Political Pressure Builds as Korea Delays Crypto Rules

• Digital asset law delayed as stablecoin rules spark disputes between regulators and central bank.
• The proposed bill adds strict liability, full reserve backing, and allows domestic token sales.
• Upbit–Bithumb controversy fuels political pressure amid ongoing crypto regulation talks.

South Korea’s digital asset regulatory agenda is entering a period of uncertainty, as the government’s proposed Basic Digital Asset Act faces delays due to unresolved disagreements over stablecoin oversight and broader market rules. At the same time, political controversy involving allegations of preferential treatment within the country’s crypto exchange sector is intensifying scrutiny of both regulators and lawmakers.

According to the financial sector and the National Assembly, the government is still reviewing the Phase 2 Virtual Asset Bill, formally known as the Basic Digital Asset Act, under the supervision of the Financial Services Commission. The draft legislation is expected to introduce investor protection measures, including strict liability for damages imposed on digital asset operators and safeguards designed to insulate stablecoin users from issuer bankruptcy.

The bill outlines requirements for stablecoin issuers to fully back issued tokens with reserve assets such as deposits or government bonds. Under the proposal, at least 100% of issued balances would need to be deposited with or entrusted to banks or other designated custodians. Additional provisions may align disclosure obligations, advertising rules, and contract standards for digital asset firms with those applied in traditional finance, following principles in the Electronic Financial Transactions Act.

The legislation may also permit domestic digital asset sales if sufficient disclosures are provided, possibly addressing practices that emerged after South Korea’s 2017 administrative ban on domestic initial coin offerings.

Despite broad agreement on the framework, submission of the bill has been pushed into next year. A central point of contention is the authority for stablecoin issuance. The Bank of Korea has argued that only consortia with majority bank ownership should be permitted to issue stablecoins, citing concerns over stability and compliance. 

In contrast, the Financial Services Commission has reportedly opposed setting rigid ownership thresholds, emphasizing flexibility to support technological participation. Differences also persist over whether a separate consensus body is required to approve stablecoin issuance and over minimum capital requirements, which have been discussed in ranges from 500 million to 25 billion won.

Political Controversy Raises Governance Questions

As regulatory discussions continue, political attention has turned to allegations involving Kim Byung-ki, floor leader of the ruling Democratic Party. Former aides allege that Kim directed lawmakers to criticize the crypto exchange Upbit and its operator, Dunamu, while his son later secured an internship at the rival exchange, Bithumb.

The claims, reported by local media, center on instructions allegedly given during Kim’s tenure on the National Assembly’s Political Affairs Committee. Kim has denied targeting any specific company and rejected suggestions of impropriety, while Bithumb stated its hiring processes were conducted transparently.

The controversy has prompted calls for Kim’s resignation from both the opposition People Power Party and several smaller parties, adding political pressure as South Korea works to finalize its next phase of digital asset regulation.

Related: South Korea Advances Digital Asset Basic Act With Bank-Led Stablecoin Issuer Requirement