issue. Over 16 million cryptocurrency holders in South Korea account for about one-third of the total population, and digital asset policy has transformed from a niche technical policy into a mainstream political issue.
The government has also taken broader measures to support cryptocurrency businesses. The Ministry of SMEs and Startups announced plans to lift restrictions that previously prevented cryptocurrency companies from obtaining venture business qualifications, allowing them to enjoy significant tax incentives, including a 50% reduction in corporate income tax for five years and a 75% reduction in real estate acquisition tax.
South Korean investors have reacted enthusiastically to these policy developments. After the stablecoin trademark application was submitted, bank stocks surged. Kakao Bank's stock price rose 19.3% the day after submitting its cryptocurrency-related trademark application, while KB Financial Group's stock price increased by 13.38% following a similar application.
Notably, in June 2025, South Korean retail investors invested nearly $450 million in Circle Group stock, making it the most sought-after overseas stock that month. Since its IPO in June, Circle's stock price has surged over 500%, as South Korean investors view it as a bellwether for global stablecoin applications.
This investment model reflects investors' deep understanding of how South Korea's stablecoin policy drives global stablecoin infrastructure demand. South Korean investors are positioning themselves for South Korea's potential influence in the global digital asset market.
Lee Jae-myung's cryptocurrency strategy faces immense external pressure. U.S. President Donald Trump threatened to impose reciprocal tariffs of up to 50%, which could severely impact South Korea's export-dependent economy. With exports accounting for 40% of GDP, trade disruptions could trigger an economic recession, limiting available funds for cryptocurrency investment regardless of regulatory improvements.
The urgency of time has created a race between policy implementation and economic deterioration. South Korean authorities are eager to establish cryptocurrency infrastructure to prevent potential trade conflicts from making the economic environment too difficult, hindering new investment initiatives.
Domestically, the central bank's opposition to private stablecoins may lead to ongoing regulatory tensions. Bank officials in South Korea prefer to place stablecoin issuance under banking regulation rather than allow tech companies into the monetary infrastructure sector.
Tax policies are also yet to be determined. The plan to impose a 20% capital gains tax on cryptocurrency gains exceeding 2.5 million won has been delayed multiple times but is still set to be implemented. How this tax interacts with the new corporate cryptocurrency entry rules will influence institutional adoption patterns.
The global impact of South Korea's cryptocurrency policy is under close scrutiny by the international community, and it may serve as a reference model for other countries facing similar economic pressures and technological application patterns. The combination of regulatory clarity, institutional access, and local stablecoin infrastructure constitutes a comprehensive plan for digital asset integration.
If successful, the South Korean model could influence policy-making in other Asian economies and provide a template for countries wishing to embrace digital asset innovation while maintaining monetary sovereignty.
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