Original Article Title: Why Seoul is betting its economic future on digital assets
Original Article Author: Thejaswini M A, Token Dispatch

Original Article Translation: Saoirse, Foresight News

On that fateful night in December 2024, former President Yun Suk-yeol declared martial law, sent troops to occupy the National Assembly, and even attempted military action against North Korea. Little did he know that this political suicide act would give rise to one of the world's most radical cryptocurrency policy agendas.

And that is exactly what happened.

This two-hour failed coup ended in impeachment, creating a power vacuum. Stepping into this void was the former Governor Lee Jae-myung, known as the "disruptor." With a unified government team and a clear mandate, the Lee Jae-myung administration, within days of taking office, introduced the Digital Asset Basic Act and began to repeal the eight-year-old corporate cryptocurrency restriction policy.

Before diving deeper, it is important to note a few things about the situation in South Korea: South Korea is a technologically advanced economy where the public has widespread awareness of cryptocurrency. It also faces structural economic challenges that traditional monetary policies have struggled to address. Cryptocurrency has provided both a short-term solution to current economic pressures and a foundation for long-term competitive advantage.

Currently, the number of cryptocurrency account holders in South Korea has reached 16 million, surpassing the country's 14.1 million stock investors. This is the first time in Korean history that retail participation in digital assets has exceeded traditional stocks.

One-third of South Korea's population is now involved in cryptocurrency trading, with a majority of adults under 60 participating. Government officials have disclosed cryptocurrency holdings totaling around $9.8 million. According to a report by the Korea Financial Investment Association, 27% of the Korean population aged 20 to 50 holds cryptocurrency, and digital assets make up 14% of their financial portfolios.

This is the result of years of increasing cryptocurrency adoption, driven by factors such as economic pressures, public familiarity with technology, and a political system that has ultimately chosen to embrace rather than resist this change.

Data source: @yna

Economic Foundation

South Korea's adoption of cryptocurrency stems from real economic pressures that traditional policy tools have been unable to address. The country's GDP growth expectation for 2025 is only 0.8%, a figure usually seen only during major financial crises. In March 2025, youth unemployment reached 7.5%, the highest for the same period since 2021.

South Korea's national debt-to-GDP ratio is currently approaching 47% - 48%, with a slight increase post-pandemic but now stabilizing. By the end of 2024, South Korea's household debt-to-GDP ratio stood at 90%-94%, ranking among the highest globally, leading both major developed economies and Asian countries. This is in stark contrast to other major economies where government debt often surpasses household debt. In the U.S., household debt accounts for 69.2%, while government debt is at 128%; Japan's government debt ratio is as high as 248%, while household debt ratio is only 65.1%. South Korea's inverted debt structure brings unique economic pressures: policy decisions are more driven by personal financial pressures rather than sovereign fiscal concerns.

As interest rates rise and economic growth stalls, this debt burden weighs on consumer spending, a problem that cannot be solved by monetary policy alone.

For millions of young Koreans, cryptocurrency represents, as researcher Eli Ilha Yune puts it, a "financial desperation." This is not out of ideological support for blockchain technology but a practical response to an economy with few other avenues for wealth creation. Traditional investments like stocks offer meager returns, real estate is unaffordable, and the long-term sustainability of the national pension system is in doubt.

This background explains why cryptocurrency adoption in Korea differs from other markets. While Western investors often see cryptocurrency as a means of portfolio diversification or speculate on technology, Korean investors view it as essential financial infrastructure. The government's cryptocurrency policy is a response to the widespread adoption of cryptocurrency.

The Lee Jae-myung government has set a cryptocurrency agenda to prevent Korean wealth from flowing offshore through USD-denominated digital assets. Currently, when Korean investors purchase stablecoins, they mainly choose USDT or USDC, effectively transferring capital into U.S.-controlled financial infrastructure.

In the first quarter of 2025, the digital assets transferred overseas by Korean cryptocurrency exchanges amounted to approximately 568 trillion Korean won (about $406 billion), with stablecoins accounting for 268.7 trillion Korean won (about $191 billion), nearly 47.3% of all outbound digital assets.

Interestingly, this capital outflow occurred while the Korean won was actually strengthening against the US dollar. By 2025, the Korean won had appreciated by about 6.5% against the US dollar, and as of July, the exchange rate remained in the 1393-1396 Korean won per 1 US dollar range. This indicates that Korean investors' preference for the US dollar stablecoin was not due to a weakening of the domestic currency, but rather because of the lack of a Korean won-denominated alternative and the US dollar-dominated global cryptocurrency infrastructure.

The "Digital Assets Basic Act" established a regulatory framework for Korean companies to issue Korean won-backed stablecoins. The capital requirement is as follows: 500 million Korean won (approximately $370,000) is sufficient to enter the stablecoin market. This relatively low threshold is designed to encourage domestic competition while maintaining basic standards.

Can this Korean won stablecoin strategy really prevent capital outflow? If Koreans want to hold US dollar assets, they can still convert Korean won to USDC. Therefore, the true 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 exchange. More importantly, it keeps the financial infrastructure within the country, with transaction fees, custody services, etc., flowing to Korean institutions rather than Circle or Tether. This is a form of behavioral guidance rather than capital controls, making Korean won-denominated options more convenient while placing financial operations under Korean regulation.

