South Korea Opens Door to ETFs and Stablecoins

South Korea and the Cryptocurrency Market

South Korea has long been a cryptocurrency hub with high participation from retail investors. According to a report from the Bank of Korea, stablecoin trading in the first quarter of 2025 reached 57 trillion won (about $42 billion) across five major exchanges including Upbit and Bithumb. About 18 million people, or more than a third of South Korea's population, are involved in the cryptocurrency market. However, the collapse of the Terra blockchain and algorithmic stablecoin TerraUSD in 2022 left a costly lesson, making regulators more cautious in building a legal framework.

The announcement by the Financial Services Commission (FSC) of a roadmap to legalize cryptocurrency ETFs and won-pegged stablecoins by June 2025 is a strategic move to balance financial innovation and investor protection.

Cryptocurrency ETFs - Opportunities for Korean Investors

Spot cryptocurrency ETFs allow investors to trade digital assets like Bitcoin and Ethereum on traditional stock markets, providing transparency and accessibility. The legalization of ETFs is expected to:

• Pension funds and asset managers can enter the crypto market more safely, increasing liquidity and price stability.

• ETFs are traded on regulated stock exchanges, which helps mitigate the risks associated with decentralized cryptocurrency exchanges.

• ETFs will be the bridge that brings cryptocurrencies closer to traditional investors who are still hesitant about volatility and regulatory risks.

According to the FSC, the roadmap for supporting ETFs will be announced in the second half of 2025, with the aim of ensuring investor safety and minimizing systemic risks. This could create a new wave of investment, especially as "Kimchi Coins" (domestic altcoins such as MEVerse, fanC, BORA) have recorded a surge in trading volume on exchanges such as Bithumb. However, experts also warn that price increases based on rumors could lead to a sharp correction risk, similar to the previous case of Paycoin.

Stablecoin Neo Won

The new bill allows companies to issue won-pegged stablecoins with a minimum capital of 500 million won ($368,000), guaranteed backup reserves, and FSC approval. Domestic stablecoins are expected to:

• Won-pegged stablecoins could reduce the costs and time of international transactions, especially in e-commerce and remittances.

• A tightly regulated stablecoin could compete with USD stablecoins like USDT and USDC, reducing dependence on the US dollar.

Bank of Korea (BOK) Governor Lee Chang-yong has expressed concerns that won-pegged stablecoins could increase demand for USD stablecoins, weaken the role of the domestic financial system, and make it difficult to control exchange rates.

Issuing stablecoins requires high liquidity reserves (cash, short-term treasury bills) and monthly disclosure of reserve composition. However, the lesson from TerraUSD shows the risks of algorithmic or opaque stablecoins. South Korea needs to ensure that issuers strictly adhere to international standards to avoid a repeat of similar incidents.

Conclude

South Korea’s opening to cryptocurrency ETFs and won-backed stablecoins marks a turning point in its strategy for developing its digital asset market. It presents an opportunity to attract institutional capital, increase liquidity, and drive mass adoption of cryptocurrencies. However, the challenges of risk management, transparency, and macroeconomic impact require careful balancing by the FSC and BOK. With a clear roadmap and investor protections, South Korea has the potential to reshape the digital finance landscape, not only domestically but also across the region.

Disclaimer: The information presented in this article is the author's personal opinion on the cryptocurrency field. It is not intended to be financial or investment advice. Any investment decision should be based on careful consideration of your personal portfolio and risk tolerance. The views expressed in the article do not represent the official position of the platform. We recommend that readers conduct their own research and consult with a professional before making any investment decisions.

Compiled and analyzed by HCCVenture

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