Original title: Why Seoul is betting its economic future on digital assets
Original author: Thejaswini M A, Token Dispatch
Original translation: Peter, Techub News
On that bizarre night in December 2024, former President Yun Suk-yeol announced the implementation of martial law, sent troops into the National Assembly, and even attempted to use force against North Korea. He probably never imagined that this political suicide farce would give rise to one of the most radical cryptocurrency policy agendas in the world.
And that's exactly the case.
This two-hour attempted coup ended in impeachment, creating a power vacuum. Filling that void was Lee Jae-myung, the former governor of the province, known as the 'disruptor'. With a unified government team and a clear mandate, the Lee Jae-myung government launched the (Digital Asset Basic Act) within days of taking office and began abolishing the eight-year ban on corporate cryptocurrency policies.
Before diving in, one thing needs to be clarified about South Korea: it is a technologically advanced economy with widespread public awareness of cryptocurrency, and it also faces structural economic challenges that traditional monetary policies cannot solve. Cryptocurrency provides both a solution to alleviate current economic pressures and a foundation for building long-term competitive advantages.
Currently, the number of people in South Korea holding cryptocurrency accounts has reached 16 million, surpassing the country's 14.1 million stock investors. This is the first time in South Korean 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, and among adults under the age of 60, that proportion is more than half. 20% of government officials disclosed cryptocurrency holdings totaling approximately $9.8 million. According to a report by the Hana Institute of Finance, 27% of South Koreans aged 20 to 50 hold cryptocurrencies, and digital assets account for 14% of their financial asset portfolios.
This is the result of years of rising cryptocurrency adoption, driven by economic pressures, public familiarity with technology, and a political system that ultimately chose to embrace rather than resist the change.
Data source: @yna
Economic foundation
South Korea's embrace of cryptocurrency stems from real economic pressures that traditional policy tools are unable to address. The country's 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 level for the same period since 2021.
South Korea's national debt-to-GDP ratio is approaching 47%-48%, an increase since the pandemic, and has now stabilized. As of the end of 2024, South Korea's household debt-to-GDP ratio reached 90%-94%, ranking among the highest in the world and the highest among major developed economies and Asian countries. This contrasts sharply with other major economies, where government debt often exceeds household debt. The United States has a household debt ratio of 69.2% and a government debt ratio of 128%; Japan has a government debt ratio of 248% and a household debt ratio of only 65.1%. This inverted debt structure in South Korea creates unique economic pressures: policy decisions are driven more by personal financial pressures than by sovereign financial concerns.
When interest rates rise and economic growth stagnates, this debt burden drags down consumer spending, and monetary policy alone cannot solve the problem.
For millions of young South Koreans, cryptocurrency, as researcher Eli Ilha Yune puts it, represents a kind of 'financial desperation'. This is not out of ideological support for blockchain technology, but a realistic response to an economy with few other avenues for wealth creation. Returns on traditional investments such as stocks are meager, real estate is unaffordable, and the long-term sustainability of the national pension system is questionable.
This context explains why cryptocurrency adoption in South Korea differs from 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 policies are a response to the widespread adoption of cryptocurrency.
The Lee Jae-myung government has formulated a cryptocurrency agenda to prevent South Korean wealth from flowing overseas through dollar-denominated digital assets. Currently, South Korean investors primarily choose USDT or USDC when purchasing stablecoins, which effectively amounts to transferring capital to the US-controlled financial infrastructure.
In the first quarter of 2025, South Korean cryptocurrency exchanges transferred approximately 56.8 trillion won (approximately $40.6 billion) in digital assets overseas, of which stablecoins accounted for 26.87 trillion won (approximately $19.1 billion), nearly 47.3% of all outflowing digital assets.
Interestingly, this capital outflow occurred when the Korean won was actually strengthening against the US dollar. In 2025, the Korean won has appreciated by approximately 6.5% against the US dollar, and as of July, the exchange rate has remained in the range of 1393-1396 Korean won per US dollar. This suggests that South Korean investors' preference for US dollar stablecoins is not due to the weakening of the local currency, but rather to the lack of Korean won-denominated alternatives and the dominance of the US dollar-dominated cryptocurrency infrastructure globally.
The (Digital Asset Basic Act) builds a regulatory framework for South Korean companies to issue stablecoins pegged to the Korean won. Its capital requirements are: 500 million won (approximately $370,000) to enter the stablecoin market. This low threshold aims to encourage domestic competition while maintaining basic standards.
Can this Korean won stablecoin strategy really stop capital outflows? If Koreans want to hold dollar assets, they can still convert won to USDC. Therefore, the real purpose of this strategy is to reduce the demand for foreign stablecoins by providing similar advantages (programmability, decentralized finance access, 24/7 trading) without the need for currency conversion. More importantly, it keeps the financial infrastructure domestic, with fees, custody services, etc., flowing to Korean institutions rather than Circle or Tether. This is behavioral guidance, not capital control, making won-denominated options more convenient while placing financial operations under Korean regulation.