The eight major banks in Korea have begun to collaborate on developing Korean won-backed stablecoins, with the goal of launching by late 2025 or early 2026. This alliance includes KB Kookmin Bank, Shinhan Bank, Woori Bank, NongHyup Bank, Industrial Bank of Korea, Suhyup Bank, K Bank, and IM Bank. Their aim is not only to compete with USDT and USDC but also to create a financial infrastructure that keeps Korean economic activities within the domestic system.

This stablecoin strategy reflects widespread concerns about the US dollar's dominance in the digital finance sector. Currently, 99% of stablecoins globally are pegged to the US dollar, giving US financial institutions and regulators excessive influence in the digital asset infrastructure.

Korean banks have expressed concerns about privately issued stablecoins, warning that such currencies could "seriously undermine the effectiveness of monetary policy and pose systemic risks." This divergence led to the suspension of the Korean central bank's Central Bank Digital Currency (CBDC) project in June 2025, as officials questioned whether it was still necessary to launch a nationally operated CBDC when private alternatives could potentially fulfill similar functions more efficiently.

Institutional Transformation

In 2017, out of concern for speculation and money laundering activities, Korea implemented restrictive measures, prohibiting corporations, institutions, and financial companies from opening cryptocurrency exchange accounts. Only individuals were allowed to 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 process to lift these restrictions.

Initiation Stage (Mid-2025): Non-profit organizations and some public institutions have now been authorized to liquidate cryptocurrency obtained through donation or pledging, provided they meet strict compliance requirements, such as using a verified Korean won real-name exchange account and establishing an internal audit committee.

By the end of 2025, the government will expand the eligibility to use cryptocurrency exchange accounts to approximately 3,500 listed companies and institutional investors through pilot projects. These accounts must undergo real-name verification and adhere to strict Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols. Financial authorities have announced that listed companies will ultimately be allowed to directly engage in cryptocurrency transactions, which will drive enterprise-level mass adoption.

Major domestic exchanges have launched or upgraded "institutional-grade" products, custody solutions, and support services to cater to the potential growth of 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 South Korean institutional cryptocurrency activity will be led by non-financial businesses, potentially giving them a competitive edge as the regulatory gates open further.

Political Validation

Lee Jaemyung's cryptocurrency agenda has received broad political support, not limited to his ruling Democratic Party. In recent election campaigns, both major political parties have pledged to legalize cryptocurrency ETFs, marking a rare bipartisan consensus moment in South Korean politics. The Financial Services Commission, which previously opposed discussions on cryptocurrency ETFs, has now laid out a roadmap to approve spot Bitcoin ETFs and spot Ethereum ETFs by the end of 2025.

This political shift reflects how cryptocurrency has become a significant voter issue. With over 16 million cryptocurrency holders in South Korea, accounting for about one-third of the population, digital asset policies have transformed from a niche technical policy to a mainstream political agenda.

The government has also taken broader steps to support cryptocurrency enterprises. The Ministry of SMEs and Startups announced plans to remove restrictions that previously hindered cryptocurrency companies from obtaining venture business status, enabling them to enjoy significant tax benefits, including a 50% reduction in corporate income tax for five years and a 75% reduction in real estate acquisition tax.

Korean investors have responded enthusiastically to these policy developments. Following trademark applications for stablecoins, bank stocks surged. Kakao Bank saw a 19.3% increase in stock price the day after submitting cryptocurrency-related trademark applications, while KB Financial Group's stock price rose by 13.38% after a similar application.

More notably, in June 2025, Korean retail investors poured nearly $450 million into Circle Group stocks, 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 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 is driving global stablecoin infrastructure demand. South Korean investors are positioning themselves for South Korea's potential influence on the global digital asset market.

Lee Jae-myung's cryptocurrency strategy is facing significant external pressures. U.S. President Donald Trump has threatened to impose tariffs of up to 50%, which could severely impact South Korea's export-reliant economy. With exports accounting for 40% of GDP, trade disruptions could lead to an economic downturn, limiting funds available for cryptocurrency investment regardless of regulatory improvements.

The urgency of the situation has turned policy implementation into a race against economic deterioration. South Korean authorities are eager to establish cryptocurrency infrastructure to mitigate the potential economic hardship in the event of a trade conflict that hampers new investment initiatives.

Domestically, the central bank's opposition to private stablecoins could lead to sustained regulatory tensions. South Korean banking officials are more inclined to place stablecoin issuance under banking sector regulation rather than allowing tech companies into the currency infrastructure space.

Tax policies are also undecided. The policy to levy a 20% capital gains tax on cryptocurrency profits exceeding 2.5 million Korean won annually has been repeatedly postponed but is still planned for implementation. How this tax policy interacts with new corporate cryptocurrency admission rules will impact institutional adoption patterns.

The global impact of South Korea's cryptocurrency policy is closely watched by the international community, serving as a potential model for other countries facing similar economic pressures and technological adoption patterns. Regulatory clarity, institutional access, and the integration of local stablecoin infrastructure constitute a comprehensive solution for digital asset integration.

If successful, the South Korean model could influence the policy-making of other Asian economies and provide a template for countries that seek to embrace digital asset innovation while maintaining monetary sovereignty.

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