The eight major banks in South Korea have begun collaborating to develop stablecoins pegged to the Korean won, with the goal of launching them in late 2025 or early 2026. The consortium 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 build financial infrastructure that keeps Korean economic activity within the local system.
This stablecoin strategy reflects a broad concern about the dominance of the US dollar in the digital finance space. Currently, 99% of stablecoins worldwide are pegged to the US dollar, giving US financial institutions and regulators an outsized influence in digital asset infrastructure.
The Bank of Korea has expressed concerns about privately issued stablecoins, warning that such currencies could 'severely undermine the effectiveness of monetary policy and pose systemic risks.' This disagreement led to the suspension of South Korea's central bank digital currency (CBDC) project in June 2025, as officials questioned whether it was necessary to launch a state-run CBDC when private alternatives could perform similar functions more efficiently.
Institutional transformation
In 2017, due to concerns about speculation and money laundering, South Korea implemented restrictions prohibiting companies, institutions, and financial firms from opening cryptocurrency exchange accounts. Only individuals could use verified, real-name accounts for cryptocurrency transactions. Institutional and corporate accounts were banned, and banks faced strict compliance obligations. The current government has initiated a phased lifting of these restrictions.
In the initial phase (mid-2025), non-profit organizations and some public institutions are now allowed to monetize cryptocurrencies obtained through donations or seizures, provided they meet strict compliance requirements, such as using verified real-name Korean won exchange accounts and establishing internal audit committees.
By the end of 2025, the government will expand the eligibility to use cryptocurrency exchange accounts to approximately 3,500 listed companies and professional institutional investors through pilot projects. These accounts must be real-name verified and comply with strict anti-money laundering (AML) and KYC protocols. Financial authorities have announced that listed companies will eventually be allowed to participate directly in cryptocurrency trading, which will drive large-scale corporate adoption.
Major domestic exchanges have launched or upgraded 'institutional-grade' products, custody solutions, and support services to address the potential increase in 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, which may give them a competitive advantage when regulatory doors open further.
Political endorsement
Lee Jae-myung's cryptocurrency agenda has gained broad political support, not limited to his Democratic Party. In recent campaigns, both major parties have pledged to legalize cryptocurrency ETFs, a rare moment of 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 the fact that cryptocurrency has become an important voter issue. With over 16 million cryptocurrency holders in South Korea, accounting for about one-third of the total population, digital asset policy has transformed from a niche technology policy into a mainstream political issue.
The government is also taking broader measures to support cryptocurrency businesses. The Ministry of SMEs and Startups announced plans to lift restrictions preventing cryptocurrency companies from obtaining venture company status, allowing them to enjoy significant tax benefits, including a 50% reduction in corporate income tax and a 75% reduction in real estate acquisition tax for five years.
South Korean investors reacted enthusiastically to these policy developments. Bank stocks rose sharply after stablecoin trademark applications were filed. Kakao Bank's stock price rose 19.3% the day after it filed cryptocurrency-related trademark applications, and KB Financial Group's stock price rose 13.38% after a similar application.
More notably, in June 2025, South Korean retail investors poured nearly $450 million into Circle Group stock, making it the most sought-after overseas stock of the month. Since its listing in June, Circle's stock price has risen by over 500% as South Korean investors see it as a bellwether for global stablecoin adoption.
This investment pattern reflects a deep understanding of how South Korea's stablecoin policies are driving demand for global stablecoin infrastructure. South Korean investors are positioning themselves for South Korea's potential influence on the global digital asset market.
Lee Jae-myung's cryptocurrency strategy faces enormous external pressures. US President Donald Trump has 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 a recession, at which point no matter how well-designed the regulations, the funds available for cryptocurrency investment will be limited.
The urgency of the situation creates a race between policy implementation and economic deterioration. South Korean authorities are rushing to build cryptocurrency infrastructure in case potential trade conflicts make the economic environment too difficult, hindering new investment initiatives.
Domestically, central bank opposition to private stablecoins may trigger ongoing regulatory tensions. Bank of Korea officials prefer to place stablecoin issuance under banking supervision rather than allowing tech companies into the monetary infrastructure.
Tax policies have also yet to be finalized. Plans to impose a 20% capital gains tax on cryptocurrency earnings exceeding 2.5 million won per year have been postponed multiple times, but are still planned for implementation. How this tax interacts with the new corporate cryptocurrency access rules will affect institutional adoption patterns.
The global impact of South Korea's cryptocurrency policies is being closely watched by the international community and may serve as a model for other countries facing similar economic pressures and technology adoption patterns. The combination of regulatory clarity, institutional access, and local stablecoin infrastructure constitutes a comprehensive approach to digital asset integration.
If successful, the South Korean model could influence policy-making in other Asian economies and provide a template for countries seeking to embrace digital asset innovation while maintaining monetary sovereignty.
